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    <VOL>69</VOL>
    <NO>96</NO>
    <DATE>Tuesday, May 18, 2004</DATE>
    <UNITNAME>Contents</UNITNAME>
    <CNTNTS>
        <AGCY>
            <EAR>Agriculture</EAR>
            <PRTPAGE P="iii"/>
            <HD>Agriculture Department</HD>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Cooperative State Research, Education, and Extension Service</P>
            </SEE>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Food and Nutrition Service</P>
            </SEE>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Food Safety and Inspection Service</P>
            </SEE>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Forest Service</P>
            </SEE>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Rural Business-Cooperative Service</P>
            </SEE>
            <CAT>
                <HD>RULES</HD>
                <SJ>Administrative practice and procedure:</SJ>
                <SJDENT>
                    <SJDOC>Indemnification of Department of Agriculture employees, </SJDOC>
                      
                    <PGS>28041-28042</PGS>
                      
                    <FRDOCBP T="18MYR1.sgm" D="2">04-11051</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Centers</EAR>
            <HD>Centers for Disease Control and Prevention</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Grants and cooperative agreements; availability, etc.:</SJ>
                <SJDENT>
                    <SJDOC>Childhood asthma prevalence and border risk factors, </SJDOC>
                    <PGS>28127-28128</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11195</FRDOCBP>
                </SJDENT>
                <SUBSJ>Human immunodeficiency virus (HIV)—</SUBSJ>
                <SSJDENT>
                    <SUBSJDOC>Atypical HIV strains among persons newly diagnosed with HIV; monitoring using dried blood spots vs. diagnostic sera, </SUBSJDOC>
                    <PGS>28128-28132</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="5">04-11192</FRDOCBP>
                </SSJDENT>
                <SJ>Meetings:</SJ>
                <SJDENT>
                    <SJDOC>Healthcare Infection Control Practices Advisory Committee, </SJDOC>
                    <PGS>28132-28133</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11194</FRDOCBP>
                </SJDENT>
                <SUBSJ>National Institute for Occupational Safety and Health—</SUBSJ>
                <SSJDENT>
                    <SUBSJDOC>Radiation and Worker Health Advisory Board, </SUBSJDOC>
                    <PGS>28133</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11193</FRDOCBP>
                </SSJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Centers</EAR>
            <HD>Centers for Medicare &amp; Medicaid Services</HD>
            <CAT>
                <HD>PROPOSED RULES</HD>
                <SJ>Medicare:</SJ>
                <SJDENT>
                    <SJDOC>Hospital inpatient prospective payment systems and 2005 FRY rates, </SJDOC>
                    <PGS>28195-28817</PGS>
                    <FRDOCBP T="18MYP2.sgm" D="623">04-10932</FRDOCBP>
                </SJDENT>
            </CAT>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Grants and cooperative agreements; availability, etc.:</SJ>
                <SUBSJ>Medicaid—</SUBSJ>
                <SSJDENT>
                    <SUBSJDOC>Real Choice Systems Change Grants, </SUBSJDOC>
                    <PGS>28133-28141</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="9">04-11241</FRDOCBP>
                </SSJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Commerce</EAR>
            <HD>Commerce Department</HD>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Economic Analysis Bureau</P>
            </SEE>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Industry and Security Bureau</P>
            </SEE>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> National Oceanic and Atmospheric Administration</P>
            </SEE>
        </AGCY>
        <AGCY>
            <EAR>Consumer</EAR>
            <HD>Consumer Product Safety Commission</HD>
            <CAT>
                <HD>NOTICES</HD>
                <DOCENT>
                    <DOC>Agency information collection activities; proposals, submissions, and approvals, </DOC>
                    <PGS>28123-28124</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11228</FRDOCBP>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11229</FRDOCBP>
                </DOCENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Cooperative</EAR>
            <HD>Cooperative State Research, Education, and Extension Service</HD>
            <CAT>
                <HD>NOTICES</HD>
                <DOCENT>
                    <DOC>Agency information collection activities; proposals, submissions, and approvals, </DOC>
                    <PGS>28108-28109</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11179</FRDOCBP>
                </DOCENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Defense</EAR>
            <HD>Defense Department</HD>
            <CAT>
                <HD>PROPOSED RULES</HD>
                <SJ>Federal Acquisition Regulation (FAR):</SJ>
                <SUBSJ>Buy America Act—</SUBSJ>
                <SSJDENT>
                    <SUBSJDOC>Nonavailable articles, </SUBSJDOC>
                    <PGS>28104-28105</PGS>
                    <FRDOCBP T="18MYP1.sgm" D="2">04-11209</FRDOCBP>
                </SSJDENT>
            </CAT>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Civilian health and medical program of uniformed services (CHAMPUS):</SJ>
                <SUBSJ>TRICARE program—</SUBSJ>
                <SSJDENT>
                    <SUBSJDOC>Alaska health care services delivery; demonstration project, </SUBSJDOC>
                    <PGS>28124-28125</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11205</FRDOCBP>
                </SSJDENT>
                <SJ>Meetings:</SJ>
                <SJDENT>
                    <SJDOC>Defense Science Board, </SJDOC>
                    <PGS>28125-28126</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11206</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Economic</EAR>
            <HD>Economic Analysis Bureau</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Confidential business information and data transfer:</SJ>
                <SJDENT>
                    <SJDOC>Benchmark Survey of Foreign Direct Investment in the United States—2002, et al., </SJDOC>
                    <PGS>28119-28120</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11170</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Education</EAR>
            <HD>Education Department</HD>
            <CAT>
                <HD>NOTICES</HD>
                <DOCENT>
                    <DOC>Agency information collection activities; proposals, submissions, and approvals, </DOC>
                    <PGS>28126</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11219</FRDOCBP>
                </DOCENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>EPA</EAR>
            <HD>Environmental Protection Agency</HD>
            <CAT>
                <HD>RULES</HD>
                <SJ>Air quality implementation plans; approval and promulgation; various States:</SJ>
                <SJDENT>
                    <SJDOC>California, </SJDOC>
                      
                    <PGS>28061-28062</PGS>
                      
                    <FRDOCBP T="18MYR1.sgm" D="2">04-11114</FRDOCBP>
                </SJDENT>
            </CAT>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Environmental statements; notice of intent:</SJ>
                <SUBSJ>National Pollutant Discharge Elimination System—</SUBSJ>
                <SSJDENT>
                    <SUBSJDOC>Concentrated animal feeding operations, </SUBSJDOC>
                    <PGS>28126-28127</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11225</FRDOCBP>
                </SSJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Executive</EAR>
            <HD>Executive Office of the President</HD>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Trade Representative, Office of United States</P>
            </SEE>
        </AGCY>
        <AGCY>
            <EAR>FAA</EAR>
            <HD>Federal Aviation Administration</HD>
            <CAT>
                <HD>RULES</HD>
                <SJ>Airworthiness directives:</SJ>
                <SJDENT>
                    <SJDOC>Airbus, </SJDOC>
                      
                    <PGS>28044-28046</PGS>
                      
                    <FRDOCBP T="18MYR1.sgm" D="3">04-10741</FRDOCBP>
                </SJDENT>
                <SJDENT>
                    <SJDOC>Boeing, </SJDOC>
                    <PGS>28046-28058</PGS>
                      
                    <FRDOCBP T="18MYR1.sgm" D="6">04-10906</FRDOCBP>
                    <FRDOCBP T="18MYR1.sgm" D="8">04-10907</FRDOCBP>
                </SJDENT>
                <DOCENT>
                    <DOC>Standard instrument approach procedures, </DOC>
                      
                    <PGS>28058-28060</PGS>
                      
                    <FRDOCBP T="18MYR1.sgm" D="3">04-10814</FRDOCBP>
                </DOCENT>
            </CAT>
            <CAT>
                <HD>PROPOSED RULES</HD>
                <SJ>Airworthiness directives:</SJ>
                <SJDENT>
                    <SJDOC>General Electric, </SJDOC>
                    <PGS>28093-28094</PGS>
                    <FRDOCBP T="18MYP1.sgm" D="2">04-11199</FRDOCBP>
                </SJDENT>
                <SJDENT>
                    <SJDOC>Rolls-Royce plc, </SJDOC>
                    <PGS>28094-28098</PGS>
                    <FRDOCBP T="18MYP1.sgm" D="5">04-11200</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>FCC</EAR>
            <HD>Federal Communications Commission</HD>
            <CAT>
                <HD>RULES</HD>
                <SJ>Common carrier services:</SJ>
                <SUBSJ>Satellite communications—</SUBSJ>
                <SSJDENT>
                    <SUBSJDOC>Multichannel video distribution and data service in 12 GHz band; technical, service, and licensing rules; effective date, </SUBSJDOC>
                      
                    <PGS>28062-28063</PGS>
                      
                    <FRDOCBP T="18MYR1.sgm" D="2">04-11222</FRDOCBP>
                </SSJDENT>
            </CAT>
            <CAT>
                <HD>NOTICES</HD>
                <DOCENT>
                    <DOC>Agency information collection activities; proposals, submissions, and approvals, </DOC>
                    <PGS>28127</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11320</FRDOCBP>
                </DOCENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Federal Railroad</EAR>
            <HD>Federal Railroad Administration</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Safety advisories, bulletins, and directives:</SJ>
                <SJDENT>
                    <SJDOC>Hazardous materials transportation; railroad tank cars equipped with certain truck bolster bearings, </SJDOC>
                    <PGS>28186-28191</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="6">04-11143</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Federal Reserve</EAR>
            <PRTPAGE P="iv"/>
            <HD>Federal Reserve System</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Banks and bank holding companies:</SJ>
                <SJDENT>
                    <SJDOC>Formations, acquisitions, and mergers, </SJDOC>
                    <PGS>28127</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11182</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Food</EAR>
            <HD>Food and Drug Administration</HD>
            <CAT>
                <HD>RULES</HD>
                <SJ>Public Health Security and Bioterrorism Preparedness Response Act of 2002:</SJ>
                <SJDENT>
                    <SJDOC>Food importation notice to FDA, </SJDOC>
                      
                    <PGS>28060-28061</PGS>
                      
                    <FRDOCBP T="18MYR1.sgm" D="2">04-11247</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Food</EAR>
            <HD>Food and Nutrition Service</HD>
            <CAT>
                <HD>NOTICES</HD>
                <DOCENT>
                    <DOC>Agency information collection activities; proposals, submissions, and approvals, </DOC>
                    <PGS>28109</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11216</FRDOCBP>
                </DOCENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Food</EAR>
            <HD>Food Safety and Inspection Service</HD>
            <CAT>
                <HD>RULES</HD>
                <DOCENT>
                    <DOC>Pizza with meat or sausage identity standards; elimination, </DOC>
                      
                    <PGS>28042-28043</PGS>
                      
                    <FRDOCBP T="18MYR1.sgm" D="2">04-11215</FRDOCBP>
                </DOCENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Forest</EAR>
            <HD>Forest Service</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Environmental statements; notice of intent:</SJ>
                <SJDENT>
                    <SJDOC>Tongass National Forest, AK, </SJDOC>
                    <PGS>28110-28111</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-10529</FRDOCBP>
                </SJDENT>
                <SJ>Meetings:</SJ>
                <SJDENT>
                    <SJDOC>National Urban and Community Forestry Advisory Council, </SJDOC>
                    <PGS>28111</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11207</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>GSA</EAR>
            <HD>General Services Administration</HD>
            <CAT>
                <HD>RULES</HD>
                <SJ>Acquisition regulations:</SJ>
                <SJDENT>
                    <SJDOC>Federal Supply Schedule contracts; State and local governments information technology acquisition, </SJDOC>
                      
                    <PGS>28063-28066</PGS>
                      
                    <FRDOCBP T="18MYR1.sgm" D="4">04-11208</FRDOCBP>
                </SJDENT>
            </CAT>
            <CAT>
                <HD>PROPOSED RULES</HD>
                <SJ>Federal Acquisition Regulation (FAR):</SJ>
                <SUBSJ>Buy America Act—</SUBSJ>
                <SSJDENT>
                    <SUBSJDOC>Nonavailable articles, </SUBSJDOC>
                    <PGS>28104-28105</PGS>
                    <FRDOCBP T="18MYP1.sgm" D="2">04-11209</FRDOCBP>
                </SSJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Geological</EAR>
            <HD>Geological Survey</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Meetings:</SJ>
                <SJDENT>
                    <SJDOC>Scientific Earthquake Studies Advisory Committee, </SJDOC>
                    <PGS>28143</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11162</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Health</EAR>
            <HD>Health and Human Services Department</HD>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Centers for Disease Control and Prevention</P>
            </SEE>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Centers for Medicare &amp; Medicaid Services</P>
            </SEE>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Food and Drug Administration</P>
            </SEE>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Substance Abuse and Mental Health Services Administration</P>
            </SEE>
        </AGCY>
        <AGCY>
            <EAR>Homeland</EAR>
            <HD>Homeland Security Department</HD>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Transportation Security Administration</P>
            </SEE>
        </AGCY>
        <AGCY>
            <EAR>Industry</EAR>
            <HD>Industry and Security Bureau</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Export privileges, actions affecting:</SJ>
                <SJDENT>
                    <SJDOC>Arian Transportvermittlungs GmbH, </SJDOC>
                    <PGS>28120-28121</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11210</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Interior</EAR>
            <HD>Interior Department</HD>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Geological Survey</P>
            </SEE>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Land Management Bureau</P>
            </SEE>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> National Park Service</P>
            </SEE>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Reclamation Bureau</P>
            </SEE>
        </AGCY>
        <AGCY>
            <EAR>IRS</EAR>
            <HD>Internal Revenue Service</HD>
            <CAT>
                <HD>NOTICES</HD>
                <DOCENT>
                    <DOC>Agency information collection activities; proposals, submissions, and approvals, </DOC>
                    <PGS>28194</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11224</FRDOCBP>
                </DOCENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>International</EAR>
            <HD>International Trade Commission</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Import investigations:</SJ>
                <SJDENT>
                    <SJDOC>Bearings and packaging thereof, </SJDOC>
                    <PGS>28155-28156</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11190</FRDOCBP>
                </SJDENT>
                <SUBSJ>Preserved mushrooms from—</SUBSJ>
                <SSJDENT>
                    <SUBSJDOC>Various countries, </SUBSJDOC>
                    <PGS>28156-28157</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11220</FRDOCBP>
                </SSJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Justice</EAR>
            <HD>Justice Department</HD>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Juvenile Justice and Delinquency Prevention Office</P>
            </SEE>
        </AGCY>
        <AGCY>
            <EAR>Juvenile</EAR>
            <HD>Juvenile Justice and Delinquency Prevention Office</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Meetings:</SJ>
                <SJDENT>
                    <SJDOC>Juvenile Justice and Delinquency Prevention Coordinating Council, </SJDOC>
                    <PGS>28157</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11129</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Labor</EAR>
            <HD>Labor Department</HD>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Occupational Safety and Health Administration</P>
            </SEE>
        </AGCY>
        <AGCY>
            <EAR>Land</EAR>
            <HD>Land Management Bureau</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Survey plat filings:</SJ>
                <SJDENT>
                    <SJDOC>Wyoming, </SJDOC>
                    <PGS>28143</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11197</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Legal</EAR>
            <HD>Legal Services Corporation</HD>
            <CAT>
                <HD>NOTICES</HD>
                <DOCENT>
                    <DOC>Meetings; Sunshine Act, </DOC>
                    <PGS>28179</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11255</FRDOCBP>
                </DOCENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>NASA</EAR>
            <HD>National Aeronautics and Space Administration</HD>
            <CAT>
                <HD>PROPOSED RULES</HD>
                <SJ>Federal Acquisition Regulation (FAR):</SJ>
                <SUBSJ>Buy America Act—</SUBSJ>
                <SSJDENT>
                    <SUBSJDOC>Nonavailable articles, </SUBSJDOC>
                    <PGS>28104-28105</PGS>
                    <FRDOCBP T="18MYP1.sgm" D="2">04-11209</FRDOCBP>
                </SSJDENT>
            </CAT>
            <CAT>
                <HD>NOTICES</HD>
                <DOCENT>
                    <DOC>Inventions, Government-owned; availability for licensing, </DOC>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11171</FRDOCBP>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11172</FRDOCBP>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11173</FRDOCBP>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11174</FRDOCBP>
                    <PGS>28180-28181</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11175</FRDOCBP>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11176</FRDOCBP>
                </DOCENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>NOAA</EAR>
            <HD>National Oceanic and Atmospheric Administration</HD>
            <CAT>
                <HD>RULES</HD>
                <SJ>Fishery conservation and management:</SJ>
                <SUBSJ>West Coast States and Western Pacific fisheries—</SUBSJ>
                <SSJDENT>
                    <SUBSJDOC>Pacific Coast groundfish, </SUBSJDOC>
                    <PGS>28086-28092</PGS>
                      
                    <FRDOCBP T="18MYR1.sgm" D="7">04-11156</FRDOCBP>
                </SSJDENT>
            </CAT>
            <CAT>
                <HD>PROPOSED RULES</HD>
                <SJ>Fishery conservation and management:</SJ>
                <SUBSJ>Atlantic highly migratory species—</SUBSJ>
                <SSJDENT>
                    <SUBSJDOC>Atlantic shark; vessel monitoring systems, </SUBSJDOC>
                    <PGS>28106-28107</PGS>
                    <FRDOCBP T="18MYP1.sgm" D="2">04-11226</FRDOCBP>
                </SSJDENT>
            </CAT>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Meetings:</SJ>
                <SJDENT>
                    <SJDOC>North Pacific Fishery Management Council, </SJDOC>
                    <PGS>28121-28122</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">E4-1179</FRDOCBP>
                </SJDENT>
                <SJDENT>
                    <SJDOC>Pacific Fishery Management Council, </SJDOC>
                    <PGS>28122</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">E4-1178</FRDOCBP>
                </SJDENT>
                <SJ>Permits:</SJ>
                <SJDENT>
                    <SJDOC>Endangered and threatened species, </SJDOC>
                    <PGS>28122-28123</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11227</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>National Park</EAR>
            <HD>National Park Service</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Committees; establishment, renewal, termination, etc.:</SJ>
                <SJDENT>
                    <SJDOC>Route 66 Corridor Preservation Program Advisory Council, </SJDOC>
                    <PGS>28143-28144</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11169</FRDOCBP>
                </SJDENT>
                <SJ>Environmental statements; availability, etc.:</SJ>
                <SJDENT>
                    <SJDOC>Lake Meredith National Recreation Area, TX, </SJDOC>
                    <PGS>28144</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11164</FRDOCBP>
                </SJDENT>
                <SJDENT>
                    <SJDOC>Navajo National Monument, AZ, </SJDOC>
                    <PGS>28144</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11167</FRDOCBP>
                </SJDENT>
                <SJDENT>
                    <SJDOC>Sequoia and Kings Canyon National Parks,  CA, </SJDOC>
                    <PGS>28144-28146</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="3">04-11166</FRDOCBP>
                </SJDENT>
                <SJDENT>
                    <SJDOC>Sunset Carter Volcano and Wupatki National Monuments, AZ, </SJDOC>
                    <PGS>28146-28147</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11163</FRDOCBP>
                </SJDENT>
                <PRTPAGE P="v"/>
                <SJ>Environmental statements; notice of intent:</SJ>
                <SJDENT>
                    <SJDOC>Great Smoky Mountains National Park and Blue Ridge Parkway, TN and NC; land exchange between NAPS and Eastern Band of Cherokee Indians, </SJDOC>
                    <PGS>28147</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11168</FRDOCBP>
                </SJDENT>
                <SJ>Environmental statements; record of decision:</SJ>
                <SJDENT>
                    <SJDOC>Cuyahoga Valley National Park, OH, </SJDOC>
                    <PGS>28147-28153</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="7">04-11165</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>National Women's</EAR>
            <HD>National Women's Business Council</HD>
            <CAT>
                <HD>NOTICES</HD>
                <DOCENT>
                    <DOC>Meetings; Sunshine Act, </DOC>
                    <PGS>28181</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11349</FRDOCBP>
                </DOCENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Nuclear</EAR>
            <HD>Nuclear Regulatory Commission</HD>
            <CAT>
                <HD>RULES</HD>
                <SJ>Reports and guidance documents; availability, etc.:</SJ>
                <SJDENT>
                    <SJDOC>Backfit guidance, </SJDOC>
                      
                    <PGS>28043-28044</PGS>
                      
                    <FRDOCBP T="18MYR1.sgm" D="2">04-11183</FRDOCBP>
                </SJDENT>
            </CAT>
            <CAT>
                <HD>NOTICES</HD>
                <DOCENT>
                    <DOC>Agency information collection activities; proposals, submissions, and approvals, </DOC>
                    <PGS>28181-28182</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11184</FRDOCBP>
                </DOCENT>
                <DOCENT>
                    <DOC>Meetings; Sunshine Act, </DOC>
                    <PGS>28182</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11292</FRDOCBP>
                </DOCENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Occupational</EAR>
            <HD>Occupational Safety and Health Administration</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Grants and cooperative agreements; availability, etc.:</SJ>
                <SJDENT>
                    <SJDOC>Susan Harwood Training Program, </SJDOC>
                    <PGS>28157-28179</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="23">04-11128</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Office of U.S. Trade</EAR>
            <HD>Office of United States Trade Representative</HD>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Trade Representative, Office of United States</P>
            </SEE>
        </AGCY>
        <AGCY>
            <EAR>Reclamation</EAR>
            <HD>Reclamation Bureau</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Contract negotiations:</SJ>
                <SJDENT>
                    <SJDOC>Tabulation of water service and repayment; quarterly status report, </SJDOC>
                    <PGS>28153-28155</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="3">04-11198</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Research</EAR>
            <HD>Research and Special Programs Administration</HD>
            <CAT>
                <HD>NOTICES</HD>
                <DOCENT>
                    <DOC>Agency information collection activities; proposals, submissions, and approvals, </DOC>
                    <PGS>28191-28193</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="3">04-11202</FRDOCBP>
                </DOCENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Rural</EAR>
            <HD>Rural Business-Cooperative Service</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Grants and cooperative agreements; availability, etc.:</SJ>
                <SJDENT>
                    <SJDOC>Bovine spongiform encephalopathy specific risk and renewable energy pilot program, </SJDOC>
                    <PGS>28111-28119</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="9">04-11244</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>SEC</EAR>
            <HD>Securities and Exchange Commission</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Joint Industry Plan:</SJ>
                <SJDENT>
                    <SJDOC>National Association of Securities Dealers, Inc., et al., </SJDOC>
                    <PGS>28182-28185</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="4">04-11177</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>State</EAR>
            <HD>State Department</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Arms Export Control Act:</SJ>
                <SJDENT>
                    <SJDOC>Countries not cooperating fully with U.S. antiterrorism efforts; determination and certification; congressional notification, </SJDOC>
                    <PGS>28185</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11214</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Substance</EAR>
            <HD>Substance Abuse and Mental Health Services Administration</HD>
            <CAT>
                <HD>NOTICES</HD>
                <DOCENT>
                    <DOC>Agency information collection activities; proposals, submissions, and approvals, </DOC>
                    <PGS>28141</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11196</FRDOCBP>
                </DOCENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Surface</EAR>
            <HD>Surface Transportation Board</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Railroad services abandonment:</SJ>
                <SJDENT>
                    <SJDOC>Norfolk Southern Railway Company, </SJDOC>
                    <PGS>28193-28194</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11087</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Trade</EAR>
            <HD>Trade Representative, Office of United States</HD>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Generalized System of Preferences:</SJ>
                <SJDENT>
                    <SJDOC>Termination of countries joining the European Union from eligibility, </SJDOC>
                    <PGS>28185-28186</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11181</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Transportation</EAR>
            <HD>Transportation Department</HD>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Federal Aviation Administration</P>
            </SEE>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Federal Railroad Administration</P>
            </SEE>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Research and Special Programs Administration</P>
            </SEE>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Surface Transportation Board</P>
            </SEE>
            <CAT>
                <HD>RULES</HD>
                <DOCENT>
                    <DOC>Sensitive security information protection, </DOC>
                      
                    <PGS>28066-28086</PGS>
                      
                    <FRDOCBP T="18MYR1.sgm" D="21">04-11142</FRDOCBP>
                </DOCENT>
            </CAT>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Aviation proceedings:</SJ>
                <SJDENT>
                    <SJDOC>Agreements filed; weekly receipts, </SJDOC>
                    <PGS>28186</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11201</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Transportation</EAR>
            <HD>Transportation Security Administration</HD>
            <CAT>
                <HD>RULES</HD>
                <DOCENT>
                    <DOC>Sensitive security information protection, </DOC>
                      
                    <PGS>28066-28086</PGS>
                      
                    <FRDOCBP T="18MYR1.sgm" D="21">04-11142</FRDOCBP>
                </DOCENT>
            </CAT>
            <CAT>
                <HD>NOTICES</HD>
                <DOCENT>
                    <DOC>Agency information collection activities; proposals, submissions, and approvals, </DOC>
                    <PGS>28141-28143</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11140</FRDOCBP>
                    <FRDOCBP T="18MYN1.sgm" D="2">04-11141</FRDOCBP>
                </DOCENT>
            </CAT>
        </AGCY>
        <AGCY>
            <EAR>Treasury</EAR>
            <HD>Treasury Department</HD>
            <SEE>
                <HD SOURCE="HED">See</HD>
                <P> Internal Revenue Service</P>
            </SEE>
            <CAT>
                <HD>PROPOSED RULES</HD>
                <SJ>Currency and foreign transactions; financial reporting and recordkeeping requirements:</SJ>
                <SUBSJ>Bank Secrecy Act; implementation—</SUBSJ>
                <SSJDENT>
                    <SUBSJDOC>Commercial Bank of Syria and subsidiary; special measure imposition as primary money laundering concern financial institution, </SUBSJDOC>
                    <PGS>28098-28104</PGS>
                    <FRDOCBP T="18MYP1.sgm" D="7">04-11102</FRDOCBP>
                </SSJDENT>
            </CAT>
            <CAT>
                <HD>NOTICES</HD>
                <SJ>Reports and guidance documents; availability, etc.:</SJ>
                <SJDENT>
                    <SJDOC>Alternative fuel vehicle acquisitions; annual report (FY 2003), </SJDOC>
                    <PGS>28194</PGS>
                    <FRDOCBP T="18MYN1.sgm" D="1">04-11161</FRDOCBP>
                </SJDENT>
            </CAT>
        </AGCY>
        <PTS>
            <HD SOURCE="HED">Separate Parts In This Issue</HD>
            <HD>Part II</HD>
            <DOCENT>
                <DOC>Health and Human Services Department, Centers for Medicare &amp; Medicaid Services, </DOC>
                <PGS>28195-28817</PGS>
                <FRDOCBP T="18MYP2.sgm" D="623">04-10932</FRDOCBP>
            </DOCENT>
        </PTS>
        <AIDS>
            <HD SOURCE="HED">Reader Aids</HD>
            <P>Consult the Reader Aids section at the end of this issue for phone numbers, online resources, finding aids, reminders, and notice of recently enacted public laws.</P>
            <P>To subscribe to the Federal Register Table of Contents LISTSERV electronic mailing list, go to http://listserv.access.gpo.gov and select Online mailing list archives, FEDREGTOC-L, Join or leave the list (or change settings); then follow the instructions.</P>
        </AIDS>
    </CNTNTS>
    <VOL>69</VOL>
    <NO>96</NO>
    <DATE>Tuesday, May 18, 2004</DATE>
    <UNITNAME>Rules and Regulations</UNITNAME>
    <RULES>
        <RULE>
            <PREAMB>
                <PRTPAGE P="28041"/>
                <AGENCY TYPE="F">DEPARTMENT OF AGRICULTURE</AGENCY>
                <SUBAGY>Office of the Secretary</SUBAGY>
                <CFR>7 CFR Part 1</CFR>
                <DEPDOC>[Docket No. 03-030F] </DEPDOC>
                <SUBJECT>Indemnification of Department of Agriculture Employees</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Office of the Secretary, USDA.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Statement of policy; final rule.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The Department of Agriculture is adding a new subpart to part 1 of title 7 of the Code of Federal Regulations. This statement of policy is similar to the policy adopted by other Federal agencies, including the Department of Treasury, Department of the Interior, Department of Health and Human Services, and the Department of Justice in that it permits indemnification of Departmental employees in appropriate circumstances, as determined by the Secretary or the Secretary's designee, for claims made against them as a result of actions taken by them in the course of their employment.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Effective May 18, 2004.</P>
                </DATES>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Philip S. Derfler, Assistant Administrator, Office of Policy and Program Development, Food Safety and Inspection Service, U.S. Department of Agriculture, Room 350-E, Jamie L. Whitten Building, 1400 Independence Avenue, SW., Washington, DC 20250-3700, telephone (202) 720-2709, fax (202) 720-2025.</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION: </HD>
                <P SOURCE="NPAR">
                    The United States Department of Agriculture (USDA) does not now have a policy to indemnify its employees who are sued in their individual capacity and who suffer an adverse judgment as a result of conduct taken within the scope of their official duties. Lawsuits against Federal employees in their personal capacities have proliferated since the Supreme Courts decision in 
                    <E T="03">Bivens</E>
                     v. 
                    <E T="03">Six Unkown Named Agents of the Federal Bureau of Narcotics,</E>
                     403 U.S. 388 (1971). This decision held that personal damage awards against a Federal employee are permitted when, in the course of his or her employment, the Federal employee is found to have violated an individual's constitutional rights. Although the Federal Liability Reform and Tort Compensation Act of 1988, Public Law 100-694, prohibits personal actions against Federal employees for common law torts committed in the course of employment, that Act does not protect employees from all other types of actions, including those arising under the Constitution. A number of actions have been filed against USDA employees. While the majority of these claims have resulted in judgments adverse to the claimants, the prospect of personal liability and the burden of defending a suit for money damages, simply as a result of doing one's job, has had a negative effect on USDA operations.
                </P>
                <P>The Department believes that actions against Federal employees in their personal capacity may hinder the Department's effectiveness. Uncertainty as to what conduct may lead to a claim tends to intimidate employees and to stifle creativity and decisive action. Employees' fears of personal liability affect government operations, decision making, and policy determinations.</P>
                <P>The Department believes that lawsuits against Federal employees in their personal capacity may constitute an impediment to the effective conduct of the public's business. A clear articulation of the Department's policy to permit the indemnification of Department employees should go a long way toward removing this impediment.</P>
                <P>The USDA's policy is to permit, but not require, the indemnification of a Department employee who suffers an adverse verdict, judgment, or other monetary award, provided that the actions giving rise to the judgment were taken within the scope of his or her employment, and that such indemnification is in the interest of the United States, as determined by the Secretary or the Secretary's designee. Under the same conditions, the Department may also choose to indemnify an employee who enters into a final settlement or compromise of an adverse claim.</P>
                <P>Generally, the Department will not indemnify or pay to settle or compensate a personal damage claim against an employee before entry of an adverse verdict, judgment, or monetary award. However, in rare cases, the Secretary may determine that exceptional circumstances justify the earlier indemnification or payment of a settlement or compromise amount. This approach is designed to discourage claims against Department employees solely to pressure the Department into settlement. In the usual case, the Department will not compromise a matter before a final determination, even if a dispositive motion filed on behalf of the employee has been denied. </P>
                <P>Once a verdict, judgment, or monetary award has been entered against an employee or a settlement proposal entered into by an employee, a Department employee may request indemnification to satisfy that verdict, judgment, award or settlement proposal. The employee shall submit a written request, with appropriate documentation that includes a copy of the verdict, judgment, award or settlement proposal, to the head of his or her employing component. The head of the employee's employing component shall thereupon submit it to the General Counsel, in a timely manner, for a recommended disposition of the request. The Office of the General Counsel shall forward the employee's request, the employing component's recommendation, and the General Counsel's recommendation, along with the time frame in which a decision is needed, to the Secretary or his or her designee for decision. The Secretary or his or her designee will decide promptly whether to indemnify or pay for a settlement of a personal damage claim.</P>
                <HD SOURCE="HD1">Administration Procedure Act</HD>
                <P>This policy relates to the Department of Agriculture management and personnel. It is published in final form without the opportunity for public notice and comment because it is a statement of policy. See 5 U.S.C. 553(b)(A).</P>
                <HD SOURCE="HD1">Executive Order 12866 and the Regulatory Flexibility Act</HD>
                <P>
                    This policy has been determined to be not economically significant for the purposes of Executive Order 12866. It 
                    <PRTPAGE P="28042"/>
                    will not have a significant economic effect on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 
                    <E T="03">et seq.</E>
                    ).
                </P>
                <HD SOURCE="HD1">Paperwork Requirements</HD>
                <P>This policy is not subject to the Paperwork Reduction Act because it deals solely with internal rules governing Department of Agriculture personnel.</P>
                <LSTSUB>
                    <HD SOURCE="HED">List of Subjects in 7 CFR Part 1</HD>
                    <P>Administrative practice and procedure, Indemnity payments, Government employees, Claims.</P>
                </LSTSUB>
                <REGTEXT TITLE="7" PART="1">
                    <AMDPAR>For the reasons stated in the preamble, title 7 part 1 of the Code of Federal Regulations is amended by adding subpart N to read as follows:</AMDPAR>
                    <SUBPART>
                        <HD SOURCE="HED">SUBPART N—POLICY WITH REGARD TO INDEMNIFICATION OF DEPARTMENT OF AGRICULTURE EMPLOYEES</HD>
                        <AUTH>
                            <HD SOURCE="HED">Authority:</HD>
                            <P>5 U.S.C. 301.</P>
                        </AUTH>
                        <SECTION>
                            <SECTNO>§ 1.501 </SECTNO>
                            <SUBJECT>Policy on employee indemnification.</SUBJECT>
                            <P>(a) Indemnification, under the context of this section, shall be the policy whereby the Department of Agriculture compensates an employee for the legal consequences of conduct, taken within the scope of his or her employment, giving rise to a verdict, judgment, or other monetary award rendered against the employee.</P>
                            <P>(b) The Department of Agriculture may indemnify a Department employee (which for the purposes of this regulation shall include a former employee) for any verdict, judgment, or other monetary award rendered against such employee, provided the Secretary or the Secretary's designee determines, in his or her discretion, that the conduct giving rise to such verdict, judgment, or award was taken within the scope of his or her employment with the Department, and such indemnification is in the interest of the United States.</P>
                            <P>(c) The Department of Agriculture may pay for the settlement or compromise of a personal damage claim against a Department employee by the payment of available funds, at any time, provided that the Secretary or the Secretary's designee determines, in his or her discretion, that the alleged conduct giving rise to the personal damage claim was taken within the scope of the employee's employment, and such settlement or compromise is in the interest of the United States.</P>
                            <P>(d) Absent exceptional circumstances, as determined by the Secretary or his or her designee, the Department will not entertain a request to agree to indemnify or pay for a settlement of a personal damage claim before entry of an adverse judgment, verdict, or other monetary award.</P>
                            <P>(e) When a Department employee becomes aware that an action has been filed against the employee in his or her individual capacity as a result of conduct taken within the scope of his or her employment, the employee should immediately notify his or her supervisor that such an action is pending. The supervisor shall promptly thereafter notify the Office of the General Counsel.</P>
                            <P>(f) A Department employee may request indemnification to satisfy a verdict, judgment, or monetary award entered against the employee or to satisfy the requirements of a settlement proposal. The employee shall submit a written request, with appropriate documentation that includes a copy of the verdict, judgment, award or settlement proposal, as appropriate, to the head of his or her employing component, who shall thereupon submit it to the General Counsel, in a timely manner, a recommended disposition of the request. The Office of the General Counsel shall seek the views of the Department of Justice. The Office of the General Counsel shall forward the employee's request, the employing component's recommendation, and the General Counsel's recommendation, along with the time frame in which a decision is needed, to the Secretary or his or her designee for decision. The Secretary or his or her designee will decide promptly whether to indemnify or pay for a settlement of a personal damage claim.</P>
                            <P>(g) Any payment under this section to indemnify a Department employee for a personal damage verdict, judgment, or award or to settle a personal damage claim shall be contingent upon the availability of appropriated funds of the employing component of the United States Department of Agriculture.</P>
                        </SECTION>
                    </SUBPART>
                </REGTEXT>
                <SIG>
                    <NAME>Ann M. Veneman,</NAME>
                    <TITLE>Secretary.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11051 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 3410-DM-M</BILCOD>
        </RULE>
        <RULE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF AGRICULTURE</AGENCY>
                <SUBAGY>Food Safety and Inspection Service</SUBAGY>
                <CFR>9 CFR Parts 317 and 381</CFR>
                <DEPDOC>[Docket No.01-018E]</DEPDOC>
                <SUBJECT>Definitions and Standards of Identity or Composition: Elimination of the Pizza With Meat or Sausage Standards</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Food Safety and Inspection Service, USDA.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Final rule: extension of compliance date.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The Food Safety and Inspection Service (FSIS) is providing additional time for manufacturers of packaged pizza products to comply with new regulations that require that the labeling of products identified as “pizzas” that contain a meat or poultry component as part of the product name, declare the percent of meat or poultry in the product in a parenthetical statement contiguous to the ingredients statement. The effective date for this final rule was October 22, 2003. The extension of the compliance date for the labeling requirement applies only to those manufacturers of packaged pizzas that have not changed the formulation of their products since the final rule became effective and that continue to use their current label designs without change. FSIS is taking this action to minimize the costs to small manufacturers of packaged pizza products to redesign and print new product labels. </P>
                </SUM>
                <EFFDATE>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>The compliance date for 9 CFR 317.8(b)(40) and 9 CFR 381.129(f) is extended from October 22, 2003, to July 31, 2004, for manufacturers of packaged pizzas that can and do continue to use their current product labels without change. </P>
                </EFFDATE>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Robert C. Post, Ph.D., Director, Labeling and Consumer Protection Staff, Office of Policy and Program Development, Food Safety and Inspection Service, U.S. Department of Agriculture, Washington, DC 20250-3700; (202) 205-0279. </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>
                    On July 31, 2003, FSIS published a final rule in the 
                    <E T="04">Federal Register</E>
                     to rescind the regulatory standards of identity for “pizza with meat” and “pizza with sausage” by removing 9 CFR 319.600 from the Federal meat inspection regulations (68 FR 44859). The effective date for the final rule was October 22, 2003. As a result of the final rule, products identified as “pizzas” that contain a meat or poultry component as part of the product name are no longer 
                    <PRTPAGE P="28043"/>
                    required to contain a minimum amount of meat or poultry, provided that they contain a sufficient amount of these components to make the product subject to USDA jurisdiction. 
                </P>
                <P>To allow consumers to become familiar with variations in the meat or poultry content permitted in meat or poultry pizzas as non-standardized foods, the final rule requires that, for three years, the labeling of meat or poultry pizzas declare the percent of meat or poultry in the product in a parenthetical statement contiguous to the ingredients statement (9 CFR 317.8(b)(40) and 9 CFR 381.129(f)). This labeling requirement is a transitional step to allow consumers to understand the nature of the food. To minimize costs associated with the new labeling requirement, FSIS allowed pizza manufacturers to exhaust their remaining packaging inventories so that they would not have to discard any unused labels. </P>
                <P>However, according to the National Frozen Pizza Institute (NFPI), the ability to exhaust remaining packaging inventories may not provide enough flexibility for small pizza manufacturers. According to information that NFPI recently shared with the Agency, in an effort to minimize operating costs and maintain a sound cash flow, small pizza manufacturers generally do not keep large label inventories. To free resources, these companies keep a small inventory and order labels frequently. Hence, NFPI has explained that, for most small pizza makers, there is no “stockpile” of labels. Consequently, the requirement to change labels at the next printing will impact these companies within the next few months. </P>
                <P>Moreover, although FSIS requested comments on whether the Agency should require that the product name of non-standardized pizza products disclose the percent of meat or poultry in the product in the preamble to the proposed rule, the proposed text of the regulation did not include new labeling requirements. Therefore, because the labeling requirement in the final rule was not included in the proposed text of the regulation, most small manufacturers of pizza products did not budget for costs associated with “label changes” resulting from the final rule. The NFPI stated that, accordingly, label costs for the small pizza makers will be taken from company profits concentrated over a short time period. This is especially true for private label processors who generally cannot include the cost in existing contracts; have low profit margins; have the smallest amount of labels on hand; and have the largest number of individual labels affected.</P>
                <P>The recent data submitted to FSIS by NFPI explains that, because most small companies that produce packaged pizza products do not change label designs on a regular basis nor do they maintain large stocks of product labels, the costs for changing branded and private label UPC codes will be incurred more quickly than anticipated. Thus, to comply with the final rule, many small manufacturers of packaged pizzas that otherwise would not have modified their current label designs because they have not changed the formulation of their products, are required to redesign and print new product labels. NFPI suggested that an effective method to minimize the financial impact of the final regulation is to permit these companies to spread costs over a longer period of time. With a longer period to accomplish the label changes, the companies may spread costs over a longer period of time, thus enabling them to stretch the costs from profits over a longer period or to modify their pricing to incorporate the costs of the label changes. In response, in order to minimize the label redesign and printing costs to these small businesses, FSIS has decided to provide additional time to comply with the new labeling requirement. </P>
                <P>FSIS is extending until July 31, 2004, the date that manufacturers of packaged pizza products must comply with the meat or poultry labeling requirement in 9 CFR 317.8(b)(40) and 9 CFR 381.129(f) for those manufacturers that have not changed the formulation of their products since the final rule became effective and that continue to use their current product label designs without change. To ensure that consumers are not adversely affected by the extension of the compliance date, companies that take advantage of the extension must continue to use labels that include a declaration of the percent of meat or poultry in the product for three years from the date that such new labels are first applied to their products. All manufacturers must begin to comply with the meat or poultry content declaration requirement by the new compliance date. </P>
                <HD SOURCE="HD1">Additional Public Notification </HD>
                <P>
                    Public awareness of all segments of rulemaking and policy development is important. Consequently, in an effort to better ensure that the public, and in particular minorities, women, and persons with disabilities, are aware of this notice, FSIS will announce it on-line through the FSIS Web page located at 
                    <E T="03">http://www.fsis.usda.gov.</E>
                     The Regulations.gov Web site is the central online rulemaking portal of the United States government. It is being offered as a public service to increase participation in the Federal government's regulatory activities. FSIS participates in Regulations.gov and will accept comments on documents published on the site. The site allows visitors to search by keyword or Department or Agency for rulemakings that allow for public comment. Each entry provides a quick link to a comment form so that visitors can type in their comments and submit them to FSIS. The Web site is located at 
                    <E T="03">http://www.regulations.gov.</E>
                </P>
                <P>
                    FSIS also will make copies of this 
                    <E T="04">Federal Register</E>
                     publication available through the FSIS Constituent Update, which is used to provide information regarding FSIS policies, procedures, regulations, 
                    <E T="04">Federal Register</E>
                     notices, FSIS public meetings, recalls, and other types of information that could affect or would be of interest to our constituents and stakeholders. The update is communicated via Listserv, a free e-mail subscription service consisting of industry, trade, and farm groups, consumer interest groups, allied health professionals, scientific professionals, and other individuals who have requested to be included. The update also is available on the FSIS Web page. Through Listserv and the Web page, FSIS is able to provide information to a much broader, more diverse audience. 
                </P>
                <SIG>
                    <DATED>Done at Washington, DC, on May 13, 2004. </DATED>
                    <NAME>Barbara Masters, </NAME>
                    <TITLE>Acting Administrator. </TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11215 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 3410-DM-P </BILCOD>
        </RULE>
        <RULE>
            <PREAMB>
                <AGENCY TYPE="N">NUCLEAR REGULATORY COMMISSION </AGENCY>
                <CFR>10 CFR Part 70 </CFR>
                <SUBJECT>Office of Nuclear Material Safety and Safeguards; Notice of Issuance of Final Backfit Guidance </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Nuclear Regulatory Commission. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Final issuance; effective date announcement. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The U. S. Nuclear Regulatory Commission's (NRC) Office of Nuclear Material Safety and Safeguards (NMSS) has issued the final document, NMSS 10 CFR Part 70 Backfit Guidance. </P>
                    <P>
                        The final document provides guidance for implementing the backfit provisions in 10 CFR 70.76. As a result of this final issuance and as discussed in 10 CFR 70.76, backfit provisions are now effective for all part 70 
                        <PRTPAGE P="28044"/>
                        requirements, except for subpart H, and following NRC approval of a licensee's Independent Safety Analysis (ISA) Summary, the requirements of 10 CFR 70.76 become effective for subpart H requirements. 
                    </P>
                </SUM>
                <EFFDATE>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>The effective date of 10 CFR 70.76 is May 18, 2004. </P>
                </EFFDATE>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>
                        A copy of the final document is available for public inspection and copying from the Publicly Available Records (PARS) component of NRC's document system (ADAMS). ADAMS is accessible from the NRC Web site at 
                        <E T="03">www.nrc.gov/reading-rm/adams.html.</E>
                         The ADAMS Accession Number is ML040980122. Documents can also be viewed electronically on the public computers located at the NRC's Public Document Room (PDR), O-1F21, One White Flint North, 11555 Rockville Pike, Rockville, MD 20852. The PDR reproduction contractor will copy documents for a fee. Persons who do not have access to ADAMS, should contact the NRC PDR Reference staff by telephone at 1 (800) 397-4209, or (301) 415-4737, or by e-mail to pdr@nrc.gov. 
                    </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>
                        William Gleaves, Office of Nuclear Material Safety and Safeguards, Division of Fuel Cycle Safety and Safeguards, Mail Stop T-8 A33, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, Telephone (301) 415-5848, or by e-mail at 
                        <E T="03">bcg@nrc.gov.</E>
                    </P>
                    <SIG>
                        <DATED>Dated at Rockville, Maryland, this 30th day of April, 2004. </DATED>
                        <P>For the Nuclear Regulatory Commission. </P>
                        <NAME>Joseph J. Holonich, </NAME>
                        <TITLE>Deputy Director, Division of Fuel Cycle Safety and Safeguards, Office of Nuclear Material Safety and Safeguards. </TITLE>
                    </SIG>
                </FURINF>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11183 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 7590-01-P </BILCOD>
        </RULE>
        <RULE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF TRANSPORTATION </AGENCY>
                <SUBAGY>Federal Aviation Administration </SUBAGY>
                <CFR>14 CFR Part 39 </CFR>
                <DEPDOC>[Docket No. 2003-NM-19-AD; Amendment 39-13632; AD 2004-10-02] </DEPDOC>
                <RIN>RIN 2120-AA64 </RIN>
                <SUBJECT>Airworthiness Directives; Airbus Model A300 B4-600, A300 B4-600R, and A300 F4-600R (Collectively Called A300-600), A310, A319, A320, A321, A330, and A340-200 and -300 Series Airplanes </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Federal Aviation Administration, DOT. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Final rule. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>This amendment adopts a new airworthiness directive (AD), applicable to certain Airbus Model A300-600, A310, A319, A320, A321, A330, and A340-200 and -300 series airplanes, that requires a one-time inspection to determine if certain Thales pitot probes are installed, a check for certain part numbers and serial numbers of the affected pitot probes, and cleaning of the drain hole of any affected pitot probes if obstructed. This action is necessary to prevent obstruction of the air intake of the pitot probes, which could result in misleading information being provided to the flightcrew. This action is intended to address the identified unsafe condition. </P>
                </SUM>
                <EFFDATE>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Effective June 22, 2004. </P>
                    <P>The incorporation by reference of certain publications listed in the regulations is approved by the Director of the Federal Register as of June 22, 2004. </P>
                </EFFDATE>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>
                        The service information referenced in this AD may be obtained from Airbus, 1 Rond Point Maurice Bellonte, 31707 Blagnac Cedex, France. This information may be examined at the Federal Aviation Administration (FAA), Transport Airplane Directorate, Rules Docket, 1601 Lind Avenue, SW., Renton, Washington; or at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: 
                        <E T="03">http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html</E>
                        . 
                    </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Dan Rodina, Aerospace Engineer, International Branch, ANM-116, FAA, Transport Airplane Directorate, 1601 Lind Avenue, SW., Renton, Washington 98055-4056; telephone (425) 227-2125; fax (425) 227-1149. </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>
                    A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an airworthiness directive (AD) that is applicable to certain Airbus Model A300-600, A310, A319, A320, A321, A330, and A340 series airplanes was published in the 
                    <E T="04">Federal Register</E>
                     on February 6, 2004 (69 FR 5787). That action proposed to require a one-time inspection to determine if certain Thales pitot probes are installed, a check for certain part numbers and serial numbers of the affected pitot probes, and cleaning of the drain hole of any affected pitot probes if obstructed. 
                </P>
                <HD SOURCE="HD1">Comments </HD>
                <P>Interested persons have been afforded an opportunity to participate in the making of this amendment. Due consideration has been given to the comments received. </P>
                <HD SOURCE="HD1">Supportive Comments </HD>
                <P>One commenter supports the proposed AD; another commenter has no objection to the proposed AD. The commenters generally support the intent of the proposed AD. </P>
                <HD SOURCE="HD1">Request To Add Service Information </HD>
                <P>One commenter asks that the original issue of Airbus Service Bulletin A320-34-1263, dated November 26, 2002; be added to the final rule as an additional source of service information for accomplishment of the actions for Model A319, A320, and A321 series airplanes. Revision 01 was referenced in the proposed AD as the source of service information for accomplishment of the actions. The FAA agrees as there are no significant changes between the original version of the service bulletin and Revision 01. We have added the original issue of the service bulletin as an additional source of service information for accomplishment of the actions required by paragraph (a) of the final rule. </P>
                <HD SOURCE="HD1">Request To Extend Compliance Time </HD>
                <P>One commenter asks that additional time be given for accomplishment of the actions specified in the proposed AD. The commenter asks that the compliance time of 700 flight hours, as specified in paragraph (a) of the proposed AD, be extended to 1,000 flight hours. The commenter states that this change will allow accomplishment of the actions at the commenter's normal maintenance cycle. The commenter adds that, to date, the unsafe condition has not been found on any of its fleet of 152 airplanes, which average 19,000 total accumulated flight hours. The commenter states that its maintenance task is performed at C-check intervals to inspect the pitot probes and drain holes for obstruction, with no negative findings to date. The commenter adds that this extension of the compliance time will not compromise safety and will allow the most efficient use of available tooling and manpower. </P>
                <P>
                    We do not agree. In developing an appropriate compliance time for this action, we considered the safety implications, operators' normal maintenance schedules, and the compliance time recommended by the airplane manufacturer for the timely accomplishment of the required actions. In consideration of these items, we have determined that a compliance time of 700 flight hours will ensure an 
                    <PRTPAGE P="28045"/>
                    acceptable level of safety and is an appropriate interval of time wherein the required actions can be accomplished during scheduled maintenance intervals for the majority of affected operators. However, according to the provisions of paragraph (b) of this final rule, we may approve requests to adjust the compliance time if the request includes data that justify that a different compliance time would provide an acceptable level of safety. We have not changed the final rule in this regard. 
                </P>
                <HD SOURCE="HD1">Request To Change Applicability </HD>
                <P>One commenter asks that the applicability in the proposed AD be changed to specify “Model A340-200 and -300 series airplanes.” The applicability in the proposed AD currently specifies Model A340 series airplanes. The commenter states that Model A340-500 and -600 series airplanes should be excluded from the applicability. In addition, the commenter asks that we add the part number (P/N) and serial numbers (S/Ns) for affected Thales Avionics pitot probes to the applicability. </P>
                <P>We partially agree. We agree to remove Model A340-500 and -600 series airplanes from the applicability of the proposed AD, and to specify Model A340-200 and -300. Model A340-500 and -600 series airplanes are not affected by the proposed AD. We do not agree to add the P/N and S/Ns for affected Thales Avionics pitot probes. The applicability section in this final rule specifies “as listed in the applicable Airbus service bulletins.” Those service bulletins contain the P/N and S/Ns for affected Thales Avionics pitot probes. </P>
                <HD SOURCE="HD1">Clarification of Applicability </HD>
                <P>One commenter does not ask for a specific change to the final rule, but states that “The applicability of French airworthiness directive 2003-148(B), dated April 16, 2003 (referenced in the proposed AD), is Airbus Model A310 and A300-600 series airplanes, all certified models, and all S/Ns fitted with Thales Avionics pitot probes, whose S/N is lower than or equal to 660.” The commenter adds that the applicability in the proposed AD seems to be “A one-time detailed visual inspection to determine if pitot probes 40DA, 41DA, and 42DA are installed, and a check of those pitot probes for P/N C16254AA and S/N 660 or higher, and cleaning of the drain hole of any affected pitot probe.” The commenter asks for clarification of the applicability in the proposed AD.</P>
                <P>We infer that the commenter has inadvertently merged the requirements in the applicability section and in paragraph (a) of the proposed AD. For clarification, we have defined the applicability section and paragraph (a) of this AD for the commenter. The applicability specified in this final rule is as follows: “Airbus Model A300 B4-600, A300 B4-600R, and A300 F4-600R (Collectively Called A300-600), A310, A319, A320, A321, A330, and A340-200 and -300 series airplanes; certificated in any category; as listed in the referenced Airbus service bulletins.” The requirements in paragraph (a) of this AD are for a detailed inspection to determine if certain Thales Avionics pitot probes are installed, and a check of affected pitot probes for certain P/Ns and S/Ns, as specified in the Accomplishment Instructions of the applicable Airbus service bulletin listed in Table 1 of the AD. </P>
                <HD SOURCE="HD1">Conclusion </HD>
                <P>After careful review of the available data, including the comments noted above, we have determined that air safety and the public interest require the adoption of the AD with the changes described previously. These changes will neither increase the economic burden on any operator nor increase the scope of the AD. </P>
                <HD SOURCE="HD1">Cost Impact </HD>
                <P>We estimate that 758 airplanes of U.S. registry will be affected by this AD, that it will take about 2 work hours per airplane to do the inspection, and that the average labor rate is $65 per work hour. Based on these figures, the cost impact of the inspection required by this AD on U.S. operators is estimated to be $98,540, or $130 per airplane. </P>
                <P>The cost impact figure discussed above is based on assumptions that no operator has yet accomplished any of the requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted. The cost impact figures discussed in AD rulemaking actions represent only the time necessary to perform the specific actions actually required by the AD. These figures typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions. </P>
                <P>Currently, there are no Airbus Model A340 series airplanes on the U.S. Register. However, should an affected airplane be imported and placed on the U.S. Register in the future, it takes about 2 work hours per airplane to do the inspection, at an average labor rate of $65 per work hour. Based on these figures, the cost impact of the inspection is estimated to be $130 per airplane. </P>
                <HD SOURCE="HD1">Regulatory Impact </HD>
                <P>The regulations adopted herein will not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, it is determined that this final rule does not have federalism implications under Executive Order 13132. </P>
                <P>
                    For the reasons discussed above, I certify that this action (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A final evaluation has been prepared for this action and it is contained in the Rules Docket. A copy of it may be obtained from the Rules Docket at the location provided under the caption 
                    <E T="02">ADDRESSES</E>
                    . 
                </P>
                <LSTSUB>
                    <HD SOURCE="HED">List of Subjects in 14 CFR Part 39 </HD>
                    <P>Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.</P>
                </LSTSUB>
                <HD SOURCE="HD1">Adoption of the Amendment </HD>
                <REGTEXT TITLE="14" PART="39">
                    <AMDPAR>Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration amends part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows: </AMDPAR>
                    <PART>
                        <HD SOURCE="HED">PART 39—AIRWORTHINESS DIRECTIVES </HD>
                    </PART>
                    <AMDPAR>1. The authority citation for part 39 continues to read as follows: </AMDPAR>
                    <AUTH>
                        <HD SOURCE="HED">Authority:</HD>
                        <P>49 U.S.C. 106(g), 40113, 44701. </P>
                    </AUTH>
                </REGTEXT>
                <REGTEXT TITLE="14" PART="39">
                    <SECTION>
                        <SECTNO>§ 39.13</SECTNO>
                        <SUBJECT>[Amended] </SUBJECT>
                    </SECTION>
                    <AMDPAR>2. Section 39.13 is amended by adding the following new airworthiness directive:</AMDPAR>
                    <EXTRACT>
                        <FP SOURCE="FP-2">
                            <E T="04">2004-10-02 Airbus:</E>
                             Amendment 39-13632. Docket 2003-NM-19-AD. 
                        </FP>
                        <P>
                            <E T="03">Applicability:</E>
                             Model A300 B4-600, A300 B4-600R, and A300 F4-600R (Collectively Called A300-600); A310; A319; A320; A321; A330; and A340-200 and -300 series airplanes; certificated in any category; as listed in the Airbus service bulletins specified in Table 1 of this AD. 
                            <PRTPAGE P="28046"/>
                        </P>
                        <GPOTABLE COLS="4" OPTS="L2,i1" CDEF="s50,r50,r50,xs80">
                            <TTITLE>Table 1.—Applicability </TTITLE>
                            <BOXHD>
                                <CHED H="1">Model— </CHED>
                                <CHED H="1">Service bulletin— </CHED>
                                <CHED H="1">Revision— </CHED>
                                <CHED H="1">Date— </CHED>
                            </BOXHD>
                            <ROW>
                                <ENT I="01">A300-600 </ENT>
                                <ENT>A300-34-6149 </ENT>
                                <ENT>Original</ENT>
                                <ENT>April 4, 2003. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">A310 </ENT>
                                <ENT>A310-34-2181 </ENT>
                                <ENT>Original</ENT>
                                <ENT>April 4, 2003. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">A319, A320, A321 </ENT>
                                <ENT>A320-34-1263 </ENT>
                                <ENT>Original</ENT>
                                <ENT>November 26, 2002. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">A319, A320, A321 </ENT>
                                <ENT>A320-34-1263 </ENT>
                                <ENT>01 </ENT>
                                <ENT>June 25, 2003. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">A330 </ENT>
                                <ENT>A330-34-3119 </ENT>
                                <ENT>Original</ENT>
                                <ENT>February 27, 2003. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">A340 </ENT>
                                <ENT>A340-34-4130 </ENT>
                                <ENT>Original</ENT>
                                <ENT>February 27, 2003. </ENT>
                            </ROW>
                        </GPOTABLE>
                        <P>
                            <E T="03">Compliance:</E>
                             Required as indicated, unless accomplished previously. 
                        </P>
                        <P>To prevent obstruction of the air intake of the pitot probes, which could result in misleading information being provided to the flightcrew, accomplish the following: </P>
                        <HD SOURCE="HD1">One-Time Detailed Inspection </HD>
                        <P>(a) Within 700 flight hours after the effective date of this AD: Do a detailed inspection to determine if certain Thales Avionics pitot probes are installed, and a check of affected pitot probes for certain part numbers (P/N) and serial numbers (S/N), as specified in the Accomplishment Instructions of the applicable Airbus service bulletin listed in Table 1 of this AD, all excluding Appendix 01. Do the inspection and check (including cleaning and marking the drain hole) by doing all the actions per Part 3.A. through Part 3.E. of the Accomplishment Instructions of the applicable Airbus service bulletin. If the specified P/N and S/N are found, before further flight, clean and mark the drain hole if obstructed, per the Accomplishment Instructions of the applicable Airbus service bulletin. If the specified P/N and S/N are not found, no further action is required by this AD. </P>
                        <NOTE>
                            <HD SOURCE="HED">Note 1:</HD>
                            <P>For the purposes of this AD, a detailed inspection is defined as: “An intensive visual examination of a specific structural area, system, installation, or assembly to detect damage, failure, or irregularity. Available lighting is normally supplemented with a direct source of good lighting at intensity deemed appropriate by the inspector. Inspection aids such as mirror, magnifying lenses, etc., may be used. Surface cleaning and elaborate access procedures may be required.”</P>
                        </NOTE>
                        <NOTE>
                            <HD SOURCE="HED">Note 2:</HD>
                            <P>The referenced Airbus service bulletins refer to Thales Avionics Service Bulletin, C16195A-34-002, Revision 01, dated February 7, 2003, as an additional source of service information for the cleaning of the drain holes of the pitot probes.</P>
                        </NOTE>
                        <HD SOURCE="HD1">Alternative Methods of Compliance </HD>
                        <P>(b) In accordance with 14 CFR 39.19, the Manager, International Branch, ANM-116, FAA, Transport Airplane Directorate, is authorized to approve alternative methods of compliance for this AD. </P>
                        <HD SOURCE="HD1">Incorporation by Reference </HD>
                        <P>(c) The actions shall be done in accordance with the Airbus service bulletins specified in Table 2 of this AD, as applicable. </P>
                        <GPOTABLE COLS="3" OPTS="L2,i1" CDEF="s100,r100,xs86">
                            <TTITLE>Table 2.—Airbus Service Bulletins </TTITLE>
                            <BOXHD>
                                <CHED H="1">Service bulletin— </CHED>
                                <CHED H="1">Revision— </CHED>
                                <CHED H="1">Date— </CHED>
                            </BOXHD>
                            <ROW>
                                <ENT I="01">A300-34-6149, excluding Appendix 01 </ENT>
                                <ENT>Original</ENT>
                                <ENT>April 4, 2003. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">A310-34-2181, excluding Appendix 01</ENT>
                                <ENT>Original</ENT>
                                <ENT>April 4, 2003. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">A320-34-1263, excluding Appendix 01 </ENT>
                                <ENT>Original</ENT>
                                <ENT>November 26, 2002. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">A320-34-1263, excluding Appendix 01 </ENT>
                                <ENT>  </ENT>
                                <ENT>June 25, 2003. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">A330-34-3119, excluding Appendix 01 </ENT>
                                <ENT>Original</ENT>
                                <ENT>February 27, 2003. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">A340-34-4130, excluding Appendix 01 </ENT>
                                <ENT>Original</ENT>
                                <ENT>February 27, 2003. </ENT>
                            </ROW>
                        </GPOTABLE>
                        <P>
                            This incorporation by reference was approved by the Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies may be obtained from Airbus, 1 Rond Point Maurice Bellonte, 31707 Blagnac Cedex, France. Copies may be inspected at the FAA, Transport Airplane Directorate, 1601 Lind Avenue, SW., Renton, Washington; or at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: 
                            <E T="03">http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.</E>
                        </P>
                        <NOTE>
                            <HD SOURCE="HED">Note 3:</HD>
                            <P>The subject of this AD is addressed in French airworthiness directives 2003-148(B), dated April 16, 2003; 2002-586(B) R1, dated April 2, 2002; and 2002-594(B), dated November 27, 2002. </P>
                        </NOTE>
                        <HD SOURCE="HD1">Effective Date </HD>
                        <P>(d) This amendment becomes effective on June 22, 2004.   </P>
                    </EXTRACT>
                </REGTEXT>
                <SIG>
                    <DATED>Issued in Renton, Washington, on May 5, 2004. </DATED>
                    <NAME>Ali Bahrami, </NAME>
                    <TITLE>Acting Manager, Transport Airplane Directorate, Aircraft Certification Service. </TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-10741 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4910-13-P</BILCOD>
        </RULE>
        <RULE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF TRANSPORTATION </AGENCY>
                <SUBAGY>Federal Aviation Administration </SUBAGY>
                <CFR>14 CFR Part 39 </CFR>
                <DEPDOC>[Docket No. 2001-NM-297-AD; Amendment 39-13636; AD 2004-10-06] </DEPDOC>
                <RIN>RIN 2120-AA64 </RIN>
                <SUBJECT>Airworthiness Directives; Boeing Model 727-100 and -200; 737-100, -200, -200C, -300, -400 and -500; and 747 Series Airplanes </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Federal Aviation Administration, DOT. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Final rule. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>
                        This amendment adopts a new airworthiness directive (AD), applicable to certain Boeing Model 727-100 and -200; 737-100, -200, -200C, -300, -400 and -500; and 747 series airplanes. This amendment requires, among other things, preparation of the electrical bonding faying surfaces for the tubing penetrations of the hydraulic heat exchanger on the forward and aft surfaces of the rear spars of the fuel tanks of the left and right wings, a one-time measurement of the electrical bonding resistances, and follow-on actions. This action is necessary to ensure adequate electrical bonding between the penetration fittings of the hydraulic heat exchanger and the rear spars of the fuel tanks. Inadequate electrical bonding, in the event of a lightning strike, could cause electrical arcing and ignition of fuel vapor in the wing fuel tank, which could result in a fuel tank explosion. This action is 
                        <PRTPAGE P="28047"/>
                        intended to address the identified unsafe condition. 
                    </P>
                </SUM>
                <EFFDATE>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Effective June 22, 2004. </P>
                    <P>The incorporation by reference of certain publications listed in the regulations is approved by the Director of the Federal Register as of June 22, 2004. </P>
                </EFFDATE>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>
                        The service information referenced in this AD may be obtained from Boeing Commercial Airplanes, PO Box 3707, Seattle, Washington 98124-2207. This information may be examined at the Federal Aviation Administration (FAA), Transport Airplane Directorate, Rules Docket, 1601 Lind Avenue, SW., Renton, Washington; or at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call (202) 741-6030, or go to: 
                        <E T="03">http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.</E>
                    </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Sulmo Mariano, Aerospace Engineer, Propulsion Branch, ANM-140S, FAA, Seattle Aircraft Certification Office, 1601 Lind Avenue, SW., Renton, Washington 98055-4056; telephone (425) 917-6501; fax (425) 917-6590. </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>
                    A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an airworthiness directive (AD) that is applicable to certain Boeing Model 727-100 and -200; 737-100, -200, -200C, -300, -400 and -500; and 747 series airplanes, was published in the 
                    <E T="04">Federal Register</E>
                     on July 21, 2003 (68 FR 43040). That action proposed to require, among other things, preparation of the electrical bonding faying surfaces on the forward and aft surfaces of the rear spars of the fuel tanks of the left and right wings, a one-time measurement of the electrical bonding resistances, and follow-on actions. 
                </P>
                <HD SOURCE="HD1">Clarification of the Description of Electrical Bonding Faying Surfaces </HD>
                <P>The FAA has clarified the description of the electrical bonding faying surfaces in the final rule. We have added “for the tubing penetrations of the hydraulic heat exchanger” after “electrical bonding faying surfaces” in the “Summary” paragraph of the preamble of the final rule and in paragraph (a) of the final rule. </P>
                <HD SOURCE="HD1">Comments </HD>
                <P>Interested persons have been afforded an opportunity to participate in the making of this amendment. Due consideration has been given to the comments received. </P>
                <HD SOURCE="HD1">Request To Withdraw the Proposed AD </HD>
                <P>Two commenters request to withdraw the proposed AD. The commenters point out that the unsafe condition addressed by the proposed AD is inadequate electrical bonding of the hydraulic heat exchangers to the rear spar, which could cause electrical arcing and subsequent ignition of fuel vapors in the wing fuel tank. The commenters note that Boeing Service Bulletin 737-29A1096, dated June 7, 2001, does not contain any reports where the non-bonded penetration fittings have resulted in arcing. The commenters believe this proposed AD for wing fuel tanks need not be mandated. </P>
                <P>We do not agree with the request to withdraw the proposed AD. Although there have been no reports where the non-bonded penetration fittings have resulted in arcing for the Model 737 series airplanes mentioned by the commenter, we find sufficient data exists to demonstrate that such potential remains. In addition, unless a fire or explosion results from an arcing event, there will not necessarily be evidence that such arcing occurred. Three catastrophic accidents have occurred when transport airplanes were struck by lightening: a Model 707 series airplane at Elkton, Maryland, in 1963; a Boeing Model KC-135 airplane in Spain in 1974; and a Model 747 series airplane in Madrid, Spain, in 1976. In one of those accidents, holes in metal debris from the accident pointed to a lightning strike that ignited fuel vapors inside a fuel tank. In the other two cases, observers from the ground confirmed that the airplanes had been struck by lightning and were in flames before crashing. These accidents have led us to require using conservative lightning safety design practices to preclude ignition sources in fuel tanks due to lightning. Laboratory lightning tests in conjunction with analyses conducted by the airplane manufacturer demonstrate the potential for in-tank arcing associated with a high electrical bonding resistance between the hydraulic heat exchangers and the airplane structure. Such high bonding resistances are expected to exist on these airplanes because of the details of the original design and production practices. In addition, lightning strikes are expected to occur several times in the life of each airplane. Data collected by the airplane manufacturer indicates that Model 737 and 747 series airplanes are struck by lightning approximately once per year. We and the airplane manufacturer are in agreement that a potential for arcing at the hydraulic line penetrations and at the heat exchanger exists in the event of a lightning strike to the engine or the wing for the Boeing Model 727, 737, and 747 series airplanes listed in Table 1 of the AD. We also considered the aging of the fleet of these Boeing airplanes in determining the severity of the unsafe condition. Therefore, we do not find it necessary to change the final rule in this regard. </P>
                <HD SOURCE="HD1">Request To Extend Compliance Time </HD>
                <P>Several commenters request that the proposed AD be revised to extend the compliance time specified in paragraph (a) of the proposed AD. One commenter suggests extending the compliance time for the initial actions from within 5 years (as proposed) to within 8 years or 20,000 flight hours. Another commenter suggests extending the initial compliance time to within 6 years. That commenter also notes that there have not been any reported cases of arcing occurring at the heat exchanger to wing spar area on any of the affected fleet and some of the fleets have been in service over 40 years. Given those facts, that commenter believes an equivalent level of safety can be maintained over the 6-year compliance time. The commenters contend that extending the compliance time will allow affected operators to perform the inspection during a regularly scheduled maintenance interval while adoption of the proposed compliance time of within 5 years would require operators to schedule special times to do the inspection, at additional expense. </P>
                <P>
                    We do not agree with the request to extend the compliance time specified in paragraph (a) of the final rule. The commenters provide no technical justification for revising the compliance time. The manufacturer has done a risk assessment analysis related to lightning strikes on the Model 727, 737, and 747 fleets and determined that an acceptable level of safety would be provided by a compliance time of five years for accomplishing the actions in the service bulletins (specified as the appropriate source of service information for the final rule). We concur with the manufacturer's assessment. We also considered the Air Transportation Association's (ATA's) guidelines of using an interval of five years for significant modifications when an acceptable level of safety is provided. Therefore, we have determined that the initial compliance time of within five years after the effective date of the AD, as specified in paragraph (a) of the final rule, is appropriate. We do not find it necessary to change the final rule in this regard. However, if operators care to provide technical justification, they may 
                    <PRTPAGE P="28048"/>
                    request an approval of an alternative method of compliance (AMOC) from the FAA, in accordance with paragraph (e) of the final rule. 
                </P>
                <HD SOURCE="HD1">Request To Revise Compliance Time for Corrective Action for Incorrect Bonding Resistance </HD>
                <P>Two commenters request that paragraph (a) of the proposed AD be revised by changing the compliance time to accomplish corrective action for any incorrect bonding resistances from “Before further flight” to “within 5 years after the effective date of this AD.” The commenters are concerned that an inability to attain the specified electrical bonding resistances will delay return to service of the airplane which in turn could cause operational disruptions. </P>
                <P>We do not agree with the request to change the compliance time to accomplish corrective action for any incorrect bonding resistances. Our general policy is to require repair of known identified unsafe conditions before further flight (though we may make exceptions to this policy in certain cases of unusual need). Because of the safety implications and consequences associated with electrical resistances beyond a certain threshold, resistances below the threshold must be met before further flight. In addition, since the fuel tanks are open, there should be no undue burden to operators when they accomplish the corrective action for incorrect bonding resistances that is required by paragraph (a) of the final rule. We do not find it necessary to change the final rule in this regard.</P>
                <HD SOURCE="HD1">Request To Revise Applicability for Boeing Model 747 Series Airplanes </HD>
                <P>One commenter, the manufacturer, requests to revise the applicability in Table 1 of the proposed AD for Boeing Model 747 series airplanes. The manufacturer states that the effectivity listed for Boeing Alert Service Bulletin 747-29A2104, dated July 19, 2001, is “All 747 airplanes from line numbers 1 through 1271.” The manufacturer points out that, at line number 1272, it incorporated a design change into Model 747 production that is equivalent to the change defined in the service bulletin. The manufacturer recommends changing the applicability for 747 series airplanes in Table 1 of the AD from “as listed in Boeing Alert Service Bulletin 747-29A2104, dated July 19, 2001,” to “line numbers 1 thru 1271.” </P>
                <P>We agree that the applicability of the final rule should be revised for Boeing Model 747 series airplanes. For the reasons specified by the commenter, we have revised the “Applicability” for the 747 series airplanes in Table 1 of the final rule to “Line Number 1 through 1271 inclusive.” The number of Model 747 series airplanes affected by the final rule has not changed. </P>
                <HD SOURCE="HD1">Request To Allow Operator Equivalent Procedures for Draining and Access to the Fuel Tanks </HD>
                <P>Two commenters request that operator equivalent procedures (OEPs) be allowed for draining and gaining access to the fuel tanks. The commenters contend that the wording in paragraph (a) of the proposed AD will prevent operators from using their own procedures for draining fuel tanks and preparing them for entry unless they request an AMOC. The commenters feel the intent of the proposed AD is to prepare and measure the electrical bond of the hydraulic heat exchangers and not to mandate how the fuel tanks are drained. </P>
                <P>We agree that OEPs may be allowed for draining and gaining access to the fuel tanks provided those procedures are FAA-accepted procedures. The use of OEPs for draining and gaining access to the fuel tank does not directly affect the means of correcting the unsafe condition. The use of OEPs may also reduce the costs of implementing the AD. Therefore, we have added paragraph (b) to the final rule stating: “Operators may use their own FAA-accepted equivalent procedures for draining the fuel tanks and gaining access to the fuel tanks.” We also revised paragraph (a) of the final rule by adding “except as provided by paragraph (b) of this AD” and we revised the paragraph numbering following paragraph (b) of the final rule.</P>
                <HD SOURCE="HD1">Request To Use Latest Revision of Boeing Alert Service Bulletin 737-29A1096 </HD>
                <P>Several commenters request that Revision 1 of Boeing Alert Service Bulletin 737-29A1096, dated July 31, 2003, be referenced in the proposed AD instead of the original version of the service bulletin, dated June 7, 2001. The commenters point out that the manufacturer has issued Revision 1 of the service bulletin and it contains changes to the parts and procedures. The commenters also suggest that modifications accomplished per the original issue of the service bulletin be considered acceptable for compliance with the proposed AD. </P>
                <P>We agree with the commenters. We have reviewed and approved Boeing Alert Service Bulletin 737-29A1096, Revision 1, dated July 31, 2003, as the appropriate source of service information for the actions specified in the final rule. The changes in Revision 1 of the service bulletin clarify the parts and procedures described in the original version of the service bulletin. No additional work is specified in Revision 1 of the service bulletin. Accordingly, the final rule has been revised to reference Boeing Alert Service Bulletin 737-29A1096, Revision 1, dated July 31, 2003. In addition, paragraph (d) has been added to the final rule to allow actions accomplished before the effective date of the final rule per the original version of the service bulletin, dated June 7, 2001, to be considered acceptable for compliance with the corresponding action specified in this final rule. </P>
                <HD SOURCE="HD1">Request To Use Latest Revision of Boeing Alert Service Bulletin 747-29A2104 </HD>
                <P>Two commenters request that Revision 1 of Boeing Alert Service Bulletin 747-29A2104, dated March 7, 2002, be referenced in the proposed AD instead of the original version of the service bulletin, dated July 19, 2001. The commenters point out that the proposed AD references the original version of the service bulletin and that Revision 1 of the service bulletin was issued on March 7, 2002. </P>
                <P>We agree with the commenters. We have reviewed and approved Boeing Service Bulletin 747-29A2104, Revision 1, dated March 7, 2002, as the appropriate source of service information for the actions specified in the final rule. The actions in Revision 1 of the service bulletin are almost identical to the actions described in the original version of the service bulletin. No additional work is specified in Revision 1 of the service bulletin. Accordingly, the final rule has been revised to reference Boeing Service Bulletin 747-29A2104, Revision 1, dated March 7, 2002. In addition, the original version of the service bulletin, dated July 19, 2001, has been added to paragraph (d) of the final rule to allow actions accomplished before the effective date of the final rule per the original version of the service bulletin to be considered acceptable for compliance with the corresponding action specified in this final rule. </P>
                <HD SOURCE="HD1">Request To Approve Future Revisions of Service Bulletins </HD>
                <P>
                    Two commenters request that approval be added for the accomplishment of future revisions of the service bulletins listed in Tables 1 and 2 of the proposed AD as being acceptable for compliance with the proposed AD. One commenter noted that there have been revisions to the 
                    <PRTPAGE P="28049"/>
                    service bulletins listed in Tables 1 and 2 of the proposed AD. 
                </P>
                <P>We do not agree with the request to approve accomplishment of future revisions of the service bulletins as being acceptable for compliance with the final rule. When referencing a specific service bulletin in a final rule, using a phrase such as, “or later FAA-approved revisions,” violates Office of the Federal Register regulations for approving materials that are incorporated by reference. To allow operators to use later revisions of the referenced document (issued after publication of the final rule), either we must revise the final rule to reference specific later revisions, or operators must request approval to use later revisions as an AMOC with the final rule, under the provisions of paragraph (e) of the final rule. As stated previously, we have revised the final rule to specify the use of Boeing Alert Service Bulletin 737-29A1096, Revision 1, dated July 31, 2003; and Boeing Service Bulletin 747-29A2104, Revision 1, dated March 7, 2002. We do not find it necessary to make any additional changes to the final rule in this regard. </P>
                <HD SOURCE="HD1">Request To Remove Reference to Service Bulletin for Incorrect Bonding Resistance Corrective Action </HD>
                <P>Two commenters request that paragraph (a) of the proposed AD be revised by removing the reference to Boeing Service Bulletin 737-29A1096 listed in Table 2 for corrective action for any incorrect bonding resistance. One commenter notes that there are no specific corrective work instructions for incorrect electrical bonding resistances in the service bulletin. </P>
                <P>We agree that the reference for corrective action for any incorrect bonding resistances should be revised in paragraph (a) of the final rule. All the service bulletins listed in Table 2 of the final rule do not contain any instructions for correcting incorrect bonding resistances. We have revised the last sentence in paragraph (a) of the final rule to provide instructions for correcting incorrect bonding resistances as follows: “If the bonding resistance is incorrect, before further flight, repeat the preparation of the electrical bonding faying surface on the forward and aft surfaces of the rear spar of the fuel tanks of the left and right wings as necessary to achieve a bonding resistance below the threshold specified in the Accomplishment Instructions of the applicable service bulletin listed in Table 2 of this AD.” </P>
                <HD SOURCE="HD1">Request To Remove Reference to Service Bulletin for Leak Repairs </HD>
                <P>Two commenters request that paragraph (b) of the proposed AD be revised by removing the reference to Boeing Alert Service Bulletin 737-29A1096 for the repair of any leaks. One commenter notes that there are no leak repair instructions in the service bulletin. The commenter does agree that leakage should be repaired before further flight. </P>
                <P>We do not agree with the request to revise paragraph (c) of the final rule (specified in paragraph (b) of the proposed AD) by removing the reference to the service bulletin for repair of any leaks. While the service bulletin does not contain specific leak repair instructions, it does cite the appropriate airplane maintenance manuals for repair of any leaks. We do not find it necessary to change the final rule in this regard. </P>
                <HD SOURCE="HD1">Request To Remove Identification of Rear Spar With Service Bulletin Number </HD>
                <P>Two commenters request to remove the requirement to identify the rear spar with the service bulletin number as specified in Figure 8, Step 5, of Boeing Alert Service Bulletin 737-29A1096. One commenter believes there is no real benefit to this action and that it creates additional exterior markings that must be maintained. The commenter contends that tracking accomplishment of the service bulletin via aircraft records should be sufficient. </P>
                <P>We do not agree with the request to remove the requirement to identify the rear spar with the service bulletin number. The airplane manufacturer has studied this matter and concluded that the best method for identifying the accomplishment of the measurement and follow-on actions is to mark the service bulletin number on an appropriate airplane component. We concur with the manufacturer. We do not find it necessary to change the final rule in this regard. </P>
                <HD SOURCE="HD1">Conclusion </HD>
                <P>After careful review of the available data, including the comments noted above, the FAA has determined that air safety and the public interest require the adoption of the rule with the changes previously described. The FAA has determined that these changes will neither increase the economic burden on any operator nor increase the scope of the AD. </P>
                <HD SOURCE="HD1">Changes to 14 CFR part 39/Effect on the AD </HD>
                <P>On July 10, 2002, the FAA issued a new version of 14 CFR part 39 (67 FR 47997, July 22, 2002), which governs the FAA's airworthiness directives system. The regulation now includes material that relates to altered products, special flight permits, and alternative methods of compliance. However, for clarity and consistency in this final rule, we have retained the language of the NPRM regarding that material. </P>
                <HD SOURCE="HD1">Change to Labor Rate Estimate </HD>
                <P>We have reviewed the figures we have used over the past several years to calculate AD costs to operators. To account for various inflationary costs in the airline industry, we find it necessary to increase the labor rate used in these calculations from $60 per work hour to $65 per work hour. The cost impact information, below, reflects this increase in the specified hourly labor rate. </P>
                <HD SOURCE="HD1">Cost Impact </HD>
                <P>There are approximately 5,085 airplanes of the affected design in the worldwide fleet. We estimate that 2,251 airplanes of U.S. registry will be affected by this AD. The following table shows the estimated cost impact to do the required actions for airplanes affected by this AD. The average labor rate is $65 per work hour. The estimated maximum total cost for all airplanes affected by this AD is $6,827,860. </P>
                <GPOTABLE COLS="5" OPTS="L2,tp0,i1" CDEF="s60,20,15,15,20">
                    <TTITLE>  </TTITLE>
                    <BOXHD>
                        <CHED H="1">Model </CHED>
                        <CHED H="1">Number of U.S.-registered airplanes </CHED>
                        <CHED H="1">
                            Work hours
                            <LI>(estimated) </LI>
                        </CHED>
                        <CHED H="1">
                            Labor cost
                            <LI>(estimated) </LI>
                        </CHED>
                        <CHED H="1">
                            Maximum fleet cost
                            <LI>(estimated) </LI>
                        </CHED>
                    </BOXHD>
                    <ROW>
                        <ENT I="01">727 </ENT>
                        <ENT>910 </ENT>
                        <ENT>44 </ENT>
                        <ENT>$2,860 </ENT>
                        <ENT>$2,602,600 </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">737 </ENT>
                        <ENT>1,091 </ENT>
                        <ENT>44 </ENT>
                        <ENT>2,860 </ENT>
                        <ENT>3,120,260 </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">747 </ENT>
                        <ENT>250 </ENT>
                        <ENT>68 </ENT>
                        <ENT>4,420 </ENT>
                        <ENT>1,105,000 </ENT>
                    </ROW>
                </GPOTABLE>
                <P>
                    The cost impact figures discussed above are based on assumptions that no operator has yet accomplished any of the requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted. The cost impact figures discussed in AD rulemaking actions represent only the time 
                    <PRTPAGE P="28050"/>
                    necessary to perform the specific actions actually required by the AD. These figures typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions. 
                </P>
                <HD SOURCE="HD1">Regulatory Impact </HD>
                <P>The regulations adopted herein will not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, it is determined that this final rule does not have federalism implications under Executive Order 13132. </P>
                <P>
                    For the reasons discussed above, I certify that this action (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A final evaluation has been prepared for this action and it is contained in the Rules Docket. A copy of it may be obtained from the Rules Docket at the location provided under the caption 
                    <E T="02">ADDRESSES.</E>
                </P>
                <LSTSUB>
                    <HD SOURCE="HED">List of Subjects in 14 CFR Part 39 </HD>
                    <P>Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.</P>
                </LSTSUB>
                <HD SOURCE="HD1">Adoption of the Amendment </HD>
                <AMDPAR>Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration amends part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows: </AMDPAR>
                <PART>
                    <HD SOURCE="HED">PART 39—AIRWORTHINESS DIRECTIVES </HD>
                </PART>
                <AMDPAR>1. The authority citation for part 39 continues to read as follows: </AMDPAR>
                <AUTH>
                    <HD SOURCE="HED">Authority:</HD>
                    <P>49 U.S.C. 106(g), 40113, 44701. </P>
                </AUTH>
                <SECTION>
                    <SECTNO>§ 39.13</SECTNO>
                    <SUBJECT>[Amended] </SUBJECT>
                </SECTION>
                <REGTEXT TITLE="14" PART="39">
                    <AMDPAR>2. Section 39.13 is amended by adding the following new airworthiness directive: </AMDPAR>
                    <EXTRACT>
                        <FP SOURCE="FP-2">
                            <E T="04">2004-10-06</E>
                             
                            <E T="04">Boeing:</E>
                             Amendment 39-13636. Docket 2001-NM-297-AD. 
                        </FP>
                        <P>
                            <E T="03">Applicability:</E>
                             This AD applies to the airplanes listed in Table 1 of this AD, certificated in any category: 
                        </P>
                        <GPOTABLE COLS="2" OPTS="L2,i1" CDEF="s70,r80">
                            <TTITLE>Table 1.—Applicability </TTITLE>
                            <BOXHD>
                                <CHED H="1">Model </CHED>
                                <CHED H="1">Applicability </CHED>
                            </BOXHD>
                            <ROW>
                                <ENT I="01">727-100 and -200 series airplanes</ENT>
                                <ENT>As listed in Boeing Alert Service Bulletin 727-29A0067, dated June 7, 2001. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">737-100, -200, -200C, -300, -400 and -500 series airplanes</ENT>
                                <ENT>As listed in Boeing Alert Service Bulletin 737-29A1096, Revision 1, dated July 31, 2003. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">747 series airplanes</ENT>
                                <ENT>Line Numbers 1 through 1271 inclusive. </ENT>
                            </ROW>
                        </GPOTABLE>
                        <NOTE>
                            <HD SOURCE="HED">Note 1:</HD>
                            <P>This AD applies to each airplane identified in the preceding applicability provision, regardless of whether it has been modified, altered, or repaired in the area subject to the requirements of this AD. For airplanes that have been modified, altered, or repaired so that the performance of the requirements of this AD is affected, the owner/operator must request approval for an alternative method of compliance in accordance with paragraph (e) of this AD. The request should include an assessment of the effect of the modification, alteration, or repair on the unsafe condition addressed by this AD; and, if the unsafe condition has not been eliminated, the request should include specific proposed actions to address it. </P>
                        </NOTE>
                        <P>
                            <E T="03">Compliance:</E>
                             Required as indicated, unless accomplished previously. 
                        </P>
                        <P>To ensure adequate electrical bonding between the penetration fittings of the hydraulic heat exchanger and the rear spars of the fuel tanks of the left and right wings, accomplish the following: </P>
                        <HD SOURCE="HD1">Prepare Electrical Bonding Faying Surfaces/Measure Electrical Bonding </HD>
                        <P>(a) Within 60 months after the effective date of this AD: Prepare the electrical bonding faying surfaces for the tubing penetrations of the hydraulic heat exchanger on the forward and aft surfaces of the rear spars of the fuel tanks of the left and right wings, and do a one-time measurement of the electrical bonding resistances between the penetration fittings of the hydraulic heat exchanger and the rear spars, and between the heat exchanger tube and the lower wing stringer surfaces, per the Accomplishment Instructions of the applicable Boeing service bulletin listed in Table 2 of this AD, except as provided by paragraph (b) of this AD. The procedures include the following: Depressurize the hydraulic systems; drain the fuel from the fuel tanks; disconnect the inlet and outlet tubes of the heat exchangers and remove the heat exchangers; prepare the faying surface by sanding the surface areas down to bare metal and apply alodine protective coating on the surfaces, and re-install the heat exchangers. If the bonding resistance is incorrect, before further flight, repeat the preparation of the electrical bonding faying surface for the tubing penetrations of the hydraulic heat exchanger on the forward and aft surfaces of the rear spar of the fuel tanks of the left and right wings as necessary to achieve a bonding resistance below the threshold specified in the Accomplishment Instructions of the applicable service bulletin listed in Table 2 of this AD. </P>
                        <GPOTABLE COLS="4" OPTS="L2,i1" CDEF="s100,20,r100,r100">
                            <TTITLE>Table 2.—Service Bulletins </TTITLE>
                            <BOXHD>
                                <CHED H="1">Model </CHED>
                                <CHED H="1">Boeing service bulletin </CHED>
                                <CHED H="1">Revision level </CHED>
                                <CHED H="1">Date </CHED>
                            </BOXHD>
                            <ROW>
                                <ENT I="01">727-100 and -200 </ENT>
                                <ENT>727-29A0067 </ENT>
                                <ENT>Original</ENT>
                                <ENT>June 7, 2001. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">737-100, -200, -200C, -300, -400 and -500</ENT>
                                <ENT>737-29A1096 </ENT>
                                <ENT>Revision 1 </ENT>
                                <ENT>July 31, 2003. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">747 </ENT>
                                <ENT>747-29A2104 </ENT>
                                <ENT>Revision 1 </ENT>
                                <ENT>March 7, 2002 </ENT>
                            </ROW>
                        </GPOTABLE>
                        <P>(b) Operators may use their own FAA-accepted equivalent procedures for draining the fuel tanks and gaining access to the fuel tanks. </P>
                        <HD SOURCE="HD1">Follow-On Actions </HD>
                        <P>(c) Before further flight after accomplishment of paragraph (a) of this AD: Apply fillet sealant and protective finishes around the penetration fittings of the hydraulic heat exchanger per the Accomplishment Instructions of the applicable Boeing service bulletin listed in Table 2 of this AD (per Figure 4 of Boeing Alert Service Bulletin 727-29A0067; per Figure 8 of Boeing Alert Service Bulletin 737-29A1096, Revision 1; or per Figure 4 of Boeing Service Bulletin 747-29A2104, Revision 1; as applicable); then service and pressurize the hydraulic systems and examine for signs of hydraulic fluid leakage; and service the fuel tank and examine for signs of fuel leakage per the Accomplishment Instructions of the applicable service bulletin listed in Table 2 of this AD. Repair any leaks found before further flight, per the applicable service bulletin listed in Table 2 of this AD. </P>
                        <HD SOURCE="HD1">Actions Accomplished Per Previous Issue of Service Bulletin </HD>
                        <P>
                            (d) Actions accomplished before the effective date of this AD per Boeing Alert Service Bulletin 737-29A1096, dated June 7, 2001; and Boeing Alert Service Bulletin 747-29A2104, dated July 19, 2001; as applicable, are considered acceptable for compliance with the corresponding action specified in this AD. 
                            <PRTPAGE P="28051"/>
                        </P>
                        <HD SOURCE="HD1">Alternative Methods of Compliance </HD>
                        <P>(e) An alternative method of compliance or adjustment of the compliance time that provides an acceptable level of safety may be used if approved by the Manager, Seattle Aircraft Certification Office (ACO), FAA. Operators shall submit their requests through an appropriate FAA Principal Maintenance Inspector, who may add comments and then send it to the Manager, Seattle ACO. </P>
                        <NOTE>
                            <HD SOURCE="HED">Note 2:</HD>
                            <P>Information concerning the existence of approved alternative methods of compliance with this AD, if any, may be obtained from the Seattle ACO. </P>
                        </NOTE>
                        <HD SOURCE="HD1">Special Flight Permit </HD>
                        <P>(f) Special flight permits may be issued in accordance with sections 21.197 and 21.199 of the Federal Aviation Regulations (14 CFR 21.197 and 21.199) to operate the airplane to a location where the requirements of this AD can be accomplished. </P>
                        <HD SOURCE="HD1">Incorporation by Reference </HD>
                        <P>(g) Unless otherwise specified in this AD, the actions shall be done in accordance with the applicable service bulletins listed in Table 3 of this AD: </P>
                        <GPOTABLE COLS="3" OPTS="L2,i1" CDEF="s150,r100,xs60">
                            <TTITLE>Table 3.—Applicable Service Bulletins </TTITLE>
                            <BOXHD>
                                <CHED H="1">Service bulletin </CHED>
                                <CHED H="1">Revision level </CHED>
                                <CHED H="1">Date </CHED>
                            </BOXHD>
                            <ROW>
                                <ENT I="01">Boeing Alert Service Bulletin 727-29A0067 </ENT>
                                <ENT>Original </ENT>
                                <ENT>June 7, 2001. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Boeing Alert Service Bulletin 737-29A1096 </ENT>
                                <ENT>Revision 1 </ENT>
                                <ENT>July 31, 2003. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Boeing Service Bulletin 747-29A2104 </ENT>
                                <ENT>Revision 1 </ENT>
                                <ENT>March 7, 2002. </ENT>
                            </ROW>
                        </GPOTABLE>
                        <P>
                            This incorporation by reference was approved by the Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies may be obtained from Boeing Commercial Airplanes, P.O. Box 3707, Seattle, Washington 98124-2207. Copies may be inspected at the FAA, Transport Airplane Directorate, 1601 Lind Avenue, SW., Renton, Washington; or at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call (202) 741-6030, or go to: 
                            <E T="03">http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.</E>
                        </P>
                        <HD SOURCE="HD1">Effective Date </HD>
                        <P>(h) This amendment becomes effective on June 22, 2004. </P>
                    </EXTRACT>
                </REGTEXT>
                <SIG>
                    <DATED>Issued in Renton, Washington, on May 5, 2004. </DATED>
                    <NAME>Ali Bahrami, </NAME>
                    <TITLE>Acting Manager, Transport Airplane Directorate, Aircraft Certification Service. </TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-10906 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4910-13-P </BILCOD>
        </RULE>
        <RULE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF TRANSPORTATION </AGENCY>
                <SUBAGY>Federal Aviation Administration </SUBAGY>
                <CFR>14 CFR Part 39 </CFR>
                <DEPDOC>[Docket No. 2003-NM-40-AD; Amendment 39-13635; AD 2004-10-05] </DEPDOC>
                <RIN>RIN 2120-AA64 </RIN>
                <SUBJECT>Airworthiness Directives; Boeing Model 747-400, 747-400D, 747-400F, 757-200, 757-200PF, 757-200CB, 767-200, 767-300, and 767-300F Series Airplanes </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Federal Aviation Administration, DOT. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Final rule. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>This amendment adopts a new airworthiness directive (AD), applicable to certain Boeing transport category airplane models, as listed above. This amendment requires a modification of the air data computer (ADC) system, which involves installing certain new circuit breakers, relays, and related components, and making various wiring changes in and between the flight deck and main equipment center. For certain airplanes, this amendment also requires accomplishment of various other actions prior to or concurrently with the modification of the ADC system. For certain airplanes, this amendment also contains an option that will extend the compliance time to accomplish the modification of the ADC system. This action is necessary to ensure that the flightcrew is able to silence an erroneous overspeed or stall aural warning. A persistent erroneous warning could confuse and distract the flightcrew and lead to an increase in the flightcrew's workload. Such a situation could lead the flightcrew to act on hazardously misleading information, which could result in loss of control of the airplane. This action is intended to address the identified unsafe condition. </P>
                </SUM>
                <EFFDATE>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Effective June 22, 2004. </P>
                    <P>The incorporation by reference of certain publications listed in the regulations is approved by the Director of the Federal Register as of June 22, 2004. </P>
                </EFFDATE>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>
                        The service information referenced in this AD may be obtained from Boeing Commercial Airplanes, P.O. Box 3707, Seattle, Washington 98124-2207. This information may be examined at the Federal Aviation Administration (FAA), Transport Airplane Directorate, Rules Docket, 1601 Lind Avenue, SW., Renton, Washington; or at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call (202) 741-6030, or go to: 
                        <E T="03">http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.</E>
                    </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Elizabeth Zurcher, Aerospace Engineer, Systems and Equipment Branch, ANM-130S, FAA, Seattle Aircraft Certification Office, 1601 Lind Avenue, SW., Renton, Washington 98055-4056; telephone (425) 917-6495; fax (425) 917-6590. </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>
                    A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an airworthiness directive (AD) that is applicable to certain Boeing transport category airplane models was published in the 
                    <E T="04">Federal Register</E>
                     on July 17, 2003 (68 FR 42317). That action proposed to require a modification of the air data computer (ADC) system, which involves installing certain new circuit breakers, relays, and related components, and making various wiring changes in and between the flight deck and main equipment center. For certain airplanes, that action also proposed to require accomplishment of various other actions prior to or concurrently with the modification of the ADC system. 
                </P>
                <HD SOURCE="HD1">Actions Since Issuance of the Proposed Rule </HD>
                <P>Since issuance of the proposed rule, we have reviewed and approved the following Boeing service bulletins: </P>
                <P>
                    • 757-34A0222, Revision 1, dated July 17, 2003 (for Model 757-200, -200PF, and -200CB series airplanes), which describes procedures for installing a circuit breaker and replacing an existing lightplate assembly with a new, improved lightplate assembly in the flight compartment; installing two relays and removing a certain relay in the main equipment center; making various wiring changes in the flight compartment and main equipment center; and performing tests of the flight data acquisition unit, flight data recorder system, and stall and 
                    <PRTPAGE P="28052"/>
                    overspeed warnings. These changes are intended to allow the flightcrew to silence an erroneous aural overspeed or stall warning by switching away from a failed ADC that is generating the warning. This service bulletin specifies that Boeing Service Bulletin 757-31-0059 must be accomplished either previously or concurrently. We have revised this final rule to include reference to Revision 1 of the service bulletin as the appropriate source of service information for the required modification (for Model 757-200, -200PF, and -200CB series airplanes). 
                </P>
                <P>• 767-34A0332, Revision 1, dated April 24, 2003 (for Model 767-200, -300, and -300F series airplanes), which describes procedures for modifying the air data switching system and doing a system functional test. These changes are intended to allow the flightcrew to silence an erroneous aural overspeed or stall warning by switching away from a failed ADC that is generating the warning. This service bulletin specifies that Boeing Service Bulletins 767-31-0091, 767-31-0098, 767-31-0099, 767-31-0100, or 767-31-0101, as applicable, must be accomplished either previously or concurrently. We have revised this final rule to include reference to Revision 1 of the service bulletin as the appropriate source of service information for the required modification (for Model 767-200, -300, and -300F series airplanes). Revision 1 of the service bulletin contains an increase in the work hour estimate for the change and test from 55 to 124 work hours. </P>
                <P>We also have reviewed and approved the following Boeing special attention service bulletins: </P>
                <P>• 747-31-2313, Revision 1, dated September 26, 2002 (for Model 747-400, -400D, and -400F series airplanes), which describes procedures for changing the termination of two wires on the MAWEA card file and for performing an operational test. </P>
                <P>• 757-31-0068, Revision 1, dated August 29, 2002 (for Model 757-200, -200CB, and -200PF series airplanes), which describes procedures for changing two wires in wire bundle W1451 at the P51 warning electronics card file panel and for performing an operational test. </P>
                <P>• 767-31-0149, Revision 1, dated November 7, 2002 (for Model 767-200, -300, and -300F series airplanes), which describes procedures for changing the wire termination on the left and right siren owl amplifier modules in the P51 warning electronics unit and for performing an operational test. </P>
                <P>We have revised the final rule to reference these Boeing special attention service bulletins as the appropriate source of service information for the optional interim measure that has been added to the final rule. </P>
                <HD SOURCE="HD1">Comments </HD>
                <P>Interested persons have been afforded an opportunity to participate in the making of this amendment. Due consideration has been given to the comments received. </P>
                <HD SOURCE="HD1">Request To Extend Compliance Time </HD>
                <P>
                    Several commenters request that the compliance time for modification that is specified in the proposed AD be extended from 24 months to compliance times that range between 42 to 72 months. The commenters cite significant out-of-service costs and logistical impact associated with a 24-month compliance time requirement. Some commenters suggest that there are FAA-approved service instructions (
                    <E T="03">i.e.</E>
                    , Boeing Special Attention Service Bulletin 747-31-2313, Revision 1, dated September 26, 2002; Boeing Special Attention Service Bulletin 757-31-0068, Revision 1, dated August 29, 2002; and Boeing Special Attention Service Bulletin 767-31-0149, Revision 1, dated November 7, 2002) that could be incorporated to allow flightcrews to silence aural overspeed warnings as an interim action. They propose that the FAA add an option to accomplish the interim action within 12 or 18 months and then accomplish the modification within 60 or 72 months after the effective date of the AD. 
                </P>
                <P>The FAA agrees with the commenters that operators could experience significant out-of-service cost and logistical impacts associated with a 24-month compliance time. We also agree that an optional interim action be added to allow flightcrews to silence aural overspeed warnings as specified in the Boeing special attention service bulletins described earlier. We find that, if the optional interim action is accomplished within 18 months, the required modification can be accomplished within 72 months after the effective date of this final rule and will maintain an acceptable level of safety without an additional burden to the operators. Therefore, we have added an option so that operators may accomplish the required modification in one of two ways: </P>
                <P>1. Accomplish the required modification as originally proposed within 24 months after the effective date of the final rule; or </P>
                <P>2. Accomplish the interim action specified in the applicable Boeing special attention service bulletin within 18 months after the effective date of the final rule and accomplish the required modification specified in the applicable Boeing service bulletin within 72 months after the effective date of the final rule. The following table lists the applicable service bulletins for the interim measure and required modification. </P>
                <GPOTABLE COLS="2" OPTS="L2,i1" CDEF="s100,5">
                    <TTITLE>Table—Applicable Service Bulletins </TTITLE>
                    <BOXHD>
                        <CHED H="1">Boeing Service Bulletin </CHED>
                        <CHED H="1">Model </CHED>
                    </BOXHD>
                    <ROW>
                        <ENT I="01">Special Attention Service Bulletin 747-31-2313, Revision 1, dated September 26, 2002</ENT>
                        <ENT>747 </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">Alert Service Bulletin 747-34A2460, Revision 2, dated June 14, 2001 </ENT>
                        <ENT>747 </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">Special Attention Service Bulletin 757-31-0068, Revision 1, dated August 29, 2002</ENT>
                        <ENT>757 </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">Service Bulletin 757-34A0222, Revision 1, dated July 17, 2003 </ENT>
                        <ENT>757 </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">Special Attention Service Bulletin 767-31-0149, Revision 1, dated November 7, 2002</ENT>
                        <ENT>767 </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">Service Bulletin 767-34A0332, Revision 1, dated April 24, 2003 </ENT>
                        <ENT>767 </ENT>
                    </ROW>
                </GPOTABLE>
                <P>Accordingly, we have revised the final rule by adding the new compliance times to paragraph (a) of the final rule, adding the optional interim action as new paragraph (b) of the final rule, and moving the requirements for the modification (specified in paragraph (a) of the proposed AD) to paragraph (c) of the final rule. </P>
                <HD SOURCE="HD1">Request for an Alternative Method of Compliance (AMOC) to the Proposed AD </HD>
                <P>One commenter requests that an AMOC be considered. The commenter states that its safety management has not identified the inability to silence an erroneous warning as a potential safety issue and questions if the severity of the failure and probability of an event justify the compliance time of the proposed AD. The commenter contends that the compliance time of 24 months will be costly and cause logistical and supply problems. The commenter suggests that AMOCs such as a flightcrew drill would be a way to maintain an acceptable level of safety without requiring the AD. </P>
                <P>
                    We do not agree that the flightcrew drill suggested by the commenter would be an acceptable AMOC primarily because it requires tripping circuit breakers, which is against standard practice and could result in the loss of other necessary airplane systems. However, under the provisions of paragraph (h) of the final rule, we may 
                    <PRTPAGE P="28053"/>
                    consider requests for approval of an AMOC if sufficient data are submitted to substantiate that such an AMOC would provide an acceptable level of safety. No change is necessary to the final rule in this regard. 
                </P>
                <HD SOURCE="HD1">Request To Withdraw the Proposed AD </HD>
                <P>One commenter states that, if there is a low frequency of erroneous audio warnings and an acceptable flightcrew drill is available to cancel the warnings, then it is questionable whether the proposed AD is required to maintain an acceptable level of compliance. </P>
                <P>We infer from the commenter's statement that the commenter requests to withdraw the proposed AD. We do not agree with the request to withdraw the proposed AD. We find that sufficient data exist to demonstrate that an erroneous aural warning that cannot be silenced may cause the flightcrew to act based on misleading information. We consider this condition unsafe since it could result in incidents in which flightcrew actions based on hazardously misleading information result in loss of control of the airplane. We find that modification of the ADC system, as required by this AD, will adequately address the unsafe condition. No change is necessary to the final rule in this regard. </P>
                <HD SOURCE="HD1">Request To Remove “Parts Installation” Paragraph </HD>
                <P>One commenter requests to remove the “Parts Installation” paragraph (paragraph (c) of the proposed AD). The commenter contends that paragraph (c) of the proposed AD is redundant to AD 96-07-09, amendment 39-9588 (61 FR 14608, April 3, 1996), which advises flightcrews to monitor the engine indication and crew alerting system (EICAS) for “status” level messages pertaining to impending engine fuel filter bypass and requires installation of upgraded EICAS computers. </P>
                <P>We do not agree that paragraph (e) of the final rule (specified in paragraph (c) of the proposed AD) should be removed. Paragraph (c) of the proposed AD is not redundant to AD 96-07-09. AD 96-07-09 requires the installation of certain computers, while the intent of paragraph (e) of the final rule is to prevent an identified unsafe condition from being introduced into the fleet. However, we do find that the parts listed in Boeing Alert Service Bulletin 747-34A2460, Revision 2, dated June 14, 2001, may be used after the effective date of the final rule with an acceptable level of safety until the required modification. Therefore, we have removed Boeing Alert Service Bulletin 747-34A2460, Revision 2, dated June 14, 2001, from paragraph (e) of the final rule. </P>
                <HD SOURCE="HD1">Request To Revise Compliance Time in “Parts Installation” Paragraph </HD>
                <P>One commenter requests that the compliance time of the “Parts Installation” paragraph (paragraph (c) of the proposed AD) be revised to “as of 24 months after the effective date of the AD.” The commenter notes that the compliance time specified in paragraph (c) of the proposed AD implies that no “Existing Part Number” may be installed upon the effective date of the AD. The commenter states that this indicates existing parts are no longer useable immediately upon the effective date of the AD, regardless of the airplane modification status. The commenter believes the paragraph should state that existing parts could no longer be used following incorporation of the various service bulletins, not to exceed 24 months after the effective date of the AD. </P>
                <P>We do not agree to revise the compliance time of paragraph (e) of the final rule (specified in paragraph (c) of the proposed AD). In general, once we have determined that an unsafe condition exists, our normal policy specifies not to allow that condition to be introduced into the fleet. In developing the technical information on which every AD is based, we consider the availability of spare parts that the AD will require to be installed. When we have determined that those (spare) parts are immediately available to operators, our policy prohibits installation of the unsafe parts after the effective date of the AD. However, as stated previously, we have removed Boeing Alert Service Bulletin 747-34A2460, Revision 2, dated June 14, 2001, from paragraph (e) of the final rule as its parts may be used after the effective date of the final rule with an acceptable level of safety until the modification required by this AD is accomplished. No additional change is made in this regard. </P>
                <HD SOURCE="HD1">Request To Use Latest Versions of Certain Service Bulletins </HD>
                <P>
                    Several commenters request that the proposed AD be revised to reference the latest versions of certain service bulletins, 
                    <E T="03">i.e.,</E>
                     Boeing Service Bulletin 767-34A0332, Revision 1, dated April 24, 2003; and Boeing Service Bulletin 757-34A0222, Revision 1, dated July 17, 2003. The commenters also request that earlier versions of these service bulletins be clearly stated as acceptable for accomplishment of the applicable actions.
                </P>
                <P>We agree with the commenters that the latest revisions of the two service bulletins stated above should be referenced in this AD. Since the proposed AD was issued, Boeing has revised these two service bulletins and the FAA has approved both service bulletins. The new revisions correct minor errors relating to the position of the available ground studs and length of wiring only. Therefore, we also agree that previous incorporation of the original version of the service bulletins is acceptable for accomplishment of the applicable actions. We have revised the final rule to reference Boeing Service Bulletins 757-34A0222, Revision 1, dated July 17, 2003; and 767-34A0332, Revision 1, dated April 24, 2003; as appropriate sources of service information and have revised the applicability of the final rule to reference these service bulletins. There is no change in the airplane variable numbers in the effectivity of the service bulletins. However, operators should note that the estimated number of work hours for Boeing Service Bulletin 767-34A0332, Revision 1, dated April 24, 2003, has been revised from 55 to 124 work hours to more accurately reflect the time required for the change/test. The manufacturer based its estimate of the work hours in the original service bulletin on a simple airplane configuration. Because most operators have more complex airplane configurations, Revision 1 of the service bulletin shows a revised estimate of 124 work hours for the change/test. Accordingly, we have revised the “Cost Impact” paragraph of the final rule. </P>
                <HD SOURCE="HD1">Request To Refer to Later Revision of a Certain Service Bulletin </HD>
                <P>One commenter requests that the proposed AD refer to a later revision of a certain service bulletin. The commenter states that the proposed AD refers to Boeing Alert Service Bulletin 767-34A0332, dated January 10, 2002, and that they have received Boeing Service Bulletin 767-34A0332, Revision 1, dated April 24, 2003. The commenter contends that Revision 1 of the service bulletin has many deviations from their actual airplane configuration. The commenter states that they have asked Boeing to release a revised service bulletin and they were informed Boeing would issue Revision 2 of the service bulletin in late 2003. The commenter recommends that we refer to Revision 2 of the service bulletin in order for operators to accomplish the proposed AD smoothly. </P>
                <P>
                    We do not agree to refer to Revision 2 of Boeing Service Bulletin 767-34A0332. Revision 2 of the service 
                    <PRTPAGE P="28054"/>
                    bulletin has not been issued and Boeing does not expect to issue Revision 2 until late 2004. We cannot refer to a document that we have not reviewed and approved. We also cannot use the phrase, “or later FAA-approved revisions,” in an AD when referring to the service document because doing so violates Office of the Federal Register (OFR) regulations for approval of materials “incorporated by reference” in rules. In general terms, we are required by these OFR regulations to publish either the service document contents as part of the actual AD language; or to submit the service document to the OFR for approval as “referenced” material, in which case we may only refer to such material in the text of an AD. The AD may refer to the service document only if the OFR approved it for “incorporation by reference.” To allow operators to use later revisions of the referenced document (issued after publication of the AD), either we must revise the AD to reference specific later revisions, or operators must request approval to use later revisions as an alternative method of compliance with this AD under the provisions of paragraph (h) of this AD. No change is made to the final rule in this regard.
                </P>
                <HD SOURCE="HD1">Request To Clarify Intent of Prior/Concurrent Actions</HD>
                <P>One commenter requests that the intent of the proposed AD, with respect to prior/concurrent service bulletin actions, be clarified by revising paragraph (b) of the proposed AD and adding a new paragraph after paragraph (b)(2) of the proposed AD. The commenter states the software versions specified in the service bulletins listed in Tables 2 and 3 of the proposed AD are outdated and have been revised many times since the service bulletins were issued. The commenter points out the proposed AD, as written, would require a reversion to older software and hardware. The commenter recommends revising paragraph (b) of the proposed AD to state ”* * * accomplish paragraph (b)(1), (b)(2), or (b)(3) of this AD,” and adding new paragraph (b)(3) as follows: “No additional work is necessary on airplanes that have been previously accomplished per the actions specified in Tables 2 and 3. Subsequent software and hardware changes made after implementation of service bulletins specified in Tables 2 and 3 are considered acceptable when accomplished per a later FAA-approved document.”</P>
                <P>We agree with the commenter that previous accomplishment of “prior/concurrent” service bulletins is acceptable for compliance. However, we do not agree with the commenter that the “proposed AD, as written, would require a reversion to older software and hardware.” As stated in new paragraph (d) of the final rule (specified in paragraph (b) of the proposed AD), the actions in (d)(1) or (d)(2) of the final rule are to be accomplished “prior to or concurrently” with accomplishment of paragraph (c) of the final rule (specified in paragraph (a) of the proposed rule). Therefore, no more work is necessary on airplanes that previously accomplished the actions specified in Tables 2 and 3 of the final rule. We also do not agree with the commenter that software and hardware changes made per a later FAA-approved document be added as acceptable for compliance. When referencing a specific service bulletin in an AD, using the phrase, “or later FAA-approved document,” violates Office of the Federal Register regulations for approving materials that are incorporated by reference. However, affected operators may request approval to use a later FAA-approved document as an alternative method of compliance, under the provisions of paragraph (h) of the final rule. No change to the final rule is necessary in this regard. </P>
                <HD SOURCE="HD1">Request To Confirm Use of AMOC for Operator's Equivalent Procedures (OEPs) </HD>
                <P>One commenter requests confirmation that the use of OEPs will require AMOC approval and requests a name and address for AMOC submittal. </P>
                <P>We do confirm that the use of OEPs requires AMOC approval as specified in paragraph (f) of the final rule (specified in paragraph (d) of the proposed AD): “An operator's “equivalent procedure” cannot be used unless the operator receives FAA approval for that procedure according to paragraph (h) of this AD.” Requests for AMOCs should be sent to the Manager of the Seattle Aircraft Certification Office at the address listed in the “For Further Information Contact” paragraph in the preamble of this final rule. No change to the final rule is necessary in this regard. </P>
                <HD SOURCE="HD1">Requests To Remove Certain Service Bulletins From the Proposed AD </HD>
                <P>One commenter requests that Boeing Service Bulletin 767-31-0101 be removed from Table 3 of the proposed AD. The commenter notes that Table 1 of the proposed AD specifies that Model 767-200 series airplanes listed in Boeing Service Bulletin 767-34A0332 are part of the applicability of the proposed AD. However, paragraph (b)(2) of the proposed AD specifies that all services bulletins listed in Table 3 must be accomplished prior to or concurrently with the actions required by paragraph (a) of the proposed AD. The commenter states that the wording in paragraph (b)(2) of the proposed AD will mandate accomplishment of Boeing Service Bulletin 767-31-0101 for Model 767-200 series airplanes that are not part of the applicability of the proposed AD as listed in Table 1. The commenter adds that its Model 767-200 series airplanes, which are listed in Service Bulletin 767-31-0101, are not part of the applicability of the proposed AD. The commenter contends that the primary intent of the proposed AD is to accomplish the service bulletins listed in Table 1 of the proposed AD and to accomplish concurrent requirements for airplanes that are part of the Table 1 applicability. </P>
                <P>We do not agree with the commenter's request to remove Boeing Service Bulletin 767-31-0101 from Table 3 of the final rule. Although the commenter does not have airplanes listed in Service Bulletin 767-31-0101 that are part of the applicability of the final rule, there are Model 767-200 series airplanes for other operators affected by this final rule. We also do not agree that the wording in paragraph (b)(2) of the proposed AD (specified in paragraph (d)(2) of the final rule) will mandate accomplishment of Boeing Service Bulletin 767-31-0101 for Model 767-200 series airplanes that are not part of the applicability of this final rule. The intent of the AD is to accomplish the service bulletins listed in Table 1 of the AD and to accomplish concurrent requirements only on airplanes that are part of the Table 1 applicability. Paragraph (d)(2) of the final rule (specified in paragraph (b)(2) of the proposed rule) does not mandate accomplishment of the service bulletins listed in Tables 2 and 3 of the final rule for all the airplanes listed in the effectivity of the listed service bulletins, because the applicability of the final rule takes precedence over the effectivity listed in any service bulletin. Because the applicability statement in all AD actions lists all airplanes affected by that AD, all of the requirements stated in an AD are applicable only to the airplanes listed in the applicability, unless otherwise specified in the AD. However, we have revised the wording in paragraph (d)(2) of the final rule (specified in paragraph (b)(2) of the proposed rule) for clarity. </P>
                <P>
                    One commenter requests that all references to Boeing Service Bulletin 757-31-0059 be removed from the proposed AD. We infer from the commenter that it contends the references to Service Bulletin are redundant to AD 96-07-09, which was 
                    <PRTPAGE P="28055"/>
                    described previously under the heading “Request to Remove ‘Parts Installation’ Paragraph.” 
                </P>
                <P>We do not agree with the request to remove all references to Boeing Service Bulletin 757-31-0059 from the final rule. While Service Bulletin 757-31-0059 is related to AD 96-07-09, that AD does not require accomplishment of Service Bulletin 757-31-0059. Therefore, Boeing Service Bulletin 757-31-0059 is a required “prior to/concurrent” service bulletin for this final rule. No change is made to the final rule in this regard.</P>
                <HD SOURCE="HD1">Request To Clarify Modification Steps in Paragraph (a)(3) of the Proposed AD</HD>
                <P>One commenter requests that paragraph (a)(3) of the proposed AD be clarified to indicate which steps are required for the modification. The commenter believes the intent of paragraph (a)(3) of the proposed AD might be unclear because only certain steps of the Accomplishment Instructions of Boeing Alert Service Bulletin 767-34A0332 are listed. The commenter suggests revising paragraph (a)(3) of the proposed AD to read: “For Model 767-200, -300, and -300F series airplanes: Modify the air data switching system and do a systems functional test according to Boeing Service Bulletin 767-34A0332, Revision 1, dated April 24, 2003.”</P>
                <P>We agree that paragraph (c)(3) of the final rule (specified in paragraph (a)(3) of the proposed AD) should be clarified to indicate which steps are required for the modification. Although we used wording referring only to the major steps of the service bulletin in the proposed AD, it was our intent to require all the steps of the service bulletin. Accordingly, we have revised paragraph (c)(3) of the final rule (specified in paragraph (a)(3) of the proposed AD) to state “For Model 767-200, -300, and -300F series airplanes: Modify the air data switching system and do a system functional test, according to Boeing Service Bulletin 767-34A0332, Revision 1, dated April 24, 2003.”</P>
                <HD SOURCE="HD1">Request To Revise “Cost Impact” Paragraph</HD>
                <P>Two commenters contend that it would take 250 work hours per airplane to accomplish the proposed AD due to the access time required and the time to accomplish the wiring modifications (the proposed AD estimates 175 work hours for 747 series airplanes, 112 work hours for the 757 series airplanes, and 105 work hours for the 767 series airplanes). One commenter also notes that it has extensive “power-off” requirements for its 757 and 767 series airplanes. The other commenter states that for all 747, 757, and 767 series airplanes, the proposed AD also does not include costs for disturbed system checks, which it estimates at a minimum of 96 additional work hours.</P>
                <P>We infer from the commenters that they request the “Cost Impact” paragraph of the proposed AD be revised. We do not agree. As stated previously under the heading “Request to Use Latest Versions of Certain Service Bulletins,” we have revised the “Cost Impact” paragraph of the final rule for Boeing Service Bulletin 767-34A0332, Revision 1, dated April 24, 2003, by revising the work hours from 55 to 124, to reflect more accurately the time required for the change/test. Our estimates typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions. Disturbed system checks are part of close up and ensure that the airplane is in an airworthy condition, as required by the Federal Aviation Regulations and are not included in the cost estimate for the final rule. No additional changes are necessary to the final rule in this regard.</P>
                <HD SOURCE="HD1">Conclusion</HD>
                <P>After careful review of the available data, including the comments noted above, the FAA has determined that air safety and the public interest require the adoption of the rule with the changes previously described. The FAA has determined that these changes will neither increase the economic burden on any operator nor increase the scope of the AD. </P>
                <HD SOURCE="HD1">Cost Impact</HD>
                <P>There are approximately 1,872 airplanes of the affected designs in the worldwide fleet. The FAA estimates that 36 Model 747-400, -400D, and -400F series airplanes; 639 Model 757-200, -200CB, and -200PF series airplanes; and 244 Model 767-200, -300, and -300F series airplanes; of U.S. registry will be affected by this AD. Estimates of the costs to accomplish the required actions are provided in the following table:</P>
                <GPOTABLE COLS="5" OPTS="L2,i1" CDEF="s100,10,10,r50,10">
                    <TTITLE>Table—Cost Estimate for Required Service Bulletins</TTITLE>
                    <BOXHD>
                        <CHED H="1">Boeing Service Bulletin—</CHED>
                        <CHED H="1">
                            Work hours per
                            <LI>airplane—</LI>
                        </CHED>
                        <CHED H="1">
                            Hourly labor rate
                            <LI>(dollars)</LI>
                        </CHED>
                        <CHED H="1">Parts cost per airplane—</CHED>
                        <CHED H="1">
                            Cost per airplane—
                            <LI>(dollars)</LI>
                        </CHED>
                    </BOXHD>
                    <ROW>
                        <ENT I="01">747-31-2163</ENT>
                        <ENT>2</ENT>
                        <ENT>65</ENT>
                        <ENT>None</ENT>
                        <ENT>130</ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">747-31-2178</ENT>
                        <ENT>5</ENT>
                        <ENT>65</ENT>
                        <ENT>None</ENT>
                        <ENT>325</ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">747-31-2179</ENT>
                        <ENT>2</ENT>
                        <ENT>65</ENT>
                        <ENT>None</ENT>
                        <ENT>130</ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">747-31-2180</ENT>
                        <ENT>2</ENT>
                        <ENT>65</ENT>
                        <ENT>None</ENT>
                        <ENT>130</ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">747-31-2217</ENT>
                        <ENT>2</ENT>
                        <ENT>65</ENT>
                        <ENT>None</ENT>
                        <ENT>130</ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">747-34A2460</ENT>
                        <ENT>158</ENT>
                        <ENT>65</ENT>
                        <ENT O="xl">
                            $1,448-
                            <LI>$1,735</LI>
                        </ENT>
                        <ENT>
                            11,718-
                            <LI>12,005</LI>
                        </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">747-45-2005</ENT>
                        <ENT>2</ENT>
                        <ENT>65</ENT>
                        <ENT>None</ENT>
                        <ENT>130</ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">747-45-2010</ENT>
                        <ENT>2</ENT>
                        <ENT>65</ENT>
                        <ENT>None</ENT>
                        <ENT>130</ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">757-31-0059</ENT>
                        <ENT>5</ENT>
                        <ENT>65</ENT>
                        <ENT>None</ENT>
                        <ENT>325</ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">757-34A0222</ENT>
                        <ENT>107</ENT>
                        <ENT>65</ENT>
                        <ENT O="xl">
                            $12,571-
                            <LI>$12,953</LI>
                        </ENT>
                        <ENT>
                            19,526-
                            <LI>19,908</LI>
                        </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">767-31-0091</ENT>
                        <ENT>7</ENT>
                        <ENT>65</ENT>
                        <ENT>None</ENT>
                        <ENT>455</ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">767-31-0098</ENT>
                        <ENT>5</ENT>
                        <ENT>65</ENT>
                        <ENT>None</ENT>
                        <ENT>325</ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">767-31-0099</ENT>
                        <ENT>24</ENT>
                        <ENT>65</ENT>
                        <ENT>None</ENT>
                        <ENT>1,560</ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">767-31-0100</ENT>
                        <ENT>8</ENT>
                        <ENT>65</ENT>
                        <ENT>None</ENT>
                        <ENT>520</ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">767-31-0101</ENT>
                        <ENT>6</ENT>
                        <ENT>65</ENT>
                        <ENT>None</ENT>
                        <ENT>390</ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">767-34A0332</ENT>
                        <ENT>124</ENT>
                        <ENT>65</ENT>
                        <ENT O="xl">
                            $9,988-
                            <LI>$11,167</LI>
                        </ENT>
                        <ENT>
                            18,048-
                            <LI>19,227</LI>
                        </ENT>
                    </ROW>
                </GPOTABLE>
                <PRTPAGE P="28056"/>
                <P>We estimate that the total cost to accomplish all actions that are required for all airplanes affected by this AD may be as much as $18,878,215.</P>
                <P>The cost impact figures discussed above are based on assumptions that no operator has yet accomplished any of the requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted. The cost impact figures discussed in AD rulemaking actions represent only the time necessary to perform the specific actions actually required by the AD. These figures typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions.</P>
                <P>Estimates of the costs to accomplish the optional interim actions are provided in the following table:</P>
                <GPOTABLE COLS="5" OPTS="L2,i1" CDEF="s100,10,10,r50,10">
                    <TTITLE>Table—Cost Estimate for Optional Service Bulletins </TTITLE>
                    <BOXHD>
                        <CHED H="1">Boeing Service bulletin— </CHED>
                        <CHED H="1">
                            Work hours per
                            <LI>airplane— </LI>
                        </CHED>
                        <CHED H="1">
                            Hourly labor rate—
                            <LI>(dollars) </LI>
                        </CHED>
                        <CHED H="1">Parts cost per airplane— </CHED>
                        <CHED H="1">
                            Cost per airplane—
                            <LI>(dollars) </LI>
                        </CHED>
                    </BOXHD>
                    <ROW>
                        <ENT I="01">747-31-2313</ENT>
                        <ENT>1</ENT>
                        <ENT>65</ENT>
                        <ENT>None</ENT>
                        <ENT>65 </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">757-31-0068</ENT>
                        <ENT>2</ENT>
                        <ENT>65</ENT>
                        <ENT>None</ENT>
                        <ENT>130 </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">767-31-0149</ENT>
                        <ENT>1</ENT>
                        <ENT>65</ENT>
                        <ENT>None</ENT>
                        <ENT>65 </ENT>
                    </ROW>
                </GPOTABLE>
                <HD SOURCE="HD1">Regulatory Impact</HD>
                <P>The regulations adopted herein will not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, it is determined that this final rule does not have federalism implications under Executive Order 13132.</P>
                <P>
                    For the reasons discussed above, I certify that this action (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A final evaluation has been prepared for this action and it is contained in the Rules Docket. A copy of it may be obtained from the Rules Docket at the location provided under the caption 
                    <E T="02">ADDRESSES</E>
                    .
                </P>
                <LSTSUB>
                    <HD SOURCE="HED">List of Subjects in 14 CFR Part 39</HD>
                    <P>Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.</P>
                </LSTSUB>
                <HD SOURCE="HD1">Adoption of the Amendment</HD>
                <REGTEXT TITLE="14" PART="39">
                    <AMDPAR>Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration amends part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows:</AMDPAR>
                    <PART>
                        <HD SOURCE="HED">PART 39—AIRWORTHINESS DIRECTIVES</HD>
                    </PART>
                    <AMDPAR>1. The authority citation for part 39 continues to read as follows:</AMDPAR>
                    <AUTH>
                        <HD SOURCE="HED">Authority:</HD>
                        <P>49 U.S.C. 106(g), 40113, 44701.</P>
                    </AUTH>
                    <SECTION>
                        <SECTNO>§ 39.13 </SECTNO>
                        <SUBJECT>[Amended]</SUBJECT>
                    </SECTION>
                </REGTEXT>
                <REGTEXT TITLE="14" PART="39">
                    <AMDPAR>2. Section 39.13 is amended by adding the following new airworthiness directive:</AMDPAR>
                    <EXTRACT>
                        <FP SOURCE="FP-2">
                            <E T="04">2004-10-05 Boeing:</E>
                             Amendment 39-13635. Docket 2003-NM-40-AD.
                        </FP>
                        <P>
                            <E T="03">Applicability:</E>
                             Airplanes as listed in Table 1 of this AD, certificated in any category. Table 1 of this AD follows:
                        </P>
                        <GPOTABLE COLS="2" OPTS="L2,i1" CDEF="s50,r100">
                            <TTITLE>Table 1—Applicability</TTITLE>
                            <BOXHD>
                                <CHED H="1">Airplane Model—</CHED>
                                <CHED H="1">As Listed in Boeing Service Bulletin—</CHED>
                            </BOXHD>
                            <ROW>
                                <ENT I="01">747-400, 747-400D, 747-400F series airplanes</ENT>
                                <ENT>
                                    Boeing Alert Service Bulletin 747-34A2460,
                                    <LI>Revision 2, dated June 14, 2001.</LI>
                                </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">757-200, 757-200PF, 757-200CB series airplanes</ENT>
                                <ENT>
                                    Boeing Service Bulletin 757-34A0222,
                                    <LI>Revision 1, dated July 17, 2003.</LI>
                                </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">767-200, 767-300, and 767-300F series airplanes</ENT>
                                <ENT>
                                    Boeing Service Bulletin 767-34A0332,
                                    <LI>Revision 1, dated April 24, 2003.</LI>
                                </ENT>
                            </ROW>
                        </GPOTABLE>
                        <P>
                            <E T="03">Compliance:</E>
                             Required as indicated, unless accomplished previously.
                        </P>
                        <P>To ensure that the flightcrew is able to silence an erroneous overspeed or stall aural warning, accomplish the following:</P>
                        <HD SOURCE="HD1">Compliance Times</HD>
                        <P>(a) Except as provided by paragraph (a)(3) of this AD, do the actions specified in either paragraph (a)(1) or (a)(2) of this AD at the times specified in paragraphs (a)(1) and (a)(2) of this AD, as applicable.</P>
                        <P>(1) Within 24 months after the effective date of this AD, do the actions specified in paragraph (c) of this AD.</P>
                        <P>(2) Within 18 months after the effective date of this AD, do the actions in paragraph (b) of this AD; and within 72 months after the effective date of this AD, do the actions specified in paragraph (c) of this AD; except as provided by paragraph (a)(3) of this AD.</P>
                        <P>(3) Model 747-400, -400D, and -400F series airplanes equipped with three air data computers (ADCs) are required to accomplish paragraph (a)(1) of this AD.</P>
                        <HD SOURCE="HD1">Optional Interim Action</HD>
                        <P>(b) Change the termination of the wires and perform an operational test, according to the Accomplishment Instructions of Boeing Special Attention Service Bulletin 747-31-2313, Revision 1, dated September 26, 2002 (for Model 747-400, -400D, and -400F series airplanes); Boeing Special Attention Service Bulletin 757-31-0068, Revision 1, dated August 29, 2002 (for Model 757-200, -200CB, and -200PF series airplanes); and Boeing Special Attention Service Bulletin 767-31-0149, Revision 1, dated November 7, 2002 (for Model 767-200, -300, and -300F series airplanes); as applicable.</P>
                        <HD SOURCE="HD1">Modification of Air Data Computer (ADC) System</HD>
                        <P>(c) Modify the ADC system, as specified in paragraph (c)(1), (c)(2), or (c)(3) of this AD, as applicable.</P>
                        <P>(1) For Model 747-400, -400D, and -400F series airplanes: Re-route wires associated with ADC overspeed warnings, replace the P1-1 and P3-1 module assemblies in the flight deck with improved module assemblies, install various wires in and between the flight deck and main equipment center of the airplane, and perform a test of the source select module and a system functional test, according to the Accomplishment Instructions of Boeing Alert Service Bulletin 747-34A2460, Revision 2, dated June 14, 2001. </P>
                        <NOTE>
                            <HD SOURCE="HED">Note 1:</HD>
                            <P>Boeing Service Bulletin 747-34A2460, Revision 2, refers to Boeing Component Service Bulletins 233U2200-31-01 and 233U2205-31-01, both dated April 20, 1995, as additional sources for instructions to change the ADC computer source select switch on the P1-1 and P3-1 panels, respectively. </P>
                        </NOTE>
                        <P>
                            (2) For Model 757-200, -200PF, and -200CB series airplanes: Install a circuit breaker and replace an existing lightplate assembly with a new, improved lightplate assembly in the flight compartment; install two relays and remove a certain relay in the main equipment center; make various wiring changes in the flight compartment and main equipment center; and perform tests of the flight data acquisition unit, flight data 
                            <PRTPAGE P="28057"/>
                            recorder system, and stall and overspeed warnings. Do these actions according to the Accomplishment Instructions of Boeing Service Bulletin 757-34A0222, Revision 1, dated July 17, 2003. 
                        </P>
                        <P>(3) For Model 767-200, -300, and -300F series airplanes: Modify the air data switching system and do a system functional test, according to the Accomplishment Instructions of Boeing Service Bulletin 767-34A0332, Revision 1, dated April 24, 2003.</P>
                        <HD SOURCE="HD1">Actions Required To Be Accomplished Prior to or Concurrently With Paragraph (c) of This AD </HD>
                        <P>(d) Prior to or concurrently with accomplishment of paragraph (c) of this AD, accomplish paragraph (d)(1) or (d)(2) of this AD, as applicable. </P>
                        <P>(1) For Boeing Model 747-400, -400D, and -400F series airplanes: Do the actions specified in Table 2 of this AD, as applicable. Table 2 of this AD follows: </P>
                        <GPOTABLE COLS="3" OPTS="L2,i1" CDEF="s60,r200,r100">
                            <TTITLE>Table 2.—Boeing Model 747-400, -400D, and -400F Series Airplanes—Prior/Concurrent Actions </TTITLE>
                            <BOXHD>
                                <CHED H="1">For airplanes listed in— </CHED>
                                <CHED H="1">Accomplish all actions associated with— </CHED>
                                <CHED H="1">
                                    According to the Accomplishment
                                    <LI>Instructions of— </LI>
                                </CHED>
                            </BOXHD>
                            <ROW>
                                <ENT I="01">Boeing Service Bulletin 747-31-2179, dated May 26, 1994.</ENT>
                                <ENT>Replacing the three Electronic Flight Information System (EFIS)/Engine Indicating and Crew Alerting System (EICAS) interface units (EIU) in the main equipment center with improved EIUs and installing new software in six integrated display units (IDU) and three EIUs</ENT>
                                <ENT>Boeing Service Bulletin 747-31-2179, dated May 26, 1994. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Boeing Service Bulletin 747-31-2180, dated March 17, 1994</ENT>
                                <ENT>Replacing the three EIUs in the main equipment center with improved EIUs and installing new software in six IDUs and three EIUs</ENT>
                                <ENT>Boeing Service Bulletin 747-31-2180, dated March 17, 1994. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Boeing Service Bulletin 747-31-2217, dated May 19, 1994</ENT>
                                <ENT>Installing new software in six IDUs and three EIUs</ENT>
                                <ENT>Boeing Service Bulletin 747-31-2217, dated May 19,  1994. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Boeing Service Bulletins 747-31-2217, dated May 19, 1994; and 747-31-2178, dated July 1, 1993</ENT>
                                <ENT>Replacing three EIUs with improved EIUs and installing new software in six IDUs and three EIUs </ENT>
                                <ENT>Boeing Service Bulletin 747-31-2178, dated July 1, 1993. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Boeing Service Bulletins 747-31-2217, dated May 19, 1994; and 747-45-2005, dated February 8, 1990</ENT>
                                <ENT>Replacing certain central maintenance computers (CMCs) with improved CMCs, modifying related wiring, and modifying the data loader control panel</ENT>
                                <ENT>Boeing Service Bulletin 747-45-2005, dated February 8, 1990. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Boeing Service Bulletins 747-31-2217, dated May 19, 1994; and 747-45-2010, dated December 17, 1992</ENT>
                                <ENT>Installing new software in the CMC </ENT>
                                <ENT>Boeing Service Bulletin 747-45-2010, dated December 17, 1992. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Boeing Service Bulletins 747-31-2217, dated May 19, 1994; and 747-31-2163, dated February 14, 1991</ENT>
                                <ENT>Installing new software in six IDUs and three EIUs</ENT>
                                <ENT>Boeing Service Bulletin 747-31-2163, dated February 14, 1991. </ENT>
                            </ROW>
                        </GPOTABLE>
                        <HD SOURCE="HD1">Replacement of EICAS Computers </HD>
                        <P>(2) For airplanes listed in Table 1 of this AD that are also identified in any of the service bulletins listed in Table 3 of this AD: Prior to or concurrently with accomplishment of the actions required by paragraph (c) of this AD, accomplish all actions associated with replacing the existing EICAS computers with improved EICAS computers, according to the Accomplishment Instructions of the applicable service bulletin specified in Table 3 of this AD. The actions include performing an EICAS readout comparison to ensure that the applicable software is used; replacing the existing EICAS computers with new, improved EICAS computers that can be upgraded with certain software; and making related wiring changes. Table 3 of this AD follows: </P>
                        <GPOTABLE COLS="3" OPTS="L2,i1" CDEF="s60,r100,xs72">
                            <TTITLE>Table 3.—Service Bulletins for Replacement of EICAS Computers </TTITLE>
                            <BOXHD>
                                <CHED H="1">Boeing Service Bulletin (all including Appendices A, B, and C)— </CHED>
                                <CHED H="1">Service bulletin revision level— </CHED>
                                <CHED H="1">Service bulletin date— </CHED>
                            </BOXHD>
                            <ROW>
                                <ENT I="01">757-31-0059 </ENT>
                                <ENT>Revision 3 </ENT>
                                <ENT>March 29, 2001. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">767-31-0091 </ENT>
                                <ENT>Revision 3 </ENT>
                                <ENT>April 27, 2000. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">767-31-0098 </ENT>
                                <ENT>Revision 2 </ENT>
                                <ENT>October 21, 1999. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">767-31-0099 </ENT>
                                <ENT>Revision 3 </ENT>
                                <ENT>February 8, 2001. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">767-31-0100 </ENT>
                                <ENT>Revision 2 </ENT>
                                <ENT>July 29, 1999. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">767-31-0101 </ENT>
                                <ENT>Original </ENT>
                                <ENT>July 6, 2000. </ENT>
                            </ROW>
                        </GPOTABLE>
                        <HD SOURCE="HD1">Parts Installation </HD>
                        <P>
                            (e) As of the effective date of this AD, no person may install, on any airplane, a part having a part number listed in the “Existing Part Number” column of the table under paragraph 2.E. of Boeing Alert Service Bulletins 757-31-0059, Revision 3, dated March 29, 2001; 767-31-0091, Revision 3, dated April 27, 2000; 767-31-0098, Revision 2, dated October 21, 1999; 767-31-0099, Revision 3, dated February 8, 2001; 767-31-0100, Revision 2, dated July 29, 1999; or 767-31-0101, dated July 6, 2000; or under paragraph II.D. of Boeing Service Bulletins 747-31-2163, dated February 14, 1991; 747-31-2178, dated July 1, 1993; 747-31-2179, dated May 26, 1994; 747-31-2180, dated March 17, 1994; 747-45-2005, dated February 8, 1990; or 747-45-2010, dated December 17, 1992. 
                            <PRTPAGE P="28058"/>
                        </P>
                        <HD SOURCE="HD1">Operator's “Equivalent Procedure”</HD>
                        <P>(f) Where Boeing Alert Service Bulletin 747-34A2460, Revision 2, dated June 14, 2001; and Boeing Service Bulletin 757-34A0222, Revision 1, dated July 17, 2003; specify that certain actions may be accomplished per an operator's “equivalent procedure”: These actions must be accomplished per the chapter of the applicable Boeing 747 or 757 Airplane Maintenance Manual specified in the applicable service bulletin. An operator's “equivalent procedure” cannot be used unless the operator receives FAA approval for that procedure according to paragraph (h) of this AD. </P>
                        <HD SOURCE="HD1">Actions Accomplished Per Previous Issue of Service Bulletins </HD>
                        <P>(g) Actions accomplished before the effective date of this AD per Boeing Alert Service Bulletin 757-34A0222, dated March 28, 2002; and Boeing Alert Service Bulletin 767-34A0332, dated January 10, 2002; are considered acceptable for compliance with the corresponding actions specified in this AD. </P>
                        <HD SOURCE="HD1">Alternative Methods of Compliance </HD>
                        <P>(h) In accordance with 14 CFR 39.19, the Manager, Seattle Aircraft Certification Office, FAA, is authorized to approve alternative methods of compliance for this AD. </P>
                        <HD SOURCE="HD1">Incorporation by Reference </HD>
                        <P>(i) Unless otherwise specified in this AD, the actions shall be done in accordance with the service information included in Table 4, as follows: </P>
                        <GPOTABLE COLS="3" OPTS="L2,i1" CDEF="s200,r50,xs80">
                            <TTITLE>Table 4.—Service Bulletins Incorporated by Reference </TTITLE>
                            <BOXHD>
                                <CHED H="1">Boeing Service Bulletins </CHED>
                                <CHED H="1">Revision </CHED>
                                <CHED H="1">Date </CHED>
                            </BOXHD>
                            <ROW>
                                <ENT I="01">Alert Service Bulletin 747-34A2460 </ENT>
                                <ENT>2 </ENT>
                                <ENT>June 14, 2001. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Service Bulletin 747-31-2163 </ENT>
                                <ENT>Original </ENT>
                                <ENT>February 14, 1991. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Service Bulletin 747-31-2178 </ENT>
                                <ENT>Original </ENT>
                                <ENT>July 1, 1993. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Service Bulletin 747-31-2179 </ENT>
                                <ENT>Original </ENT>
                                <ENT>May 26, 1994. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Service Bulletin 747-31-2180 </ENT>
                                <ENT>Original </ENT>
                                <ENT>March 17, 1994. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Service Bulletin 747-31-2217 </ENT>
                                <ENT>Original </ENT>
                                <ENT>May 19, 1994.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Service Bulletin 747-45-2005 </ENT>
                                <ENT>Original </ENT>
                                <ENT>February 8, 1990. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Service Bulletin 747-45-2010 </ENT>
                                <ENT>Original </ENT>
                                <ENT>December 17, 1992. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Service Bulletin 757-31-0059, including Appendices A, B, and C </ENT>
                                <ENT>3 </ENT>
                                <ENT>March 29, 2001. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Service Bulletin 757-34A0222 </ENT>
                                <ENT>1 </ENT>
                                <ENT>July 17, 2003. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Service Bulletin 767-31-0091, including Appendices A, B, and C </ENT>
                                <ENT>3 </ENT>
                                <ENT>April 27, 2000. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Service Bulletin 767-31-0098, including Appendices A, B, and C </ENT>
                                <ENT>2 </ENT>
                                <ENT>October 21, 1999. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Service Bulletin 767-31-0099, including Appendices A, B, and C </ENT>
                                <ENT>3 </ENT>
                                <ENT>February 8, 2001. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Service Bulletin 767-31-0100, including Appendices A, B, and C </ENT>
                                <ENT>2 </ENT>
                                <ENT>July 29, 1999. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Service Bulletin 767-31-0101, including Appendices A, B, and C </ENT>
                                <ENT>Original </ENT>
                                <ENT>July 6, 2000. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Service Bulletin 767-34A0332 </ENT>
                                <ENT>1 </ENT>
                                <ENT>April 24, 2003. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Special Attention Service Bulletin 747-31-2313 </ENT>
                                <ENT>1 </ENT>
                                <ENT>September 26, 2002. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Special Attention Service Bulletin 757-31-0068 </ENT>
                                <ENT>1 </ENT>
                                <ENT>August 29, 2002. </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Special Attention Service Bulletin 767-31-0149 </ENT>
                                <ENT>1 </ENT>
                                <ENT>November 7, 2002. </ENT>
                            </ROW>
                        </GPOTABLE>
                        <P>
                            This incorporation by reference was approved by the Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies may be obtained from Boeing Commercial Airplanes, P.O. Box 3707, Seattle, Washington 98124-2207. Copies may be inspected at the FAA, Transport Airplane Directorate, 1601 Lind Avenue, SW., Renton, Washington; or at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call (202) 741-6030, or go to: 
                            <E T="03">http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html</E>
                            . 
                        </P>
                        <HD SOURCE="HD1">Effective Date </HD>
                        <P>(j) This amendment becomes effective on June 22, 2004 </P>
                    </EXTRACT>
                </REGTEXT>
                <SIG>
                    <DATED>Issued in Renton, Washington, on May 5, 2004.</DATED>
                    <NAME>Ali Bahrami,</NAME>
                    <TITLE>Acting Manager, Transport Airplane Directorate, Aircraft Certification Service.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-10907 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4910-13-P</BILCOD>
        </RULE>
        <RULE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF TRANSPORTATION </AGENCY>
                <SUBAGY>Federal Aviation Administration </SUBAGY>
                <CFR>14 CFR Part 97 </CFR>
                <DEPDOC>[Docket No. 30413; Amdt. No. 3096] </DEPDOC>
                <SUBJECT>Standard Instrument Approach Procedures; Miscellaneous Amendments </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Federal Aviation Administration (FAA), DOT. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Final rule. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>This amendment establishes, amends, suspends, or revokes Standard Instrument Approach Procedures (SIAPs) for operations at certain airports. These regulatory actions are needed because of the adoption of new or revised criteria, or because of changes occurring in the National Airspace System, such as the commissioning of new navigational facilities, addition of new obstacles, or changes in air traffic requirements. These changes are designed to provide safe and efficient use of the navigable airspace and to promote safe flight operations under instrument flight rules at the affected airports. </P>
                </SUM>
                <EFFDATE>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>This rule is effective May 18, 2004. The compliance date for each SIAP is specified in the amendatory provisions. </P>
                    <P>The incorporation by reference of certain publications listed in the regulations is approved by the Director of the Federal Register as of May 18, 2004. </P>
                </EFFDATE>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>Availability of matters incorporated by reference in the amendment is as follows: </P>
                    <P>
                        <E T="03">For Examination</E>
                        —
                    </P>
                    <P>1. FAA Rules Docket, FAA Headquarters Building, 800 Independence Avenue, SW., Washington, DC 20591; </P>
                    <P>2. The FAA Regional Office of the region in which the affected airport is located; </P>
                    <P>3. The Flight Inspection Area Office which originated the SIAP; or, </P>
                    <P>
                        4. The National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: 
                        <E T="03">http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.</E>
                    </P>
                    <P>
                        <E T="03">For Purchase</E>
                        —Individual SIAP copies may be obtained from: 
                        <PRTPAGE P="28059"/>
                    </P>
                    <P>1. FAA Public Inquiry Center (APA-200), FAA Headquarters Building, 800 Independence Avenue, SW., Washington, DC 20591; or </P>
                    <P>2. The FAA Regional Office of the region in which the affected airport is located. </P>
                    <P>
                        <E T="03">By Subscription</E>
                        —Copies of all SIAPs, mailed once every 2 weeks, are for sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. 
                    </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Donald P. Pate, Flight Procedure Standards Branch (AMCAFS-420), Flight Technologies and Programs Division, Flight Standards Service, Federal Aviation Administration, Mike Monroney Aeronautical Center, 6500 South MacArthur Blvd. Oklahoma City, OK. 73169 (Mail Address: PO Box 25082 Oklahoma City, OK. 73125) telephone: (405) 954-4164. </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>This amendment to part 97 of the Federal Aviation Regulations (14 CFR part 97) establishes, amends, suspends, or revokes Standard Instrument Approach Procedures (SIAPs). The complete regulatory description of each SIAP is contained in official FAA form documents which are incorporated by reference in this amendment under 5 U.S.C. 552(a), 1 CFR part 51, and § 97.20 of the Federal Aviation Regulations (FAR). The applicable FAA Forms are identified as FAA Forms 8260-3, 8260-4, and 8260-5. Materials incorporated by reference are available for examination or purchase as stated above. </P>
                <P>
                    The large number of SIAPs, their complex nature, and the need for a special format make their verbatim publication in the 
                    <E T="04">Federal Register</E>
                     expensive and impractical. Further, airmen do not use the regulatory text of the SIAPs, but refer to their graphic depiction on charts printed by publishers of aeronautical materials. Thus, the advantages of incorporation by reference are realized and publication of the complete description of each SIAP contained in FAA form documents is unnecessary. The provisions of this amendment state the affected CFR (and FAR) sections, with the types and effective dates of the SIAPs. This amendment also identifies the airport, its location, the procedure identification and the amendment number. 
                </P>
                <HD SOURCE="HD1">The Rule </HD>
                <P>This amendment to part 97 is effective upon publication of each separate SIAP as contained in the transmittal. Some SIAP amendments may have been previously issued by the FAA in a National Flight Data Center (NFDC) Notice to Airmen (NOTAM) as an emergency action of immediate flight safety relating directly to published aeronautical charts. The circumstances which created the need for some SIAP amendments may require making them effective in less than 30 days. For the remaining SIAPs, an effective date at least 30 days after publication is provided. </P>
                <P>Further, the SIAPs contained in this amendment are based on the criteria contained in the U.S. Standard for Terminal Instrument Procedures (TERPS). In developing these SIAPs, the TERPS criteria were applied to the conditions existing or anticipated at the affected airports. Because of the close and immediate relationship between these SIAPs and safety in air commerce, I find that notice and public procedure before adopting these SIAPs are impracticable and contrary to the public interest and, where applicable, that good cause exists for making some SIAPs effective in less than 30 days. </P>
                <HD SOURCE="HD1">Conclusion </HD>
                <P>The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. </P>
                <LSTSUB>
                    <HD SOURCE="HED">List of Subjects in 14 CFR Part 97 </HD>
                    <P>Air traffic control, Airports, Incorporation by reference, and Navigation (air).</P>
                </LSTSUB>
                <SIG>
                    <DATED>Issued in Washington, DC, on May 6, 2004. </DATED>
                    <NAME>James J. Ballough, </NAME>
                    <TITLE>Director, Flight Standards Service. </TITLE>
                </SIG>
                <HD SOURCE="HD1">Adoption of the Amendment </HD>
                <REGTEXT TITLE="14" PART="97">
                    <AMDPAR>Accordingly, pursuant to the authority delegated to me, part 97 of the Federal Aviation Regulations (14 CFR part 97) is amended by establishing, amending, suspending, or revoking Standard Instrument Approach Procedures, effective at 0901 UTC on the dates specified, as follows: </AMDPAR>
                    <PART>
                        <HD SOURCE="HED">PART 97—STANDARD INSTRUMENT APPROACH PROCEDURES </HD>
                    </PART>
                    <AMDPAR>1. The authority citation for part 97 continues to read as follows: </AMDPAR>
                    <AUTH>
                        <HD SOURCE="HED">Authority:</HD>
                        <P>49 U.S.C. 106(g), 40103, 40106, 40113, 40114, 40120, 44502, 44514, 44701, 44719, 44721-44722. </P>
                    </AUTH>
                </REGTEXT>
                <REGTEXT TITLE="14" PART="9">
                    <AMDPAR>2. Part 97 is amended to read as follows: </AMDPAR>
                    <EXTRACT>
                        <HD SOURCE="HD2">. . . Effective June 10, 2004 </HD>
                        <FP SOURCE="FP-2">Searcy, AR, Searcy Muni, NDB RWY 1, Orig </FP>
                        <FP SOURCE="FP-2">Searcy, AR, Searcy Muni, NDB RWY 1, Amdt 4, CANCELLED </FP>
                        <FP SOURCE="FP-2">Windsor Locks, CT, Bradley Intl, COPTER ILS OR LOC RWY 6, Orig </FP>
                        <FP SOURCE="FP-2">Miami, FL, Miami Intl, ILS OR LOC RWY 30, Orig </FP>
                        <FP SOURCE="FP-2">Miami, FL, Miami Intl, LOC RWY 30, Amdt 6A, CANCELLED </FP>
                        <FP SOURCE="FP-2">Frankfort, KY, Capital City, RNAV (GPS) RWY 6, Orig </FP>
                        <FP SOURCE="FP-2">Frankfort, KY, Capital City, RNAV (GPS) RWY 24, Orig </FP>
                        <FP SOURCE="FP-2">Frankfort, KY, Capital City, LOC RWY 24, Amdt 1 </FP>
                        <FP SOURCE="FP-2">Frankfort, KY, Capital City, VOR RWY 24, Amdt 2B </FP>
                        <FP SOURCE="FP-2">Frankfort, KY, Capital City, GPS RWY 6, Orig, CANCELLED </FP>
                        <FP SOURCE="FP-2">Frankfort, KY, Capital City, GPS RWY 24, Orig-A, CANCELLED </FP>
                        <FP SOURCE="FP-2">Charlotte, NC, Charlotte/Douglas Intl, RNAV (GPS) RWY 5, Amdt 2 </FP>
                        <FP SOURCE="FP-2">Charlotte, NC, Charlotte/Douglas Intl, RNAV (GPS) RWY 18L, Amdt 2 </FP>
                        <FP SOURCE="FP-2">Charlotte, NC, Charlotte/Douglas Intl, RNAV (GPS) RWY 18R, Amdt 2 </FP>
                        <FP SOURCE="FP-2">Charlotte, NC, Charlotte/Douglas Intl, RNAV (GPS) Y RWY 23, Orig </FP>
                        <FP SOURCE="FP-2">Charlotte, NC, Charlotte/Douglas Intl, RNAV (GPS) Z RWY 23, Orig </FP>
                        <FP SOURCE="FP-2">Charlotte, NC, Charlotte/Douglas Intl, RNAV (GPS) RWY 36L, Amdt 2 </FP>
                        <FP SOURCE="FP-2">Charlotte, NC, Charlotte/Douglas Intl, RNAV (GPS) RWY 36R, Amdt 2 </FP>
                        <FP SOURCE="FP-2">Charleston, SC, Charleston Executive, ILS OR LOC RWY 9, Orig </FP>
                        <FP SOURCE="FP-2">Bristol/Johnson/Kingsport, TN, Tri-Cities Rgnl TN/VA, RNAV (GPS) RWY 5, Orig </FP>
                        <FP SOURCE="FP-2">Bristol/Johnson/Kingsport, TN, Tri-Cities Rgnl TN/VA, RNAV (GPS) RWY 9, Orig </FP>
                        <FP SOURCE="FP-2">Bristol/Johnson/Kingsport, TN, Tri-Cities Rgnl TN/VA, RNAV (GPS) Y RWY 23, Orig </FP>
                        <FP SOURCE="FP-2">Bristol/Johnson/Kingsport, TN, Tri-Cities Rgnl TN/VA, RNAV (GPS) Z RWY 23, Orig </FP>
                        <FP SOURCE="FP-2">Bristol/Johnson/Kingsport, TN, Tri-Cities Rgnl TN/VA, RNAV (GPS) RWY 27, Orig </FP>
                        <FP SOURCE="FP-2">Oneida, TN, Scott Muni, SDF RWY 23, Amdt 5 </FP>
                        <FP SOURCE="FP-2">Gainesville, TX, Gainesville Muni, NDB RWY 17, Amdt 9 </FP>
                        <FP SOURCE="FP-2">Gainesville, TX, Gainesville Muni, RNAV (GPS) RWY 17, Orig </FP>
                        <FP SOURCE="FP-2">Gainesville, TX, Gainesville Muni, GPS RWY 17, Orig-A, CANCELLED </FP>
                        <HD SOURCE="HD2">. . . Effective July 8, 2004 </HD>
                        <FP SOURCE="FP-2">Goodland, KS, Renner Fld/Goodland Muni, ILS OR LOC/DME RWY 30, Orig-A </FP>
                        <FP SOURCE="FP-2">
                            Shreveport, LA, Shreveport Regional, NDB RWY 14, Amdt 20A 
                            <PRTPAGE P="28060"/>
                        </FP>
                        <FP SOURCE="FP-2">Tulsa, OK, Richard Lloyd Jones Jr, VOR RWY 1L, Amdt 4C </FP>
                        <FP SOURCE="FP-2">Manassas, VA, Manassas Regional/Harry P. Davis Field, RNAV (GPS) RWY 16L, Orig-A </FP>
                        <HD SOURCE="HD2">. . . Effective August 5, 2004 </HD>
                        <FP SOURCE="FP-2">Platinum, AK, Platinum, RNAV (GPS) RWY 13, Orig </FP>
                        <FP SOURCE="FP-2">Platinum, AK, Platinum, GPS RWY 13, Orig, CANCELLED </FP>
                        <FP SOURCE="FP-2">Wales, AK, Wales, RNAV (GPS) RWY 18, Orig </FP>
                        <FP SOURCE="FP-2">Wales, AK, Wales, RNAV (GPS) RWY 36, Orig </FP>
                        <FP SOURCE="FP-2">Rochester, MN, Rochester Intl, NDB RWY 31, Amdt 22 </FP>
                        <FP SOURCE="FP-2">Rochester, MN, Rochester Intl, VOR/DME RWY 20, Amdt 13B </FP>
                        <FP SOURCE="FP-2">Rochester, MN, Rochester Intl, ILS OR LOC RWY 13, Amdt 6 </FP>
                        <FP SOURCE="FP-2">Rochester, MN, Rochester Intl, ILS OR LOC RWY 31, Amdt 21 </FP>
                        <FP SOURCE="FP-2">Rochester, MN, Rochester Intl, COPTER ILS OR LOC RWY 31, Amdt 1 </FP>
                        <FP SOURCE="FP-2">Rochester, MN, Rochester Intl, RNAV (GPS) RWY 2, Amdt 1 </FP>
                        <FP SOURCE="FP-2">Rochester, MN, Rochester Intl, RNAV (GPS) RWY 13, Orig </FP>
                        <FP SOURCE="FP-2">Rochester, MN, Rochester Intl, RNAV (GPS) RWY 20, Orig </FP>
                        <FP SOURCE="FP-2">Rochester, MN, Rochester Intl, RNAV (GPS) RWY 31, Orig </FP>
                        <FP SOURCE="FP-2">Oklahoma City, OK, Will Rogers World, RNAV (GPS) RWY 17R, Amdt 1B </FP>
                        <FP SOURCE="FP-2">Oklahoma City, OK, Will Rogers World, RNAV (GPS) RWY 35L, Amdt 1A </FP>
                        <FP SOURCE="FP-2">Bristol/Johnson/Kingsport, TN, Tri-Cities Rgnl TN/VA, NDB RWY 5, Amdt 17 </FP>
                        <FP SOURCE="FP-2">Bristol/Johnson/Kingsport, TN, Tri-Cities Rgnl TN/VA, NDB RWY 23, Amdt 19 </FP>
                        <P>The FAA published an Amendment in Docket No. 30410, Amdt. No. 3094 to Part 97 of the Federal Aviation Regulations (Vol 69, FR No. 76, Page 21181; dated April 20, 2004) under Section 97.33 effective 10 Jun 2004, which is hereby rescinded: </P>
                        <FP SOURCE="FP-2">Urbana, OH, Grimes Field, RNAV (GPS) RWY 2, Orig </FP>
                        <FP SOURCE="FP-2">Urbana, OH, Grimes Field, RNAV (GPS) RWY 20, Orig </FP>
                        <FP SOURCE="FP-2">Urbana, OH, Grimes Field, VOR-A, Amdt 5C </FP>
                    </EXTRACT>
                </REGTEXT>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-10814 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4910-13-P </BILCOD>
        </RULE>
        <RULE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF HEALTH AND HUMAN SERVICES</AGENCY>
                <SUBAGY>Food and Drug Administration</SUBAGY>
                <CFR>21 CFR Part 1</CFR>
                <DEPDOC>[Docket No. 2002N-0278]</DEPDOC>
                <SUBJECT>Prior Notice of Imported Food Under the Public Health Security and Bioterrorism Preparedness and Response Act of 2002; Extension of Comment Period</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Food and Drug Administration, HHS.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Interim final rule; extension of comment period.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>
                        The Food and Drug Administration (FDA) is extending to July 13, 2004, the comment period on the prior notice interim final rule (IFR) that appeared in the 
                        <E T="04">Federal Register</E>
                         of October 10, 2003 (68 FR 58974). The prior notice IFR requires the submission to FDA of prior notice of food, including animal feed, that is imported or offered for import into the United States. FDA reopened the comment period for 30 days in the 
                        <E T="04">Federal Register</E>
                         of April 14, 2004 (69 FR 19766), to solicit comments on the “Joint FDA-CBP Plan for Increasing Integration and Assessing the Coordination of Prior Notice Timeframes” and to ensure that those who comment on this IFR would have had the benefit of our outreach and education efforts and would have had some experience with the systems, timeframes, and data elements of the prior notice system. In response to a request from the Government of Canada, FDA is extending the comment period for an additional 60 days. Accordingly, the comment period for the prior notice rulemaking, including the comment period for the “Joint FDA-CBP Plan for Increasing Integration and Assessing the Coordination of Prior Notice Timeframes,” is extended to July 13, 2004.
                    </P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Submit written or electronic comments no later than July 13, 2004.</P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>You may submit comments, identified by Docket 2002N-0278, by any of the following methods:</P>
                    <P>
                        • Federal eRulemaking Portal: 
                        <E T="03">http://www.regulations.gov</E>
                        . Follow the instructions for submitting comments.
                    </P>
                    <P>
                        • Agency Web site: 
                        <E T="03">http://www.fda.gov/dockets/ecomments</E>
                        . Follow the instructions for submitting comments on the agency Web site.
                    </P>
                    <P>
                        • E-mail: 
                        <E T="03">fdadockets@oc.fda.gov</E>
                        . Include Docket No. 2002N-0278 in the subject line of your e-mail message.
                    </P>
                    <P>• FAX: 301-827-6870.</P>
                    <P>• Mail/Hand delivery/Courier [For paper, disk, or CD-ROM submissions]: Division of Dockets Management, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852.</P>
                    <P>
                        <E T="03">Instructions</E>
                        : All submissions received must include the agency name and Docket No. or Regulatory Information Number (RIN) for this rulemaking. All comments received will be posted without change to 
                        <E T="03">http://www.fda.gov/dockets/ecomments</E>
                        , including any personal information provided. For detailed instructions on submitting comments and additional information on the rulemaking process, see the “Comments” heading of the 
                        <E T="02">SUPPLEMENTARY INFORMATION</E>
                         section of this document.
                    </P>
                    <P>
                        <E T="03">Docket</E>
                        : For access to the docket to read background documents or comments received, go to 
                        <E T="03">http://www.fda.gov/dockets/ecomments</E>
                         and/or the Division of Dockets Management, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852.
                    </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>May D. Nelson, Center for Food Safety and Applied Nutrition (HFS-24), Food and Drug Administration, 5100 Paint Branch Pkwy., College Park, MD 20740, 301-436-1722.</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>FDA issued this rule as an IFR, with an opportunity for public comment for 75 days. Moreover, to ensure that those that comment on this IFR would have had the benefit of actual experience with the systems, timeframes, and data elements, FDA reopened the comment period for an additional 30 days on April 14, 2004 (to close on May 14, 2004). On April 29, 2004, FDA received a request from the Government of Canada to extend the comment period for an additional 60 days (Comment EXT1, 2002N-0278) (69 FR 19763). According to the Canadian government, the 30-day comment period does not allow Canada to consult adequately with its stakeholders and formally explore with FDA effective alternatives in response to FDA's request for comments. Additionally, Canada states it is concerned that its industry is not yet fully aware of the prior notice IFR's impact since during the initial period of implementation feedback to affected industries from FDA and Customs and Border Protection concerning noncompliance was minimal. The Government of Canada submitted this request with the understanding that such an extension would not interfere with the issuance of the prior notice final rule, which FDA plans to publish in March 2005. FDA intends to publish a final rule in an expeditious manner while carefully considering the comments we receive.</P>
                <HD SOURCE="HD1">Comments</HD>
                <P>
                    In response to the request from the Government of Canada, we are extending the comment period an additional 60 days to close on July 13, 2004. Accordingly, we are seeking comments on all aspects of the prior notice IFR, including the specific questions we posed in the previous notice to reopen the comment period (see 69 FR 19763 at 19764), and the “Joint Food and Drug Administration-Customs Border Protection Plan for Increasing Integration and Assessing the 
                    <PRTPAGE P="28061"/>
                    Coordination of Prior Notice Timeframes” (69 FR 19765).
                </P>
                <P>
                    To be timely, interested persons must submit to the Division of Dockets Management (see 
                    <E T="02">ADDRESSES</E>
                    ) written or electronic comments on the prior notice IFR by July 13, 2004. Submit a single copy of electronic comments or two paper copies of any mailed comments, except that individuals may submit one copy. Comments are to be identified with the docket number found in brackets in the heading of this document. Received comments may be seen in the Division of Dockets Management between 9 a.m. and 4 p.m., Monday through Friday.
                </P>
                <P>This regulation was effective on December 12, 2003. We will address comments received during the entire reopened comment period and the previous comment period that closed on December 24, 2003, and will confirm or amend the IFR in a final rule. We, however, will not address any comments that have been previously considered during this rulemaking.</P>
                <SIG>
                    <DATED>Dated: May 12, 2004.</DATED>
                    <NAME>William K. Hubbard,</NAME>
                    <TITLE>Associate Commissioner for Policy and Planning.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11247 Filed 5-13-04; 4:27 pm]</FRDOC>
            <BILCOD>BILLING CODE 4160-01-S</BILCOD>
        </RULE>
        <RULE>
            <PREAMB>
                <AGENCY TYPE="N">ENVIRONMENTAL PROTECTION AGENCY </AGENCY>
                <CFR>40 CFR Part 52 </CFR>
                <DEPDOC>[CA269-0452; FRL-7659-8] </DEPDOC>
                <SUBJECT>Revisions to the California State Implementation Plan, San Joaquin Valley Unified Air Pollution Control District </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Environmental Protection Agency (EPA). </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Final rule. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>
                        EPA is finalizing approval of revisions to the San Joaquin Valley Unified Air Pollution Control District (SJVUAPCD) portion of the California State Implementation Plan (SIP). These revisions were proposed in the 
                        <E T="04">Federal Register</E>
                         on February 12, 2004, and concern oxides of nitrogen (NO
                        <E T="52">X</E>
                        ) emissions from boilers, steam generators, and process heaters; stationary internal combustion engines; and stationary gas turbines. We are approving local rules that regulate these emission sources under the Clean Air Act as amended in 1990 (CAA or the Act). 
                    </P>
                </SUM>
                <EFFDATE>
                    <HD SOURCE="HED">EFFECTIVE DATE:</HD>
                    <P>This rule is effective on June 17, 2004. </P>
                </EFFDATE>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>You can inspect copies of the administrative record for this action at EPA's Region IX office during normal business hours by appointment. You can inspect copies of the submitted SIP revisions by appointment at the following locations:</P>
                    <FP SOURCE="FP-1">Environmental Protection Agency, Region IX, 75 Hawthorne Street, San Francisco, CA 94105-3901. </FP>
                    <FP SOURCE="FP-1">Air and Radiation Docket and Information Center, U.S. Environmental Protection Agency, Room B-102, 1301 Constitution Avenue, NW. (Mail Code 6102T), Washington, DC 20460. </FP>
                    <FP SOURCE="FP-1">California Air Resources Board, Stationary Source Division, Rule Evaluation Section, 1001 “I” Street, Sacramento, CA 95814. </FP>
                    <FP SOURCE="FP-1">San Joaquin Valley Unified Air Pollution Control District, 1990 E. Gettysburg Avenue, Fresno, CA 93726.</FP>
                    <P>
                        A copy of the rule may also be available via the Internet at 
                        <E T="03">http://www.arb.ca.gov/drdb/drdbltxt.htm.</E>
                         Please be advised that this is not an EPA Web site and may not contain the same version of the rule that was submitted to EPA. 
                    </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>
                        Thomas C. Canaday, EPA Region IX, (415) 947-4121, 
                        <E T="03">canaday.tom@epa.gov.</E>
                    </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>Throughout this document, “we,” “us” and “our” refer to EPA. </P>
                <HD SOURCE="HD1">I. Proposed Action </HD>
                <P>On February 12, 2004 (69 FR 7098), EPA proposed to approve the following rules into the California SIP. </P>
                <GPOTABLE COLS="5" OPTS="L2,i1" CDEF="s50,7,r100,12,12">
                    <TTITLE>Table 1.—Submitted Rule </TTITLE>
                    <BOXHD>
                        <CHED H="1">Local agency </CHED>
                        <CHED H="1">Rule # </CHED>
                        <CHED H="1">Rule title </CHED>
                        <CHED H="1">Adopted </CHED>
                        <CHED H="1">Submitted </CHED>
                    </BOXHD>
                    <ROW>
                        <ENT I="01">SJVUAPCD </ENT>
                        <ENT>4351 </ENT>
                        <ENT>Boilers, Steam Generators, and Process Heaters—Phase 1 </ENT>
                        <ENT>08/21/03 </ENT>
                        <ENT>09/29/03 </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">SJVUAPCD </ENT>
                        <ENT>4305 </ENT>
                        <ENT>Boilers, Steam Generators, and Process Heaters—Phase 2 </ENT>
                        <ENT>08/21/03 </ENT>
                        <ENT>09/29/03 </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">SJVUAPCD </ENT>
                        <ENT>4306 </ENT>
                        <ENT>Boilers, Steam Generators, and Process Heaters—Phase 3 </ENT>
                        <ENT>09/18/03 </ENT>
                        <ENT>09/29/03 </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">SJVUAPCD </ENT>
                        <ENT>4701 </ENT>
                        <ENT>Internal Combustion Engines—Phase 1 </ENT>
                        <ENT>08/21/03 </ENT>
                        <ENT>10/09/03 </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">SJVUAPCD </ENT>
                        <ENT>4702 </ENT>
                        <ENT>Internal Combustion Engines—Phase 2 </ENT>
                        <ENT>08/21/03 </ENT>
                        <ENT>10/09/03 </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="01">SJVUAPCD </ENT>
                        <ENT>4703 </ENT>
                        <ENT>Stationary Gas Turbines </ENT>
                        <ENT>04/25/02 </ENT>
                        <ENT>06/18/02 </ENT>
                    </ROW>
                </GPOTABLE>
                <P>We proposed to approve these rules because we determined that they complied with the relevant CAA requirements. Our proposed action contains more information on the rules and our evaluation. </P>
                <HD SOURCE="HD1">II. Public Comment and EPA Response </HD>
                <P>EPA's proposed action provided a 30-day public comment period. During this period, we received comments from the following party. </P>
                <P>1. David R. Farabee, Pillsbury Winthrop L.L.P. (comments submitted on behalf of the Western States Petroleum Association); letter dated and hand-delivered March 12, 2004. </P>
                <P>The comment and our response are summarized below. </P>
                <P>
                    <E T="03">Comment #1:</E>
                     The commenter requests clarification of the following statement we made in the proposed rule in connection with the Westside exemption: “In any event, the past issue of whether the Westside exemption was inconsistent with both ozone and PM-10 planning requirements or simply PM-10 (and not ozone) planning requirements has become moot in light of the need for additional NO
                    <E T="52">X</E>
                     emissions reductions 
                    <E T="03">throughout</E>
                     San Joaquin Valley for both PM-10 and ozone planning purposes” (emphasis added). See 69 FR 7098, at 7100, column 1 (February 12, 2004). 
                </P>
                <P>
                    <E T="03">Response #1:</E>
                     By the above statement, we simply intended to restate our conclusion that a regional exemption from NO
                    <E T="52">X</E>
                     emission control requirements, such as the Westside exemption, was not approvable under the Act. We did not intend to prejudge future SIP submittals that provide for additional emissions reductions in San Joaquin Valley that are needed to attain the ozone and PM-10 NAAQS. 
                </P>
                <HD SOURCE="HD1">III. EPA Action </HD>
                <P>
                    No comments were submitted that change our assessment that the submitted rules comply with the relevant CAA requirements. Therefore, as authorized in section 110(k)(3) of the 
                    <PRTPAGE P="28062"/>
                    Act, EPA is fully approving these rules into the California SIP. 
                </P>
                <HD SOURCE="HD1">IV. Statutory and Executive Order Reviews </HD>
                <P>
                    Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 
                    <E T="03">et seq.</E>
                    ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). 
                </P>
                <P>This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves state rules implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant. </P>
                <P>
                    In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 
                    <E T="03">et seq.</E>
                    ). 
                </P>
                <P>
                    The Congressional Review Act, 5 U.S.C. 801 
                    <E T="03">et seq.</E>
                    , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the 
                    <E T="04">Federal Register</E>
                    . A major rule cannot take effect until 60 days after it is published in the 
                    <E T="04">Federal Register</E>
                    . This action is not a “major rule” as defined by 5 U.S.C. 804(2). 
                </P>
                <P>
                    Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by July 19, 2004. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (
                    <E T="03">See</E>
                     section 307(b)(2).) 
                </P>
                <LSTSUB>
                    <HD SOURCE="HED">List of Subjects in 40 CFR Part 52 </HD>
                    <P>Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Nitrogen dioxide, Ozone, Reporting and recordkeeping requirements.</P>
                </LSTSUB>
                <SIG>
                    <DATED>Dated: April 28, 2004. </DATED>
                    <NAME>Deborah Jordan, </NAME>
                    <TITLE>Acting Regional Administrator, Region IX. </TITLE>
                </SIG>
                <REGTEXT TITLE="40" PART="52">
                    <AMDPAR>Part 52, Chapter I, Title 40 of the Code of Federal Regulations is amended as follows: </AMDPAR>
                    <PART>
                        <HD SOURCE="HED">PART 52—[AMENDED] </HD>
                    </PART>
                    <AMDPAR>1. The authority citation for part 52 continues to read as follows: </AMDPAR>
                </REGTEXT>
                <AUTH>
                    <HD SOURCE="HED">Authority:</HD>
                    <P>
                        42 U.S.C. 7401 
                        <E T="03">et seq.</E>
                    </P>
                </AUTH>
                <REGTEXT TITLE="40" PART="52">
                    <SUBPART>
                        <HD SOURCE="HED">Subpart F—California </HD>
                    </SUBPART>
                    <AMDPAR>
                        2. Section 52.220 is amended by adding paragraphs (c)(300) (i)(D)(
                        <E T="03">1</E>
                        ), (c)(325), and (c)(326) to read as follows: 
                    </AMDPAR>
                    <SECTION>
                        <SECTNO>§ 52.220 </SECTNO>
                        <SUBJECT>Identification of plan. </SUBJECT>
                        <STARS/>
                        <P>(c) * * * </P>
                        <P>(300) * * * </P>
                        <P>(i) * * * </P>
                        <P>(D) San Joaquin Valley Unified Air Pollution Control District. </P>
                        <P>
                            (
                            <E T="03">1</E>
                            ) Rule 4703 adopted on April 25, 2002. 
                        </P>
                        <STARS/>
                        <P>(325) Amended regulations for the following APCD were submitted on September 29, 2003, by the Governor's Designee. </P>
                        <P>(i) Incorporation by reference. </P>
                        <P>(A) San Joaquin Valley Unified Air Pollution Control District. </P>
                        <P>
                            (
                            <E T="03">1</E>
                            ) Rules 4305 and 4351 adopted on August 21, 2003, and Rule 4306 adopted on September 18, 2003. 
                        </P>
                        <P>(326) Amended regulations for the following APCD were submitted on October 9, 2003, by the Governor's Designee. </P>
                        <P>(i) Incorporation by reference. </P>
                        <P>(A) San Joaquin Valley Unified Air Pollution Control District. </P>
                        <P>
                            (
                            <E T="03">1</E>
                            ) Rules 4701 and 4702 adopted on August 21, 2003. 
                        </P>
                    </SECTION>
                </REGTEXT>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11114 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 6560-50-P</BILCOD>
        </RULE>
        <RULE>
            <PREAMB>
                <AGENCY TYPE="N">FEDERAL COMMUNICATIONS COMMISSION </AGENCY>
                <CFR>47 CFR Parts 25 and 101 </CFR>
                <DEPDOC>[ET Docket No. 98-206; RM-9147; RM-9245; FCC 02-116] </DEPDOC>
                <SUBJECT>Order To Permit Operation of NGSO FSS Systems Co-Frequency With GSO and Terrestrial Systems in the Ku-Band Frequency Range; Authorize Subsidiary Terrestrial Use of the 12.2-12.7 GHz Band by Direct Broadcast Satellite Licensees and Their Affiliates; and in Re Applications of Broadwave USA, PDC Broadband Corporation, and Satellite Receivers, Ltd. in the 12.2-12.7 GHz Band </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Federal Communications Commission. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Final rule; announcement of effective date. </P>
                </ACT>
                <SUM>
                    <PRTPAGE P="28063"/>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>
                        The Commission adopted new rules to establish technical, service and licensing rules governing Multichannel Video Distribution and Data Service (MVDDS) in the 12 GHz band. Certain rules contained new and modified information collection requirements and were published in the 
                        <E T="04">Federal Register</E>
                         on June 26, 2002. This document announces the effective date of these published rules. 
                    </P>
                </SUM>
                <EFFDATE>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>
                        The amendments to §§ 25.139, 101.103, 101.1403, 101.1413, 101.1417, and 101.1440, published in the 
                        <E T="04">Federal Register</E>
                         on June 26, 2002, became effective on November 30, 2002. 
                    </P>
                </EFFDATE>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Jennifer Mock, Broadband Division, Wireless Telecommunications Bureau at (202) 418-2487. </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>On November 30, 2002, the Office of Management and Budget (OMB) approved the information collection requirements contained in Sections 25.139, 101.103, 101.1403, 101.1413, 101.1417, and 101.1440, pursuant to OMB Control Nos. 3060-1021, 3060-1023, 3060-1022, 3060-1024, 3060-1026, and 3060-1025, respectively. Accordingly, the information collection requirements contained in these rules became effective on November 30, 2002. </P>
                <SIG>
                    <FP>Federal Communications Commission. </FP>
                    <NAME>Marlene H. Dortch, </NAME>
                    <TITLE>Secretary. </TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11222 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 6712-01-P</BILCOD>
        </RULE>
        <RULE>
            <PREAMB>
                <AGENCY TYPE="N">GENERAL SERVICES ADMINISTRATION</AGENCY>
                <CFR>48 CFR Parts 511, 516, 532, 538, 546, and 552</CFR>
                <DEPDOC>[Amendment 2004-01; GSAR Case 2002-G505]</DEPDOC>
                <RIN>RIN 3090-AH76</RIN>
                <SUBJECT>General Services Administration Acquisition Regulation; Federal Supply Schedule Contracts—Acquisition of Information Technology by State and Local Governments Through Federal Supply Schedules</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCIES:</HD>
                    <P>General Services Administration (GSA), Office of Acquisition Policy.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Final rule.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The General Services Administration (GSA) has issued a final rule amending the General Services Administration Acquisition Regulation (GSAR) to implement section 211 of the E-Government Act of 2002. Section 211 authorizes the Administrator of GSA to provide for the use by States or local governments of its Federal Supply Schedules for automated data processing equipment (including firmware), software, supplies, support equipment, and services.</P>
                </SUM>
                <EFFDATE>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>
                        <E T="03">Effective Date:</E>
                         May 18, 2004.
                    </P>
                    <P>
                        <E T="03">Applicability Date:</E>
                         This amendment applies to solicitations and existing contracts for Schedule 70, Information Technology (IT), and Consolidated Products and Services Schedule contracts, containing Information Technology (IT) Special Item Numbers (SINs), as defined in GSAM 538.7001, Definitions, Schedule 70. Further, this amendment applies to contracts awarded after the effective date of this rule for Schedule 70 and Consolidated Products and Services Schedule contracts, containing IT SINs. Existing Schedule 70 contracts and Consolidated Products and Services Schedule contracts, containing IT SINs, shall be modified by mutual agreement of both parties.
                    </P>
                </EFFDATE>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>The Regulatory Secretariat, Room 4035, GS Building, Washington, DC 20405, (202) 501-4755, for information pertaining to status or publication schedules. For clarification of content, contact Ms. Linda Nelson, Procurement Analyst, at (202) 501-1900. The TTY Federal Relay Number for further information is 1-800-877-8973. Please cite Amendment 2004-01, GSAR case 2002-G505.</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P/>
                <HD SOURCE="HD1">A. Background</HD>
                <HD SOURCE="HD2">1. Interim and Final Rules</HD>
                <P>
                    GSA published an interim rule in the 
                    <E T="04">Federal Register</E>
                     at 68 FR 24372, May 7, 2003, with a request for comments. This interim rule implemented section 211 of the E-Government Act of 2002. Section 211 of the E-Government Act of 2002 (Pub. L. 107-347) amended the Federal Property and Administrative Services Act to allow for “cooperative purchasing,” where the Administrator of GSA provides States and localities access to certain items offered through GSA's Federal Supply Scheduless. Section 211 amends 40 U.S.C. 502 by adding a new subsection (c) that allows, to the extent authorized by the Administrator, a State or local government to use Federal Supply Schedules of the General Services Administration to purchase automated data processing equipment (ADPE) (including firmware), software, supplies, support equipment, and services. “State or local government” includes any State, local, regional, or tribal government, or any instrumentality thereof (including any local educational agency or institution of higher education). 
                </P>
                <P>GSA concluded that the interim rule should be converted to a final rule with minor changes. In particular, the final rule amends—</P>
                <P>• GSAM Parts 511, 516, 532, 538, 546, and 552 to delete the term “Corporate” Schedule and substitute it with “Consolidated Products and Services” Schedule;</P>
                <P>• Paragraphs (d)(2) and (d)(3) of the clause at 552.238-75, Price Reduction, to clarify that price reductions are not triggered for sales made to State and local government entities under Cooperative Purchasing;</P>
                <P>• Paragraphs (b) and (c) of the clause at 552.238-78, Scope Of Contract (Eligible Ordering Activities), to define domestic and overseas delivery, and provide the contractor the option of providing supplies or services on an international basis; and paragraph (f) to clarify the contractor's option in accepting or not accepting orders from activities outside the Executive Branch of the Federal Government; and</P>
                <P>• Paragraph (a)(1) of the clause at 552.238-79, Use of Federal Supply Schedule Contracts by Certain Entities—Cooperative Purchasing, to clarify that both contracts and Blanket Purchase Agreements (BPAs) established under Cooperative Purchasing are separate contracts; and paragraph (a)(3) to clarify that State and local government entities may add terms and conditions other than those required by statute, ordinance, regulation, or order.</P>
                <HD SOURCE="HD2">2. Summary and Disposition of Comments</HD>
                <P>Comments were received from four respondents. These comments were considered in the formulation of the final rule. A summary of the comments and their respective disposition is as follows:</P>
                <P>
                    <E T="03">Comment:</E>
                     One respondent had concerns about State and local government entities' ability to use the finance and leasing terms under the GSA IT Schedule. Will State and local government entities have the ability to terminate a lease for convenience, nonrenewal and nonappropriation?
                </P>
                <P>
                    <E T="03">Response:</E>
                     State and local government entities are provided access to all goods and services offered through both Schedule 70 and Consolidated Products and Services Schedule contracts, containing IT SINs. Further, State and local government entities are afforded the same terms and conditions offered through those Schedules. State and local government entities may include additional contract terms and 
                    <PRTPAGE P="28064"/>
                    conditions; however, those terms and conditions may not contradict the Schedule terms and conditions.
                </P>
                <P>
                    <E T="03">Comment:</E>
                     One respondent noted that the listing of services and goods available through both Schedule 70 and Consolidated Products and Services Schedule contracts, containing IT SINs, included FSC Class 5820, Radio and Television Communication Equipment, except Airborne. The respondent inquired as to whether FSC Class 5820 was included as part of section 211 of the e-Government Act of 2002, and; therefore, available to State and local government entities.
                </P>
                <P>
                    <E T="03">Response:</E>
                     The services and goods available under FSC Class 5820, Radio and Television Communication Equipment, except Airborne, are available to State and local government entities only if they are offered through Schedule 70 and Consolidated Products and Services Schedule contracts containing IT SINs. No other Schedules are authorized for State and local government use under section 211 of the E-Government Act of 2002.
                </P>
                <P>
                    <E T="03">Comment:</E>
                     One respondent indicated that the clause at 552.238-75, Price Reductions, should clarify whether price reductions to State and local government entities would trigger the price reductions clause, when the State and local government entities are also the category of customer upon which the award is based.
                </P>
                <P>
                    <E T="03">Response:</E>
                     The Price Reductions clause has been modified to clarify this point.
                </P>
                <P>
                    <E T="03">Comment:</E>
                     One respondent had concerns about the necessity for an agreement between GSA and any participating State and local agencies utilizing the schedules as a matter of management and oversight of the program. Additionally, the respondent had concerns about a failure to incorporate an express statement recognizing the primacy of state and local contract law.
                </P>
                <P>
                    <E T="03">Response:</E>
                     Congress intended that GSA make available to State and local governments the simplified acquisition methods and discounts negotiated by GSA for IT goods and services. This grant of authority does not give GSA any new powers to exercise oversight over the acquisition offices of State and local governments. There are more than three thousand counties, many of which have multiple entities with independent procurement authority. The average State government has hundreds of offices that may or may not choose to use GSA schedules as a source of supply. Some jurisdictions may already have authority to use GSA's IT schedules without supplementing the existing terms and conditions. Some may require supplemental terms and conditions. Other jurisdictions may never be able to use GSA's IT schedules, absent changes in the law, as local law requires different procedures. These determinations will need to be resolved by the local governmental entities, in consultation with their legal counsel.
                </P>
                <P>
                    <E T="03">Comment:</E>
                     One respondent had concerns about the desirability of authorizing State and local agencies to utilize the services of GSBCA for purposes of dispute resolution. The commenter indicated that the Inter-Governmental Cooperation Act grants authority for Federal executive branch agencies to enter in cooperative agreements with other governmental entities to provide services to those agencies which the executive branch agencies otherwise perform.
                </P>
                <P>
                    <E T="03">Response:</E>
                     The Inter-Governmental Cooperation Act (IGCA) permits the Federal Government to provide, to State and local governments, specialized or technical services, 
                    <E T="03">i.e.</E>
                    , functions which a Federal agency is especially equipped and authorized by law to perform. Dispute resolution, a commercially available service, is not the type of service that historically has been offered under the IGCA.
                </P>
                <HD SOURCE="HD1">B. Unfunded Mandates Reform Act and Executive Order 13132</HD>
                <P>The following statutes and Executive orders do not apply to this rulemaking: Unfunded Mandates Reform Act of 1995; Executive Order 13175, Consultation and Coordination with Indian Tribal Governments; and Executive Order 13132, Federalism.</P>
                <HD SOURCE="HD1">C. Executive Order 12866</HD>
                <P>This is not a significant regulatory action and, therefore, was not subject to review under Section 6(b) of Executive Order 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.</P>
                <HD SOURCE="HD1">D. Regulatory Flexibility Act</HD>
                <P>
                    The rule may have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, 
                    <E T="03">et seq.</E>
                    , because small entities that are awarded Schedule 70 contracts and Consolidated Products and Services Schedule contracts, containing IT Special Item Numbers (SINs), under the GSA Federal Supply Schedule program who elect to participate, can contract with State or local governments and small governmental jurisdictions that place orders under Schedule 70 and Consolidated Products and Services Schedule contracts, containing IT SINs. The rule is expected to benefit small business concerns, however, the net effect of the rule is unknown at this time.
                </P>
                <P>GSA has prepared a Final Regulatory Flexibility Analysis (FRFA), and it reads as follows:</P>
                <EXTRACT>
                    <HD SOURCE="HD1">Final Regulatory Flexibility Analysis GSAR Case 2002-G505, Federal Supply Schedule Contracts—Acquisition of Information Technology by State and Local Governments Through Federal Supply Schedules</HD>
                    <P>
                        1. 
                        <E T="03">Statement of the need for, and objective of, the rule.</E>
                    </P>
                    <P>Section 211 Authorization for Acquisition of Information Technology By States and Local Governments Through Federal Supply Schedules, of the E-Government Act of 2002 (P.L. 107-347) amends Section 502 of title 40, United States Code, to authorize the Administrator to provide for use by State or local governments of Federal Supply Schedules of the General Services Administration for automated data processing equipment (including firmware), software, supplies, support equipment, and services. The rule opens the Federal supply schedule 70, Information Technology (IT), and Consolidated Products and Services Schedule contracts, containing Information Technology (IT) Special Item Numbers (SINs) for use by other governmental entities to enhance intergovernmental cooperation.</P>
                    <P>
                        2. 
                        <E T="03">Summary of the significant issues raised by the public comments in response to the Initial Regulatory Flexibility Analysis, a summary of the assessment of the agency of such issues, and a statement of any changes made in the rule as a result of such comments.</E>
                    </P>
                    <P>There were no public comments received in response to the Initial Regulatory Flexibility Analysis.</P>
                    <P>
                        3. 
                        <E T="03">Description of, and estimate of, the number of small entities to which the rule will apply or an explanation of why no such estimate is available.</E>
                    </P>
                    <P>
                        The rule will affect large and small entities including small businesses, that are awarded Schedule 70 contracts and Consolidated Products and Services Schedule contracts, containing IT SINs, under the GSA Federal Supply Schedule program; non-schedule contractors, including small businesses, contracting with State or local governments and small governmental jurisdictions that will be eligible to place orders under Schedule 70 and Consolidated Products and Services Schedule contracts, containing IT SINs. Approximately eighty-five percent (3499) of GSA Schedule 70 contractors are small businesses and approximately eighty-two percent (69) of Consolidated Products and Services Schedule contracts, containing IT SINs, are awarded to small businesses. All of those small business Schedule 70 contractors, and Consolidated Products and Services Schedule contractors, containing IT SINs will be allowed, at the schedule contractor's option, to accept orders from State and local governments. As of September 10, 2003, 941 Schedule 70 
                        <PRTPAGE P="28065"/>
                        contractors accepted the contract modification to participate in cooperative purchasing of which approximately eighty-two percent (772) were small businesses.
                    </P>
                    <P>
                        4. 
                        <E T="03">Description of projected reporting, recordkeeping, and other compliance requirements of the rule, including an estimate of the classes of small entities that will be subject to the requirement and the type of professional skills necessary for preparation of the report or record.</E>
                    </P>
                    <P>The rule makes changes in certain provisions or clauses in order to recognize the fact that authorized non-federal ordering activities may place orders under the contract. The Office of Management and Budget under the Paperwork Reduction Act has previously approved these clauses and the changes do not impact the information collection or recordkeeping requirements.</P>
                    <P>
                        5. 
                        <E T="03">Description of steps the agency has taken to minimize significant economic impact on small entities consistent with the stated objectives of applicable statutes, including a statement of the factual, policy, and legal reasons for selecting the alternative adopted in the final rule and why each of the other significant alternatives to the rule considered by the agency was rejected.</E>
                    </P>
                    <P>These revisions are the only alternatives to implement Section 211 of the E-Government Act of 2002. The rule should involve no substantial risk to small entities, since participation is on a voluntary basis.</P>
                </EXTRACT>
                <HD SOURCE="HD1">E. Paperwork Reduction Act</HD>
                <P>
                    The new provision at GSAR 552.232-82, Contractor's Remittance (Payment) Address, contains an information collection requirement that is subject to the Paperwork Reduction Act (44 U.S.C. 3501 
                    <E T="03">et seq.</E>
                    ). The provision provides for the offeror to indicate the payment address to which checks should be mailed for payment of invoices and provides for the offeror to identify participating dealers and provide their addresses for receiving orders and payments on behalf of the contractor. This information is the same as is normally required in the commercial world and does not represent a Government-unique information collection. Therefore, the estimated burden for this clause under the Paperwork Reduction Act is zero. GSA has a blanket approval under control number 3090-0250 from OMB for information collections with a zero burden estimate.
                </P>
                <P>
                    The new clause at GSAR 552.232-83, Contractor's Billing Responsibilities, contains a recordkeeping requirement that is subject to the Paperwork Reduction Act (44 U.S.C. 3501 
                    <E T="03">et seq.</E>
                    ). The clause provides for the contractor to require all dealers participating in the performance of the contract to agree to maintain certain records on sales made under the contract on behalf of the contractor. The records required are the same as those normally maintained by dealers in the commercial world and do not represent a Government-unique recordkeeping requirement. Therefore, the estimated burden for this clause under the Paperwork Reduction Act is zero. GSA has a blanket approval under control number 3090-0250 from OMB for information collections with a zero burden estimate.
                </P>
                <P>
                    The revised clause at GSAR 552.238-75, Price Reductions, contains an information collection requirement that is subject to the Paperwork Reduction Act (44 U.S.C. 3501 
                    <E T="03">et seq.</E>
                    ) that has previously been approved by the OMB under the Paperwork Reduction Act and assigned control number 3090-0235. The changes made to the clause by this rule do not have an impact on the information collection requirement, which was previously approved. Therefore, it has not been submitted to OMB for approval under the Act.
                </P>
                <LSTSUB>
                    <HD SOURCE="HED">List of Subjects in 48 CFR Parts 511, 516, 532, 538, 546, and 552</HD>
                    <P>Government procurement.</P>
                </LSTSUB>
                <SIG>
                    <DATED>Dated: May 12, 2004.</DATED>
                    <NAME>David A. Drabkin,</NAME>
                    <TITLE>Deputy Associate Administrator, Office of Acquisition Policy.</TITLE>
                </SIG>
                <REGTEXT TITLE="48" PART="511">
                    <AMDPAR>
                        Accordingly, GSA adopts the interim rule amending 48 CFR parts 511, 516, 532, 538, 546, and 552 which was published in the 
                        <E T="04">Federal Register</E>
                         at 68 FR 24372, May 7, 2003, as a final rule with the following changes:
                    </AMDPAR>
                    <PART>
                        <HD SOURCE="HED">PARTS 511, 516, 532, 538, 546, and 552—[AMENDED]</HD>
                    </PART>
                    <AMDPAR>1. The authority citation for 48 CFR parts 511, 516, 532, 538, 546, and 552 continues to read as follows:</AMDPAR>
                    <AUTH>
                        <HD SOURCE="HED">Authority:</HD>
                        <P>40 U.S.C. 121(c).</P>
                    </AUTH>
                </REGTEXT>
                <REGTEXT TITLE="48" PART="511">
                    <SECTION>
                        <SECTNO>511.204, 516.506, 532.206, 532.7003, 538.273, 538.7000, 538.7001, 538.7002, 538.7003, 538.7004, and 546.710 </SECTNO>
                        <SUBJECT>[Amended]</SUBJECT>
                    </SECTION>
                    <AMDPAR>2. In parts 511, 516, 532, 538, 546, and 552, remove the words “Corporate Schedule” and add, in their place, the words “Consolidated Products and Services Schedule” in the following places: </AMDPAR>
                    <P>a. 511.204(c)(3) and (d); </P>
                    <P>b. 516.506(c); </P>
                    <P>c. 532.206(a) and (b); </P>
                    <P>d. 532.7003(b) and (c); </P>
                    <P>e. 538.273(a)(2) and (b)(2); </P>
                    <P>f. 538.7000; </P>
                    <P>g. 538.7001, in the definition “Schedule 70” (four times); </P>
                    <P>h. 538.7002(c) (twice) </P>
                    <P>i. 538.7003, introductory paragraph (twice); </P>
                    <P>j. 538.7004(a), (b), and (c); and </P>
                    <P>k. 546.710(b).</P>
                </REGTEXT>
                <REGTEXT TITLE="48" PART="552">
                    <PART>
                        <HD SOURCE="HED">PART 552—SOLICITATION PROVISIONS AND CONTRACT CLAUSES </HD>
                        <SECTION>
                            <SECTNO>552.216-72 </SECTNO>
                            <SUBJECT>[Amended]</SUBJECT>
                        </SECTION>
                    </PART>
                    <AMDPAR>3. Amend section 552.216-72 in Alternate III by revising the date of the Alternate to read “May 2004”; and by removing the words “paragraphs (a) and (b)” from the last sentence of paragraph (c) and adding “paragraphs (a) and (d)” in its place.</AMDPAR>
                    <AMDPAR>4. Amend section 552.238-75 by revising the date of the clause; removing the word “or” from paragraph (d)(2); redesignating paragraph (d)(3) as (d)(4); and adding a new paragraph (d)(3) to read as follows:</AMDPAR>
                </REGTEXT>
                <REGTEXT TITLE="48" PART="552">
                    <SECTION>
                        <SECTNO>552.238-75 </SECTNO>
                        <SUBJECT>Price Reductions.</SUBJECT>
                        <STARS/>
                        <EXTRACT>
                            <HD SOURCE="HD1">Price Reductions (May 2004)</HD>
                            <STARS/>
                            <P>(d) * * *</P>
                            <P>(3) Made to State and local government entities when the order is placed under this contract (and the State and local government entity is the agreed upon customer or category of customer that is the basis of award); or</P>
                        </EXTRACT>
                        <STARS/>
                    </SECTION>
                    <AMDPAR>5. Amend section 552.238-78 as follows: </AMDPAR>
                    <AMDPAR>a. Revise the date of the clause; </AMDPAR>
                    <AMDPAR>b. Revise the introductory text of paragraph (a); and remove “(b)” from paragraph (a)(8) and add “(d)” in its place; </AMDPAR>
                    <AMDPAR>c. Remove paragraph (e); </AMDPAR>
                    <AMDPAR>d. Redesignate paragraphs (d) and (f) as paragraphs (f) and (g), respectively, and revise newly designated paragraph (f);</AMDPAR>
                    <AMDPAR>e. Redesignate paragraphs (b) and (c) as paragraphs (d) and (e), respectively, and add new paragraphs (b) and (c); and </AMDPAR>
                    <AMDPAR>f. Remove “Corporate Schedule” from newly designated paragraph (d) and add “Consolidated Products and Services Schedule” in its place, as follows:</AMDPAR>
                </REGTEXT>
                <REGTEXT TITLE="48" PART="552">
                    <SECTION>
                        <SECTNO>552.238-78 </SECTNO>
                        <SUBJECT>Scope of Contract (Eligible Ordering Activities) </SUBJECT>
                        <EXTRACT>
                            <STARS/>
                            <HD SOURCE="HD1">Scope of Contract (Eligible Ordering Activities) (May 2004)</HD>
                            <P>(a) This solicitation is issued to establish contracts which may be used on a nonmandatory basis by the agencies and activities named below, as a source of supply for the supplies or services described herein, for domestic and/or overseas delivery. For Special Item Number 132-53, Wireless Services ONLY, limited geographic coverage (consistent with the Offeror's commercial practice) may be proposed.</P>
                            <STARS/>
                            <P>
                                (b) 
                                <E T="03">Definitions. Domestic delivery</E>
                                 is delivery within the 48 contiguous states, Alaska, Hawaii, Puerto Rico, Washington, 
                                <PRTPAGE P="28066"/>
                                DC, and U.S. territories. Domestic delivery also includes a port or consolidation point, within the aforementioned areas, for orders received from overseas activities.
                            </P>
                            <P>
                                <E T="03">Overseas delivery</E>
                                 is delivery to points outside of the 48 contiguous states, Washington, DC, Alaska, Hawaii, Puerto Rico, and U.S. territories.
                            </P>
                            <P>(c) Offerors are requested to check one of the following boxes:</P>
                            <P>☐ Contractor will provide domestic and overseas delivery.</P>
                            <P>☐ Contractor will provide overseas delivery only.</P>
                            <P>☐ Contractor will provide domestic delivery only.</P>
                            <STARS/>
                            <P>(f)(1) The Contractor is obligated to accept orders received from activities within the Executive branch of the Federal Government.</P>
                            <P>(2) The Contractor is not obligated to accept orders received from activities outside the Executive branch; however, the Contractor is encouraged to accept such orders. If the Contractor elects to accept such orders, all provisions of the contract shall apply, including clause 552.232-79, Payment by Credit Card. If the Contractor is unwilling to accept such orders, and the proposed method of payment is not through the Credit Card, the Contractor shall return the order by mail or other means of delivery within 5 workdays from receipt. If the Contractor is unwilling to accept such orders, and the proposed method of payment is through the Credit Card, the Contractor must so advise the ordering activity within 24 hours of receipt of order. (Reference clause 552.232-79, Payment by Credit Card.) Failure to return an order or advise the ordering activity within the time frames of this paragraph shall constitute acceptance whereupon all provisions of the contract shall apply.</P>
                        </EXTRACT>
                        <STARS/>
                    </SECTION>
                    <AMDPAR>6. Amend section 552.238-79 by—</AMDPAR>
                    <AMDPAR>a. Revising the date of the clause; </AMDPAR>
                    <AMDPAR>b. Removing “(b)” from the introductory text of paragraph (a) and adding “(d)” in its place; </AMDPAR>
                    <AMDPAR>c. Adding a sentence to the end of paragraph (a)(1); </AMDPAR>
                    <AMDPAR>d. Revising the second sentence of paragraph (a)(3); </AMDPAR>
                    <AMDPAR>e. Removing “paragraph (b)” from the introductory text of paragraph (b) and adding “paragraph (d)” in its place; </AMDPAR>
                    <AMDPAR>f. Removing the word “contractor” from the third sentence of paragraph (b)(2) and adding “Contractor” in its place; and </AMDPAR>
                    <AMDPAR>g. Revising paragraph (c) to read as follows:</AMDPAR>
                </REGTEXT>
                <REGTEXT TITLE="48" PART="552">
                    <SECTION>
                        <SECTNO>552.238-79 </SECTNO>
                        <SUBJECT>Use of Federal Supply Schedule Contracts by Certain Entities—Cooperative Purchasing.</SUBJECT>
                        <STARS/>
                        <EXTRACT>
                            <HD SOURCE="HD1">Use of Federal Supply Schedule Contracts by Certain Entities—Cooperative Purchasing (May 2004)</HD>
                            <P>(a) * * *</P>
                            <P>(1) * * * Likewise, a Blanket Purchase Agreement (BPA), although not a contract, is an agreement that may be entered into by the Contractor with such an entity and the Federal Government is not a party.</P>
                            <STARS/>
                            <P>(3) * * * Ordering activities may include terms and conditions required by statute, ordinance, regulation, order, or as otherwise allowed by State and local government entities as a part of a statement of work (SOW) or statement of objective (SOO) to the extent that these terms and conditions do not conflict with the terms and conditions of the Schedule contract. * * *</P>
                            <STARS/>
                            <P>(c) In accordance with clause 552.238-74, Industrial Funding Fee and Sales Reporting, the Contractor must report the quarterly dollar value of all sales under this contract. When submitting sales reports, the Contractor must report two dollar values for each Special Item Number:</P>
                            <P>(1) The dollar value for sales to entities identified in paragraph (a) of the clause at 552.238-78, Scope of Contract (Eligible Ordering Activities), and</P>
                            <P>(2) The dollar value for sales to entities identified in paragraph (d) of clause 552.238-78.</P>
                            <P>(End of clause)</P>
                        </EXTRACT>
                    </SECTION>
                </REGTEXT>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11208 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 6820-BR-P</BILCOD>
        </RULE>
        <RULE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF TRANSPORTATION </AGENCY>
                <SUBAGY>Office of the Secretary of Transportation </SUBAGY>
                <CFR>49 CFR Part 15 </CFR>
                <AGENCY TYPE="O">DEPARTMENT OF HOMELAND SECURITY </AGENCY>
                <SUBAGY>Transportation Security Administration </SUBAGY>
                <CFR>49 CFR Part 1520 </CFR>
                <DEPDOC>[Docket No. TSA-2003-15569; Amendment No. 1520-1] </DEPDOC>
                <RIN>RIN 1652-AA08 </RIN>
                <SUBJECT>Protection of Sensitive Security Information </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Transportation Security Administration (TSA), DHS, and Office of the Secretary of Transportation (OST), DOT. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Interim final rule; request for comments. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>TSA is revising its regulation governing the protection of sensitive security information (SSI) in order to protect the confidentiality of maritime security measures adopted under the U.S. Coast Guard's regulations, published on October 22, 2003, implementing the Maritime Transportation Security Act (MTSA) and other activities related to port and maritime security. SSI is information that TSA has determined must be protected from improper disclosure in order to ensure transportation security. TSA's SSI regulation establishes certain requirements for the handling and dissemination of SSI, including restrictions on disclosure and civil penalties for violations of those restrictions. Currently, the SSI regulation applies primarily to information related to aviation security. Airlines, airports, and others operating in civil aviation are required to limit access to this information to those personnel who need it to carry out their security functions. </P>
                    <P>Under MTSA, Congress directed the Coast Guard to issue regulations requiring maritime facility and vessel operators to develop security plans detailing the types of security measures they will implement under varying threat conditions. In order to meet statutory deadlines for implementation of these plans, the Coast Guard issued a series of final rules on October 22, 2003, requiring facility and vessel operators to submit security plans to the Coast Guard for approval. In order to protect the security of the facilities and vessels that prepare security plans, it is necessary to ensure that the plans and related security information are subject to limitations on their disclosure. Therefore, TSA is issuing an interim final rule expanding the scope of its SSI regulation so that it covers security plans and other information about security measures required by the Coast Guard's MTSA regulations. The Coast Guard also will supplement the MTSA regulations by exercising its longstanding authority under the Ports and Waterways Safety Act and the Magnuson Act. Sensitive information related to maritime security collected pursuant to these authorities should likewise be protected from public disclosure. </P>
                    <P>In connection with this revision to the regulations, TSA is requiring employees, contractors, grantees, and agents of DHS and DOT to follow the same requirements governing protection of SSI as those in the transportation sector who are subject to the regulation. This change will provide clear standards for those persons employed by and acting on behalf of DHS and DOT regarding the obligation to safeguard SSI. </P>
                    <P>The interim rule also makes clarifying changes to existing provisions of the SSI regulation governing aviation security. </P>
                    <P>
                        The Office of the Secretary of Transportation (OST) is issuing this rule jointly with TSA to implement DOT's parallel authority to protect SSI. In 
                        <PRTPAGE P="28067"/>
                        order to promote the efficiency and effectiveness of the regulation as well as ease of compliance, TSA and OST are adopting identical regulatory standards governing SSI. 
                    </P>
                </SUM>
                <EFFDATE>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>This rule is effective June 17, 2004. Comments must be received by July 19, 2004. </P>
                </EFFDATE>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>You may submit comments, identified by the TSA docket number to this rulemaking, using any one of the following methods: </P>
                    <P>
                        <E T="03">Comments Filed Electronically:</E>
                         You may submit comments through the docket Web site at 
                        <E T="03">http://dms.dot.gov.</E>
                         Please be aware that anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review the applicable Privacy Act Statement published in the 
                        <E T="04">Federal Register</E>
                         on April 11, 2000 (65 FR 19477), or you may visit 
                        <E T="03">http://dms.dot.gov.</E>
                    </P>
                    <P>
                        You also may submit comments through the Federal eRulemaking portal at 
                        <E T="03">http://www.regulations.gov.</E>
                    </P>
                    <P>
                        <E T="03">Comments Submitted by Mail, Fax, or In Person:</E>
                         Address or deliver your written, signed comments to the Docket Management System, U.S. Department of Transportation, Room Plaza 401, 400 Seventh Street, SW., Washington, DC 20590-0001; fax: 202-493-2251. 
                    </P>
                    <P>Comments that include trade secrets, confidential commercial or financial information, or sensitive security information (SSI) should not be submitted to the public regulatory docket. Please submit such comments separately from other comments on the rule. Comments containing trade secrets, confidential commercial or financial information, or SSI should be appropriately marked as containing such information and submitted by mail to Ann Hunt, Office of Aviation Operations Litigation Support &amp; Special Activities Staff, TSA-7, Transportation Security Administration Headquarters, 601 S. 12th Street, Arlington, VA 22202. </P>
                    <P>
                        <E T="03">Reviewing Comments in the Docket:</E>
                         You may review the public docket containing comments in person in the Dockets Office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Dockets Office is located on the plaza level of the NASSIF Building at the Department of Transportation address above. Also, you may review public dockets on the Internet at 
                        <E T="03">http://dms.dot.gov.</E>
                    </P>
                    <P>
                        <E T="03">See</E>
                          
                        <E T="02">SUPPLEMENTARY INFORMATION</E>
                         for format and other information about comment submissions. 
                    </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>
                        <E T="03">For questions on 49 CFR part 15:</E>
                         Robert Ross, Office of the General Counsel, Department of Transportation, Washington, DC 20590; e-mail: 
                        <E T="03">Bob.Ross@ost.dot.gov,</E>
                         telephone: (202) 366-9156. 
                    </P>
                    <P>
                        <E T="03">For questions on 49 CFR part 1520:</E>
                         Ann Hunt, Director, Aviation Operations Litigation Support &amp; Special Activities Staff, TSA-7, Transportation Security Administration , 601 South 12th Street, Arlington, VA 22202-4220; e-mail: 
                        <E T="03">Ann.Hunt@dhs.gov,</E>
                         telephone: (571) 227-2278. 
                    </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <HD SOURCE="HD1">Comments Invited </HD>
                <P>
                    Interested persons are invited to participate in this rulemaking by submitting written data, views, or arguments. We also invite comments relating to the economic, environmental, energy, or federalism impacts that might result from adopting this amendment. The most helpful comments will reference a specific portion of the rule, explain the reason for any recommended change, and include supporting data. 
                    <E T="03">See</E>
                      
                    <E T="02">ADDRESSES</E>
                     above for information on how to submit comments. 
                </P>
                <P>
                    Comments that include trade secrets, confidential commercial or financial information, or SSI should not be submitted to the public regulatory docket. Please submit such comments separately from other comments on the rule. Comments containing this type of information should be appropriately marked and submitted to the address specified in the 
                    <E T="02">ADDRESSES</E>
                     section. Upon receipt of such comments, TSA will not place the comments in the public docket and will handle them in accordance with applicable safeguards and restrictions on access. TSA will hold them in a separate file to which the public does not have access, and place a note in the public docket that TSA has received such materials from the commenter. If TSA receives a request to examine or copy this information, TSA would treat it as any other request under the Freedom of Information Act (FOIA) (5 U.S.C. 552) and the Department of Homeland Security's FOIA regulation found in 6 CFR part 5. 
                </P>
                <P>
                    With each comment, please include your name and address, identify the docket number at the beginning of your comments, and give the reason for each comment. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. You may submit comments and material electronically, in person, by mail, or fax as provided under 
                    <E T="02">ADDRESSES,</E>
                     but please submit your comments and material by only one means. If you submit comments by mail or delivery, submit them in two copies, in an unbound format, no larger than 8.5 by 11 inches, suitable for copying and electronic filing. 
                </P>
                <P>If you want TSA to acknowledge receipt of your comments on this rulemaking, include with your comments a self-addressed, stamped postcard on which the docket number appears. We will stamp the date on the postcard and mail it to you. </P>
                <P>Except for comments containing confidential information and SSI, we will file in the docket all comments we receive, as well as a report summarizing each substantive public contact with TSA personnel concerning this rulemaking. The docket is available for public inspection before and after the comment closing date. </P>
                <P>We will consider all comments we receive on or before the closing date for comments. We will consider comments filed late to the extent practicable. We may change these rules in light of the comments we receive. </P>
                <HD SOURCE="HD1">Availability of Interim Final Rule </HD>
                <P>You can get an electronic copy using the Internet by— </P>
                <P>
                    (1) Searching the Department of Transportation's electronic Docket Management System (DMS) Web page (
                    <E T="03">http://dms.dot.gov/search</E>
                    ); 
                </P>
                <P>
                    (2) Accessing the Government Printing Office's Web page at 
                    <E T="03">http://www.access.gpo.gov/su_docs/aces/aces140.html;</E>
                     or 
                </P>
                <P>
                    (3) Visiting TSA's Law and Policy Web page at 
                    <E T="03">http://www.tsa.dot.gov/public/index.jsp.</E>
                </P>
                <P>
                    In addition, copies are available by writing or calling the individual in the 
                    <E T="02">FOR FURTHER INFORMATION CONTACT</E>
                     section. Make sure to identify the docket number of this rulemaking. 
                </P>
                <HD SOURCE="HD1">Small Entity Inquiries </HD>
                <P>
                    The Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996 requires an agency to comply with small entity requests for information and advice about compliance with statutes and regulations within the agency's jurisdiction. Any small entity that has a question regarding this document may contact persons listed in 
                    <E T="02">FOR FURTHER INFORMATION CONTACT</E>
                     for information. You can get further information regarding SBREFA on the Small Business Administration's Web page at 
                    <E T="03">http://www.sba.gov/advo/laws/law_lib.html.</E>
                    <PRTPAGE P="28068"/>
                </P>
                <HD SOURCE="HD1">Abbreviations of Terms Used in This Document </HD>
                <FP SOURCE="FP-1">ATSA—Aviation and Transportation Security Act </FP>
                <FP SOURCE="FP-1">CII—Critical Infrastructure Information </FP>
                <FP SOURCE="FP-1">DHS—Department of Homeland Security </FP>
                <FP SOURCE="FP-1">DOT—Department of Transportation </FP>
                <FP SOURCE="FP-1">FAA—Federal Aviation Administration </FP>
                <FP SOURCE="FP-1">FOIA—Freedom of Information Act </FP>
                <FP SOURCE="FP-1">HSA—Homeland Security Act of 2002 </FP>
                <FP SOURCE="FP-1">MTSA—Maritime Transportation Security Act of 2002 </FP>
                <FP SOURCE="FP-1">SSI—Sensitive Security Information </FP>
                <FP SOURCE="FP-1">TSA—Transportation Security Administration </FP>
                <HD SOURCE="HD1">Statutory and Regulatory Background </HD>
                <HD SOURCE="HD2">The Aviation and Transportation Security Act </HD>
                <P>Following the terrorist attacks on the United States on September 11, 2001, Congress passed the Aviation and Transportation Security Act (ATSA) on November 19, 2001, Public Law 107-71, which established TSA. ATSA established TSA within DOT, operating under the direction of the Under Secretary of Transportation for Security (Under Secretary). </P>
                <P>ATSA transferred the responsibility for civil aviation security from the Federal Aviation Administration (FAA) to TSA. 49 U.S.C. 114(d). Among the statutory authorities previously administered by FAA that ATSA transferred to TSA's purview was the authority in 49 U.S.C. 40119 (section 40119), governing the protection of certain information related to transportation security. </P>
                <P>Prior to ATSA, section 40119 authorized the Administrator of FAA to prescribe regulations prohibiting disclosure of information obtained or developed in carrying out security or in research and development activities carried out under various FAA authorities, if the FAA Administrator determined by regulation that disclosing the information would: (1) Be an unwarranted invasion of personal privacy; (2) reveal a trade secret or privileged or confidential commercial or financial information; or (3) be detrimental to the safety of passengers in air transportation. </P>
                <P>FAA implemented this authority by regulation at 14 CFR part 191, which established a category of sensitive, but unclassified, information known as Sensitive Security Information (SSI), the unauthorized disclosure of which could compromise systems that protect aviation security. FAA's SSI regulation defined SSI in both general and specific terms. It identified specific types of records constituting SSI, such as airport and air carrier security programs, as well as general categories of SSI, such as information revealing specific details of aviation security measures. Consistent with the scope of FAA's regulatory authority over aviation, the universe of entities and individuals covered by the FAA's SSI regulation was limited to airport operators, air carriers, and other aviation-related entities and personnel. </P>
                <P>Section 101(e) of ATSA amended the FAA's SSI authority in section 40119(b) by transferring its administration to the Under Secretary and by deleting the word “air” modifying “transportation,” thereby expanding the scope of section 40119 to cover information in all modes of transportation. On February 22, 2002, TSA published a final rule transferring the bulk of FAA's aviation security regulations to TSA, including FAA's SSI regulation, which now is codified at 49 CFR part 1520, and is administered by TSA (67 FR 8340, 8351). </P>
                <HD SOURCE="HD2">The Homeland Security Act </HD>
                <P>On November 25, 2002, the President signed into law the Homeland Security Act of 2002 (HSA), Pub. L. 107-296, which transferred TSA to the newly established DHS. In connection with that transfer, the HSA transferred TSA's SSI authority under 49 U.S.C. 40119 to 49 U.S.C. 114(s), and amended section 40119 to vest similar SSI authority in the Secretary of DOT. New 49 U.S.C. 114(s) provides:</P>
                <EXTRACT>
                    <FP>“(s) NONDISCLOSURE OF SECURITY ACTIVITIES—(1) IN GENERAL—Notwithstanding section 552 of title 5, the Under Secretary shall prescribe regulations prohibiting the disclosure of information obtained or developed in carrying out security under authority of the Aviation and Transportation Security Act (Public Law 107-71) or under chapter 449 of this title if the Under Secretary decides that disclosing the information would—(A) Be an unwarranted invasion of personal privacy; (B) reveal a trade secret or privileged or confidential commercial or financial information; or (C) be detrimental to the security of transportation.”</FP>
                </EXTRACT>
                <P>The SSI authority of the Secretary of DOT is set forth in amended 49 U.S.C. 40119(b)(1), as follows:</P>
                <EXTRACT>
                    <FP>“Notwithstanding section 552 of title 5, and the establishment of a Department of Homeland Security, the Secretary of Transportation shall prescribe regulations prohibiting disclosure of information obtained or developed in ensuring security under this title if the Secretary of Transportation decides disclosing the information would—(A) Be an unwarranted invasion of personal privacy; (B) reveal a trade secret or privileged or confidential commercial or financial information; or (C) be detrimental to transportation safety.” </FP>
                </EXTRACT>
                <P>
                    In both sections, Congress made an important change to the previous statutory language that broadens the scopes of the SSI authority of both the Under Secretary and the Secretary of DOT. Specifically, Congress changed the phrase “detrimental to the safety of 
                    <E T="03">passengers</E>
                     in transportation” (emphasis added) to “detrimental to the security of transportation” and “detrimental to transportation safety,” respectively. Therefore, the HSA amendments clarified that the SSI authority is not limited to passenger modes of transportation. It covers all transportation activities, including non-passenger modes such as air and maritime cargo, trucking and freight transport, and pipelines. 
                </P>
                <P>In conjunction with the transfer of TSA to DHS, the Under Secretary has adopted the new title of Administrator. Consequently, in the remainder of this document, the Under Secretary is referred to as the Administrator or the TSA Administrator. </P>
                <HD SOURCE="HD2">The Maritime Transportation Security Act </HD>
                <P>On November 25, 2002, the President signed into law the MTSA, which established a new framework for maritime security, to be administered largely by the Secretary of DHS, including through TSA, the Coast Guard, and the Bureau of Customs and Border Protection, along with the Maritime Administration of the DOT. Primary elements of this framework are national, area, port, and facility and vessel security plans to be approved or required by DHS. Specifically, under the MTSA the Secretary of DHS must prepare a National Maritime Transportation Security Plan, which, in turn, will identify areas of the country for which DHS will adopt Area Maritime Security Plans. Section 70103 of MTSA also directs the Secretary of DHS to prescribe regulations requiring certain classes of vessels and maritime facilities to adopt plans for deterring a transportation security incident. 46 U.S.C. 70103(a). </P>
                <P>
                    The Coast Guard issued final rules on October 22, 2003, that require vessel and maritime facility operators to prepare security plans for Coast Guard approval. 
                    <E T="03">See</E>
                     68 FR 60448. Currently these types of documents are not subject to the disclosure limitations of TSA's SSI regulation, nor are maritime facility and vessel operators subject to the regulation's requirements to protect these documents from unauthorized access or disclosure. 
                </P>
                <P>
                    With the establishment of new Federal security standards for maritime transportation comes an immediate 
                    <PRTPAGE P="28069"/>
                    need to expand the existing legal protections governing SSI so that those who will have access to sensitive information related to maritime security must safeguard it from improper disclosure. While the MTSA provides broad limitations on public disclosure of the information related to maritime security requirements (
                    <E T="03">see</E>
                     46 U.S.C. 70103), it does not establish binding requirements for owners and operators of maritime transportation facilities and vessels to safeguard the information from disclosure. As previously mentioned, the Coast Guard also will exercise other authorities to enhance maritime security. Without such a legal framework to protect security information, there is an increased risk that newly adopted security measures will be defeated through their unregulated dissemination. 
                </P>
                <P>In addition, the absence of such regulatory protections has inhibited TSA and the Coast Guard from disseminating threat information to those who need to act on it in the maritime transportation mode. TSA regularly disseminates Information Circulars to airlines and airports detailing current threat information related to aviation security. The Coast Guard disseminates threat information evaluation reports in coordination with the Directorate of Informational Analysis and Infrastructure Protection to the maritime industry. The Coast Guard also issues guidance related to maritime security through Navigation and Vessel Inspection Circulars and similar documents. In order to continue to disseminate relevant threat information to maritime transportation operators, there must be requirements in place that the information be protected by those who receive it. Therefore, there is an immediate need to expand the existing regulatory framework governing information related to aviation security to cover information related to security of maritime transportation. </P>
                <HD SOURCE="HD2">Critical Infrastructure Information Act of 2002 </HD>
                <P>The Critical Infrastructure Information Act of 2002 (CII Act), enacted as Subtitle B of title II of the HSA, establishes new requirements for the Federal Government's handling of information related to the nation's critical infrastructure, known as “critical infrastructure information,” or “CII”, that is voluntarily submitted by the private sector to the Federal Government. The CII Act generally prohibits Federal agencies from disclosing such information, except within the Federal Government and to State and local governments in order to protect critical infrastructure. </P>
                <P>In practice, the situations in which information constitutes both SSI and CII may be limited. For the most part, information that is SSI is created by TSA or the Coast Guard or is required to be submitted to TSA, the Coast Guard, or another part of the Federal Government, such as DOT. As further discussed below, SSI includes security programs and procedures of airport, aircraft, vessel, and maritime facility operators; procedures that TSA uses to perform security screening of airline passengers and baggage; and information detailing vulnerabilities in transportation systems or facilities. SSI is created by airports and aircraft operators and other regulated parties, pursuant to regulatory requirements. TSA and the Coast Guard also create SSI, such as screening procedures and certain non-public security directives issued to regulated parties. The SSI regulation prohibits regulated parties from disseminating SSI, except to those employees, contractors, or agents who have a need to know the information in order to carry out security duties. </P>
                <P>Therefore, information constituting SSI generally is not voluntarily submitted to the government, which is required for CII designation. In addition, SSI relates to both critical and non-critical infrastructure assets. There may be cases, however, where the owner or operator of a critical transportation asset voluntarily submits information, such as a vulnerability assessment, to TSA or the Coast Guard. If that information were to be designated by DHS as CII, it would be governed by the requirements for handling of CII, rather than by the SSI regulation. </P>
                <P>Another key difference between SSI and CII is the extent to which a Federal employee may disclose such information. Under the SSI regulation, TSA may disclose SSI to persons with a need to know in order to ensure transportation security. This includes persons both within and outside the Federal Government. The CII Act, however, generally prohibits disclosure of properly designated CII outside the Federal Government. Thus, the interim final rule clarifies that in cases where information is both SSI and CII, the receipt, maintenance, or disclosure of such information by a Federal agency or employee is governed by the CII Act and any implementing regulations, not by the interim final rule. </P>
                <HD SOURCE="HD1">Summary of the Interim Final Rule </HD>
                <P>In this interim final rule, TSA is revising its SSI regulation to expand the existing regulatory framework governing information related to aviation security to cover information related to security in maritime transportation, consistent with the security framework required by the Coast Guard's regulations implementing the MTSA. In making this change, TSA is revising part 1520 in its entirety. The Section-by Section Analysis describes the relationship between each section of the current SSI regulation and the regulation as revised by the interim final rule. While the interim final rule largely incorporates the substance of the provisions of the current SSI regulation, it streamlines and consolidates some of the current provisions and expands on some current provisions in order to provide additional clarity. </P>
                <P>As discussed above in the Statutory and Regulatory Background section, the HSA vested parallel SSI authority in the Secretary of DOT under 49 U.S.C. 40119. Because the HSA transferred the SSI regulation to TSA, however, there currently is no regulation implementing the DOT authority under section 40119. In order to implement that authority, DOT is issuing this interim final rule jointly with TSA. In order to promote the efficiency and effectiveness of the regulation as well as ease of compliance, TSA and DOT are adopting identical regulatory standards governing SSI. The DOT regulation will appear in 49 CFR part 15. </P>
                <HD SOURCE="HD1">Section-by-Section Analysis </HD>
                <P>The following is a section-by-section analysis of the provisions of the interim final rule. For ease of reference, the section-by-section analysis discusses the sections of 49 CFR part 1520, but the discussion is applicable to parallel sections in new part 15 of title 49 CFR. </P>
                <HD SOURCE="HD2">Section 1520.1—Scope </HD>
                <P>Section 1520.1(a) of the SSI regulation currently provides that part 1520 governs the release by TSA and other persons of records and information obtained or developed during security or research and development activities. Current § 1520.1(c) and (d) provide that TSA's authority regarding SSI may be further delegated within TSA, and that TSA exercises authority to withhold or disclose SSI in consultation with the heads of the DOT administrations in cases where those administrations hold SSI. </P>
                <P>
                    Section 1520.1 of the interim final rule adds new language to clarify that part 1520 governs the maintenance, safeguarding, and disclosure of records and information that TSA has determined to be SSI, but does not apply to classified national security information or to sensitive unclassified 
                    <PRTPAGE P="28070"/>
                    information that is not SSI, but nonetheless may be exempted from public disclosure under the Freedom of Information Act (FOIA). This section also makes clear that, in the case of information that has been designated as CII under section 214 of the Homeland Security Act, the receipt, maintenance, or disclosure of such information by a Federal agency or employee is governed by section 214 and any implementing regulations, not by part 1520. 
                </P>
                <P>The interim final rule eliminates unnecessary language in current § 1520.1(d) regarding the disclosure of SSI held by DOT administrations.</P>
                <HD SOURCE="HD2">Section 1520.3—Terms Used in This Part </HD>
                <P>The interim final rule modifies and expands the list of definitions now in § 1520.1(b) of the SSI regulation in order to clarify the regulation and expand its scope to maritime security matters. Section 1520.1(b) currently defines the terms “record” and “vulnerability assessment”. “Record” currently is defined as “any writing, drawing, map, tape, film, photograph, or other means by which information is preserved, irrespective of format.” “Vulnerability assessment” now is defined as “any examination of a transportation system, vehicle, or facility to determine its vulnerability to unlawful interference.” The interim final rule revises these definitions and adds definitions of several new terms. </P>
                <P>Section 1520.3 of the interim final rule modifies the definition of “record” to include any draft, proposed, or recommended change to any record. This is not a substantive change. It merely incorporates the substance of § 1520.7(l) of the current SSI regulation, which provides that SSI includes any draft, proposed, or recommended change to information and records that constitute SSI. </P>
                <P>A record subject to the SSI regulation is not necessarily a Federal record under the Federal Records Act (5 U.S.C. 105). Therefore, for purposes of compliance with the requirements to destroy SSI under § 1520.19 (which is discussed below in the Section-by-Section Analysis), a Federal agency should make a separate determination as to whether a record containing SSI is a record for purposes of the Federal Records Act, which may override the destruction requirements of § 1520.19. </P>
                <P>Section 1520.3 of the interim final rule revises the definition of “vulnerability assessment” to include expressly the examination of any transportation-related automated system or network to determine its vulnerability to unlawful interference. The revised definition also makes clear that a vulnerability assessment includes any recommended actions to address security concerns. </P>
                <P>Section 1520.3 of the interim final rule adds the following new definitions. Under the interim final rule, the term “Administrator” means the Under Secretary of Transportation for Security referred to in 49 U.S.C. 114(b), or his or her designee. As discussed previously, this reflects the Under Secretary's decision to adopt the title of Administrator in connection with the transfer of TSA to DHS. </P>
                <P>As further discussed below, the interim final rule introduces the concept of a “covered person” for purposes of the SSI regulation in order to clarify the universe of entities and individuals that are subject to the regulation's requirements. Although the list of “covered persons” is set forth in § 1520.7 of the interim final rule, TSA is adding a definition of the term “covered person” to § 1520.3 in order to provide additional clarity. “Covered person” is defined as any organization, entity, individual, or other person described in § 1520.7. In the case of an individual, a “covered person” includes any individual applying for employment in a position that would be a covered person, or in training for such a position, regardless of whether that individual is receiving a wage, salary, or other form of payment. The definition includes individual applicants and trainees because individuals acting in those capacities may receive or have access to SSI before they are hired or accepted into a permanent position that otherwise would involve access to SSI. “Covered person” includes a person applying for certification or other form of approval that, if granted, would make the person a covered person. Persons applying for a certification or approval that would make them covered persons may have access to SSI as part of the application process, and therefore must be subject to a regulatory obligation to protect it from unauthorized disclosure. The reference to applicants and trainees in the definition of “covered person” carries forward in substance § 1520.5(f) of the current SSI regulation. </P>
                <P>
                    Section 1520.3 adds a definition of “DHS”, which means any directorate, bureau, or other component within DHS, including the Coast Guard. Under some circumstances, the Coast Guard may be temporarily transferred to the Department of the Navy and will operate as a service with the Navy. 
                    <E T="03">See</E>
                     14 U.S.C. 3. Nonetheless, the SSI regulation would continue to apply to information held or distributed by the Coast Guard. 
                </P>
                <P>Section 1520.3 also includes a number of new definitions that have been added in order to clarify terms currently used in the SSI regulation, such as “security program”, “security contingency plan”, “security screening”, and “threat image projection system”. In addition to explaining the meaning of these terms, the definitions make clear that they apply in the context of maritime transportation. </P>
                <HD SOURCE="HD2">Section 1520.5—Sensitive Security Information </HD>
                <P>Section 1520.3(b) of the SSI regulation currently sets forth the general criteria under which TSA determines whether information is SSI. It authorizes TSA to prohibit the disclosure of information developed in the conduct of security or research and development activities if, in TSA's judgment, the disclosure of such information would: (1) Constitute an unwarranted invasion of privacy; (2) reveal trade secrets or confidential information obtained from any person; or (3) be detrimental to the safety of persons traveling in transportation. Section 1520.5(a) of the interim final rule carries forward and updates this provision to reflect changes to TSA's SSI authority made by the HSA, discussed above. </P>
                <P>Section 1520.5(b) of the interim final rule incorporates the provisions of current § 1520.7 of the SSI regulation that define the types of information that constitute SSI. In large part, § 1520.5(b) carries forward categories of information or records that constitute SSI under the current regulation, while expanding their description to make clear that they now encompass information related to the security of maritime transportation and are not limited to the security of passengers. </P>
                <P>
                    Section 1520.5(b) of the interim final rule carries forward in substance the introductory text of § 1520.7 of the current regulation, which provides that the specific information described in that section is SSI, “except as otherwise provided in writing by the Under Secretary as necessary in the interest of safety of persons in transportation * * *” This exception serves two functions. First, some SSI documents contain information that is released to the public. TSA may issue press releases or otherwise make this information available to the public where TSA determines in writing that such a release is appropriate. Second, TSA may publicly release some SSI to help achieve compliance with security requirements. For instance, as part of its security rules, TSA requires airlines to ask passengers for identification at check-in. Although this requirement is 
                    <PRTPAGE P="28071"/>
                    part of a security procedure that is SSI, TSA has released this information to the public in order to facilitate the secure and efficient processing of passengers when they arrive at an airport. In this type of situation, TSA must determine whether releasing certain portions of security procedures will improve transportation security to a greater extent than maintaining the confidentiality of the procedure. 
                    <E T="03">See</E>
                     62 FR 13471 (Mar. 21, 1997, preamble to 1997 amendments to SSI regulation). 
                </P>
                <P>Sections 1520.5(b)(1) through (5) of the interim final rule, which cover security programs and contingency plans, Security Directives, Information Circulars, performance specifications, and vulnerability assessments, carry forward in substance the current provisions of §§ 1520.7(a) through (e), (g), and (r). </P>
                <P>
                    For instance, § 1520.5(b)(1) carries forward the provisions relating to security programs and contingency plans from current § 1520.7(a) and (d), but expands those provisions to cover national and area security plans and security incident response plans established under the MTSA, as well as vessel and facility security plans required or directed under Federal law. 
                    <E T="03">See</E>
                     46 U.S.C. 70103, 70104. 
                </P>
                <P>
                    Section 1520.5(b)(3) of the interim final rule modifies the reference to Information Circulars to include any notice issued by DHS or DOT regarding a threat to aviation or maritime transportation. Information Circulars are documents that TSA distributes to entities in the transportation sector that detail information of security concern. The interim final rule clarifies that SSI includes not only Information Circulars issued to entities within the aviation sector, but also any circular, guidance, or notice regarding threats to aviation or maritime transportation that DHS or DOT may issue to a covered person.
                    <SU>1</SU>
                    <FTREF/>
                     For instance, the interim final rule covers Navigation or Vessel Inspection Circulars issued by the Coast Guard related to maritime security, and similar issuances of DOT. 
                </P>
                <FTNT>
                    <P>
                        <SU>1</SU>
                         Information Circulars were primarily used by the FAA (and are now used by TSA) to pass information of security concern to airport and aircraft operators.
                    </P>
                </FTNT>
                <P>The interim final rule carries forward in substance the current reference to vulnerability assessments now in § 1520.7(r) of the SSI regulation. The revised provision would apply to vulnerability assessments created at the initiative of a covered person, but which the covered person intends to provide to DOT or DHS in support of a Federal security program. </P>
                <P>Section 1520.5(b)(6) of the interim final rule modifies the reference now in § 1520.7(h) of the SSI regulation to inspections and investigations of regulatory violations. The interim final rule expands the current provision so that it applies in the context of maritime transportation. The interim final rule also retains, in large part, the language now in the SSI regulation detailing the specific types of investigative information related to the aviation sector that constitutes SSI. </P>
                <P>Section 1520.5(b)(7) of the interim final rule carries forward and incorporates the reference in § 1520.7(i) of the SSI regulation to information concerning threats against transportation. The revised language includes threats against cyber infrastructure in order to make clear that information on threats to transportation includes threats to computer systems. The provision also is revised to clarify that it applies to threat information held by any Federal agency, not just TSA, as well as sources and methods used to gather or develop such information. </P>
                <P>Section 1520.5(b)(8) of the interim final rule incorporates § 1520.7(j) of the SSI regulation, which defines as SSI the specific details of aviation security measures applied by TSA or another entity, including details of the deployment and operations of Federal Air Marshals. The interim final rule expands this provision to cover specific details of transportation security measures applied in maritime transportation and includes security measures and protocols recommended by the Federal government. It also now includes information concerning the deployments, numbers, and operations of Coast Guard personnel engaged in maritime security duties and Federal Flight Deck Officers. This section covers the details of deployments, numbers, and operations of Federal Air Marshals only to the extent that such information is not national security classified information. </P>
                <P>Section 1520.5(b)(9) of the interim final rule consolidates and expands the references now in § 1520.7(m) through (q) of the SSI regulation to information about security screening. Section 1520.5(b)(9)(i) adds a new provision stating that SSI includes any procedures, including selection criteria and any comments, instructions, and implementing guidance pertaining thereto, for screening of persons, accessible property, checked baggage, U.S. mail, stores, and cargo, that is conducted by the Federal government or any other authorized person pursuant to any aviation or maritime transportation security requirements of Federal law. This language is intended to clarify that aviation or maritime security screening procedures carried out not only by TSA, but also by other Federal or State government entities, or by private entities, such as operators of private air charter operations under TSA regulations, constitute SSI. </P>
                <P>Section 1520.5(b)(9)(ii) adds a new provision clarifying that SSI includes information and sources of information used by a passenger or property screening program or system, including an automated screening system. This is intended to cover information used by a computerized passenger screening system, including lists of individuals identified as threats to transportation or national security. </P>
                <P>Section 1520.5(b)(10) of the interim final rule adds a new provision clarifying that training materials detailing any aviation or maritime security measures required or recommended by DHS or DOT are SSI. These types of materials contain descriptions of screening equipment, particular screening methods, or security measures or countermeasures that a terrorist or other criminal could use to determine how to defeat security systems or procedures. </P>
                <P>Section 1520.5(b)(11) of the interim final rule adds a new provision intended to safeguard lists of information about the identities of individuals who hold certain positions with aviation or maritime security responsibilities. It covers lists of information that would identify individuals as persons: (1) With unescorted access to secure or restricted areas of an airport or maritime facility, port area, or vessel; (2) acting as security screening personnel employed by or under contract to the Federal government pursuant to aviation or maritime transportation security requirements of Federal law, when aggregated by airport; and (3) acting as Federal Air Marshals, certain Coast Guard personnel engaged in maritime security duties. This section also covers names, whether or not part of a list, of current, former, and applicants to be Federal Flight Deck Officers. These types of individuals may be targeted by terrorists or other criminals to obtain their security identification cards or credentials or to obtain SSI, such as screening procedures or security training methods. Thus, information that personally identifies these individuals must be protected. </P>
                <P>
                    Section 1520.5(b)(12) of the interim final rule designates as SSI certain lists of critical aviation or maritime infrastructure assets prepared by Federal, State, or local government 
                    <PRTPAGE P="28072"/>
                    agencies. Specifically, this provision covers any list identifying systems, facilities, or other assets, whether physical or virtual, so vital to the transportation system that the incapacity or destruction of such assets would have a debilitating impact on transportation security. This information constitutes SSI, however, only if it is either prepared by DHS or DOT or is prepared by a State or local agency and is submitted to DHS or DOT. 
                </P>
                <P>In the course of developing security measures for their transportation systems, State and local governments create lists of critical transportation systems, facilities, or other assets that may be vulnerable to attack. The compilation of these lists does not necessarily involve vulnerability assessments of each asset on the list. Therefore, the lists may not be protected as vulnerability assessments under § 1520.5(b)(5) of the interim final rule. Nonetheless, such lists should be SSI because their release to the public would increase the risk of attack on critical transportation assets. It would be impractical, however, to designate all lists of critical aviation and maritime transportation assets prepared by State or local governments as SSI. Therefore, the interim final rule establishes a clear standard to determine when such lists are covered. A list of critical aviation or maritime transportation infrastructure assets created by a State or local agency must be submitted to DHS or DOT in order to be SSI. Once submitted, the list constitutes SSI both in the hands of DHS or DOT and in the hands of the State or local agency that prepared it. Lists of such assets created by DHS or DOT also constitute SSI under this provision of the interim final rule. </P>
                <P>Section 1520.5(b)(13) of the interim final rule designates as SSI any information involving the security of operational or administrative data systems that have been identified by DOT or DHS as critical to aviation or maritime transportation safety or security. This would include automated information security procedures and systems, vulnerability information concerning such systems, and security inspections. This addition is necessary to protect electronic data systems from cyberspace attacks. </P>
                <P>As discussed previously, 49 U.S.C. 114(s)(1)(B) authorizes TSA to prescribe regulations restricting the disclosure of information that would “reveal a trade secret or privileged or confidential commercial of financial information.” TSA is adding a new provision to the SSI regulation that clarifies this authority. </P>
                <P>In carrying out transportation security responsibilities, TSA procures security-related products and services, such as explosive detection equipment, risk-assessment systems, and security personnel services. TSA obtains these products and services through solicitations of proposals under a procurement process, through grants and cooperative agreements, and through other types of transactions. In addition, TSA receives unsolicited proposals offering security products and services. In many cases, materials submitted to TSA in the course of these transactions include details of existing or proposed transportation security measures, the disclosure of which would compromise the effectiveness of those measures. These materials also include trade secrets and other confidential commercial or financial information that the submitter would not disclose to the public. The Coast Guard and agencies within DOT such as the Research and Special Programs Administration, the Federal Railroad Administration, and the Federal Transit Administration also may obtain this type of information in the course of grant and procurement processes. </P>
                <P>While this type of information is to some extent exempt from disclosure under FOIA, TSA is clarifying its independent authority under 49 U.S.C. 114(s)(1)(B) to protect this information as it relates to transportation security. </P>
                <P>Section 1520.5(b)(14)(i) of the interim final rule designates as SSI proposals received by DHS or DOT, and negotiations arising therefrom, to perform work pursuant to a grant, contract, cooperative agreement, or other transaction, to the extent that the subject matter of the proposal relates to specific aviation or maritime transportation security measures. Section 1520.5(b)(14)(ii) covers trade secret information, including information required or requested by regulation or Security Directive, obtained by DHS or DOT in carrying out aviation or maritime transportation security responsibilities. Section 1520.5(b)(14)(iii) covers commercial or financial information, including information required or requested by regulation or Security Directive, obtained by DHS or DOT in carrying out aviation or maritime transportation security responsibilities, where the source of the information does not customarily disclose it to the public. </P>
                <P>Section 1520.5(b)(15) of the interim final rule adds language clarifying the types of research and development information covered by the SSI regulation. </P>
                <P>Section 1520.5(b)(16) carries forward in substance § 1520.7(k) of the current SSI regulation, which provides that TSA may determine, on a case-by-case basis, that information or records not expressly listed in the SSI regulation are nonetheless subject to the non-disclosure requirements of the regulation. The interim final rule also adds language to cover the Secretary of DOT acting pursuant to the authority in 49 U.S.C. 40119. </P>
                <P>Section 1520.5(c) adds a new provision clarifying that TSA may determine that certain information or records are not SSI even though they otherwise appear to be covered by one of the categories in § 1520.5(b)(1) through (16). For example, this situation may arise in the case of a Security Directive containing security measures that become obsolete. Normally, the passage of time or the updating of security procedures or measures does not affect the SSI status of superseded security procedures. In most cases, key elements of the superseded procedures are carried forward or otherwise reflected in new procedures. In addition, where TSA rescinds a Security Directive because the particular threat it addresses has receded, TSA may reinstitute the security measures described in the directive to address threats that may arise in the future. Therefore, improper disclosure of the superseded or rescinded procedures would continue to be detrimental to transportation security. In some cases, however, security information that at one time was SSI is no longer in use, current procedures are not derived from that information, and TSA does not expect the information to have security implications in the future. Therefore, its disclosure would not be detrimental to transportation security, and it no longer meets the statutory criteria for designation as SSI. In cases where records or information no longer meet the statutory criteria, § 1520.5(c) makes clear that TSA may determine that the information is no longer SSI. </P>
                <HD SOURCE="HD2">Section 1520.7—Covered Persons </HD>
                <P>
                    The interim final rule incorporates and revises the current provisions of the SSI regulation in § 1520.5(a) that define the universe of entities and individuals that are subject to the regulation's requirements. Section 1520.5(a) currently covers: (1) Airport operators; (2) aircraft operators; (3) foreign air carriers; (4) indirect air carriers; (5) persons who received SSI as part of a legal enforcement action; (6) persons for whom a vulnerability assessment had been authorized, approved, or funded by DOT; and (7) persons employed by, 
                    <PRTPAGE P="28073"/>
                    contracted to, or acting for any of the persons listed above. 
                </P>
                <P>The interim final rule adds references to various entities and individuals in maritime transportation, such as maritime vessel owners, charterers, and operators; owners and operators of maritime facilities; and persons participating in national or area security committees established under the MTSA. In addition, rail operators, commuter authorities, pipeline operators, and other operators of transportation facilities may be covered persons if they are required by the Coast Guard to have a security plan. </P>
                <P>Section 1520.7(e) of the interim final rule adds a provision clarifying that the SSI rule applies to persons performing the function of a computer reservation system (CRS) or global distribution system (GDS) for airline passenger information. CRSs and GDSs maintain electronic reservation systems used by aircraft operators. While these persons currently are covered by the SSI regulation under § 1520.5(a)(1) because they are contracted to or acting for aircraft operators, the interim final rule is intended to clarify that CRSs and GDSs that have SSI in connection with passenger screening must protect that information in accordance with the SSI regulation. For instance, a CRS or GDS may have SSI related to the operation of the Computer Assisted Passenger Prescreening System. </P>
                <P>Section 1520.7(g) of the interim final rule codifies TSA's current practice of sharing SSI with selected individuals working on behalf of trade associations pursuant to non-disclosure agreements. </P>
                <P>Sections 1520.7(h) and (k) of the interim final rule expand the coverage of the SSI regulation to DHS, DOT, and their employees, contractors, grantees, and agents. These individuals currently are not covered by the SSI regulation, although in practice they may be required to take the same steps as covered persons to safeguard SSI, pursuant to agency order or other rule or by agreement. In addition, Federal employees are subject to general requirements governing the disclosure of information under FOIA and agency regulations. In many cases, however, the only consequence of improper disclosure of SSI for a Federal employee is the potential for disciplinary action. </P>
                <P>In the interest of transportation security, employees of DHS and DOT, which are the departments that administer the SSI authority, should be required to follow the requirements of the SSI regulation to the same extent as other covered persons. Similarly, these employees should be subject to the same consequences for improper disclosure of SSI as regulated parties. Under § 1520.7(k), contractors, grantees, and agents of DHS and DOT also are covered by the interim final rule. Therefore, Federal employees and persons performing contracts with, or who obtain SSI in connection with grants from, DHS or DOT are subject to civil penalties for non-compliance with part 1520. </P>
                <P>As further discussed below, the SSI regulation permits disclosures of SSI to those persons who have a need to know. This is currently expressed in § 1520.5(b) of the SSI regulation, which describes those categories of persons deemed to have a need to know. The interim final rule revises this provision in a new § 1520.11. Section 1520.7(j) of the interim final rule adds a corresponding provision clarifying that individuals or entities who have a need to know, as described in new § 1520.11, are covered persons and must comply with the requirements of the SSI regulation. </P>
                <P>In some cases, an entity that is a covered person may be owned by a State or local government, and individuals covered by the regulation may be State or local employees. This is currently the case under part 1520, which applies to State or local airport operators and, therefore, to airport employees who may be State or local government employees and to other State or local employees carrying out security functions at an airport. For instance, the SSI regulation applies to airport police acting on behalf of the airport operator in fulfilling the airport operator's duty to provide law enforcement support under TSA's regulations. </P>
                <P>Similarly, under the interim final rule, some individuals who are covered persons may be State or local employees if they are employed by a transportation facility or operator that is a State or local government entity, such as a covered maritime facility. The interim final rule, however, does not cover State or local employees who are not employed by or acting for a covered entity. For instance, the interim final rule does not apply generally to State and local emergency response workers or law enforcement officers. There may be situations, however, where these types of individuals need access to SSI in order to prevent or respond to a transportation security incident. Therefore, TSA is considering whether to include additional State and local entities, such as emergency services providers and their employees, as covered persons. TSA requests comment on this issue. </P>
                <HD SOURCE="HD2">Section 1520.9—Restrictions on the Disclosure of SSI</HD>
                <P>Section 1520.9 of the interim final rule incorporates the provisions of current § 1520.5(a) and (c) of the SSI regulations. Section 1520.5(a) of the SSI regulation currently requires covered persons to restrict disclosure of and access to SSI to persons with a need to know and to refer requests by other persons for SSI to TSA or the applicable DOT administration. Section 1520.5(c) currently requires that when SSI is released to unauthorized persons, covered persons or individuals with knowledge of the release must inform DOT.</P>
                <P>Section 1520.9 of the interim final rule adds new provisions specifying restrictions on the disclosure of SSI. Paragraph (a) requires all covered persons to restrict disclosure of and access to SSI to covered persons with a need to know and to refer requests for SSI by other persons to TSA or the applicable agency within DOT or DHS. These requirements are the same as the requirements in the current § 1520.5(a), except for the reference to DHS.</P>
                <P>Section 1520.9(a) of the interim final rule also requires covered persons to mark SSI as specified in § 1520.13 of the interim final rule and to dispose of SSI as specified in § 1520.19 of the interim final rule. These are new requirements. The marking requirement will ensure that persons handling records containing SSI are aware of the sensitive nature of the information in the records, the restrictions on release of the information, and the consequences of unauthorized release. The disposal requirement will ensure that copies and drafts of records containing SSI that are no longer needed are destroyed promptly.</P>
                <P>Section 1520.9(b) of the interim final rule requires a covered person who receives a record containing SSI that is not marked as specified in § 1520.13 to mark the record properly and inform the sender of the record that the record must be marked as specified in § 1520.13 of the interim final rule. These requirements ensure that records containing SSI that inadvertently have been left unmarked are marked with the SSI notice and treated accordingly.</P>
                <P>
                    Section 1520.9(c) of the interim final rule requires that when a covered person becomes aware that SSI has been released to unauthorized persons, the covered person must promptly inform TSA or the applicable DOT or DHS agency. This requirement is currently contained in § 1520.5(c) of the SSI regulation.
                    <PRTPAGE P="28074"/>
                </P>
                <P>Section 1520.9(d) adds a provision clarifying that in the case of information that is both SSI and has been designated as CII under section 214 of the Homeland Security Act, any covered person who is a Federal employee in possession of such information must comply with the disclosure restrictions and other requirements applicable to such information under section 214 and any implementing regulations.</P>
                <P>While the interim final rule establishes a broad category of covered persons, as a practical matter many persons who fall within the coverage of the rule may not have possession of SSI and therefore would not be affected by the requirements of § 1520.9.</P>
                <HD SOURCE="HD2">Section 1520.11—Persons With a Need To Know</HD>
                <P>Currently, § 1520.5(b) of the current SSI regulation specifies when a person has a need to know SSI. Under that section, a person has a need to know in each of the following circumstances: (1) When the person needs the SSI to carry out DOT-approved, accepted, or directed security duties; (2) when the person is in training to carry out DOT-approved, accepted, or directed security duties; (3) when the SSI is necessary for the person to supervise or manage persons carrying out DOT-approved, accepted, or directed security duties; (4) when the person needs the SSI to advise other covered persons regarding any DOT security-related requirements; and (5) when the person needs the SSI to represent covered persons in connection with any judicial or administrative proceeding regarding certain requirements. Section 1520.5(b) also currently specifies that for some specific SSI, TSA can make a finding that only specific persons or classes of persons have a need to know.</P>
                <P>Section 1520.11(a) of the interim final rule maintains those five “need to know” categories with the following modifications. The phrase “DOT-approved, accepted, or directed security duties” in the first three categories is changed to “aviation or maritime transportation security activities approved, accepted, funded, recommended, or directed by DHS or DOT.” The fourth category is revised to read: “when the person needs the information to provide technical or legal advice to a covered person regarding aviation or maritime transportation security requirements of Federal law.”</P>
                <P>Section 1520.11(b) of the interim final rule adds new provisions describing when Federal employees and contractors have a need to know SSI. Section 1520.11(b)(1) provides that a Federal employee has a need to know SSI if access to the information is necessary for performance of the employee's official duties. Section 1520.11(b)(2) provides that a person acting in the performance of a contract with the Federal government has a need to know SSI if access to the information is necessary to performance of the contract.</P>
                <P>Section 1520.11(c) adds a new provision permitting TSA or the Coast Guard to make an individual's access to SSI contingent upon completion of a security background check and the imposition of requirements or procedures for safeguarding SSI. The purpose of this change is to give TSA and the Coast Guard discretion to apply stricter safeguards in protecting SSI of a more sensitive nature or in ensuring that individuals who receive SSI do not pose a security threat or have a history of making improper disclosures of SSI.</P>
                <P>Section 1520.11(d) of the interim final rule carries forward in substance § 1520.5(b) of the current SSI regulation, providing that DHS or DOT may determine that for some types of SSI only specific persons or classes of persons have a need to know.</P>
                <HD SOURCE="HD2">Section 1520.13—Marking SSI</HD>
                <P>Currently, part 1520 does not contain any specific requirement to mark records as SSI. Marking of records, however, is an important means of protecting SSI from unauthorized disclosure. Therefore, § 1520.13 of the interim final rule adds a new requirement specifying the marking requirements for records containing SSI. Records must be marked with both a protective marking and a distribution limitation statement. The protective marking reads “SENSITIVE SECURITY INFORMATION”. The distribution limitation statement reads:</P>
                <EXTRACT>
                    <P>
                        <E T="03">WARNING:</E>
                         This record contains Sensitive Security Information that is controlled under 49 CFR parts 15 and 1520. No part of this record may be disclosed to persons without a “need to know”, as defined in 49 CFR parts 15 and 1520, except with the written permission of the Administrator of the Transportation Security Administration or the Secretary of Transportation. Unauthorized release may result in civil penalty or other action. For U.S. government agencies, public disclosure is governed by 5 U.S.C. 552 and 49 CFR parts 15 and 1520.
                    </P>
                </EXTRACT>
                <P>Paper records must have the protective marking on the top and the distribution limitation statement on the bottom of: (1) The outside of any front and back cover, including a binder cover or folder; (2) any title page; and (3) each page of the document. Non-paper records must be marked clearly and conspicuously with the protective marking and distribution limitation statement, such that the viewer is reasonably likely to see or hear them when obtaining access to the contents of the record.</P>
                <P>These marking requirements will ensure that persons handling records containing SSI are aware of the sensitive nature of the information contained in the records, the restrictions on release of the information, and the consequences of unauthorized release. As is the case under the current SSI regulation, however, records containing SSI that are not so marked are nonetheless subject to the requirements of the SSI regulation.</P>
                <HD SOURCE="HD2">Section 1520.15—SSI Disclosed by TSA or the Coast Guard</HD>
                <P>Section 1520.3 of the current SSI regulation describes records and information that TSA withholds in response to a FOIA or other request for SSI. Section 1520.3(a) provides that notwithstanding FOIA or other laws, TSA does not release SSI to the public or make it available for public inspection or copying, with two exceptions.</P>
                <P>First, under the current SSI regulation, if a record contains both information that is SSI and information that is not SSI, the latter information, on a proper FOIA request, is provided for public inspection and copying. However, if it is impractical to redact the requested information from the record, the entire record is withheld.</P>
                <P>Second, after initiation of legal enforcement action, if the alleged violator or designated representative requests it, the TSA Chief Counsel, or designee, can provide copies of portions of the enforcement investigative report (EIR), including SSI. Such information is provided only to the alleged violator or designated representative and is not released under FOIA. Whenever such information is provided, the Chief Counsel, or designee, currently is required to advise the alleged violator or designated representative that the documents are provided for the sole purpose of providing information necessary to respond to the allegations, and that SSI contained in the records provided must be maintained in a confidential manner to prevent compromising civil aviation security.</P>
                <P>
                    Section 1520.15 of the interim final rule carries forward provisions in the current SSI regulation stating that records containing SSI are exempt from disclosure under FOIA, and adds appropriate references to the Coast Guard. Section 1520.15 also makes clear, however, that records containing SSI are exempt from disclosure under 
                    <PRTPAGE P="28075"/>
                    the Privacy Act (5 U.S.C. 552a), and other laws.
                </P>
                <P>
                    Under FOIA, Federal agencies are prohibited from disclosing to the public any record that is specifically exempted from disclosure by statute, where “such statute (1) requires that the matters be withheld from the public in such a manner as to leave no discretion on the issue, or (2) establishes particular criteria for withholding or refers to particular types of matters to be withheld.” 
                    <E T="03">See</E>
                     5 U.S.C. 552(b)(3).
                </P>
                <P>TSA's authority under 49 U.S.C. 114(s) constitutes a statute establishing “particular criteria for withholding or refer[ing] to particular types of matters to be withheld.” As discussed above, 49 U.S.C. 114(s) requires TSA to promulgate regulations prohibiting disclosure of information obtained or developed in carrying out security where disclosure would: (1) Be an unwarranted invasion of personal privacy; (2) reveal a trade secret or privileged or confidential commercial or financial information; or (3) be detrimental to the security of transportation. TSA's regulation at 49 CFR part 1520 implements this statutory requirement. Consequently, records containing SSI are exempt from disclosure under FOIA, to the extent disclosure is prohibited by 49 CFR part 1520. Moreover, this exemption applies regardless of whether the records are held by TSA, another component of DHS, or another Federal agency.</P>
                <P>Section 1520.15 provides for several exceptions to the general rule against disclosure of SSI by TSA or the Coast Guard. The first exception is substantively the same as the first exception of current § 1520.3. It provides that if a record contains both SSI and information that is not SSI, the record, on a proper FOIA or Privacy Act request, will be disclosed with the SSI redacted from the record, provided the record is not otherwise exempt from disclosure under FOIA or the Privacy Act.</P>
                <P>The second exception applies to disclosure of SSI to a committee of Congress authorized to have the information as provided in 49 U.S.C. 114(s)(2), or to the General Accounting Office.</P>
                <P>The third exception carries forward the existing procedures that provide fair access to SSI for respondents in enforcement proceedings, while ensuring that such access is balanced against security concerns raised by disclosing the information to individuals and entities that do not have a need to know the information. Specifically, § 1520.15(d) of the interim final rule provides that in cases where TSA or the Coast Guard determines that a respondent needs access to SSI in order to prepare a response to allegations contained in a legal enforcement action document, the agency may provide the SSI to the respondent, and may make the release contingent upon the respondent and the respondent's counsel completing a security background check. If the respondent or his counsel fails to satisfy the background check, TSA or the Coast Guard may limit or deny access to the SSI. If TSA or the Coast Guard releases SSI, the recipients become covered persons under the SSI regulation and must protect the SSI accordingly.</P>
                <P>Section 1520.15(e) adds a new provision that makes express TSA's authority to determine on a case-by-case basis that a person who is not otherwise within the general categories of persons with a need to know SSI under § 1520.11(a) has a need for access to SSI, and that granting access, subject to such safeguards as TSA may prescribe, will not be detrimental to transportation security. For instance, persons who are grantees or contractors of Federal agencies other than DHS or DOT may have a need to know SSI in order to carry out functions related to aviation or maritime transportation security. Section 1520.15(f) and (g) of the interim final rule makes clear that when TSA or the Coast Guard discloses SSI to a respondent or his counsel for use in responding to allegations contained in a legal enforcement action document, and when TSA makes a conditional disclosure under 1520.15(e), the recipients of the SSI become covered persons under the SSI regulation, and the disclosure is not a public release of information under FOIA.</P>
                <P>Section 1520.15(h) makes clear that disclosure of information that is both SSI and has been designated as critical infrastructure information under section 214 of the Homeland Security Act is governed solely by the requirements of section 214 and any implementing regulations. As discussed above, a Federal agency or employee generally may not disclose information designated as CII under the CII Act, except within the Federal Government and to State and local governments in order to protect critical infrastructure.</P>
                <HD SOURCE="HD2">Section 1520.17—Consequences of Unauthorized Disclosure of SSI </HD>
                <P>Section 1520.17 of the interim final rule specifies that the unauthorized disclosure of SSI is grounds for a civil penalty and other enforcement or corrective action by DOT or DHS, including appropriate personnel actions for Federal employees. This provision is currently contained in § 1520.5(d) of the SSI regulation. Corrective action may include issuance of an order requiring retrieval of SSI to remedy unauthorized disclosure or an order to cease future unauthorized disclosure. </P>
                <HD SOURCE="HD2">Section 1520.19—Destruction of SSI </HD>
                <P>Section 1520.19 of the interim final rule specifies the requirements for the destruction of SSI. Currently, part 1520 does not contain destruction requirements. However, such requirements are necessary to ensure that copies and drafts of records containing SSI that are no longer needed are destroyed promptly.</P>
                <P>The interim final rule provides that DHS and DOT destroy SSI when no longer needed to carry out their functions. This requirement is subject to the requirements of the Federal Records Act (5 U.S.C. 105), including the duty to preserve records.</P>
                <P>Other covered persons are required to destroy SSI completely to preclude recognition or reconstruction of the information when they no longer need the information to carry out transportation security measures, with one exception. A State or local government agency is not required to destroy information that it is required to preserve under State or local law.</P>
                <HD SOURCE="HD1">Good Cause for Immediate Adoption </HD>
                <P>TSA and OST are issuing this final rule without prior notice and opportunity for comment pursuant to the authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision allows an agency to issue a final rule without notice and opportunity for comment when the agency for good cause finds that notice and comment procedures are “impracticable, unnecessary or contrary to the public interest.” </P>
                <P>
                    In response to the terrorist attacks of September 11, 2001, Congress enacted a series of statutes intended to strengthen homeland security, including the security of the transportation system. On November 19, 2001, the President signed into law ATSA, which established sweeping new security requirements for commercial air passenger transportation and assigned to TSA the responsibility for security in all modes of transportation. (Pub. L. 107-71). Over the past 24 months, TSA worked to meet congressional deadlines established in ATSA for the deployment of a Federal workforce to screen passengers and baggage in air transportation. On November 25, 2002, the President signed into law MTSA (Pub. L. 107-295), which established a new framework for maritime security, to 
                    <PRTPAGE P="28076"/>
                    be implemented through national, regional, and facility- and vessel-specific security plans. On November 25, 2002, the President also signed into law HSA, which consolidated the components of the Federal Government responsible for security of the homeland into a single department. (Pub. L. 107-296). 
                </P>
                <P>
                    TSA, the Coast Guard, and other components of DHS are working together to implement the maritime security measures required by MTSA under an expedited deadline established by Congress. These new transportation security measures have created an immediate need for the expansion of the existing legal protections governing SSI to include entities and individuals operating in maritime transportation. Under the MTSA, Congress directed DHS to issue interim rules as soon as practicable to implement the new security requirements for maritime facilities and vessels. (
                    <E T="03">See</E>
                     46 U.S.C. 70117). The Coast Guard issued final rules on October 22, 2003, that require vessel and maritime facility operators to prepare security plans. MTSA requires protection of these plans from public disclosure. (
                    <E T="03">See</E>
                     46 U.S.C. 70103(d)).
                </P>
                <P>Currently, these types of documents are not subject to the disclosure limitations of TSA's SSI regulation, nor are the maritime facility or vessel operators subject to the regulation's requirements. Therefore, there currently is no legal framework for the protection of this type of information to prevent it from falling into the hands of those who may seek to do harm to the transportation system. Requirements for the protection of this information, including security measures adopted by operators on their own initiative, must be put in place now so that the information remains useful in carrying out security. Without a legal framework limiting the disclosure of security measures undertaken by maritime facility and vessel operators, there is an increased risk that those measures will become known by individuals who seek to disrupt transportation or use them to perpetrate attacks on the U.S. In short, if the security plans and other security measures called for by Congress under the MTSA are not subject to the SSI regulation, there is a greater likelihood that those plans and measures may be defeated through their disclosure. </P>
                <P>The existing SSI regulation currently provides the necessary information protection requirements in the case of individuals and entities operating in the aviation sector. The absence of such protections in other transportation sectors, however, has inhibited TSA from disseminating threat information to those in maritime transportation who need to act on it. In addition, it has inhibited maritime transportation operators from sharing their security plans with TSA. </P>
                <P>As TSA and the Coast Guard begin to issue standards and required security measures and countermeasures to entities and individuals in maritime transportation pursuant to the MTSA and other applicable authorities, there must be a legal framework in place to ensure that those in possession of that information safeguard it from disclosure. The issuance of these security measures is imminent, and in some cases is already underway. Moreover, even before security measures are put in place, TSA and the Coast Guard have a need to provide security vulnerability and threat information to these entities that must be protected from disclosure. </P>
                <P>For the foregoing reasons, there is a compelling need to expand the scope of the SSI rule to maritime transportation through the immediate issuance of a regulatory change to 49 CFR part 1520 and the establishment of parallel requirements implementing the authority of DOT under 49 U.S.C. 40119. In light of the need to protect the efficacy of maritime transportation security measures, it would be contrary to the public interest to delay the issuance of this regulatory change until after a public comment period. This action is necessary to prevent an imminent hazard to maritime transportation facilities and vessels, as well as persons and property within the United States.</P>
                <P>Although there is good cause to forgo prior notice and comment procedures in issuing this rule, TSA and DOT are requesting public comments on all aspects of the rule. If, based upon information provided in public comments, TSA and DOT determine that changes to the rule are necessary to address transportation security more effectively, or in a less burdensome but equally effective manner, the agencies will not hesitate to make such changes.</P>
                <HD SOURCE="HD1">Paperwork Reduction Act </HD>
                <P>The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires consideration of the impact of paperwork and other information collection burdens imposed on the public. TSA and DOT have determined that there are no new information collection requirements associated with this rule. </P>
                <P>As protection provided by the Paperwork Reduction Act, as amended, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid Office of Management and Budget (OMB) control number. </P>
                <HD SOURCE="HD1">Regulatory Impact Analyses </HD>
                <P>Changes to Federal regulations must undergo several economic analyses. First, Executive Order 12866, Regulatory Planning and Review (58 FR 51735, October 4, 1993), directs each Federal agency to propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612) requires agencies to analyze the economic impact of regulatory changes on small entities. Third, under the Trade Agreement Act of 1979, agencies must assess the effect of regulatory changes on international trade. Fourth, the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more annually (adjusted for inflation.) </P>
                <HD SOURCE="HD2">Executive Order 12866 Assessment </HD>
                <P>Executive Order 12866 (58 FR 51735, October 4, 1993), provides for making determinations whether a regulatory action is “significant” and therefore subject to Office of Management and Budget (OMB) review and to the requirements of the Executive Order. </P>
                <P>TSA and DOT have determined that this action is a significant regulatory action within the meaning of Executive Order 12866 because there is significant public interest in security issues since the events of September 11, 2001. </P>
                <P>
                    TSA has performed an analysis of the expected costs of this interim final rule. The interim final rule affects entities in the maritime transportation sector, including maritime facility and vessel owners and operators. The interim final rule requires that, when an affected person receives SSI, the person must take appropriate action to safeguard its contents and to destroy it when it is no longer needed. The interim final rule does not require the use of safes or enhanced security equipment or the use of a crosscut shredder. Rather, the interim final rule requires only that an affected person restrict disclosure of, and access to, the protected information to those with a need to know, and destroy such information when it is no longer needed. Under the rule, a locked drawer or cabinet is an acceptable 
                    <PRTPAGE P="28077"/>
                    means of complying with the requirement to secure SSI, and a normal paper shredder or manual destruction are acceptable means of destroying SSI documents. 
                </P>
                <HD SOURCE="HD2">Costs </HD>
                <P>TSA believes that affected entities will incur minimal costs from complying with the interim final rule because, in practice, affected entities already have systems in place for securing sensitive commercial, trade secret, or personnel information, which are appropriate for safeguarding SSI. For instance, a normal filing cabinet with a lock may be used to safeguard SSI, and a normal paper shredder or manual destruction may be used to destroy SSI. Moreover, TSA does not expect compliance with the interim final rule will require affected entities to increase existing capacity to secure SSI. Accordingly, the agency estimates that there will be minimal costs associated with safeguarding SSI. </P>
                <P>The agency has estimated the following costs for placing the required protective marking and distribution limitation statement on records containing SSI. </P>
                <P>For an electronic document, a person can place the required markings on each page with a few keystrokes. The agency estimates that there will be no costs associated with this action. </P>
                <P>
                    For a document that is already printed, a person can use a rubber stamp for the required markings. Such stamps can be custom ordered and last several years. For the protective marking, the agency estimates that the cost of a rubber stamp is from $9.90 (for a stamp 5 inches wide by 
                    <FR>1/4</FR>
                     inch high) to $10.25 (for a stamp 4
                    <FR>1/4</FR>
                     inches wide by 
                    <FR>1/4</FR>
                     inch high). For the distribution limitation statement, the agency estimates that the cost of a rubber stamp is from $16.25 (for a stamp 6 inches wide by 1 inch high) to $33.25 (for a stamp 5
                    <FR>1/2</FR>
                     inches wide by 2
                    <FR>1/2</FR>
                     inches high). A single ink pad can be used for both stamps. A typical ink pad costs approximately $15.60. A two-ounce bottle of ink for the ink pad costs about $3.75. 
                </P>
                <P>For other types of record, such as maps, photos, DVDs, CD-ROMs, and diskettes, a person can use a label for the required markings. Labels typically cost from $7.87 (for 840 multipurpose labels) to $22.65 (for 225 diskette inkjet labels) to $34.92 (for 30 DVC/CD-ROM labels). These labels can be pre-printed with the required markings, or the affected person can print the required markings on an as-aves\rules.xmlneeded basis. </P>
                <P>The interim final rule does not require a specific method for destroying SSI. Thus, a person may use any method of destruction, so long as it precludes recognition or reconstruction of the SSI. TSA believes that most affected entities already have the capability to destroy SSI in accordance with the requirements in this interim final rule. Thus, the agency estimates that there will be no costs associated with these destruction requirements. </P>
                <P>Accordingly, TSA believes that the costs associated with this interim final rule are minimal. </P>
                <HD SOURCE="HD2">Benefits </HD>
                <P>The primary benefit of the interim final rule will be the potential disruption of terrorist attacks on the aviation and maritime transportation sectors by ensuring that persons operating in those sectors protect SSI. TSA currently provides SSI, including threat information, security directives, and information circulars, to aircraft operators, airport operators, and other persons in the aviation sector that have a need to know, and to act upon, information about security concerns related to civil aviation. Some of these persons also produce information that is treated as SSI, such as airport security programs. </P>
                <P>Prior to providing SSI to entities in maritime transportation, and to ensure that any information these entities produce that would be treated as SSI is safeguarded, TSA must ensure that those entities are under a legal obligation to protect the SSI from disclosure. Absent such an obligation, recipients and producers of SSI are not subject to the requirements in this rule to protect such information, which may undermine the effectiveness of security measures in preventing terrorist attacks. Therefore, TSA is amending the SSI regulation by adding entities in maritime transportation to the list of persons subject to the regulation. </P>
                <P>TSA notes that the unauthorized disclosure of SSI can have a detrimental effect on the ability to thwart terrorist and other criminal activities in the transportation sector. TSA also notes that the disclosure of some types of SSI that are restricted by this interim final rule, such as security training programs, security screening information, and vulnerability assessments, could aid the planning of a terrorist attack or other criminal activities. </P>
                <P>The effectiveness of providing information of security concern to persons in maritime transportation, and of security measures developed by those persons, depends on strictly limiting access to the information to those persons who have a need to know. Given the minimal cost associated with this interim final rule and the potential benefits of preventing attacks on the transportation sector, TSA believes that this interim final rule will be cost beneficial. </P>
                <HD SOURCE="HD2">Regulatory Flexibility Act Assessment </HD>
                <P>
                    Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601 
                    <E T="03">et seq.,</E>
                     as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996), an agency is required to prepare and make available a regulatory flexibility analysis that describes the effect of the rule on small entities (
                    <E T="03">i.e.,</E>
                     small businesses, small organizations, and small governmental jurisdictions). Because good cause exists for issuing this regulation as an interim final rule, no regulatory flexibility analysis is required. 
                </P>
                <P>Although a regulatory flexibility analysis is not required, consideration was given to the effect of this interim final rule under the Regulatory Flexibility Act. As discussed above in the section on Executive Order 12866, this interim final rule will result in minimal costs to entities in the maritime transportation sector. Based on this analysis, TSA and DOT certify that this interim final rule will not have a significant economic impact on a substantial number of small entities. </P>
                <HD SOURCE="HD2">Trade Impact Assessment </HD>
                <P>The Trade Agreement Act of 1979 prohibits Federal agencies from engaging in any standards or related activities that create unnecessary obstacles to the foreign commerce of the United States. Legitimate domestic objectives, such as safety and security, are not considered unnecessary obstacles. The Act also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards. TSA has assessed the potential effect of this amendment, and has determined that it will impose the same costs on domestic and international entities, and thus will have a neutral trade impact. </P>
                <HD SOURCE="HD2">Unfunded Mandates Reform Act Assessment </HD>
                <P>
                    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires Federal agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of more than $100 million in any one year (adjusted for inflation with base year of 1995). Before promulgating a rule for which a written statement is needed, 
                    <PRTPAGE P="28078"/>
                    section 205 of the UMRA generally requires an agency to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective, or least burdensome alternative that achieves the objective of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows an agency to adopt an alternative other than the least costly, most cost-effective, or least burdensome alternative if the agency publishes with the final rule an explanation why that alternative was not adopted. 
                </P>
                <P>This interim final rule will not result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of more than $100 million annually. As discussed above in the section on Executive Order 12866, this interim final rule will result in minimal costs to entities in the transportation sector. </P>
                <HD SOURCE="HD1">Executive Order 13132 (Federalism) </HD>
                <P>TSA has analyzed this rule under the principles and criteria of Executive Order 13132, Federalism. We determined that this action would not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, we determined that this rule does not have federalism implications. </P>
                <HD SOURCE="HD1">Environmental Analysis </HD>
                <P>TSA has reviewed this action for purposes of the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4347) and has determined that this action will not have a significant effect on the human environment. </P>
                <HD SOURCE="HD1">Energy Impact </HD>
                <P>The energy impact of this rule has been assessed in accordance with the Energy Policy and Conservation Act (EPCA), Public Law 94-163, as amended (42 U.S.C. 6362). We have determined that this rulemaking is not a major regulatory action under the provisions of the EPCA. </P>
                <LSTSUB>
                    <HD SOURCE="HED">List of Subjects </HD>
                    <CFR>49 CFR Part 15 </CFR>
                    <P>Air carriers, Aircraft, Airports, Maritime carriers, Reporting and recordkeeping requirements, Security measures, Vessels.</P>
                    <CFR>49 CFR Part 1520 </CFR>
                    <P>Air carriers, Aircraft, Airports, Maritime carriers, Reporting and recordkeeping requirements, Security measures, Vessels.</P>
                </LSTSUB>
                <REGTEXT TITLE="49" PART="15">
                    <HD SOURCE="HD1">Department of Transportation </HD>
                    <HD SOURCE="HD1">Office of the Secretary of Transportation</HD>
                    <HD SOURCE="HD1">
                        <E T="0742">49 CFR Subtitle A</E>
                    </HD>
                    <AMDPAR>For the reasons stated in the preamble, the Department of Transportation amends subtitle A of title 49, Code of Federal Regulations, by adding a new part 15 to read as follows: </AMDPAR>
                    <PART>
                        <HD SOURCE="HED">PART 15—PROTECTION OF SENSITIVE SECURITY INFORMATION </HD>
                        <CONTENTS>
                            <SECHD>Sec.</SECHD>
                            <SECTNO>15.1 </SECTNO>
                            <SUBJECT>Scope. </SUBJECT>
                            <SECTNO>15.3 </SECTNO>
                            <SUBJECT>Terms used in this part. </SUBJECT>
                            <SECTNO>15.5 </SECTNO>
                            <SUBJECT>Sensitive security information. </SUBJECT>
                            <SECTNO>15.7 </SECTNO>
                            <SUBJECT>Covered persons. </SUBJECT>
                            <SECTNO>15.9 </SECTNO>
                            <SUBJECT>Restrictions on the disclosure of SSI. </SUBJECT>
                            <SECTNO>15.11 </SECTNO>
                            <SUBJECT>Persons with a need to know. </SUBJECT>
                            <SECTNO>15.13 </SECTNO>
                            <SUBJECT>Marking SSI. </SUBJECT>
                            <SECTNO>15.15 </SECTNO>
                            <SUBJECT>SSI disclosed by DOT. </SUBJECT>
                            <SECTNO>15.17 </SECTNO>
                            <SUBJECT>Consequences of unauthorized disclosure of SSI. </SUBJECT>
                            <SECTNO>15.19 </SECTNO>
                            <SUBJECT>Destruction of SSI.</SUBJECT>
                        </CONTENTS>
                        <AUTH>
                            <HD SOURCE="HED">Authority:</HD>
                            <P>49 U.S.C. 40119. </P>
                        </AUTH>
                        <SECTION>
                            <SECTNO>§ 15.1 </SECTNO>
                            <SUBJECT>Scope. </SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Applicability.</E>
                                 This part governs the maintenance, safeguarding, and disclosure of records and information that the Secretary of DOT has determined to be Sensitive Security Information, as defined in § 15.5. This part does not apply to the maintenance, safeguarding, or disclosure of classified national security information, as defined by Executive Order 12968, or to other sensitive unclassified information that is not SSI, but that nonetheless may be exempt from public disclosure under the Freedom of Information Act. In addition, in the case of information that has been designated as critical infrastructure information under section 214 of the Homeland Security Act, the receipt, maintenance, or disclosure of such information by a Federal agency or employee is governed by section 214 and any implementing regulations, not by this part. 
                            </P>
                            <P>
                                (b) 
                                <E T="03">Delegation.</E>
                                 The authority of the Secretary under this part may be further delegated within DOT. 
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 15.3 </SECTNO>
                            <SUBJECT>Terms used in this part. </SUBJECT>
                            <P>In addition to the terms in § 15.3 of this chapter, the following terms apply in this part: </P>
                            <P>
                                <E T="03">Administrator</E>
                                 means the Under Secretary of Transportation for Security referred to in 49 U.S.C. 114(b), or his or her designee. 
                            </P>
                            <P>
                                <E T="03">Coast Guard</E>
                                 means the United States Coast Guard. 
                            </P>
                            <P>
                                <E T="03">Covered person</E>
                                 means any organization, entity, individual, or other person described in § 15.7. In the case of an individual, 
                                <E T="03">covered person</E>
                                 includes any individual applying for employment in a position that would be a covered person, or in training for such a position, regardless of whether that individual is receiving a wage, salary, or other form of payment. 
                                <E T="03">Covered person</E>
                                 includes a person applying for certification or other form of approval that, if granted, would make the person a covered person described in § 15.7. 
                            </P>
                            <P>
                                <E T="03">DHS</E>
                                 means the Department of Homeland Security and any directorate, bureau, or other component within the Department of Homeland Security, including the United States Coast Guard. 
                            </P>
                            <P>
                                <E T="03">DOT</E>
                                 means the Department of Transportation and any operating administration, entity, or office within the Department of Transportation, including the Saint Lawrence Seaway Development Corporation and the Bureau of Transportation Statistics. 
                            </P>
                            <P>
                                <E T="03">Federal Flight Deck Officer</E>
                                 means a pilot participating in the Federal Flight Deck Officer Program under 49 U.S.C. 44921 and implementing regulations. 
                            </P>
                            <P>
                                <E T="03">Maritime facility</E>
                                 means any facility as defined in 33 CFR part 101. 
                            </P>
                            <P>
                                <E T="03">Record</E>
                                 includes any means by which information is preserved, irrespective of format, including a book, paper, drawing, map, recording, tape, film, photograph, machine-readable material, and any information stored in an electronic format. The term 
                                <E T="03">record</E>
                                 also includes any draft, proposed, or recommended change to any record. 
                            </P>
                            <P>
                                <E T="03">Security contingency plan</E>
                                 means a plan detailing response procedures to address a transportation security incident, threat assessment, or specific threat against transportation, including details of preparation, response, mitigation, recovery, and reconstitution procedures, continuity of government, continuity of transportation operations, and crisis management. 
                            </P>
                            <P>
                                <E T="03">Security program</E>
                                 means a program or plan and any amendments developed for the security of the following, including any comments, instructions, or implementing guidance: 
                            </P>
                            <P>(1) An airport, aircraft, or aviation cargo operation; </P>
                            <P>(2) A maritime facility, vessel, or port area; or </P>
                            <P>(3) A transportation-related automated system or network for information processing, control, and communications. </P>
                            <P>
                                <E T="03">Security screening</E>
                                 means evaluating a person or property to determine whether either poses a threat to security. 
                            </P>
                            <P>
                                <E T="03">SSI</E>
                                 means sensitive security information, as described in § 15.5. 
                                <PRTPAGE P="28079"/>
                            </P>
                            <P>
                                <E T="03">Threat image projection system</E>
                                 means an evaluation tool that involves periodic presentation of fictional threat images to operators and is used in connection with x-ray or explosives detection systems equipment. 
                            </P>
                            <P>
                                <E T="03">TSA</E>
                                 means the Transportation Security Administration. 
                            </P>
                            <P>
                                <E T="03">Vulnerability assessment</E>
                                 means any review, audit, or other examination of the security of a transportation infrastructure asset; airport; maritime facility, port area, vessel, aircraft, train, commercial motor vehicle, or pipeline, or a transportation-related automated system or network, to determine its vulnerability to unlawful interference, whether during the conception, planning, design, construction, operation, or decommissioning phase. A 
                                <E T="03">vulnerability assessment</E>
                                 may include proposed, recommended, or directed actions or countermeasures to address security concerns. 
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 15.5 </SECTNO>
                            <SUBJECT>Sensitive security information. </SUBJECT>
                            <P>
                                (a) 
                                <E T="03">In general.</E>
                                 In accordance with 49 U.S.C. 40119(b)(1), SSI is information obtained or developed in the conduct of security activities, including research and development, the disclosure of which the Secretary of DOT has determined would— 
                            </P>
                            <P>(1) Constitute an unwarranted invasion of privacy (including, but not limited to, information contained in any personnel, medical, or similar file); </P>
                            <P>(2) Reveal trade secrets or privileged or confidential information obtained from any person; or </P>
                            <P>(3) Be detrimental to transportation safety. </P>
                            <P>
                                (b) 
                                <E T="03">Information constituting SSI.</E>
                                 Except as otherwise provided in writing by the Secretary of DOT in the interest of public safety or in furtherance of transportation security, the following information, and records containing such information, constitute SSI: 
                            </P>
                            <P>
                                (1) 
                                <E T="03">Security programs and contingency plans.</E>
                                 Any security program or security contingency plan issued, established, required, received, or approved by DOT or DHS, including— 
                            </P>
                            <P>(i) Any aircraft operator or airport operator security program or security contingency plan under this chapter; </P>
                            <P>(ii) Any vessel, maritime facility, or port area security plan required or directed under Federal law; </P>
                            <P>(iii) Any national or area security plan prepared under 46 U.S.C. 70103; and </P>
                            <P>(iv) Any security incident response plan established under 46 U.S.C. 70104. </P>
                            <P>
                                (2) 
                                <E T="03">Security Directives.</E>
                                 Any Security Directive or order— 
                            </P>
                            <P>(i) Issued by TSA under 49 CFR 1542.303, 1544.305, or other authority; </P>
                            <P>
                                (ii) Issued by the Coast Guard under the Maritime Transportation Security Act, 33 CFR part 6, or 33 U.S.C. 1221 
                                <E T="03">et seq.</E>
                                 related to maritime security; or 
                            </P>
                            <P>(iii) Any comments, instructions, and implementing guidance pertaining thereto. </P>
                            <P>
                                (3) 
                                <E T="03">Information Circulars.</E>
                                 Any notice issued by DHS or DOT regarding a threat to aviation or maritime transportation, including any— 
                            </P>
                            <P>(i) Information Circular issued by TSA under 49 CFR 1542.303 or 1544.305, or other authority; and </P>
                            <P>(ii) Navigation or Vessel Inspection Circular issued by the Coast Guard related to maritime security. </P>
                            <P>
                                (4) 
                                <E T="03">Performance specifications.</E>
                                 Any performance specification and any description of a test object or test procedure, for— 
                            </P>
                            <P>(i) Any device used by the Federal government or any other person pursuant to any aviation or maritime transportation security requirements of Federal law for the detection of any weapon, explosive, incendiary, or destructive device or substance; and </P>
                            <P>(ii) Any communications equipment used by the Federal government or any other person in carrying out or complying with any aviation or maritime transportation security requirements of Federal law. </P>
                            <P>
                                (5) 
                                <E T="03">Vulnerability assessments.</E>
                                 Any vulnerability assessment directed, created, held, funded, or approved by the DOT, DHS, or that will be provided to DOT or DHS in support of a Federal security program. 
                            </P>
                            <P>
                                (6) 
                                <E T="03">Security inspection or investigative information.</E>
                                 (i) Details of any security inspection or investigation of an alleged violation of aviation or maritime transportation security requirements of Federal law that could reveal a security vulnerability, including the identity of the Federal special agent or other Federal employee who conducted the inspection or audit. 
                            </P>
                            <P>(ii) In the case of inspections or investigations performed by TSA, this includes the following information as to events that occurred within 12 months of the date of release of the information: the name of the airport where a violation occurred, the airport identifier in the case number, a description of the violation, the regulation allegedly violated, and the identity of any aircraft operator in connection with specific locations or specific security procedures. Such information will be released after the relevant 12-month period, except that TSA will not release the specific gate or other location on an airport where an event occurred, regardless of the amount of time that has passed since its occurrence. During the period within 12 months of the date of release of the information, TSA may release summaries of an aircraft operator's, but not an airport operator's, total security violations in a specified time range without identifying specific violations or locations. Summaries may include total enforcement actions, total proposed civil penalty amounts, number of cases opened, number of cases referred to TSA or FAA counsel for legal enforcement action, and number of cases closed. </P>
                            <P>
                                (7) 
                                <E T="03">Threat information.</E>
                                 Any information held by the Federal government concerning threats against transportation or transportation systems and sources and methods used to gather or develop threat information, including threats against cyber infrastructure. 
                            </P>
                            <P>
                                (8) 
                                <E T="03">Security measures.</E>
                                 Specific details of aviation or maritime transportation security measures, both operational and technical, whether applied directly by the Federal government or another person, including— 
                            </P>
                            <P>(i) Security measures or protocols recommended by the Federal government; </P>
                            <P>(ii) Information concerning the deployments, numbers, and operations of Coast Guard personnel engaged in maritime security duties and Federal Air Marshals, to the extent it is not classified national security information; and </P>
                            <P>(iii) Information concerning the deployments and operations of Federal Flight Deck Officers, and numbers of Federal Flight Deck Officers aggregated by aircraft operator. </P>
                            <P>
                                (9) 
                                <E T="03">Security screening information.</E>
                                 The following information regarding security screening under aviation or maritime transportation security requirements of Federal law: 
                            </P>
                            <P>(i) Any procedures, including selection criteria and any comments, instructions, and implementing guidance pertaining thereto, for screening of persons, accessible property, checked baggage, U.S. mail, stores, and cargo, that is conducted by the Federal government or any other authorized person. </P>
                            <P>(ii) Information and sources of information used by a passenger or property screening program or system, including an automated screening system. </P>
                            <P>(iii) Detailed information about the locations at which particular screening methods or equipment are used, only if determined by TSA to be SSI. </P>
                            <P>(iv) Any security screener test and scores of such tests. </P>
                            <P>
                                (v) Performance or testing data from security equipment or screening systems. 
                                <PRTPAGE P="28080"/>
                            </P>
                            <P>(vi) Any electronic image shown on any screening equipment monitor, including threat images and descriptions of threat images for threat image projection systems. </P>
                            <P>
                                (10) 
                                <E T="03">Security training materials.</E>
                                 Records created or obtained for the purpose of training persons employed by, contracted with, or acting for the Federal government or another person to carry out any aviation or maritime transportation security measures required or recommended by DHS or DOT. 
                            </P>
                            <P>
                                (11) 
                                <E T="03">Identifying information of certain transportation security personnel.</E>
                                 (i) Lists of the names or other identifying information that identify persons as— 
                            </P>
                            <P>(A) Having unescorted access to a secure area of an airport or a secure or restricted area of a maritime facility, port area, or vessel or; </P>
                            <P>(B) Holding a position as a security screener employed by or under contract with the Federal government pursuant to aviation or maritime transportation security requirements of Federal law, where such lists are aggregated by airport; </P>
                            <P>(C) Holding a position with the Coast Guard responsible for conducting vulnerability assessments, security boardings, or engaged in operations to enforce maritime security requirements or conduct force protection; </P>
                            <P>(D) Holding a position as a Federal Air Marshal; or </P>
                            <P>(ii) The name or other identifying information that identifies a person as a current, former, or applicant for Federal Flight Deck Officer. </P>
                            <P>
                                (12) 
                                <E T="03">Critical aviation or maritime infrastructure asset information.</E>
                                 Any list identifying systems or assets, whether physical or virtual, so vital to the aviation or maritime transportation system that the incapacity or destruction of such assets would have a debilitating impact on transportation security, if the list is— 
                            </P>
                            <P>(i) Prepared by DHS or DOT; or </P>
                            <P>(ii) Prepared by a State or local government agency and submitted by the agency to DHS or DOT. </P>
                            <P>
                                (13) 
                                <E T="03">Systems security information.</E>
                                 Any information involving the security of operational or administrative data systems operated by the Federal government that have been identified by the DOT or DHS as critical to aviation or maritime transportation safety or security, including automated information security procedures and systems, security inspections, and vulnerability information concerning those systems. 
                            </P>
                            <P>
                                (14) 
                                <E T="03">Confidential business information.</E>
                                 (i) Solicited or unsolicited proposals received by DHS or DOT, and negotiations arising therefrom, to perform work pursuant to a grant, contract, cooperative agreement, or other transaction, but only to the extent that the subject matter of the proposal relates to aviation or maritime transportation security measures; 
                            </P>
                            <P>(ii) Trade secret information, including information required or requested by regulation or Security Directive, obtained by DHS or DOT in carrying out aviation or maritime transportation security responsibilities; and </P>
                            <P>(iii) Commercial or financial information, including information required or requested by regulation or Security Directive, obtained by DHS or DOT in carrying out aviation or maritime transportation security responsibilities, but only if the source of the information does not customarily disclose it to the public. </P>
                            <P>
                                (15) 
                                <E T="03">Research and development.</E>
                                 Information obtained or developed in the conduct of research related to aviation or maritime transportation security activities, where such research is approved, accepted, funded, recommended, or directed by the DHS or DOT, including research results. 
                            </P>
                            <P>
                                (16) 
                                <E T="03">Other information.</E>
                                 Any information not otherwise described in this section that TSA determines is SSI under 49 U.S.C. 114(s) or that the Secretary of DOT determines is SSI under 49 U.S.C. 40119. Upon the request of another Federal agency, the Secretary of DOT may designate as SSI information not otherwise described in this section. 
                            </P>
                            <P>
                                (c) 
                                <E T="03">Loss of SSI designation.</E>
                                 The Secretary of DOT may determine in writing that information or records described in paragraph (b) of this section do not constitute SSI because they no longer meet the criteria set forth in paragraph (a) of this section. 
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 15.7</SECTNO>
                            <SUBJECT>Covered persons. </SUBJECT>
                            <P>Persons subject to the requirements of part 15 are: </P>
                            <P>(a) Each airport operator and aircraft operator subject to the requirements of Subchapter C of this title. </P>
                            <P>(b) Each indirect air carrier, as defined in 49 CFR 1540.5. </P>
                            <P>(c) Each owner, charterer, or operator of a vessel, including foreign vessel owners, charterers, and operators, required to have a security plan under Federal or International law. </P>
                            <P>
                                (d) Each owner or operator of a maritime facility required to have a security plan under the Maritime Transportation Security Act, (Pub. L. 107-295), 46 U.S.C. 70101 
                                <E T="03">et seq.</E>
                                , 33 CFR part 6, or 33 U.S.C. 1221 
                                <E T="03">et seq.</E>
                            </P>
                            <P>(e) Each person performing the function of a computer reservation system or global distribution system for airline passenger information. </P>
                            <P>(f) Each person participating in a national or area security committee established under 46 U.S.C. 70112, or a port security committee. </P>
                            <P>(g) Each industry trade association that represents covered persons and has entered into a non-disclosure agreement with the DHS or DOT. </P>
                            <P>(h) DHS and DOT. </P>
                            <P>(i) Each person conducting research and development activities that relate to aviation or maritime transportation security and are approved, accepted, funded, recommended, or directed by DHS or DOT. </P>
                            <P>(j) Each person who has access to SSI, as specified in § 15.11. </P>
                            <P>(k) Each person employed by, contracted to, or acting for a covered person, including a grantee of DHS or DOT, and including a person formerly in such position. </P>
                            <P>(l) Each person for which a vulnerability assessment has been directed, created, held, funded, or approved by the DOT, DHS, or that has prepared a vulnerability assessment that will be provided to DOT or DHS in support of a Federal security program. </P>
                            <P>(m) Each person receiving SSI under § 1520.15(d) or (e). </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 15.9</SECTNO>
                            <SUBJECT>Restrictions on the disclosure of SSI. </SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Duty to protect information.</E>
                                 A covered person must— 
                            </P>
                            <P>(1) Take reasonable steps to safeguard SSI in that person's possession or control from unauthorized disclosure. When a person is not in physical possession of SSI, the person must store it a secure container, such as a locked desk or file cabinet or in a locked room. </P>
                            <P>(2) Disclose, or otherwise provide access to, SSI only to covered persons who have a need to know, unless otherwise authorized in writing by TSA, the Coast Guard, or the Secretary of DOT. </P>
                            <P>(3) Refer requests by other persons for SSI to TSA or the applicable component or agency within DOT or DHS. </P>
                            <P>(4) Mark SSI as specified in § 15.13. </P>
                            <P>(5) Dispose of SSI as specified in § 15.19. </P>
                            <P>
                                (b) 
                                <E T="03">Unmarked SSI.</E>
                                 If a covered person receives a record containing SSI that is not marked as specified in § 1520.13, the covered person must— 
                            </P>
                            <P>(1) Mark the record as specified in § 15.13; and </P>
                            <P>(2) Inform the sender of the record that the record must be marked as specified in § 15.13. </P>
                            <P>
                                (c) 
                                <E T="03">Duty to report unauthorized disclosure.</E>
                                 When a covered person 
                                <PRTPAGE P="28081"/>
                                becomes aware that SSI has been released to unauthorized persons, the covered person must promptly inform TSA or the applicable DOT or DHS component or agency. 
                            </P>
                            <P>
                                (d) 
                                <E T="03">Additional requirements for critical infrastructure information.</E>
                                 In the case of information that is both SSI and has been designated as critical infrastructure information under section 214 of the Homeland Security Act, any covered person who is a Federal employee in possession of such information must comply with the disclosure restrictions and other requirements applicable to such information under section 214 and any implementing regulations. 
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 15.11</SECTNO>
                            <SUBJECT>Persons with a need to know. </SUBJECT>
                            <P>
                                (a) 
                                <E T="03">In general.</E>
                                 A person has a need to know SSI in each of the following circumstances: 
                            </P>
                            <P>(1) When the person requires access to specific SSI to carry out aviation or maritime transportation security activities approved, accepted, funded, recommended, or directed by DHS or DOT. </P>
                            <P>(2) When the person is in training to carry out aviation or maritime transportation security activities approved, accepted, funded, recommended, or directed by DHS or DOT. </P>
                            <P>(3) When the information is necessary for the person to supervise or otherwise manage individuals carrying out aviation or maritime transportation security activities approved, accepted, funded, recommended, or directed by the DHS or DOT. </P>
                            <P>(4) When the person needs the information to provide technical or legal advice to a covered person regarding aviation or maritime transportation security requirements of Federal law. </P>
                            <P>(5) When the person needs the information to represent a covered person in connection with any judicial or administrative proceeding regarding those requirements. </P>
                            <P>
                                (b) 
                                <E T="03">Federal employees, contractors, and grantees.</E>
                                 (1) A Federal employee has a need to know SSI if access to the information is necessary for performance of the employee's official duties. 
                            </P>
                            <P>(2) A person acting in the performance of a contract with or grant from DHS or DOT has a need to know SSI if access to the information is necessary to performance of the contract or grant. </P>
                            <P>
                                (c) 
                                <E T="03">Background check.</E>
                                 The Secretary of DOT may make an individual's access to the SSI contingent upon satisfactory completion of a security background check and the imposition of procedures and requirements for safeguarding SSI that are satisfactory to the Secretary. 
                            </P>
                            <P>
                                (d) 
                                <E T="03">Need to know further limited by the DHS or DOT.</E>
                                 For some specific SSI, DHS or DOT may make a finding that only specific persons or classes of persons have a need to know. 
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 15.13</SECTNO>
                            <SUBJECT>Marking SSI. </SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Marking of paper records.</E>
                                 In the case of paper records containing SSI, a covered person must mark the record by placing the protective marking conspicuously on the top, and the distribution limitation statement on the bottom, of— 
                            </P>
                            <P>(1) The outside of any front and back cover, including a binder cover or folder, if the document has a front and back cover; </P>
                            <P>(2) Any title page; and </P>
                            <P>(3) Each page of the document. </P>
                            <P>
                                (b) 
                                <E T="03">Protective marking.</E>
                                 The protective marking is: SENSITIVE SECURITY INFORMATION. 
                            </P>
                            <P>
                                (c) 
                                <E T="03">Distribution limitation statement.</E>
                                 The distribution limitation statement is:
                            </P>
                            <EXTRACT>
                                <P>
                                    <E T="03">WARNING:</E>
                                     This record contains Sensitive Security Information that is controlled under 49 CFR parts 15 and 1520. No part of this record may be disclosed to persons without a “need to know”, as defined in 49 CFR parts 15 and 1520, except with the written permission of the Administrator of the Transportation Security Administration or the Secretary of Transportation. Unauthorized release may result in civil penalty or other action. For U.S. government agencies, public disclosure is governed by 5 U.S.C. 552 and 49 CFR parts 15 and 1520.
                                </P>
                            </EXTRACT>
                            <P>
                                (d) 
                                <E T="03">Other types of records.</E>
                                 In the case of non-paper records that contain SSI, including motion picture films, videotape recordings, audio recording, and electronic and magnetic records, a covered person must clearly and conspicuously mark the records with the protective marking and the distribution limitation statement such that the viewer or listener is reasonably likely to see or hear them when obtaining access to the contents of the record. 
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 15.15 </SECTNO>
                            <SUBJECT>SSI disclosed by DOT. </SUBJECT>
                            <P>
                                (a) 
                                <E T="03">In general.</E>
                                 Except as otherwise provided in this section, and notwithstanding the Freedom of Information Act (5 U.S.C. 552), the Privacy Act (5 U.S.C. 552a), and other laws, records containing SSI are not available for public inspection or copying, nor does DOT release such records to persons without a need to know. 
                            </P>
                            <P>
                                (b) 
                                <E T="03">Disclosure under the Freedom of Information Act and the Privacy Act.</E>
                                 If a record contains both SSI and information that is not SSI, DOT, on a proper Freedom of Information Act or Privacy Act request, may disclose the record with the SSI redacted, provided the record is not otherwise exempt from disclosure under the Freedom of Information Act or Privacy Act. 
                            </P>
                            <P>
                                (c) 
                                <E T="03">Disclosures to committees of Congress and the General Accounting Office.</E>
                                 Nothing in this part precludes DOT from disclosing SSI to a committee of Congress authorized to have the information or to the Comptroller General, or to any authorized representative of the Comptroller General. 
                            </P>
                            <P>
                                (d) 
                                <E T="03">Disclosure in enforcement proceedings.</E>
                                 (1) 
                                <E T="03">In general.</E>
                                 The Secretary of DOT may provide SSI to a person in the context of an administrative enforcement proceeding when, in the sole discretion of the Secretary, access to the SSI is necessary for the person to prepare a response to allegations contained in a legal enforcement action document issued by DOT. 
                            </P>
                            <P>
                                (2) 
                                <E T="03">Security background check.</E>
                                 Prior to providing SSI to a person under paragraph (d)(1) of this section, the Secretary of DOT may require the individual or, in the case of an entity, the individuals representing the entity, and their counsel, to undergo and satisfy, in the judgment of the Secretary of DOT, a security background check. 
                            </P>
                            <P>
                                (e) 
                                <E T="03">Other conditional disclosure.</E>
                                 The Secretary of DOT may authorize a conditional disclosure of specific records or information that constitute SSI upon the written determination by the Secretary that disclosure of such records or information, subject to such limitations and restrictions as the Secretary may prescribe, would not be detrimental to transportation safety. 
                            </P>
                            <P>
                                (f) 
                                <E T="03">Obligation to protect information.</E>
                                 When an individual receives SSI pursuant to paragraph (d) or (e) of this section that individual becomes a covered person under § 15.7 and is subject to the obligations of a covered person under this part. 
                            </P>
                            <P>
                                (g) 
                                <E T="03">No release under FOIA.</E>
                                 When DOT discloses SSI pursuant to paragraphs (b) through (e) of this section, DOT makes the disclosure for the sole purpose described in that paragraph. Such disclosure is not a public release of information under the Freedom of Information Act. 
                            </P>
                            <P>
                                (h) 
                                <E T="03">Disclosure of Critical Infrastructure Information.</E>
                                 Disclosure of information that is both SSI and has been designated as critical infrastructure information under section 214 of the Homeland Security Act is governed solely by the requirements of section 214 and any implementing regulations. 
                            </P>
                        </SECTION>
                        <SECTION>
                            <PRTPAGE P="28082"/>
                            <SECTNO>§ 15.17 </SECTNO>
                            <SUBJECT>Consequences of unauthorized disclosure of SSI. </SUBJECT>
                            <P>Violation of this part is grounds for a civil penalty and other enforcement or corrective action by DOT, and appropriate personnel actions for Federal employees. Corrective action may include issuance of an order requiring retrieval of SSI to remedy unauthorized disclosure or an order to cease future unauthorized disclosure. </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 15.19 </SECTNO>
                            <SUBJECT>Destruction of SSI. </SUBJECT>
                            <P>
                                (a) 
                                <E T="03">DOT.</E>
                                 Subject to the requirements of the Federal Records Act (5 U.S.C. 105), including the duty to preserve records containing documentation of a Federal agency's policies, decisions, and essential transactions, DOT destroys SSI when no longer needed to carry out the agency's function. 
                            </P>
                            <P>
                                (b) 
                                <E T="03">Other covered persons.</E>
                                 (1) 
                                <E T="03">In general.</E>
                                 A covered person must destroy SSI completely to preclude recognition or reconstruction of the information when the covered person no longer needs the SSI to carry out transportation security measures. 
                            </P>
                            <P>
                                (2) 
                                <E T="03">Exception.</E>
                                 Paragraph (b)(1) of this section does not require a State or local government agency to destroy information that the agency is required to preserve under State or local law. 
                            </P>
                        </SECTION>
                    </PART>
                </REGTEXT>
                <SIG>
                    <DATED>Issued in Washington, DC, on May 6, 2004. </DATED>
                    <NAME>Norman Y. Mineta, </NAME>
                    <TITLE>Secretary of Transportation. </TITLE>
                </SIG>
                <REGTEXT TITLE="49" PART="1520">
                    <HD SOURCE="HD1">Department of Homeland Security</HD>
                    <HD SOURCE="HD1">Transportation Security Administration </HD>
                    <HD SOURCE="HD1">49 CFR Chapter XII </HD>
                    <AMDPAR>For the reasons stated in the preamble, the Transportation Security Administration amends chapter XII of title 49, Code of Federal Regulations, by revising part 1520 to read as follows: </AMDPAR>
                    <PART>
                        <HD SOURCE="HED">PART 1520—PROTECTION OF SENSITIVE SECURITY INFORMATION </HD>
                        <CONTENTS>
                            <SECHD>Sec. </SECHD>
                            <SECTNO>1520.1 </SECTNO>
                            <SUBJECT>Scope. </SUBJECT>
                            <SECTNO>1520.3 </SECTNO>
                            <SUBJECT>Terms used in this part. </SUBJECT>
                            <SECTNO>1520.5 </SECTNO>
                            <SUBJECT>Sensitive security information. </SUBJECT>
                            <SECTNO>1520.7 </SECTNO>
                            <SUBJECT>Covered persons. </SUBJECT>
                            <SECTNO>1520.9 </SECTNO>
                            <SUBJECT>Restrictions on the disclosure of SSI. </SUBJECT>
                            <SECTNO>1520.11 </SECTNO>
                            <SUBJECT>Persons with a need to know. </SUBJECT>
                            <SECTNO>1520.13 </SECTNO>
                            <SUBJECT>Marking SSI. </SUBJECT>
                            <SECTNO>1520.15 </SECTNO>
                            <SUBJECT>SSI disclosed by TSA or the Coast Guard. </SUBJECT>
                            <SECTNO>1520.17 </SECTNO>
                            <SUBJECT>Consequences of unauthorized disclosure of SSI. </SUBJECT>
                            <SECTNO>1520.19 </SECTNO>
                            <SUBJECT>Destruction of SSI. </SUBJECT>
                        </CONTENTS>
                        <AUTH>
                            <HD SOURCE="HED">Authority:</HD>
                            <P>46 U.S.C. 70102-70106, 70117; 49 U.S.C. 114, 40113, 44901-44907, 44913-44914, 44916-44918, 44935-44936, 44942, 46105. </P>
                        </AUTH>
                        <SECTION>
                            <SECTNO>§ 1520.1 </SECTNO>
                            <SUBJECT>Scope. </SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Applicability.</E>
                                 This part governs the maintenance, safeguarding, and disclosure of records and information that TSA has determined to be Sensitive Security Information, as defined in § 1520.5. This part does not apply to the maintenance, safeguarding, or disclosure of classified national security information, as defined by Executive Order 12968, or to other sensitive unclassified information that is not SSI, but that nonetheless may be exempt from public disclosure under the Freedom of Information Act. In addition, in the case of information that has been designated as critical infrastructure information under section 214 of the Homeland Security Act, the receipt, maintenance, or disclosure of such information by a Federal agency or employee is governed by section 214 and any implementing regulations, not by this part. 
                            </P>
                            <P>
                                (b) 
                                <E T="03">Delegation.</E>
                                 The authority of TSA and the Coast Guard under this part may be further delegated within TSA and the Coast Guard, respectively. 
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 1520.3 </SECTNO>
                            <SUBJECT>Terms used in this part. </SUBJECT>
                            <P>In addition to the terms in § 1500.3 of this chapter, the following terms apply in this part: </P>
                            <P>
                                <E T="03">Administrator</E>
                                 means the Under Secretary of Transportation for Security referred to in 49 U.S.C. 114(b), or his or her designee. 
                            </P>
                            <P>
                                <E T="03">Coast Guard</E>
                                 means the United States Coast Guard. 
                            </P>
                            <P>
                                <E T="03">Covered person</E>
                                 means any organization, entity, individual, or other person described in § 1520.7. In the case of an individual, 
                                <E T="03">covered person</E>
                                 includes any individual applying for employment in a position that would be a covered person, or in training for such a position, regardless of whether that individual is receiving a wage, salary, or other form of payment. 
                                <E T="03">Covered person</E>
                                 includes a person applying for certification or other form of approval that, if granted, would make the person a covered person described in § 1520.7. 
                            </P>
                            <P>
                                <E T="03">DHS</E>
                                 means the Department of Homeland Security and any directorate, bureau, or other component within the Department of Homeland Security, including the United States Coast Guard. 
                            </P>
                            <P>
                                <E T="03">DOT</E>
                                 means the Department of Transportation and any operating administration, entity, or office within the Department of Transportation, including the Saint Lawrence Seaway Development Corporation and the Bureau of Transportation Statistics. 
                            </P>
                            <P>
                                <E T="03">Federal Flight Deck Officer</E>
                                 means a pilot participating in the Federal Flight Deck Officer Program under 49 U.S.C. 44921 and implementing regulations. 
                            </P>
                            <P>
                                <E T="03">Maritime facility</E>
                                 means any facility as defined in 33 CFR part 101. 
                            </P>
                            <P>
                                <E T="03">Record</E>
                                 includes any means by which information is preserved, irrespective of format, including a book, paper, drawing, map, recording, tape, film, photograph, machine-readable material, and any information stored in an electronic format. The term 
                                <E T="03">record</E>
                                 also includes any draft, proposed, or recommended change to any record. 
                            </P>
                            <P>
                                <E T="03">Security contingency plan</E>
                                 means a plan detailing response procedures to address a transportation security incident, threat assessment, or specific threat against transportation, including details of preparation, response, mitigation, recovery, and reconstitution procedures, continuity of government, continuity of transportation operations, and crisis management. 
                            </P>
                            <P>
                                <E T="03">Security program</E>
                                 means a program or plan and any amendments, developed for the security of the following, including any comments, instructions, or implementing guidance: 
                            </P>
                            <P>(1) An airport, aircraft, or aviation cargo operation; </P>
                            <P>(2) A maritime facility, vessel, or port area; or </P>
                            <P>(3) A transportation-related automated system or network for information processing, control, and communications. </P>
                            <P>
                                <E T="03">Security screening</E>
                                 means evaluating a person or property to determine whether either poses a threat to security. 
                            </P>
                            <P>
                                <E T="03">SSI</E>
                                 means sensitive security information, as described in § 1520.5. 
                            </P>
                            <P>
                                <E T="03">Threat image projection system</E>
                                 means an evaluation tool that involves periodic presentation of fictional threat images to operators and is used in connection with x-ray or explosives detection systems equipment. 
                            </P>
                            <P>
                                <E T="03">TSA</E>
                                 means the Transportation Security Administration. 
                            </P>
                            <P>
                                <E T="03">Vulnerability assessment</E>
                                 means any review, audit, or other examination of the security of a transportation infrastructure asset; airport; maritime facility, port area, vessel, aircraft, train, commercial motor vehicle, or pipeline, or a transportation-related automated system or network, to determine its vulnerability to unlawful interference, whether during the conception, planning, design, construction, operation, or decommissioning phase. A 
                                <E T="03">vulnerability assessment</E>
                                 may include proposed, recommended, or directed actions or countermeasures to address security concerns. 
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 1520.5 </SECTNO>
                            <SUBJECT>Sensitive security information. </SUBJECT>
                            <P>
                                (a) 
                                <E T="03">In general.</E>
                                 In accordance with 49 U.S.C. 114(s), SSI is information obtained or developed in the conduct of security activities, including research and development, the disclosure of which TSA has determined would— 
                                <PRTPAGE P="28083"/>
                            </P>
                            <P>(1) Constitute an unwarranted invasion of privacy (including, but not limited to, information contained in any personnel, medical, or similar file); </P>
                            <P>(2) Reveal trade secrets or privileged or confidential information obtained from any person; or </P>
                            <P>(3) Be detrimental to the security of transportation. </P>
                            <P>
                                (b) 
                                <E T="03">Information constituting SSI.</E>
                                 Except as otherwise provided in writing by TSA in the interest of public safety or in furtherance of transportation security, the following information, and records containing such information, constitute SSI: 
                            </P>
                            <P>
                                (1) 
                                <E T="03">Security programs and contingency plans.</E>
                                 Any security program or security contingency plan issued, established, required, received, or approved by DOT or DHS, including— 
                            </P>
                            <P>(i) Any aircraft operator or airport operator security program or security contingency plan under this chapter; </P>
                            <P>(ii) Any vessel, maritime facility, or port area security plan required or directed under Federal law; </P>
                            <P>(iii) Any national or area security plan prepared under 46 U.S.C. 70103; and </P>
                            <P>(iv) Any security incident response plan established under 46 U.S.C. 70104. </P>
                            <P>
                                (2) 
                                <E T="03">Security Directives.</E>
                                 Any Security Directive or order— 
                            </P>
                            <P>(i) Issued by TSA under 49 CFR 1542.303, 1544.305, or other authority; </P>
                            <P>
                                (ii) Issued by the Coast Guard under the Maritime Transportation Security Act, 33 CFR part 6, or 33 U.S.C. 1221 
                                <E T="03">et seq.</E>
                                 related to maritime security; or 
                            </P>
                            <P>(iii) Any comments, instructions, and implementing guidance pertaining thereto. </P>
                            <P>
                                (3) 
                                <E T="03">Information Circulars.</E>
                                 Any notice issued by DHS or DOT regarding a threat to aviation or maritime transportation, including any— 
                            </P>
                            <P>(i) Information Circular issued by TSA under 49 CFR 1542.303, 1544.305, or other authority; and </P>
                            <P>(ii) Navigation or Vessel Inspection Circular issued by the Coast Guard related to maritime security. </P>
                            <P>
                                (4) 
                                <E T="03">Performance specifications.</E>
                                 Any performance specification and any description of a test object or test procedure, for— 
                            </P>
                            <P>(i) Any device used by the Federal government or any other person pursuant to any aviation or maritime transportation security requirements of Federal law for the detection of any weapon, explosive, incendiary, or destructive device or substance; and </P>
                            <P>(ii) Any communications equipment used by the Federal government or any other person in carrying out or complying with any aviation or maritime transportation security requirements of Federal law. </P>
                            <P>
                                (5) 
                                <E T="03">Vulnerability assessments.</E>
                                 Any vulnerability assessment directed, created, held, funded, or approved by the DOT, DHS, or that will be provided to DOT or DHS in support of a Federal security program. 
                            </P>
                            <P>
                                (6) 
                                <E T="03">Security inspection or investigative information.</E>
                                 (i) Details of any security inspection or investigation of an alleged violation of aviation or maritime transportation security requirements of Federal law that could reveal a security vulnerability, including the identity of the Federal special agent or other Federal employee who conducted the inspection or audit. 
                            </P>
                            <P>(ii) In the case of inspections or investigations performed by TSA, this includes the following information as to events that occurred within 12 months of the date of release of the information: the name of the airport where a violation occurred, the airport identifier in the case number, a description of the violation, the regulation allegedly violated, and the identity of any aircraft operator in connection with specific locations or specific security procedures. Such information will be released after the relevant 12-month period, except that TSA will not release the specific gate or other location on an airport where an event occurred, regardless of the amount of time that has passed since its occurrence. During the period within 12 months of the date of release of the information, TSA may release summaries of an aircraft operator's, but not an airport operator's, total security violations in a specified time range without identifying specific violations or locations. Summaries may include total enforcement actions, total proposed civil penalty amounts, number of cases opened, number of cases referred to TSA or FAA counsel for legal enforcement action, and number of cases closed. </P>
                            <P>
                                (7) 
                                <E T="03">Threat information.</E>
                                 Any information held by the Federal government concerning threats against transportation or transportation systems and sources and methods used to gather or develop threat information, including threats against cyber infrastructure. 
                            </P>
                            <P>
                                (8) 
                                <E T="03">Security measures.</E>
                                 Specific details of aviation or maritime transportation security measures, both operational and technical, whether applied directly by the Federal government or another person, including— 
                            </P>
                            <P>(i) Security measures or protocols recommended by the Federal government; </P>
                            <P>(ii) Information concerning the deployments, numbers, and operations of Coast Guard personnel engaged in maritime security duties and Federal Air Marshals, to the extent it is not classified national security information; and </P>
                            <P>(iii) Information concerning the deployments and operations of Federal Flight Deck Officers, and numbers of Federal Flight Deck Officers aggregated by aircraft operator.</P>
                            <P>
                                (9) 
                                <E T="03">Security screening information.</E>
                                 The following information regarding security screening under aviation or maritime transportation security requirements of Federal law:
                            </P>
                            <P>(i) Any procedures, including selection criteria and any comments, instructions, and implementing guidance pertaining thereto, for screening of persons, accessible property, checked baggage, U.S. mail, stores, and cargo, that is conducted by the Federal government or any other authorized person.</P>
                            <P>(ii) Information and sources of information used by a passenger or property screening program or system, including an automated screening system.</P>
                            <P>(iii) Detailed information about the locations at which particular screening methods or equipment are used, only if determined by TSA to be SSI.</P>
                            <P>(iv) Any security screener test and scores of such tests.</P>
                            <P>(v) Performance or testing data from security equipment or screening systems.</P>
                            <P>(vi) Any electronic image shown on any screening equipment monitor, including threat images and descriptions of threat images for threat image projection systems.</P>
                            <P>
                                (10) 
                                <E T="03">Security training materials.</E>
                                 Records created or obtained for the purpose of training persons employed by, contracted with, or acting for the Federal government or another person to carry out any aviation or maritime transportation security measures required or recommended by DHS or DOT.
                            </P>
                            <P>
                                (11) 
                                <E T="03">Identifying information of certain transportation security personnel.</E>
                                 (i) Lists of the names or other identifying information that identify persons as—
                            </P>
                            <P>(A) Having unescorted access to a secure area of an airport or a secure or restricted area of a maritime facility, port area, or vessel or;</P>
                            <P>(B) Holding a position as a security screener employed by or under contract with the Federal government pursuant to aviation or maritime transportation security requirements of Federal law, where such lists are aggregated by airport;</P>
                            <P>
                                (C) Holding a position with the Coast Guard responsible for conducting vulnerability assessments, security boardings, or engaged in operations to 
                                <PRTPAGE P="28084"/>
                                enforce maritime security requirements or conduct force protection;
                            </P>
                            <P>(D) Holding a position as a Federal Air Marshal; or</P>
                            <P>(ii) The name or other identifying information that identifies a person as a current, former, or applicant for Federal Flight Deck Officer.</P>
                            <P>
                                (12) 
                                <E T="03">Critical aviation or maritime infrastructure asset information.</E>
                                 Any list identifying systems or assets, whether physical or virtual, so vital to the aviation or maritime transportation system that the incapacity or destruction of such assets would have a debilitating impact on transportation security, if the list is—
                            </P>
                            <P>(i) Prepared by DHS or DOT; or</P>
                            <P>(ii) Prepared by a State or local government agency and submitted by the agency to DHS or DOT.</P>
                            <P>
                                (13) 
                                <E T="03">Systems security information.</E>
                                 Any information involving the security of operational or administrative data systems operated by the Federal government that have been identified by the DOT or DHS as critical to aviation or maritime transportation safety or security, including automated information security procedures and systems, security inspections, and vulnerability information concerning those systems.
                            </P>
                            <P>
                                (14) 
                                <E T="03">Confidential business information.</E>
                                 (i) Solicited or unsolicited proposals received by DHS or DOT, and negotiations arising therefrom, to perform work pursuant to a grant, contract, cooperative agreement, or other transaction, but only to the extent that the subject matter of the proposal relates to aviation or maritime transportation security measures;
                            </P>
                            <P>(ii) Trade secret information, including information required or requested by regulation or Security Directive, obtained by DHS or DOT in carrying out aviation or maritime transportation security responsibilities; and</P>
                            <P>(iii) Commercial or financial information, including information required or requested by regulation or Security Directive, obtained by DHS or DOT in carrying out aviation or maritime transportation security responsibilities, but only if the source of the information does not customarily disclose it to the public.</P>
                            <P>
                                (15) 
                                <E T="03">Research and development.</E>
                                 Information obtained or developed in the conduct of research related to aviation or maritime transportation security activities, where such research is approved, accepted, funded, recommended, or directed by the DHS or DOT, including research results.
                            </P>
                            <P>
                                (16) 
                                <E T="03">Other information.</E>
                                 Any information not otherwise described in this section that TSA determines is SSI under 49 U.S.C. 114(s) or that the Secretary of DOT determines is SSI under 49 U.S.C. 40119. Upon the request of another Federal agency, TSA or the Secretary of DOT may designate as SSI information not otherwise described in this section.
                            </P>
                            <P>
                                (c) 
                                <E T="03">Loss of SSI designation.</E>
                                 TSA or the Coast Guard may determine in writing that information or records described in paragraph (b) of this section do not constitute SSI because they no longer meet the criteria set forth in paragraph (a) of this section.
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 1520.7 </SECTNO>
                            <SUBJECT>Covered persons.</SUBJECT>
                            <P>Persons subject to the requirements of part 1520 are:</P>
                            <P>(a) Each airport operator and aircraft operator subject to the requirements of Subchapter C of this title.</P>
                            <P>(b) Each indirect air carrier, as defined in 49 CFR 1540.5.</P>
                            <P>(c) Each owner, charterer, or operator of a vessel, including foreign vessel owners, charterers, and operators, required to have a security plan under Federal or International law.</P>
                            <P>
                                (d) Each owner or operator of a maritime facility required to have a security plan under the Maritime Transportation Security Act, (Pub.L. 107-295), 46 U.S.C. 70101 
                                <E T="03">et seq.,</E>
                                 33 CFR part 6, or 33 U.S.C. 1221 
                                <E T="03">et seq.</E>
                            </P>
                            <P>(e) Each person performing the function of a computer reservation system or global distribution system for airline passenger information.</P>
                            <P>(f) Each person participating in a national or area security committee established under 46 U.S.C. 70112, or a port security committee.</P>
                            <P>(g) Each industry trade association that represents covered persons and has entered into a non-disclosure agreement with the DHS or DOT.</P>
                            <P>(h) DHS and DOT.</P>
                            <P>(i) Each person conducting research and development activities that relate to aviation or maritime transportation security and are approved, accepted, funded, recommended, or directed by DHS or DOT.</P>
                            <P>(j) Each person who has access to SSI, as specified in § 1520.11.</P>
                            <P>(k) Each person employed by, contracted to, or acting for a covered person, including a grantee of DHS or DOT, and including a person formerly in such position.</P>
                            <P>(l) Each person for which a vulnerability assessment has been directed, created, held, funded, or approved by the DOT, DHS, or that has prepared a vulnerability assessment that will be provided to DOT or DHS in support of a Federal security program.</P>
                            <P>(m) Each person receiving SSI under § 1520.15(d) or (e).</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 1520.9 </SECTNO>
                            <SUBJECT>Restrictions on the disclosure of SSI.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Duty to protect information.</E>
                                 A covered person must—
                            </P>
                            <P>(1) Take reasonable steps to safeguard SSI in that person's possession or control from unauthorized disclosure. When a person is not in physical possession of SSI, the person must store it a secure container, such as a locked desk or file cabinet or in a locked room.</P>
                            <P>(2) Disclose, or otherwise provide access to, SSI only to covered persons who have a need to know, unless otherwise authorized in writing by TSA, the Coast Guard, or the Secretary of DOT.</P>
                            <P>(3) Refer requests by other persons for SSI to TSA or the applicable component or agency within DOT or DHS.</P>
                            <P>(4) Mark SSI as specified in § 1520.13.</P>
                            <P>(5) Dispose of SSI as specified in § 1520.19.</P>
                            <P>
                                (b) 
                                <E T="03">Unmarked SSI.</E>
                                 If a covered person receives a record containing SSI that is not marked as specified in § 1520.13, the covered person must—
                            </P>
                            <P>(1) Mark the record as specified in § 1520.13; and</P>
                            <P>(2) Inform the sender of the record that the record must be marked as specified in § 1520.13.</P>
                            <P>
                                (c) 
                                <E T="03">Duty to report unauthorized disclosure.</E>
                                 When a covered person becomes aware that SSI has been released to unauthorized persons, the covered person must promptly inform TSA or the applicable DOT or DHS component or agency.
                            </P>
                            <P>
                                (d) 
                                <E T="03">Additional Requirements for Critical Infrastructure Information.</E>
                                 In the case of information that is both SSI and has been designated as critical infrastructure information under section 214 of the Homeland Security Act, any covered person who is a Federal employee in possession of such information must comply with the disclosure restrictions and other requirements applicable to such information under section 214 and any implementing regulations.
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 1520.11 </SECTNO>
                            <SUBJECT>Persons with a need to know.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">In general.</E>
                                 A person has a need to know SSI in each of the following circumstances:
                            </P>
                            <P>(1) When the person requires access to specific SSI to carry out aviation or maritime transportation security activities approved, accepted, funded, recommended, or directed by DHS or DOT.</P>
                            <P>
                                (2) When the person is in training to carry out aviation or maritime transportation security activities approved, accepted, funded, recommended, or directed by DHS or DOT.
                                <PRTPAGE P="28085"/>
                            </P>
                            <P>(3) When the information is necessary for the person to supervise or otherwise manage individuals carrying out aviation or maritime transportation security activities approved, accepted, funded, recommended, or directed by the DHS or DOT.</P>
                            <P>(4) When the person needs the information to provide technical or legal advice to a covered person regarding aviation or maritime transportation security requirements of Federal law.</P>
                            <P>(5) When the person needs the information to represent a covered person in connection with any judicial or administrative proceeding regarding those requirements.</P>
                            <P>
                                (b) 
                                <E T="03">Federal employees, contractors, and grantees.</E>
                                 (1) A Federal employee has a need to know SSI if access to the information is necessary for performance of the employee's official duties.
                            </P>
                            <P>(2) A person acting in the performance of a contract with or grant from DHS or DOT has a need to know SSI if access to the information is necessary to performance of the contract or grant.</P>
                            <P>
                                (c) 
                                <E T="03">Background check.</E>
                                 TSA or Coast Guard may make an individual's access to the SSI contingent upon satisfactory completion of a security background check or other procedures and requirements for safeguarding SSI that are satisfactory to TSA or the Coast Guard.
                            </P>
                            <P>
                                (d) 
                                <E T="03">Need to know further limited by the DHS or DOT.</E>
                                 For some specific SSI, DHS or DOT may make a finding that only specific persons or classes of persons have a need to know.
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 1520.13 </SECTNO>
                            <SUBJECT>Marking SSI.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Marking of paper records.</E>
                                 In the case of paper records containing SSI, a covered person must mark the record by placing the protective marking conspicuously on the top, and the distribution limitation statement on the bottom, of—
                            </P>
                            <P>(1) The outside of any front and back cover, including a binder cover or folder, if the document has a front and back cover;</P>
                            <P>(2) Any title page; and</P>
                            <P>(3) Each page of the document.</P>
                            <P>
                                (b) 
                                <E T="03">Protective marking.</E>
                                 The protective marking is: SENSITIVE SECURITY INFORMATION.
                            </P>
                            <P>
                                (c) 
                                <E T="03">Distribution limitation statement.</E>
                                 The distribution limitation statement is:
                            </P>
                            <EXTRACT>
                                <FP>
                                    <E T="03">WARNING:</E>
                                     This record contains Sensitive Security Information that is controlled under 49 CFR parts 15 and 1520. No part of this record may be disclosed to persons without a “need to know”, as defined in 49 CFR parts 15 and 1520, except with the written permission of the Administrator of the Transportation Security Administration or the Secretary of Transportation. Unauthorized release may result in civil penalty or other action. For U.S. government agencies, public disclosure is governed by 5 U.S.C. 552 and 49 CFR parts 15 and 1520.
                                </FP>
                            </EXTRACT>
                            <P>
                                (d) 
                                <E T="03">Other types of records.</E>
                                 In the case of non-paper records that contain SSI, including motion picture films, videotape recordings, audio recording, and electronic and magnetic records, a covered person must clearly and conspicuously mark the records with the protective marking and the distribution limitation statement such that the viewer or listener is reasonably likely to see or hear them when obtaining access to the contents of the record.
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 1520.15 </SECTNO>
                            <SUBJECT>SSI disclosed by TSA or the Coast Guard.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">In general.</E>
                                 Except as otherwise provided in this section, and notwithstanding the Freedom of Information Act (5 U.S.C. 552), the Privacy Act (5 U.S.C. 552a), and other laws, records containing SSI are not available for public inspection or copying, nor does TSA or the Coast Guard release such records to persons without a need to know.
                            </P>
                            <P>
                                (b) 
                                <E T="03">Disclosure under the Freedom of Information Act and the Privacy Act.</E>
                                 If a record contains both SSI and information that is not SSI, TSA or the Coast Guard, on a proper Freedom of Information Act or Privacy Act request, may disclose the record with the SSI redacted, provided the record is not otherwise exempt from disclosure under the Freedom of Information Act or Privacy Act.
                            </P>
                            <P>
                                (c) 
                                <E T="03">Disclosures to committees of Congress and the General Accounting Office.</E>
                                 Nothing in this part precludes TSA or the Coast Guard from disclosing SSI to a committee of Congress authorized to have the information or to the Comptroller General, or to any authorized representative of the Comptroller General.
                            </P>
                            <P>
                                (d) 
                                <E T="03">Disclosure in enforcement proceedings.</E>
                                 (1) 
                                <E T="03">In general.</E>
                                 TSA or the Coast Guard may provide SSI to a person in the context of an administrative enforcement proceeding when, in the sole discretion of TSA or the Coast Guard, as appropriate, access to the SSI is necessary for the person to prepare a response to allegations contained in a legal enforcement action document issued by TSA or the Coast Guard.
                            </P>
                            <P>
                                (2) 
                                <E T="03">Security background check.</E>
                                 Prior to providing SSI to a person under paragraph (d)(1) of this section, TSA or the Coast Guard may require the individual or, in the case of an entity, the individuals representing the entity, and their counsel, to undergo and satisfy, in the judgment of TSA or the Coast Guard, a security background check.
                            </P>
                            <P>
                                (e) 
                                <E T="03">Other conditional disclosure.</E>
                                 TSA may authorize a conditional disclosure of specific records or information that constitute SSI upon the written determination by TSA that disclosure of such records or information, subject to such limitations and restrictions as TSA may prescribe, would not be detrimental to transportation security.
                            </P>
                            <P>
                                (f) 
                                <E T="03">Obligation to protect information.</E>
                                 When an individual receives SSI pursuant to paragraph (d) or (e) of this section that individual becomes a covered person under § 1520.7 and is subject to the obligations of a covered person under this part.
                            </P>
                            <P>
                                (g) 
                                <E T="03">No release under FOIA.</E>
                                 When TSA discloses SSI pursuant to paragraphs (b) through (e) of this section, TSA makes the disclosure for the sole purpose described in that paragraph. Such disclosure is not a public release of information under the Freedom of Information Act.
                            </P>
                            <P>
                                (h) 
                                <E T="03">Disclosure of Critical Infrastructure Information.</E>
                                 Disclosure of information that is both SSI and has been designated as critical infrastructure information under section 214 of the Homeland Security Act is governed solely by the requirements of section 214 and any implementing regulations.
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 1520.17 </SECTNO>
                            <SUBJECT>Consequences of unauthorized disclosure of SSI.</SUBJECT>
                            <P>Violation of this part is grounds for a civil penalty and other enforcement or corrective action by DHS, and appropriate personnel actions for Federal employees. Corrective action may include issuance of an order requiring retrieval of SSI to remedy unauthorized disclosure or an order to cease future unauthorized disclosure.</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 1520.19 </SECTNO>
                            <SUBJECT>Destruction of SSI.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">DHS.</E>
                                 Subject to the requirements of the Federal Records Act (5 U.S.C. 105), including the duty to preserve records containing documentation of a Federal agency's policies, decisions, and essential transactions, DHS destroys SSI when no longer needed to carry out the agency's function.
                            </P>
                            <P>
                                (b) 
                                <E T="03">Other covered persons.</E>
                                 (1) 
                                <E T="03">In general.</E>
                                 A covered person must destroy SSI completely to preclude recognition or reconstruction of the information when the covered person no longer needs the SSI to carry out transportation security measures.
                            </P>
                            <P>
                                (2) 
                                <E T="03">Exception.</E>
                                 Paragraph (b)(1) of this section does not require a State or local government agency to destroy 
                                <PRTPAGE P="28086"/>
                                information that the agency is required to preserve under State or local law.
                            </P>
                        </SECTION>
                    </PART>
                </REGTEXT>
                <SIG>
                    <DATED>Issued in Arlington, VA, on May 6, 2004.</DATED>
                    <NAME>David M. Stone,</NAME>
                    <TITLE>Acting Administrator, Transportation Security Administration.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11142 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4910-62-P</BILCOD>
        </RULE>
        <RULE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF COMMERCE</AGENCY>
                <SUBAGY>National Oceanic and Atmospheric Administration</SUBAGY>
                <CFR>50 CFR Part 660</CFR>
                <DEPDOC>[Docket No. 031216314-3314-01; I.D. 050704A]</DEPDOC>
                <RIN>RIN 0648-AR54</RIN>
                <SUBJECT>Fisheries off West Coast States and in the Western Pacific; Pacific Coast Groundfish Fishery; Annual Specifications and Management Measures; Inseason Adjustments</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Inseason adjustments to management measures and request for comments.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>NMFS announces inseason adjustments to the Pacific Coast limited entry trawl groundfish fishery. These actions, which are authorized by the Pacific Coast Groundfish Fishery Management Plan (FMP), will allow fisheries access to more abundant groundfish stocks while protecting overfished and depleted stocks.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>
                        Changes to management measures are effective May 12, 2004, until the 2005-2006 specifications and management measures are effective, unless modified, superseded, or rescinded through a publication in the 
                        <E T="04">Federal Register</E>
                        . Comments on this rule will be accepted through June 11, 2004.
                    </P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>You may submit comments, identified by [docket number and/or RIN number], by any of the following methods:</P>
                    <P>
                        • E-mail: 
                        <E T="03">GroundfishInseason#3.nwr@noaa.gov</E>
                        . Include [docket number and/or RIN number] in the subject line of the message.
                    </P>
                    <P>
                        • Federal eRulemaking Portal: 
                        <E T="03">http://www.regulations.gov</E>
                        . Follow the instructions for submitting comments.
                    </P>
                    <P>• Fax: 206-526-6736</P>
                    <P>• Mail:  D. Robert Lohn, Administrator, Northwest Region, NMFS, 7600 Sand Point Way NE, Seattle, WA 98115-0070; or Rod McInnis, Acting Administrator, Southwest Region, NMFS, 501 West Ocean Blvd, Suite 4200, Long Beach, CA 90802-4213.</P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>
                        Carrie Nordeen (Northwest Region, NMFS), phone: 206-526-6144; fax: 206-526-6736; and e-mail: 
                        <E T="03">carrie.nordeen@noaa.gov</E>
                        .
                    </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <HD SOURCE="HD1">Electronic Access</HD>
                <P>
                    This 
                    <E T="04">Federal Register</E>
                     document is available on the Government Printing Office's website at: 
                    <E T="03">www.gpoaccess.gov/fr/index.html</E>
                    .
                </P>
                <P>
                    Background information and documents are available at the NMFS Northwest Region website at: 
                    <E T="03">www.nwr.noaa.gov/1sustfsh/gdfsh01.htm</E>
                     and at the Pacific Fishery Management Council's website at: 
                    <E T="03">www.pcouncil.org</E>
                    .
                </P>
                <HD SOURCE="HD1">Background</HD>
                <P>
                    The Pacific Coast Groundfish FMP and its implementing regulations at 50 CFR part 660, subpart G, regulate fishing for over 80 species of groundfish off the coasts of Washington, Oregon, and California. Groundfish specifications and management measures are developed by the Pacific Fishery Management Council (Pacific Council), and are implemented by NMFS. The specifications and management measures for the 2004 fishing year (January 1-December 31, 2004) were initially published in the 
                    <E T="04">Federal Register</E>
                     as an emergency rule for January 1-February 29, 2004 (69 FR 1322, January 8, 2004) and as a proposed rule for March 1-December 31, 2004 (69 FR 1380, January 8, 2004). The emergency rule was amended at 69 FR 4084, January 28, 2004. The final rule for March 1-December 31, 2004 was published in the 
                    <E T="04">Federal Register</E>
                     on March 9, 2004 (69 FR 11064) and amended at 69 FR 23440, April 29, 2004 and at 69 FR 25013, May 5, 2004.
                </P>
                <P>
                    The Pacific Council, in consultation with Pacific Coast Treaty Tribes and the States of Washington, Oregon, and California, at its April 4-9, 2004, meeting in Sacramento, CA recommended a number of changes to groundfish management measures. Most of these were implemented through an inseason adjustment published in the 
                    <E T="04">Federal Register</E>
                     at 69 FR 25013, May 5, 2004. However, the trawl trip limit adjustments for slope species contained in this document were mistakenly omitted from the May 5, 2004, 
                    <E T="04">Federal Register</E>
                     document. Therefore, NMFS is now implementing these remaining inseason adjustments.
                </P>
                <P>The limited entry trawl cumulative trip limit increases for DTS (Dover sole, thornyheads, sablefish) and “other flatfish” species are in response to several factors influencing projected catch of groundfish during 2004. These factors include (1) an updated trawl bycatch model, (2) projected catch in the limited entry trawl fishery based on new observer data, and (3) a reduction in limited entry trawl fleet effort due to the limited entry trawl permit and vessel buyback program. Pacific Coast groundfish landings will be monitored throughout the year, and further adjustments to trip limits or management measures will be made as necessary to allow achievement of or avoid exceeding the 2004 optimum yields (OYs).</P>
                <HD SOURCE="HD2">Limited Entry Trawl Fishery</HD>
                <P>The trawl bycatch model, used to calculate total catch, discard, and incidental catch rates of groundfish species in the limited entry trawl fisheries, was updated during the winter of 2004. Major changes to the model included a revision of the trawl participation and catch database as well as changes to the incidental catch rates of overfished groundfish species. The trawl participation and catch database is used as an indicator of past limited entry trawl permit participation and landed catch. This database tracks a weighted average (based on activity during the last several years) of landed catch per limited entry trawl permit, bimonthly period, subarea, and depth. Because this database is one of the basic foundations of the trawl bycatch model, the model operates under the assumption that past performance is a reasonable proxy for what level of effort may occur in the future. The trawl bycatch model was updated to reflect changes in fleet structure as a result of the limited entry trawl permit and vessel buyback program conducted in late 2003. However, because buyback related fleet structure changes are continuing to occur, higher levels of uncertainty are associated with the trawl bycatch model's predictions of projected catch during 2004 than in previous years.</P>
                <P>
                    The incidental catch rates of overfished groundfish species used in the trawl bycatch model were updated by stratifying them by depth, subarea, and cumulative limit period. This is a change from the previous trawl bycatch model that only stratified incidental catch rates by depth and subarea. In early 2004, new West Coast Groundfish Observer Program data were available 
                    <PRTPAGE P="28087"/>
                    and incorporated in the trawl bycatch model. With two years of data being used in the model, the Pacific Council sought the guidance of the Scientific and Statistical Committee about how to treat each year of data. Because more recent information is more likely to be representative of fishing behavior and catch data in the upcoming year, the SSC recommended a weighting scheme for observer data wherein the most recent data are weighted more heavily than older data. Therefore, NMFS estimated the incidental catch rates of overfished species from both years of observer data, applied a 2/3 weight to the 2003 rates, and a 1/3 weight to the 2002 rates, then summed those years to derive estimated incidental catch rates for overfished species.
                </P>
                <P>Following the 2004 updates to the trawl bycatch model, catch projections generated by the model were compared to landings data reported in the Pacific Coast Fisheries Information Network (PacFIN). The landed catch of DTS (Dover sole, thornyheads, sablefish) species was predicted to be higher than that reported in PacFIN and the landed catch of Petrale sole and “other flatfish” species were predicted to be lower than that reported in PacFIN. Therefore, model predictions were scaled to account for these differences based on PacFIN landed catch estimates from January through February 2004 and landed catch estimates during the same period in 2003.</P>
                <P>Changes to the bycatch model were based on new observer data, effort estimates following trawl buyback program, and landed catch data through the end of February 2004. Because of updated trawl bycatch model results, limited entry trawl cumulative trip limits for certain slope species, specifically DTS and “other flatfish” species, can be increased for the remainder of the year. Higher 2004 OYs for darkblotched rockfish and Pacific ocean perch combined with lower projected incidental catch rates for darkblotched rockfish and Pacific ocean perch, in areas seaward of the trawl Rockfish Conservation Area, allow higher slope trip limits to be put in place. Cumulative trip limit increases for the limited entry trawl fleet would enable the OYs for DTS and “other flatfish” to be achieved but not exceeded while still protecting overfished species by keeping the total mortality of overfished species within their rebuilding OYs.</P>
                <P>Therefore, with this inseason action, NMFS is implementing the following Pacific Council recommended limited entry trawl cumulative trip limit increases in the area between the U.S. border with Canada and 40°10′ N. lat. The limited entry trawl large footrope and midwater trawl trip limit for sablefish will be increased from 8,700 lb (3,946 kg) per two months to 16,000 lb (7,257 kg) per two months for May through October and increased from 6,200 lb (2,812 kg) per two months to 11,000 lb (4,990 kg) per two months during November and December. The limited entry small footrope trawl trip limit for sablefish will be increased from 5,000 lb (2,268 kg) per two months to 10,000 lb (4,536 kg) per two months for May through October and increased from 2,000 lb (907 kg) per two months to 5,000 lb (2,268 kg) per two months during November and December. The limited entry trawl large footrope and midwater trawl trip limit for longspine thornyhead will be increased from 10,000 lb (4,536 kg) per two months to 18,000 lb (8,165 kg) per two months for May through December. The limited entry large footrope and midwater trawl trip limit for shortspine thornyhead will be increased from 2,100 lb (907 kg) per two months to 4,500 lb (2,041 kg) per two months for May through December. The limited entry trawl small footrope trawl trip limit for shortspine thornyhead will be increased from 1,000 lb (454 kg) per two months to 3,000 lb (1,361 kg) per two months for May through October. The limited entry trawl large footrope and midwater trawl trip limit for Dover sole will be increased from 21,000 lb (9,525 kg) per two months to 32,000 lb (14,515 kg) per two months for May through October and increased from 45,000 lb (20,412 kg) per two months to 50,000 lb (22,680 kg) per two months for November and December. The limited entry small footrope trawl trip limit for Dover sole will be increased from 21,000 lb (9,525 kg) per two months to 27,000 lb (12,247 kg) per two months for May through October and increased from 10,000 lb (4,536 kg) per two months to 18,000 lb (8,165 kg) per two months for November and December. The limited entry trawl small footrope trip limit for arrowtooth flounder will be increased from 6,000 lb (2,722 kg) per two months to 11,000 lb (4,990 kg) per two months for May through October and increased from 4,000 lb (1,814 kg) per two months to 8,000 lb (3,629 kg) per two months for November and December. The limited entry trawl small footrope trip limit for “other flatfish” will be increased from 60,000 lb (27,216 kg) per two months, no more than 25,000 lb (11,340 kg) per two months of which may be petrale sole, to 80,000 lb (36,287 kg) per two months, no more than 30,000 lb (13,608 kg) per two months of which may be petrale sole, for May through October. For November and December, the limited entry trawl small footrope trip limit for “other flatfish” will be increased from 30,000 lb (13,608 kg) per two months, no more than 10,000 lb (4,536 kg) per two months of which may be petrale sole, to 70,000 lb (31,752 kg) per two months, no more than 20,000 lb (9,072 kg) per two months of which may be petrale sole.</P>
                <P>With this inseason action, in the area between 40°10′ N. lat. and the U.S. border with Mexico, NMFS is implementing the following limited entry trawl cumulative trip limit increases recommended by the Pacific Council. The limited entry trawl trip limit for sablefish will be increased from 7,500 lb (3,402 kg) per two months to 14,500 lb (6,578 kg) per two months for May through December. The limited entry trawl trip limit for longspine thornyhead will be increased from 10,000 lb (4,536 kg) per two months to 18,000 lb (8,165 kg) per two months for May through December. The limited entry trawl trip limit for shortspine thornyhead will be increased from 2,000 lb (907 kg) per two months to 4,500 lb (2,041 kg) per two months for May through December. The limited entry trawl trip limit for Dover sole will be increased from 26,000 lb (11,793 kg) per two months to 49,000 lb (22,226 kg) per two months for May through December. The limited entry trawl trip limit for “other flatfish” will be increased from 100,000 lb (45,359 kg) per two months, no more than 20,000 lb (9,072 kg) per two months of which may be petrale sole, to 120,000 lb (54,431 kg) per two months, no more than 20,000 lb (9,072 kg) per two months of which may be petrale sole, for May through October. For November and December, the limited entry trawl trip limit for “other flatfish” will be increased from 100,000 lb (45,359 kg) per two months to 120,000 lb (54,431 kg) per two months. The limited entry trawl catch of petrale sole for November and December will remain unlimited. </P>
                <P>
                    Limited entry trawl trip limits had been set at a precautionary level at the beginning of 2004, pending the release of new observer data. Because the new observer data indicate that the incidental catch of overfished species, specifically darkblotched rockfish and Pacific ocean perch, by the limited entry trawl fleet along the slope is lower than expected, limited entry trawl limits for slope species can be increased for the remainder of the year. These cumulative trip limit increases generate much needed revenue for the limited entry trawl fleet, a fleet that has been severely restricted in recent years to limit the 
                    <PRTPAGE P="28088"/>
                    catch of overfished species and enable the rebuilding of those stocks. The incidental catch of overfished species will continue to be minimized by the trawl RCA in areas and during seasons when the incidental catch of overfished species is high, as well as conservative trip limits for target species known to co-occur with overfished species. These inseason adjustments are predicted to help achieve, but not exceed, the 2004 OYs for Pacific Coast groundfish species. Landings in the Pacific Coast groundfish fisheries will continue to be monitored throughout the year and adjustments to trip limits will be made to keep catch within OYs, as necessary.
                </P>
                <HD SOURCE="HD1">NMFS Actions</HD>
                <P>For the reasons stated herein, NMFS concurs with the Pacific Council's recommendations and hereby announces the following changes to the 2004 specifications and management measures (69 FR 11064, March 9, 2004, as amended at 69 FR 23440, April 29, 2004, and at 69 FR 25013, May 5, 2004) to read as follows:</P>
                <P>1. On pages 11108-11114, in section IV., under B. Limited Entry Fishery, at the end of paragraph (1), Table 3 (North) and Table 3 (South) are revised to read as follows:</P>
                <HD SOURCE="HD1">IV. NMFS Actions</HD>
                <HD SOURCE="HD2">B. Limited Entry Fishery</HD>
                <P>(1) * * *</P>
                <BILCOD>BILLING CODE 3510-22-S</BILCOD>
                <GPH SPAN="3" DEEP="592">
                    <PRTPAGE P="28089"/>
                    <GID>ER18MY04.408</GID>
                </GPH>
                <GPH SPAN="3" DEEP="524">
                    <PRTPAGE P="28090"/>
                    <GID>ER18MY04.409</GID>
                </GPH>
                <GPH SPAN="3" DEEP="623">
                    <PRTPAGE P="28091"/>
                    <GID>ER18MY04.410</GID>
                </GPH>
                <GPH SPAN="3" DEEP="260">
                    <PRTPAGE P="28092"/>
                    <GID>ER18MY04.411</GID>
                </GPH>
                <BILCOD>BILLING CODE 3510-22-C</BILCOD>
                <STARS/>
                <HD SOURCE="HD1">Classification</HD>
                <P>
                    These actions are authorized by the Pacific Coast groundfish FMP and its implementing regulations and are based on the most recent data available. The aggregate data upon which these actions are based are available for public inspection at the Office of the Administrator, Northwest Region, NMFS, (see 
                    <E T="02">ADDRESSES</E>
                    ) during business hours.
                </P>
                <P>The Assistant Administrator for Fisheries, NOAA, finds good cause to waive the requirement to provide prior notice and opportunity for public comment on this action pursuant to 5 U.S.C. 553(b)(3)(B), because providing prior notice and opportunity for comment would be impracticable. Providing prior notice and comment on the inseason adjustments would be impracticable because the data upon which these recommendations were based were provided to the Pacific Council and the Pacific Council made its recommendations at its April 4-9, 2004, meeting in Sacramento, CA. There was not sufficient time after that meeting to draft this inseason notice and undergo proposed and final rulemaking before the beginning of the next cumulative limit period, May 1, 2004. This inseason action increases some cumulative trip limits, which allows the limited entry trawl fleet to harvest additional fish during each two-month period. These harvest opportunities are a result, in part, of the limited entry trawl permit and vessel buyback conducted in 2003 and provide much needed revenue for the limited entry trawl fleet by providing access to healthy, deepwater groundfish stocks with minimal impacts on overfished species. Delays in implementing these additional harvest opportunities would likely prevent many members of the trawl fleet from harvesting the increased limits for the May-June cumulative limit period, thereby causing undue economic hardships on coastal communities relying on economic benefits resulting from the trawl buyback program.</P>
                <P>For these reasons, good cause also exists to waive the 30 day delay in effectiveness requirement under 5 U.S.C. 553 (d)(3).</P>
                <P>These actions are taken under the authority of 50 CFR 300.63(a)(3)and 660.323(b)(1) and are exempt from review under Executive Order 12866.</P>
                <AUTH>
                    <HD SOURCE="HED">Authority:</HD>
                    <P>
                        16 U.S.C. 1801 
                        <E T="03">et seq.</E>
                    </P>
                </AUTH>
                <SIG>
                    <DATED>Dated: May 11, 2004.</DATED>
                    <NAME>Alan D. Risenhoover,</NAME>
                    <TITLE>Acting Director, Office of Sustainable Fisheries, National Marine Fisheries Service.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11156 Filed 5-12-04; 4:02 pm]</FRDOC>
            <BILCOD>BILLING CODE 3510-22-S</BILCOD>
        </RULE>
    </RULES>
    <VOL>69</VOL>
    <NO>96</NO>
    <DATE>Tuesday, May 18, 2004</DATE>
    <UNITNAME>Proposed Rules</UNITNAME>
    <PRORULES>
        <PRORULE>
            <PREAMB>
                <PRTPAGE P="28093"/>
                <AGENCY TYPE="F">DEPARTMENT OF TRANSPORTATION</AGENCY>
                <SUBAGY>Federal Aviation Administration</SUBAGY>
                <CFR>14 CFR Part 39</CFR>
                <DEPDOC>[Docket No. 2003-NE-67-AD]</DEPDOC>
                <RIN>RIN 2120-AA64</RIN>
                <SUBJECT>Airworthiness Directives; GE Aircraft Engines (GE) CF34-3A, CF34-3A2, CF34-1A, CF34-3A1, CF34-3B, and CF34-3B1 Series Turbofan Engines</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Federal Aviation Administration (FAA), DOT.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of proposed rulemaking (NPRM).</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The FAA proposes to adopt a new airworthiness directive (AD) for GE CF34-3A, CF34-3A2, CF34-1A, CF34-3A1, CF34-3B, and CF34-3B1 series turbofan engines. This proposed AD would require removal from service of certain high pressure compressor (HPC) forward spools, at the first piece-part level exposure after 6,000 cycles since new (CSN), but not later than 20,000 CSN for CF34-3B engines and 22,000 CSN for CF34-3A, CF34-3A2, CF34-1A, CF34-3A1, and CF34-3B1 engines. This proposed AD results from an updated low-cycle fatigue (LCF) analysis performed on certain HPC forward spools. We are proposing this AD to prevent LCF cracks and failure of the HPC forward spool, which could result in an uncontained engine failure and damage to the airplane.</P>
                </SUM>
                <EFFDATE>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>We must receive any comments on this proposed AD by July 19, 2004.</P>
                </EFFDATE>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>Use one of the following addresses to submit comments on this proposed AD:</P>
                    <P>• By mail: Federal Aviation Administration (FAA), New England Region, Office of the Regional Counsel, Attention: Rules Docket No. 2003-NE-67-AD, 12 New England Executive Park, Burlington, MA 01803-5299.</P>
                    <P>• By fax: (781) 238-7055.</P>
                    <P>
                        • By e-mail: 
                        <E T="03">9-ane-adcomment@faa.gov.</E>
                    </P>
                    <P>You can get the service information identified in this proposed AD from General Electric Company via Lockheed Martin Technology Services, 10525 Chester Road, Suite C, Cincinnati, Ohio 45215; telephone (513) 672-8400; fax (513) 672-8422.</P>
                    <P>You may examine the AD docket, by appointment, at the FAA, New England Region, Office of the Regional Counsel, 12 New England Executive Park, Burlington, MA.</P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Robert Grant, Aerospace Engineer, Engine Certification Office, FAA, Engine &amp; Propeller Directorate, 12 New England Executive Park, Burlington, MA 01803-5299; telephone (781) 238-7757; fax (781) 238-7199.</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <HD SOURCE="HD1">Comments Invited</HD>
                <P>
                    We invite you to submit any written relevant data, views, or arguments regarding this proposal. Send your comments to an address listed under 
                    <E T="02">ADDRESSES</E>
                    . Include “AD Docket No. 2003-NE-67-AD” in the subject line of your comments. If you want us to acknowledge receipt of your mailed comments, send us a self-addressed, stamped postcard with the docket number written on it; we will date-stamp your postcard and mail it back to you. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the proposed AD. If a person contacts us verbally, and that contact relates to a substantive part of this proposed AD, we will summarize the contact and place the summary in the docket. We will consider all comments received by the closing date and may amend the proposed AD in light of those comments.
                </P>
                <P>
                    We are reviewing the writing style we currently use in regulatory documents. We are interested in your comments on whether the style of this document is clear, and your suggestions to improve the clarity of our communications that affect you. You can get more information about plain language at 
                    <E T="03">http://www.faa.gov/language</E>
                     and 
                    <E T="03">http://www.plainlanguage.gov.</E>
                </P>
                <HD SOURCE="HD1">Examining the AD Docket</HD>
                <P>
                    You may examine the AD Docket (including any comments and service information), by appointment, between 8 a.m. and 4:30 p.m., Monday through Friday, except Federal holidays. See 
                    <E T="02">ADDRESSES</E>
                     for the location.
                </P>
                <HD SOURCE="HD1">Discussion</HD>
                <P>In October 2003, GE made the FAA aware of its updated LCF analysis of HPC forward spools, P/Ns 6078T56P03 and 6078T56P04, used in CF34-3A, CF34-3A2, CF34-1A, CF34-3A1, CF34-3B, CF34-3B1 turbofan engines. HPC forward spools, P/Ns 6078T56P03 and 6078T56P04, installed in CF34-3A, CF34-3A2, CF34-1A, CF34-3A1, and CF34-3B1 turbofan engines, must be replaced before accumulating 22,000 CSN. The highest time HPC forward spool has accumulated fewer than 21,500 CSN in CF34-3A, CF34-3A2, CF34-1A, CF34-3A1, or CF34-3B1 turbofan engines, to date.</P>
                <P>HPC forward spools, P/Ns 6078T56P03 and 6078T56P04, installed in CF34-3B engines, must be replaced before accumulating 20,000 CSN. The highest time HPC forward spool has accumulated fewer than 4,500 CSN in a CF34-3B engine, to date.</P>
                <P>We are proposing this AD to prevent LCF cracks and failure of the HPC forward spool, which could result in an uncontained engine failure and damage to the airplane.</P>
                <HD SOURCE="HD1">Relevant Service Information</HD>
                <P>We have reviewed and approved the technical contents of GE Alert Service Bulletins (ASBs) No. 72-A0165 and No. 72-A0140, that describe procedures for disassembly and replacement of HPC compressor rotor spool stages 3-8.</P>
                <HD SOURCE="HD1">FAA's Determination and Requirements of the Proposed AD</HD>
                <P>We have evaluated all pertinent information and identified an unsafe condition that is likely to exist or develop on other products of this same type design. We are proposing this AD, which would require replacing HPC forward spools, P/Ns 6078T56P03 and 6078T56P04, before accumulating 22,000 CSN on CF34-3A, CF34-3A2, CF34-1A, CF34-3A1, and CF34-3B1 engines, and 20,000 CSN on CF34-3B engines.</P>
                <HD SOURCE="HD1">Costs of Compliance</HD>
                <P>
                    There are about 2,681 GE CF34-3A, CF34-3A2, CF34-1A, CF34-3B and CF34-3B1 series turbofan engines of the affected design in the worldwide fleet. We estimate that 1,826 engines installed on airplanes of U.S. registry would be 
                    <PRTPAGE P="28094"/>
                    affected by this proposed AD. We also estimate that 59% of the replacements will not be done at piece-part exposure, and will require approximately 650 work hours per engine to perform the proposed actions, and that the average labor rate is $65 per work hour. Required parts would cost about $16,000 per engine (a prorated cost of the unused spool life to the original life). Based on these figures, we estimate the total cost of the proposed AD to U.S. operators to be $74,420,000.
                </P>
                <HD SOURCE="HD1">Regulatory Findings</HD>
                <P>We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.</P>
                <P>For the reasons discussed above, I certify that the proposed regulation:</P>
                <P>1. Is not a “significant regulatory action” under Executive Order 12866;</P>
                <P>2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and</P>
                <P>3. Would not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.</P>
                <P>
                    We prepared a summary of the costs to comply with this proposal and placed it in the AD Docket. You may get a copy of this summary by sending a request to us at the address listed under 
                    <E T="02">ADDRESSES</E>
                    . Include “AD Docket No. 2003-NE-67-AD” in your request.
                </P>
                <LSTSUB>
                    <HD SOURCE="HED">List of Subjects in 14 CFR Part 39</HD>
                    <P>Air transportation, Aircraft, Aviation safety, Safety.</P>
                </LSTSUB>
                <HD SOURCE="HD1">The Proposed Amendment</HD>
                <P>Accordingly, under the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend 14 CFR part 39 as follows:</P>
                <PART>
                    <HD SOURCE="HED">PART 39—AIRWORTHINESS DIRECTIVES</HD>
                    <P>1. The authority citation for part 39 continues to read as follows:</P>
                    <AUTH>
                        <HD SOURCE="HED">Authority:</HD>
                        <P>49 U.S.C. 106(g), 40113, 44701.</P>
                    </AUTH>
                    <SECTION>
                        <SECTNO>§ 39.13 </SECTNO>
                        <SUBJECT>[Amended]</SUBJECT>
                        <P>2. The FAA amends § 39.13 by adding the following new airworthiness directive:</P>
                        <EXTRACT>
                            <FP SOURCE="FP-2">
                                <E T="04">GE Aircraft Engines (GE):</E>
                                 Docket No. 2003-NE-67-AD.
                            </FP>
                            <HD SOURCE="HD1">Comments Due Date</HD>
                            <P>(a) The Federal Aviation Administration (FAA) must receive comments on this airworthiness directive (AD) action by July 19, 2004.</P>
                            <HD SOURCE="HD1">Affected ADs</HD>
                            <P>(b) None.</P>
                            <HD SOURCE="HD1">Applicability</HD>
                            <P>(c) This AD applies to GE CF34-3A, CF34-3A2, CF34-1A, CF34-3A1, CF34-3B, and CF34-3B1 series turbofan engines with high pressure compressor (HPC) forward spool, part number (P/N) 6078T56P03 or 6078T56P04, installed. These engines are installed on, but not limited to, Bombardier series Business Jet Model CL-600-2A12 (CL-601), Bombardier series Business Jet Model CL-600-2B16 (CL-601-3A, CL-601-3R, and CL-604), and Bombardier series Regional Jet Model CL-600-2B19 (Regional Jet Series 100 and 440) airplanes.</P>
                            <HD SOURCE="HD1">Unsafe Condition</HD>
                            <P>(d) This AD results from an updated low-cycle fatigue (LCF) analysis performed on certain HPC forward spools by GE. We are issuing this AD to prevent LCF cracks and failure of the HPC forward spool, which could result in an uncontained engine failure and damage to the airplane.</P>
                            <HD SOURCE="HD1">Compliance</HD>
                            <P>(e) You are responsible for having the actions required by this AD performed within the compliance times specified unless the actions have already been done.</P>
                            <HD SOURCE="HD1">HPC Spool Replacement</HD>
                            <P>(f) For HPC forward spools, P/Ns 6078T56P03 and 6078T56P04, with more than 6,000 cycles-since-new (CSN), installed on CF34-3B engines, remove the spool from service and replace with a serviceable spool at next piece-part exposure, but no later than 20,000 CSN.</P>
                            <P>(g) For HPC forward spools, P/Ns 6078T56P03 and 6078T56P04, with more than 6,000 CSN, installed in CF34-3A, CF34-3A2, CF34-1A, CF34-3A1, and CF34-3B1 engines, remove the spool from service and replace with a serviceable spool at next piece-part exposure, but no later than 22,000 CSN.</P>
                            <HD SOURCE="HD1">Definitions</HD>
                            <P>(h) For the purpose of this AD, the definition of piece-part exposure for the HPC forward spool is when the spool is completely disassembled.</P>
                            <P>(i) For purposes of this AD, a spool with P/N 6078T56P03 is not a serviceable spool, and a spool with P/N 6078T56P04 and more than 0 CSN is not a serviceable spool. All other spools are serviceable.</P>
                            <HD SOURCE="HD1">Alternative Methods of Compliance</HD>
                            <P>(j) The Manager, Engine Certification Office, has the authority to approve alternative methods of compliance for this AD if requested using the procedures found in 14 CFR 39.19.</P>
                            <HD SOURCE="HD1">Material Incorporated by Reference</HD>
                            <P>(k) None.</P>
                            <HD SOURCE="HD1">Related Information</HD>
                            <P>(l) GE Alert Service Bulletins No. ASB 72-A0165 and No. ASB 72-A0140, pertain to the subject of this AD.</P>
                        </EXTRACT>
                    </SECTION>
                    <SIG>
                        <DATED>Issued in Burlington, Massachusetts, on May 11, 2004.</DATED>
                        <NAME>Francis A. Favara,</NAME>
                        <TITLE>Acting Manager, Engine and Propeller Directorate, Aircraft Certification Service.</TITLE>
                    </SIG>
                </PART>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11199 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4910-13-P</BILCOD>
        </PRORULE>
        <PRORULE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF TRANSPORTATION</AGENCY>
                <SUBAGY>Federal Aviation Administration</SUBAGY>
                <CFR>14 CFR Part 39</CFR>
                <DEPDOC>[Docket No. 2004-NE-19-AD]</DEPDOC>
                <RIN>RIN 2120-AA64</RIN>
                <SUBJECT>Airworthiness Directives; Rolls-Royce plc RB211-524 Series Turbofan Engines</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Federal Aviation Administration (FAA), DOT.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of proposed rulemaking (NPRM).</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The FAA proposes to supersede an existing airworthiness directive (AD) for Rolls-Royce plc (RR) RB211-524 series turbofan engines. That AD currently requires initial and repetitive borescope inspections of the head section and meterpanel assembly of the combustion liner, and replacement, if necessary, with serviceable parts. In addition, that AD allows an optional installation of a front combustion liner with a strengthened head section as a terminating action to the inspection requirements. This proposed AD would require initial and repetitive borescope inspections of the head section and meterpanel assembly of the combustion liner, and replacement, if necessary, with serviceable parts, reduction of the inspection intervals of certain RB211-524 engine models that have not been repaired to RR Field Repair Scheme FRS5367/B, and a mandatory terminating action to be completed by a certain date. This proposed AD results from five events that are directly attributed to combustor head break-up and meterpanel failure which were found at overhaul inspection. At least one of these events resulted in a combustion case burn-through. We are proposing this AD to prevent engine combustion liner deterioration, which can result in combustion liner breakup, case burn-through, and engine fire.</P>
                </SUM>
                <EFFDATE>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>We must receive any comments on this proposed AD by July 19, 2004.</P>
                </EFFDATE>
                <ADD>
                    <PRTPAGE P="28095"/>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>Use one of the following addresses to submit comments on this proposed AD:</P>
                    <P>• By mail: Federal Aviation Administration (FAA), New England Region, Office of the Regional Counsel, Attention: Rules Docket No. 2004-NE-19-AD, 12 New England Executive Park, Burlington, MA 01803-5299.</P>
                    <P>• By fax: (781) 238-7055.</P>
                    <P>
                        • By e-mail: 
                        <E T="03">9-ane-adcomment@faa.gov.</E>
                    </P>
                    <P>You can get the service information identified in this proposed AD from Rolls-Royce plc, P.O. Box 31, Derby, DE24 8BJ, United Kingdom; telephone: 011-44-1332-242424; fax: 011-44-1332-249936.</P>
                    <P>You may examine the AD docket, by appointment, at the FAA, New England Region, Office of the Regional Counsel, 12 New England Executive Park, Burlington, MA.</P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Ian Dargin, Aerospace Engineer, Engine Certification Office, FAA, Engine and Propeller Directorate, 12 New England Executive Park, Burlington, MA 01803-5299; telephone (781) 238-7178; fax (781) 238-7199.</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <HD SOURCE="HD1">Comments Invited</HD>
                <P>
                    We invite you to submit any written relevant data, views, or arguments regarding this proposal. Send your comments to an address listed under 
                    <E T="02">ADDRESSES.</E>
                     Include “AD Docket No. 2004-NE-19-AD” in the subject line of your comments. If you want us to acknowledge receipt of your mailed comments, send us a self-addressed, stamped postcard with the docket number written on it; we will date-stamp your postcard and mail it back to you. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the proposed AD. If a person contacts us verbally, and that contact relates to a substantive part of this proposed AD, we will summarize the contact and place the summary in the docket. We will consider all comments received by the closing date and may amend the proposed AD in light of those comments.
                </P>
                <P>
                    We are reviewing the writing style we currently use in regulatory documents. We are interested in your comments on whether the style of this document is clear, and your suggestions to improve the clarity of our communications that affect you. You may get more information about plain language at 
                    <E T="03">http://www.faa.gov/language</E>
                     and 
                    <E T="03">http://www.plainlanguage.gov.</E>
                </P>
                <HD SOURCE="HD1">Examining the AD Docket</HD>
                <P>
                    You may examine the AD Docket (including any comments and service information), by appointment, between 8 a.m. and 4:30 p.m., Monday through Friday, except Federal holidays. 
                    <E T="03">See</E>
                      
                    <E T="02">ADDRESSES</E>
                     for the location.
                </P>
                <HD SOURCE="HD1">Discussion</HD>
                <P>On March 26, 1997, the FAA issued AD 97-07-04, Amendment 39-9978 (62 FR 16475, April 7, 1997). That AD requires initial and repetitive borescope inspections of the head section and meterpanel assembly of the combustion liner, and replacement, if necessary, with serviceable parts. In addition, that AD allows an optional installation of a front combustion liner with a strengthened head section as a terminating action to the inspection requirements.</P>
                <HD SOURCE="HD1">Actions After AD 97-07-04 Was Issued</HD>
                <P>After AD 97-07-04 was issued, the Civil Aviation Authority (CAA), which is the airworthiness authority for the United Kingdom (U.K.), notified the FAA that an unsafe condition may exist on RR RB211-524 series turbofan engines. The CAA advises that in August 2002, an RB211-524B engine suffered a combustion case burn-through as a result of combustor head break-up. The combustor head had been previously inspected within the inspection interval specified in RR Service Bulletin (SB) No. RB.211-72-B482, Revision 8, dated November 15, 2001, only 228 cycles before the event. Subsequent to the original AD, RR has issued several revisions to SB No. RB.211-72-B482 to expand the applicability and clarify or revise the inspection requirements. In 2003, RR issued Alert Service Bulletin (ASB) No. RB.211-72-AB482, Revision 9, dated July 28, 2003, to reduce the inspection interval for RB211-524B-02, -524B2, -524B3, and -524B4 engines that have not been repaired to RR Field Repair Scheme FRS5367/B. This condition, if not corrected, could result in engine combustion liner deterioration, which can result in combustion liner breakup, case burn-through, and engine fire.</P>
                <HD SOURCE="HD1">Relevant Service Information</HD>
                <P>We have reviewed and approved the technical contents of the following RR SBs:</P>
                <P>• RR ASB No. RB.211-72-AB482, Revision 9, dated July 28, 2003, that describes the initial inspection procedures for the combustion liner head section and the meterpanel cracking. This ASB also describes the compliance intervals to do the initial and repetitive inspections.</P>
                <P>• RR SB No. RB.211-72-9670, dated August 27, 1993, that describes the procedures to incorporate the improved combustion liner head with C263 material, and to incorporate local thickened diffuser walls around the struts for engine models -524B-02, -524B2, -524B3, -524B4, -524C2 and -524D4.</P>
                <P>• RR SB No. RB.211-72-9764, Revision 3, dated January 16, 1998, that describes the procedures to incorporate the improved combustion liner with strengthened head and improved heat shields for engine models -524G and -524H.</P>
                <P>The CAA classified ASB No. RB.211-72-AB482, Revision 9, dated July 28, 2003, as mandatory and issued AD G-2003-0011 (previously 005-07-95), dated October 1, 2003, in order to ensure the airworthiness of these RR engines in the U.K.</P>
                <HD SOURCE="HD1">Bilateral Agreement Information</HD>
                <P>This engine model is manufactured in the U.K. and is type certificated for operation in the United States under the provisions of § 21.29 of the Federal Aviation Regulations (14 CFR 21.29) and the applicable bilateral airworthiness agreement. In keeping with this bilateral airworthiness agreement, the CAA has kept the FAA informed of the situation described above. We have examined the findings of the CAA, reviewed all available information, and determined that AD action is necessary for products of this type design that are certificated for operation in the United States.</P>
                <HD SOURCE="HD1">FAA's Determination and Requirements of the Proposed AD</HD>
                <P>We have evaluated all pertinent information and identified an unsafe condition that is likely to exist or develop on other products of this same type design. Therefore, we are proposing this AD, which would require the following:</P>
                <P>• Initial and repetitive borescope inspections of the head section and meterpanel assembly of the combustion liner, and replacement, if necessary, with serviceable parts;</P>
                <P>• Reduction of the inspection intervals of certain RB211-524 engine models that have not been repaired to RR Field Repair Scheme FRS5367/B; and, </P>
                <P>• A mandatory terminating action to the repetitive inspections to be completed within 10,000 CSN or no later than December 31, 2012.</P>
                <P>
                    The proposed AD would require that you do these actions using the service information described previously.
                    <PRTPAGE P="28096"/>
                </P>
                <HD SOURCE="HD1">Costs of Compliance</HD>
                <P>There are about 537 RB211-524 series turbofan engines of the affected design in the worldwide fleet. We estimate that 18 engines installed on airplanes of U.S. registry would be affected by this proposed AD. We also estimate that it would take approximately 2.0 work hours per engine to perform the proposed actions, and that the average labor rate is $65 per work hour. Required parts would cost about $228,389 per engine. Based on these figures, we estimate the total cost of the proposed AD to U.S. operators to be $4,113,351.</P>
                <HD SOURCE="HD1">Regulatory Findings</HD>
                <P>We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.</P>
                <P>For the reasons discussed above, I certify that the proposed regulation:</P>
                <P>1. Is not a “significant regulatory action” under Executive Order 12866;</P>
                <P>2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and</P>
                <P>3. Would not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.</P>
                <P>
                    We prepared a summary of the costs to comply with this proposal and placed it in the AD Docket. You may get a copy of this summary by sending a request to us at the address listed under 
                    <E T="02">ADDRESSES.</E>
                     Include “AD Docket No. 2004-NE-19-AD” in your request.
                </P>
                <LSTSUB>
                    <HD SOURCE="HED">List of Subjects in 14 CFR Part 39</HD>
                    <P>Air transportation, Aircraft, Aviation safety, Safety.</P>
                </LSTSUB>
                <HD SOURCE="HD1">The Proposed Amendment</HD>
                <P>Accordingly, under the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend 14 CFR part 39 as follows:</P>
                <PART>
                    <HD SOURCE="HED">PART 39—AIRWORTHINESS DIRECTIVES</HD>
                    <P>1. The authority citation for part 39 continues to read as follows:</P>
                    <AUTH>
                        <HD SOURCE="HED">Authority:</HD>
                        <P>49 U.S.C. 106(g), 40113, 44701.</P>
                    </AUTH>
                    <SECTION>
                        <SECTNO>§ 39.13 </SECTNO>
                        <SUBJECT>[Amended]</SUBJECT>
                        <P>2. The FAA amends § 39.13 by removing Amendment 39-9978 (62 FR 16475, April 7, 1997) and by adding a new airworthiness directive, to read as follows:</P>
                        <EXTRACT>
                            <FP SOURCE="FP-2">
                                <E T="04">Rolls-Royce plc:</E>
                                 Docket No. 2004-NE-19-AD. Supersedes AD 97-07-04, Amendment 39-9978.
                            </FP>
                            <HD SOURCE="HD1">Comments Due Date</HD>
                            <P>(a) The Federal Aviation Administration (FAA) must receive comments on this airworthiness directive (AD) action by July 19, 2004.</P>
                            <HD SOURCE="HD1">Affected ADs</HD>
                            <P>(b) This AD supersedes AD 97-07-04, Amendment 39-9978.</P>
                            <HD SOURCE="HD1">Applicability</HD>
                            <P>(c) This AD applies to Rolls-Royce plc (RR) engine models RB211-524B-02, -524B2, -524B3, -524B4, -524C2, -524D4 series engines incorporating RR Service Bulletin (SB) No. RB.211-72-7221 or RR SB No. RB.211-72-7998 with front combustion liner assembly, part number (P/N) UL16885, UL26916, UL27107, UL28972 or UL28974 installed but not incorporating RR SB No. RB.211-72-9670 or RR SB No. RB.211-72-9764, and engine models RB211-524G and -524H series engines with front combustion liner assembly P/N UL27659, UL23992, or UL22988 but not incorporating RR SB No. RB.211-72-9764. These engines are installed on, but not limited to, Boeing 747 and Lockheed L1011 series airplanes.</P>
                            <HD SOURCE="HD1">Unsafe Condition</HD>
                            <P>(d) This AD results from five events that are directly attributed to combustor head break-up and meterpanel failure which were found at overhaul inspection. At least one of these events resulted in a combustion case burn-through. The actions specified in this AD are intended to prevent engine combustion liner deterioration, which can result in combustion liner breakup, case burn-through, and engine fire.</P>
                            <HD SOURCE="HD1">Compliance</HD>
                            <P>(e) You are responsible for having the actions required by this AD performed within the compliance times specified unless the actions have already been done. Engine inspections previously made to Rolls-Royce plc (RR) Service Bulletin RB.211-72-B482, Revision 8, can be credited for counting cycles since last inspection.</P>
                            <HD SOURCE="HD1">Inspections of Combustion Liner Head Sections—Not Previously Repaired</HD>
                            <P>(f) Borescope-inspect combustion liner head sections that have not been previously repaired. Use paragraphs 3.A.(1) through 3.A.(5) of the Accomplishment Instructions of RR Alert Service Bulletin (ASB) No. RB.211-72-AB482, Revision 9, dated July 28, 2003, and the compliance thresholds in Table 1 of this AD.</P>
                            <GPOTABLE COLS="4" OPTS="L2,i1" CDEF="s50,r50,r50,r50">
                                <TTITLE>
                                    <E T="04">Table 1.—Combustor Head Section—Not Previously Repaired</E>
                                </TTITLE>
                                <BOXHD>
                                    <CHED H="1">Engine series </CHED>
                                    <CHED H="1">
                                        Initial inspection 
                                        <LI>(cycles-since-new (CSN)) </LI>
                                    </CHED>
                                    <CHED H="1">
                                        Repetitive inspection
                                        <LI>(cycles-since-last-inspection (CSLI)) </LI>
                                    </CHED>
                                    <CHED H="1">Parts exceeding initial inspection cycles (cycles-in-service (CIS)) </CHED>
                                </BOXHD>
                                <ROW>
                                    <ENT I="01">(1) RB211-524C2, -524D4, -524G, and -524H</ENT>
                                    <ENT>Within 1,400 to 1,600 CSN</ENT>
                                    <ENT>Within 200 CSLI</ENT>
                                    <ENT>Within 100 CIS after effective date of this AD. </ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">(2) RB211-524B-02, -524B2, -524B3, and -524B4</ENT>
                                    <ENT>Within 3,000 to 3,200 CSN</ENT>
                                    <ENT>Within 200 CSLI</ENT>
                                    <ENT>Within 200 CIS after the effective date of this AD. </ENT>
                                </ROW>
                            </GPOTABLE>
                            <HD SOURCE="HD1">Inspections of Combustion Head Sections—Previously Repaired Using RR Field Repair Scheme FRS5367/B</HD>
                            <P>(g) Borescope-inspect combustion liner head sections previously repaired using RR Field Repair Scheme FRS5367/B. Use paragraphs 3.A.(1) through 3.A.(5) of the Accomplishment Instructions of RR ASB No. RB.211-72-AB482, Revision 9, dated July 28, 2003, and the compliance thresholds in Table 2 of this AD.</P>
                            <GPOTABLE COLS="4" OPTS="L2,i1" CDEF="s50,r50,r50,r50">
                                <TTITLE>
                                    <E T="04">Table 2.—Combustor Head Section—Previously Repaired Using RR Field Repair Scheme FRS5367/B</E>
                                </TTITLE>
                                <BOXHD>
                                    <CHED H="1">Engine series </CHED>
                                    <CHED H="1">
                                        Initial inspection
                                        <LI>(cycles-since-last repair (CSLR)) </LI>
                                    </CHED>
                                    <CHED H="1">
                                        Repetitive inspection
                                        <LI>(cycles-since-last-inspection (CSLI)) </LI>
                                    </CHED>
                                    <CHED H="1">Parts exceeding initial inspection cycles (cycles-in-service (CIS)) </CHED>
                                </BOXHD>
                                <ROW>
                                    <ENT I="01">(1) RB211-524C2, -524D4, -524G, and -524H</ENT>
                                    <ENT>Within 1,800 to 2,200 CSLR</ENT>
                                    <ENT>Within 400 CSLI</ENT>
                                    <ENT>Within 200 CIS after the effective date of this AD. </ENT>
                                </ROW>
                                <ROW>
                                    <PRTPAGE P="28097"/>
                                    <ENT I="01">(2) RB211-524B-02, -524B2, -524B3, and -524B4</ENT>
                                    <ENT>Within 3,000 to 3,200 CSLR</ENT>
                                    <ENT>Within 400 CSLI</ENT>
                                    <ENT>Within 200 CIS after the effective date of this AD. </ENT>
                                </ROW>
                            </GPOTABLE>
                            <HD SOURCE="HD1">Inspections of Combustion Head Sections That Have Been Repaired But Did Not Use RR Field Repair Scheme FRS5367/B</HD>
                            <P>(h) Borescope-inspect combustion liner head sections that have been repaired using a method other than RR Field Repair Scheme FRS5367/B. Use paragraph 3.A.(1) through 3.A.(5) of the Accomplishment Instructions of RR ASB No. RB.211-72-AB482, Revision 9, dated July 28, 2003, and the compliance thresholds in Table 3 of this AD.</P>
                            <GPOTABLE COLS="4" OPTS="L2,i1" CDEF="s50,r50,r50,r50">
                                <TTITLE>
                                    <E T="04">Table 3.—Combustor Head Section—Repaired, But Did Not Use RR Field Repair Scheme FRS5367/B</E>
                                </TTITLE>
                                <BOXHD>
                                    <CHED H="1">Engine series </CHED>
                                    <CHED H="1">Initial inspection cycles (cycles-since-last repair (CSLR)) </CHED>
                                    <CHED H="1">Repetitive inspection cycles (cycles-since-last-inspection (CSLI)) </CHED>
                                    <CHED H="1">Parts exceeding initial inspection cycles (cycles-in-service (CIS)) </CHED>
                                </BOXHD>
                                <ROW>
                                    <ENT I="01">(1) RB211-524C2, -524D4, -524G, and -524H</ENT>
                                    <ENT>Within 500 to 700 CSLR</ENT>
                                    <ENT>Within 200 CSLI</ENT>
                                    <ENT>Within 100 CIS after the efffective date of this AD. </ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">(2) RB211-524B-02, -524B2, -524B3, and -524B4</ENT>
                                    <ENT>Within 2,000 to 2,200 CSLR</ENT>
                                    <ENT>Within 200 CSLI</ENT>
                                    <ENT>Within 200 CIS after the effective date of this AD. </ENT>
                                </ROW>
                            </GPOTABLE>
                            <NOTE>
                                <HD SOURCE="HED">Note 1:</HD>
                                <P>For an installed front combustion liner that is subject to RR ASB No. RB.211-72-AB482, Revision 9, dated July 28, 2003: If the operator can confirm with the relevant overhaul base or repair vendor that the nicrobraze repair RR Field Repair Scheme FRS5367 has been applied to all 18 struts, then this is equivalent to compliance with RR Field Repair Scheme FRS5367/B.</P>
                            </NOTE>
                            <NOTE>
                                <HD SOURCE="HED">Note 2:</HD>
                                <P>Head sections repaired by replacement of all 18 struts using RR Field Repair Scheme FRS6548 are considered as equivalent to fitting a new head section for inspection purposes. </P>
                            </NOTE>
                            <HD SOURCE="HD1">Inspections of Meterpanel Assemblies—Not Repaired</HD>
                            <P>(i) Borescope-inspect meterpanel assemblies, incorporating Service Bulletin (SB) No. RB.211-72-7998, that have not been previously repaired. Use paragraph 3.B.(1) through 3.B.(7) of the Accomplishment Instructions of RR ASB No. RB.211-72-AB482, Revision 9, dated July 28, 2003, and the compliance thresholds in Table 4 of this AD.</P>
                            <GPOTABLE COLS="4" OPTS="L2,i1" CDEF="s50,r50,r50,r50">
                                <TTITLE>
                                    <E T="04">Table 4.—Meterpanel Assembly—Not Repaired</E>
                                </TTITLE>
                                <BOXHD>
                                    <CHED H="1">Engine series </CHED>
                                    <CHED H="1">Initial inspection cycles-since-new (CSN) </CHED>
                                    <CHED H="1">Repetitive inspection cycles (cycles-since-last-inspection (CSLI)) </CHED>
                                    <CHED H="1">Parts exceeding initial inspection cycles (cycles-in-service (CIS)) </CHED>
                                </BOXHD>
                                <ROW>
                                    <ENT I="01">(1) RB211-524D4, -524G, and -524H</ENT>
                                    <ENT>Within 1,000 to 1,200 CSN</ENT>
                                    <ENT>Within 400 CSLI</ENT>
                                    <ENT>Within 50 CIS after the effective date of this AD. </ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">(2) RB211-524D4, -524G, and -524H that have not used RB211-524H ratings at any time</ENT>
                                    <ENT>Within 1,800 to 2,000 CSN</ENT>
                                    <ENT>Within 400 CSLI</ENT>
                                    <ENT>Within 50 CIS after the effective date of this AD. </ENT>
                                </ROW>
                            </GPOTABLE>
                            <HD SOURCE="HD1">Inspections of Meterpanel Assemblies—Repaired</HD>
                            <P>(j) Borescope-inspect meterpanel assemblies, incorporating Service Bulletin (SB) No. RB.211-72-7998, that have been previously repaired. Use paragraph 3.B.(1) through 3.B.(7) of the Accomplishment Instructions of RR ASB No. RB.211-72-AB482, Revision 9, dated July 28, 2003, and the compliance thresholds in Table 5 of this AD.</P>
                            <GPOTABLE COLS="4" OPTS="L2,i1" CDEF="s50,r50,r50,r50">
                                <TTITLE>
                                    <E T="04">Table 5.—Meterpanel Assembly—Repaired</E>
                                </TTITLE>
                                <BOXHD>
                                    <CHED H="1">Engine series </CHED>
                                    <CHED H="1">Initial inspection cycles (cycles-since-last repair (CSLR)) </CHED>
                                    <CHED H="1">Repetitive inspection cycles (cycles-since-last-inspection (CSLI)) </CHED>
                                    <CHED H="1">Parts exceeding initial inspection cycles (cycles-in-service (CIS)) </CHED>
                                </BOXHD>
                                <ROW>
                                    <ENT I="01">(1) RB211-524D4, -524G, and -524H</ENT>
                                    <ENT>Within 500 to 700 CSLR</ENT>
                                    <ENT>Within 400 CSLI</ENT>
                                    <ENT>Within 50 CIS after the effective date of this AD. </ENT>
                                </ROW>
                            </GPOTABLE>
                            <NOTE>
                                <HD SOURCE="HED">Note 3:</HD>
                                <P>There is no requirement to inspect meter panels for combustors to a pre-RR SB No. RB.211-72-7998 standard.</P>
                            </NOTE>
                            <HD SOURCE="HD1">Reject Parts</HD>
                            <P>(k) Replace parts that exceed the acceptance criteria. Information about the acceptance criteria can be found in the Aircraft Maintenance Manual, 72-00-00, Inspection/Check.</P>
                            <HD SOURCE="HD1">Mandatory Terminating Action</HD>
                            <P>(l) Replace any front combustion liner assembly that has a P/N listed in paragraph (c) of this AD at the next shop visit or within 10,000 CSN but no later than December 31, 2012.</P>
                            <P>
                                (m) Replacement of the front combustion liner assembly with a front combustion liner assembly that incorporates the modifications in RR SB No. RB.211-72-9670 or RR SB No. RB.211-72-9764 in the RB211-524B02, -524B2, -B3, -B4, -C2 and D4 engines 
                                <PRTPAGE P="28098"/>
                                constitutes terminating action to the repetitive inspections in paragraphs (f), (g), (h), (i), and (j), of this AD.
                            </P>
                            <P>(n) Replacement of the front combustion liner assembly with a front combustion liner assembly that incorporates the modifications in RR SB No. RB.211-72-9764 in the RB211-524G and -524H engines constitutes terminating action to the repetitive inspections in paragraphs (f), (g), (h), (i), and (j) of this AD.</P>
                            <HD SOURCE="HD1">Definition of Shop Visit</HD>
                            <P>(o) For the purpose of this AD, a shop visit is defined as any time that the 04 module is removed for refurbishment or overhaul.</P>
                            <HD SOURCE="HD1">Alternative Methods of Compliance</HD>
                            <P>(p) The Manager, Engine Certification Office, has the authority to approve alternative methods of compliance for this AD if requested using the procedures found in 14 CFR 39.19.</P>
                            <HD SOURCE="HD1">Material Incorporated by Reference</HD>
                            <P>(q) You must use Rolls-Royce plc (RR) Alert Service Bulletin No. RB.211-72-AB482, Revision 9, dated July 28, 2003; RR Service Bulletin (SB) No. RB.211-71-9670, dated August 27, 1993; and RR SB No. RB.211-72-9764, Revision 3, dated January 16, 1998 to do the inspections and replacements required by this AD. Approval of incorporation by reference from the Office of the Federal Register is pending.</P>
                            <HD SOURCE="HD1">Related Information</HD>
                            <P>(r) Civil Aviation Authority airworthiness directive AD G-2003-0011 (previously 005-07-95), dated October 1, 2003, also addresses the subject of this AD. Aircraft Maintenance Manual 72-00-00 also addresses the subject of this AD.</P>
                        </EXTRACT>
                    </SECTION>
                    <SIG>
                        <DATED>Issued in Burlington, Massachusetts, on May 12, 2004.</DATED>
                        <NAME>Peter A. White,</NAME>
                        <TITLE>Acting Manager, Engine and Propeller Directorate, Aircraft Certification Service.</TITLE>
                    </SIG>
                </PART>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11200 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4910-13-P</BILCOD>
        </PRORULE>
        <PRORULE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF THE TREASURY </AGENCY>
                <CFR>31 CFR Part 103 </CFR>
                <RIN>RIN 1506-AA64 </RIN>
                <SUBJECT>Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act Regulations—Imposition of a Special Measure Against Commercial Bank of Syria, Including Its Subsidiary, Syrian Lebanese Commercial Bank, as a Financial Institution of Primary Money Laundering Concern </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Financial Crimes Enforcement Network (FinCEN), Treasury. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of proposed rulemaking. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>FinCEN is issuing this notice of proposed rulemaking to impose a special measure against Commercial Bank of Syria (CBS) as a financial institution of primary money laundering concern, pursuant to the authority contained in 31 U.S.C. 5318A of the Bank Secrecy Act. </P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Written comments on the notice of proposed rulemaking must be submitted on or before June 17, 2004. </P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>You may submit comments, identified by RIN 1506-AA64, by either of the following methods: </P>
                    <P>
                        • Federal e-rulemaking portal: 
                        <E T="03">http://www.regulations.gov.</E>
                         Follow the instructions for submitting comments. 
                    </P>
                    <P>
                        • E-mail: 
                        <E T="03">regcomments@fincen.treas.gov.</E>
                         Include RIN 1506-AA64 in the subject line of the message. 
                    </P>
                    <P>• Mail: FinCEN, PO Box 39, Vienna, VA 22183. Include RIN 1506-AA64 in the body of the text. </P>
                    <P>
                        <E T="03">Instructions:</E>
                         It is preferable for comments to be submitted by electronic mail because paper mail in the Washington, DC, area may be delayed. Please submit comments by one method only. All submissions received must include the agency name and the Regulatory Information Number (RIN) for this rulemaking. All comments received will be posted without change to 
                        <E T="03">http://www.fincen.gov</E>
                        , including any personal information provided. Comments may be inspected at FinCEN between 10 a.m. and 4 p.m., in the FinCEN reading room in Washington, DC. Persons wishing to inspect the comments submitted must request an appointment by telephoning (202) 354-6400 (not a toll-free number). 
                    </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Office of Regulatory Programs, FinCEN, at (202) 354-6400; and Office of Chief Counsel, FinCEN, at (703) 905-3590 (not toll-free numbers). </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P/>
                <HD SOURCE="HD1">I. Background </HD>
                <HD SOURCE="HD2">A. Statutory Provisions </HD>
                <P>On October 26, 2001, the President signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT Act) Act of 2001 (the USA Patriot Act), Public Law 107-56. Title III of the USA Patriot Act amends the anti-money laundering provisions of the Bank Secrecy Act (BSA), codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5314, 5316-5332, to promote the prevention, detection, and prosecution of international money laundering and the financing of terrorism. Regulations implementing the BSA appear at 31 CFR Part 103. The authority of the Secretary of the Treasury (Secretary) to administer the BSA and its implementing regulations has been delegated to the Director of FinCEN. </P>
                <P>
                    Section 311 of the USA Patriot Act (section 311) added section 5318A to the BSA, granting the Secretary the authority to find that a foreign jurisdiction, institution, class of transactions, or type of account is of “primary money laundering concern” and to require domestic financial institutions and financial agencies to take certain “special measures” against the primary money laundering concern. Section 311 identifies factors for the Secretary to consider and agencies to consult before the Secretary may conclude that a jurisdiction, institution, or transaction is of primary money laundering concern. The statute also provides similar procedures, 
                    <E T="03">i.e.</E>
                    , factors and consultation requirements, for selecting the imposition of specific special measures against the primary money laundering concern. 
                </P>
                <P>Taken as a whole, section 311 provides the Secretary with a range of options that can be adapted to target specific money laundering and terrorist financing concerns most effectively. These options give the Secretary the authority to bring additional and useful pressure on those jurisdictions and institutions that pose money laundering threats. Through the imposition of various special measures, the Secretary can gain more information about the concerned jurisdictions, institutions, transactions, and accounts; can more effectively monitor the respective jurisdictions, institutions, transactions, and accounts; and/or can protect U.S. financial institutions from involvement with jurisdictions, institutions, transactions, or accounts that pose a money laundering concern. Before making a finding that reasonable grounds exist for concluding that a foreign financial institution is of primary money laundering concern, the Secretary is required to consult with both the Secretary of State and the Attorney General. </P>
                <P>In addition to these consultations, the Secretary, when finding that a foreign financial institution is of primary money laundering concern, is required by statute to consider “such information as the Secretary determines to be relevant, including the following potentially relevant factors”: </P>
                <P>• The extent to which the financial institution is used to facilitate or promote money laundering in or through the jurisdiction; </P>
                <P>
                    • The extent to which the financial institution is used for legitimate 
                    <PRTPAGE P="28099"/>
                    business purposes in the jurisdiction; and 
                </P>
                <P>• The extent to which the finding that the institution is of primary money laundering concern is sufficient to ensure, with respect to transactions involving the institution operating in the jurisdiction, that the purposes of the BSA continue to be fulfilled, and to guard against international money laundering and other financial crimes. </P>
                <P>
                    If the Secretary determines that a foreign financial institution is of primary money laundering concern, the Secretary must determine the appropriate special measure(s) to address the specific money laundering risks. Section 311 provides a range of special measures that can be imposed, individually, jointly, in any combination, and in any sequence.
                    <SU>1</SU>
                    <FTREF/>
                     The Secretary's imposition of special measures follows procedures similar to those for designations, but carries with it additional consultations to be made and factors to consider. The statute requires the Secretary to consult with appropriate agencies and other interested parties 
                    <SU>2</SU>
                    <FTREF/>
                     and to consider the following specific factors: 
                </P>
                <FTNT>
                    <P>
                        <SU>1</SU>
                         Available special measures include requiring: (1) Recordkeeping and reporting of certain financial transactions; (2) collection of information relating to beneficial ownership; (3) collection of information relating to certain payable-through accounts; (4) collection of information relating to certain correspondent accounts; and (5) prohibition or conditions on the opening or maintaining of correspondent or payable-through accounts. 31 U.S.C. 5318A(b)(1)-(5). For a complete discussion of the range of possible countermeasures, 
                        <E T="03">see</E>
                         68 FR 18917 (April 17, 2003) (proposing to impose special measures against Nauru).
                    </P>
                </FTNT>
                <FTNT>
                    <P>
                        <SU>2</SU>
                         Section 5318A(a)(4)(A) requires the Secretary to consult with the Chairman of the Board of Governors of the Federal Reserve, any other appropriate Federal banking agency, the Secretary of State, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the National Credit Union Administration (NCUA), and, in the sole discretion of the Secretary, “such other agencies and interested parties as the Secretary may find to be appropriate.” The consultation process must also include the Attorney General, if the Secretary is considering prohibiting or imposing conditions on domestic financial institutions maintaining correspondent account relationships with the designated entity.
                    </P>
                </FTNT>
                <P>• Whether similar action has been or is being taken by other nations or multilateral groups; </P>
                <P>• Whether the imposition of any particular special measure would create a significant competitive disadvantage, including any undue cost or burden associated with compliance, for financial institutions organized or licensed in the United States; </P>
                <P>• The extent to which the action or the timing of the action would have a significant adverse systemic impact on the international payment, clearance, and settlement system, or on legitimate business activities involving the particular institution; and </P>
                <P>
                    • The effect of the action on United States national security and foreign policy.
                    <SU>3</SU>
                    <FTREF/>
                </P>
                <FTNT>
                    <P>
                        <SU>3</SU>
                         Classified information used in support of a section 311 finding and measure(s) may be submitted by Treasury to a reviewing court ex parte and in camera. 
                        <E T="03">See</E>
                         section 376 of the Intelligence Authorization Act for Fiscal Year 2004, Pub. L. 108-177 (amending 31 U.S.C. 5318A by adding new paragraph (f)).
                    </P>
                </FTNT>
                <HD SOURCE="HD2">B. CBS </HD>
                <P>In this rulemaking, FinCEN proposes to impose the fifth special measure (31 U.S.C. 5318A(b)(5)) against CBS. The fifth special measure prohibits or conditions the opening or maintaining of correspondent or payable-through accounts. This special measure may be imposed only through the issuance of a regulation. </P>
                <P>CBS is based in Damascus, Syria, and maintains approximately 50 branches and employs about 4,500 persons. All of the branches are located in Syria. CBS was established in Syria in 1967 as the single, government-owned bank specializing in servicing foreign trade and commercial banking, including foreign exchange transactions. CBS maintains correspondent accounts with banks in countries all over the world, including the United States. CBS has one subsidiary, Syrian Lebanese Commercial Bank, located in Beirut, Lebanon, of which CBS maintains approximately an 84% ownership interest. Syrian Lebanese Commercial Bank has two branches and two offices—its main branch in Beirut, a branch in Moussaitbeh, and representative offices in Aleppo and Damascus, Syria. Syrian Lebanese Commercial Bank also maintains correspondent accounts with a few banks in the United States. For purposes of this document and unless the context dictates otherwise, references to CBS include Syrian Lebanese Commercial Bank, and any other branch, office, or subsidiary of CBS. </P>
                <P>Syria has very limited money laundering controls in place. In September 2003, Syria passed Legislative Decree No. 59, creating an Anti-Money Laundering Commission and criminalizing money laundering for a small category of offenses. These specified offenses do not meet the minimum categories of offenses as provided in the Financial Action Task Force (FATF) 40 Recommendations on Money Laundering. The law also creates an Anti-Money Laundering Commission (referred to as the “Anti-Money Laundering Board” in the law's implementing regulation) to investigate suspicious money laundering transactions, but the Commission is composed of both regulators and members of the banking community, thus automatically creating a conflict of interest. Further, the law continues to maintain strict bank secrecy, which can only be lifted through formal action by the Commission. The law and the implementing regulation also fail to provide an enforcement mechanism to ensure that anti-money laundering controls are implemented by the financial sector. On the whole, the law and the implementing regulation fail to meet the international standards established by the FATF 40 Recommendations and thus do not create an effective anti-money laundering regime. Furthermore, Syria does not participate in any exchange of information with foreign nations or foreign financial institutions, severely hampering the ability to obtain information about transactions involving CBS. Finally, as a financial entity under the control of a designated state sponsor of terrorism, CBS provides cause for real concern about terrorist financing and money laundering activities. </P>
                <HD SOURCE="HD1">II. Imposition of Special Measure Against CBS, Including Its Subsidiary, Syrian Lebanese Commercial Bank, as a Financial Institution of Primary Money Laundering Concern </HD>
                <HD SOURCE="HD2">A. Finding </HD>
                <P>Based upon a review and analysis of relevant information, consultations with relevant agencies and departments, and after consideration of the factors enumerated in section 311, the Secretary, through his delegate, the Director of FinCEN, has determined that CBS is a financial institution of primary money laundering concern. FinCEN has reason to believe that CBS: (1) Has been used by terrorists and/or persons associated with terrorist organizations; and (2) has been used as a conduit for the laundering of proceeds generated from the illicit sale of Iraqi oil. In addition, CBS is licensed in Syria, a jurisdiction with very limited money laundering controls. A discussion of the section 311 factors relevant to this finding follows. </P>
                <HD SOURCE="HD3">1. The Extent to Which CBS Has Been Used to Facilitate or Promote Money Laundering in or Through the Jurisdiction </HD>
                <P>
                    FinCEN has reason to believe, based upon a variety of sources, that CBS is used to facilitate or promote money laundering. First, the U.S. Government has information through classified 
                    <PRTPAGE P="28100"/>
                    sources that CBS may have been used by terrorists and/or persons associated with terrorist organizations. Because the crime of money laundering includes the use of financial institutions to promote the carrying on of terrorist activity, the use of CBS by terrorists demonstrates that it is being used to promote money laundering. 
                </P>
                <P>
                    In addition, CBS has maintained accounts containing the proceeds from the illicit sale of Iraqi oil in violation of comprehensive U.N. sanctions. The U.S. Government has information that more than $1 billion was illegally diverted by Saddam Hussein's regime from the U.N.'s Oil-for-Food program.
                    <SU>4</SU>
                    <FTREF/>
                     Some of that money appears to have been used to purchase military weapons, which may now be in use against U.S. and other coalition troops in Iraq. The sale of Iraqi oil outside the U.N.'s Oil-for-Food Program, in violation of applicable U.N. sanctions, was overseen by the Iraqi State Oil Marketing Organization (SOMO). SOMO maintained at least two accounts at CBS through which proceeds from the illicit sale of Iraqi oil flowed. Further, the Government of Syria has not taken any steps to transfer the CBS accounts containing the proceeds generated from the illicit sale of Iraqi oil to the Development Fund for Iraq, as required under U.N. Security Council Resolution (UNSCR) 1483. UNSCR 1483 requires Member States in which there are funds or other financial assets of the previous Government of Iraq or its state bodies, corporations, or agencies, located outside Iraq, to freeze those assets and, unless they are the subject of prior judicial, administrative, or arbitral lien or judgment, to transfer them to the Development Fund of Iraq. 
                </P>
                <FTNT>
                    <P>
                        <SU>4</SU>
                         In 1995, the U.N. Security Council adopted Resolution 986, establishing the Oil-for-Food Program. The Program provided Iraq with an opportunity to sell oil to finance the purchase of medicines, health supplies, food, and other humanitarian goods, notwithstanding the U.N.-imposed sanctions then in effect with respect to Iraq. The first Iraqi oil under the Program was exported in December 1996 and the first shipments of food arrived in March 1997.
                    </P>
                </FTNT>
                <P>Finally, numerous transactions that may be indicative of terrorist financing and money laundering have been observed transiting CBS. This financial activity includes several transactions through accounts at CBS that reference a reputed financier for Osama bin Laden. The observed activity also includes classic indicia of money laundering such as: Large deposits into U.S. financial institutions of sequentially-numbered monetary instruments that reference CBS; large and/or structured deposits of funds into bank accounts, followed immediately by the transfer of those funds to CBS; and a number of structured or otherwise suspicious wire transfers, totaling more than $1 million, transmitted through U.S. financial institutions to accounts at CBS over the past several years. </P>
                <HD SOURCE="HD3">2. The Extent to Which CBS Is Used for Legitimate Business Purposes in the Jurisdiction </HD>
                <P>
                    Until very recently, CBS had been the only bank in Syria authorized to provide commercial banking services and to engage in foreign currency transactions. Consequently, a significant number of transactions through CBS are likely legitimate. Indeed, some U.S. financial institutions appear to have legitimate correspondent relationships with the Bank. However, given that CBS is subject to extremely limited anti-money laundering controls, and because it is owned and controlled by a government that sponsors terrorism,
                    <SU>5</SU>
                    <FTREF/>
                     the extent of the Bank's legitimate activities is ultimately difficult to quantify. FinCEN specifically solicits comment on the impact of the proposed special measure upon legitimate transactions with CBS involving, for example, the U.S. Embassy, U.S. companies, United Nations agencies, and non-governmental and private voluntary organizations doing business in Syria, including the availability of alternative banking facilities for such legitimate transactions, and the need for an exception if suitable alternatives are not available. 
                </P>
                <FTNT>
                    <P>
                        <SU>5</SU>
                         Syria is designated as a state sponsor of terrorism, under section 6(j) of the Export Administration Act of 1979, 50 U.S.C. App. 2405. Section 321 of the Antiterrorism and Effective Death Penalty Act of 1996 (AEDPA), Pub. L. 104-132, makes it a criminal offense for U.S. persons, except as provided in regulations issued by the Secretary of the Treasury in consultation with the Secretary of State, knowingly to engage in a financial transaction with the government of any country designated as supporting international terrorism. For the purpose of implementing section 321 of AEDPA, regulations issued and administered by the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury effectively prohibit U.S. persons from engaging in financial transactions with the government of Syria that constitute unlicensed donations to U.S. persons or are such financial transactions that the U.S. person knows or has reasonable cause to believe pose a risk of furthering terrorist acts in the United States.
                    </P>
                </FTNT>
                <P>FinCEN has identified numerous instances where substantial amounts of illicit funds passed through CBS. Additionally, CBS continues to hold Iraq-related accounts that should have been transferred to the Development Fund for Iraq, as required by UNSCR 1483. Thus, any legitimate use of CBS is significantly outweighed by the apparent use of the Bank to promote or facilitate terrorist financing or money laundering. </P>
                <HD SOURCE="HD3">3. The Extent to Which Such Action is Sufficient to Ensure, With Respect to Transactions Involving CBS, That the Purposes of the BSA Continue To Be Fulfilled, and To Guard Against International Money Laundering and Other Financial Crimes </HD>
                <P>As detailed above, FinCEN has reasonable grounds to believe that CBS is being used to promote or facilitate money laundering. At the moment, there are no protective measures that specifically target CBS. Thus, finding CBS to be a financial institution of primary money laundering concern and prohibiting the opening or maintaining of correspondent accounts for that institution, is a necessary step to ensure that CBS is not able to access the U.S. financial system to facilitate terrorist financing or money laundering, or to engage in any other criminal purpose. </P>
                <HD SOURCE="HD2">B. Imposition of Special Measure </HD>
                <P>
                    As a result of the finding that CBS is a financial institution of primary money laundering concern, and based upon the additional consultations and the consideration of all relevant factors, the Secretary, through his delegate, the Director of FinCEN, has determined that reasonable grounds exist for the imposition of the special measure authorized by section 5318A(b)(5).
                    <SU>6</SU>
                    <FTREF/>
                     That special measure authorizes the prohibition of the opening or maintaining of correspondent accounts 
                    <SU>7</SU>
                    <FTREF/>
                     by any domestic financial institution or agency for or on behalf of a targeted financial institution. A discussion of the additional section 311 factors relevant to imposing this particular special measure follows. 
                </P>
                <FTNT>
                    <P>
                        <SU>6</SU>
                         In connection with this action, FinCEN consulted with staff of the Federal functional regulators, the Department of Justice, and the State Department.
                    </P>
                </FTNT>
                <FTNT>
                    <P>
                        <SU>7</SU>
                         For purposes of the proposed rule, a correspondent account is defined as an account established to receive deposits from, or make payments or other disbursements on behalf of, a foreign bank, or handle other financial transactions related to the foreign bank.
                    </P>
                </FTNT>
                <HD SOURCE="HD3">1. Whether Similar Actions Have Been or Will Be Taken by Other Nations or Multilateral Groups Against CBS </HD>
                <P>
                    Although Syria has been designated by the United States as a state sponsor of terrorism, other countries have not made a similar designation. In addition, other countries have not taken an action similar to the one proposed in this rulemaking that would prohibit domestic financial institutions and agencies from opening or maintaining a correspondent account for or on behalf of CBS, which is owned and controlled by the Government of Syria. The U.S. 
                    <PRTPAGE P="28101"/>
                    Government hopes that other countries will take similar action based on the findings contained in this rulemaking. In the meantime, lack of similar action by other countries makes it even more imperative that the fifth special measure be imposed in order to prevent access by CBS to the U.S. financial system. 
                </P>
                <HD SOURCE="HD3">2. Whether the Imposition of the Fifth Special Measure Would Create a Significant Competitive Disadvantage, Including Any Undue Cost or Burden Associated With Compliance, for Financial Institutions Organized or Licensed in the United States </HD>
                <P>The fifth special measure sought to be imposed by this rulemaking would prohibit covered financial institutions from opening or maintaining correspondent accounts for, or on behalf of, CBS. As a corollary to this measure, covered financial institutions also would be required to apply special due diligence to all of their correspondent accounts to ensure that no such account is being used indirectly to provide services to CBS. The burden associated with these requirements is not expected to be significant, given that only a few U.S. banks currently maintain correspondent accounts for CBS. In addition, all U.S. persons (including financial institutions) currently apply some degree of due diligence to all transactions or accounts involving the government of Syria, as a means of complying with the sanctions currently imposed against Syria. As explained in more detail in the section-by-section analysis below, financial institutions should be able to adapt their current screening procedures to comply with this special measure. Thus, the special due diligence that would be required by this rulemaking is not expected to impose a significant additional burden upon U.S. financial institutions. </P>
                <HD SOURCE="HD3">3. The Extent to Which the Proposed Action or Timing of the Action Would Have a Significant Adverse Systemic Impact on the International Payment, Clearance, and Settlement System, or on Legitimate Business Activities of CBS </HD>
                <P>This rulemaking targets CBS specifically; it does not target a class of financial transactions (such as wire transfers) or a particular jurisdiction. CBS is not a major participant in the international payment system and is not relied upon by the international banking community for clearance or settlement services. Thus, the imposition of the fifth special measure against CBS will not have a significant adverse systemic impact on the international payment, clearance, and settlement system. As until recently CBS was the only financial institution in Syria that could conduct commercial and foreign exchange transactions, the imposition of this special measure likely will affect some legitimate business activities. Two private banks have recently been established that are permitted to conduct foreign exchange and foreign currency transactions. However, the Government of Syria is still developing implementing regulations to permit these banks to conduct the full range of foreign transactions. The imposition of this measure may in fact act as a catalyst in the process of opening the Syrian banking sector. On balance, FinCEN does not believe that imposition of the fifth special measure will place an undue burden on legitimate business transactions in light of the reasons for imposing this measure. </P>
                <HD SOURCE="HD3">4. The Effect of the Proposed Action on United States National Security and Foreign Policy </HD>
                <P>
                    The exclusion from the U.S. financial system of banks that serve as conduits for significant money laundering activity and other financial crimes enhances national security, making it more difficult for criminals to access the substantial resources of the U.S. financial system. In addition, the imposition of the fifth special measure against CBS would complement the U.S. Government's overall foreign policy strategy of enhancing national security through comprehensive economic and political sanctions against Syria, as demonstrated by the recent enactment of the Syria Accountability Act.
                    <SU>8</SU>
                    <FTREF/>
                </P>
                <FTNT>
                    <P>
                        <SU>8</SU>
                         On December 12, 2003, the President signed into law the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003 (the Syria Accountability Act), Pub. L. 108-175. Section 5 requires the President to impose a number of different sanctions on Syria until such time that the President certifies to Congress that Syria, among other things, no longer provides support for international terrorist groups. The President may refrain from imposing any sanction specified in the Syria Accountability Act if he determines that it is in the national security interest of the United States to do so and submits to the appropriate congressional committee a report containing the reasons for the determination.
                    </P>
                </FTNT>
                <P>Therefore, after conducting the required consultations and weighing the relevant factors, FinCEN has determined that reasonable grounds exists for concluding that CBS is a financial institution of primary money laundering concern and for imposing the special measure authorized by 31 U.S.C. 5318A(b)(5). </P>
                <HD SOURCE="HD1">III. Section-by-Section Analysis </HD>
                <P>The proposed rule would prohibit covered financial institutions from establishing, maintaining, administering, or managing in the United States any correspondent account for, or on behalf of, CBS. As a corollary to this prohibition, covered financial institutions would be required to apply special due diligence to their correspondent accounts to guard against their indirect use by CBS. At a minimum, that special due diligence must include two elements. First, a covered financial institution must notify its correspondent account holders that they may not provide CBS with access to the correspondent account maintained at the covered financial institution. Second, a covered financial institution must take reasonable steps to identify any indirect use of its correspondent accounts by CBS, to the extent that such indirect use can be determined from transactional records maintained by the covered financial institution in the normal course of business. A covered financial institution must take a risk-based approach when deciding what, if any, additional due diligence measures it should adopt to guard against the indirect use of its correspondent accounts by CBS, based on risk factors such as the type of services it offers and geographic locations of its correspondents. </P>
                <HD SOURCE="HD2">A. 103.188(a)—Definitions </HD>
                <HD SOURCE="HD3">1. Correspondent Account </HD>
                <P>Section 103.188(a)(1) defines the term “correspondent account” by reference to the definition contained in 31 CFR 103.175(d)(1)(ii). Section 103.175(d)(1)(ii) defines a correspondent account to mean an account established to receive deposits from, or make payments or other disbursements on behalf of, a foreign bank, or handle other financial transactions related to the foreign bank. </P>
                <P>In the case of a U.S. depository institution, this broad definition would include most types of banking relationships between a U.S. depository institution and a foreign bank, including payable-through accounts. </P>
                <P>In the case of securities broker-dealers, futures commission merchants and introducing brokers, and investment companies that are open-end companies (mutual funds), a correspondent account would include any account that permits the foreign bank to engage in (1) trading in securities and commodity futures or options, (2) funds transfers, or (3) other types of financial transactions. </P>
                <P>
                    FinCEN is using the same definition for purposes of the proposed rule as that established in the final rule implementing sections 313 and 319(b) 
                    <PRTPAGE P="28102"/>
                    of the USA Patriot Act 
                    <SU>9</SU>
                    <FTREF/>
                     except that the term is being expanded to cover such accounts maintained by mutual funds and by futures commission merchants and introducing brokers. 
                </P>
                <FTNT>
                    <P>
                        <SU>9</SU>
                         
                        <E T="03">See</E>
                         67 FR 60562 (September 26, 2002), codified at 31 CFR 103.175(d)(1).
                    </P>
                </FTNT>
                <HD SOURCE="HD3">2. Covered Financial Institution </HD>
                <P>
                    Section 103.188(a)(2) of the proposed rule defines covered financial institution to mean all of the following: Any insured bank (as defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C. 1813(h)); a commercial bank or trust company; a private banker; an agency or branch of a foreign bank in the United States; a credit union; a thrift institution; a corporation acting under section 25A of the Federal Reserve Act (12 U.S.C. 611 
                    <E T="03">et seq.</E>
                    ); a broker or dealer registered or required to register with the SEC under the Securities Exchange Act of 1934 (15 U.S.C. 78a 
                    <E T="03">et seq.</E>
                    ); a futures commission merchant or introducing broker registered, or required to register, with the CFTC under the Commodity Exchange Act (7 U.S.C. 1 
                    <E T="03">et seq.</E>
                    ); and an investment company (as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3)) that is an open-end company (as defined in section 5 of the Investment Company Act of 1940 (15 U.S.C. 80a-5)) that is registered, or required to register, with the SEC under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8). 
                </P>
                <HD SOURCE="HD3">3. CBS </HD>
                <P>Section 103.188(a)(3) of the proposed rule defines CBS to include all headquarters, branches, and offices of CBS operating in Syria or in any other jurisdiction. All subsidiaries of CBS, including Syrian Lebanese Commercial Bank and its branches, are included in the definition, although FinCEN understands that CBS currently only has one subsidiary, Syrian Lebanese Commercial Bank. FinCEN will provide updated information as it becomes available; however, the responsibility for determining whether a customer is a subsidiary of CBS ultimately rests with the covered financial institution. For purposes of complying with the proposed rule's prohibition on the opening or maintaining of correspondent accounts for or on behalf of CBS or any of its subsidiaries, FinCEN expects that a covered financial institution will take such steps that a reasonable and prudent financial institution would take to protect itself from loan or other fraud or loss based on misidentification of a person's status. </P>
                <HD SOURCE="HD2">B. 103.188(b)—Requirements for Covered Financial Institutions </HD>
                <HD SOURCE="HD3">1. Prohibition on Direct Use of Correspondent Accounts </HD>
                <P>Section 103.188(b)(1) of the proposed rule prohibits all covered financial institutions from establishing, maintaining, administering, or managing a correspondent or payable-through account in the United States for, or on behalf of, CBS. The prohibition would require all covered financial institutions to review their account records to ensure that they maintain no accounts directly for, or on behalf of, CBS. </P>
                <HD SOURCE="HD3">2. Special Due Diligence of Correspondent Accounts To Prohibit Indirect Use </HD>
                <P>
                    As a corollary to the prohibition on the opening or maintaining of correspondent accounts directly for CBS, section 103.188(b)(2) requires a covered financial institution to apply special due diligence to its correspondent accounts 
                    <SU>10</SU>
                    <FTREF/>
                     that is reasonably designed to guard against their indirect use by CBS. At a minimum, that special due diligence must include notifying correspondent account holders that they may not provide CBS with access to the correspondent account maintained at the covered financial institution. For example, a covered financial institution may satisfy this requirement by transmitting the following notice to all of its correspondent account holders: 
                </P>
                <FTNT>
                    <P>
                        <SU>10</SU>
                         Again, for purposes of the proposed rule, a correspondent account is defined as an account established to receive deposits from, or make payments or other disbursements on behalf of, a foreign bank, or handle other financial transactions related to the foreign bank.
                    </P>
                </FTNT>
                <EXTRACT>
                    <P>
                        <E T="03">Notice:</E>
                         Pursuant to U.S. regulations issued under section 311 of the USA PATRIOT Act, 31 CFR 103.188, please be informed that you are prohibited from providing Commercial Bank of Syria or any of its subsidiaries (including Syrian Lebanese Commercial Bank) with access to the correspondent account(s) that we maintain for or on behalf of your institution. Any failure to comply with this prohibition may result in the termination of the affected correspondent account. 
                    </P>
                </EXTRACT>
                <P>The purpose of the notice requirement is to help ensure cooperation from correspondent account holders in denying CBS access to the U.S. financial system, as well as to increase awareness within the international financial community of the risks and deficiencies of CBS. However, FinCEN does not require or expect a covered financial institution to obtain a certification from its correspondent account holders that indirect access will not be provided in order to comply with this notice requirement. Instead, methods of compliance with the notice requirement could include, for example, transmitting a one-time notice by mail, fax, or e-mail to a covered financial institution's correspondent account customers, informing them that they may not provide CBS with access to the covered financial institution's correspondent account, or including such information in the next regularly occurring transmittal from the covered financial institution to its correspondent account holders. FinCEN specifically solicits comments on the appropriate form and scope of the notice that would be required under the rule. </P>
                <P>A covered financial institution also would be required under this rulemaking to take reasonable steps to identify any indirect use of its correspondent accounts by CBS, to the extent that such indirect use can be determined from transactional records maintained by the covered financial institution in the normal course of business. For example, a covered financial institution would be expected to apply an appropriate screening mechanism to be able to identify a funds transfer order that on its face listed CBS as the originator's or beneficiary's financial institution, or otherwise referenced CBS. An appropriate screening mechanism could be the mechanism used by a covered financial institution to comply with sanctions programs imposed under other federal law. FinCEN specifically solicits comments on the requirement under the proposed rule that a covered financial institution take reasonable steps to screen its correspondent accounts in order to identify any indirect use of such accounts by CBS. </P>
                <P>Notifying its correspondent account holders and taking reasonable steps to identify any indirect use of its correspondent accounts by CBS in the manner discussed above are the minimum due diligence requirements under the proposed rule. Beyond these minimum steps, a covered financial institution should adopt a risk-based approach for determining what, if any, additional due diligence measures it should implement to guard against the indirect use of its correspondents accounts by CBS, based on risk factors such as the type of services it offers and the geographic locations of its correspondent account holders. </P>
                <P>
                    A covered financial institution that obtains knowledge that a correspondent account is being used by a foreign bank to provide indirect access to CBS must take all appropriate steps to block such 
                    <PRTPAGE P="28103"/>
                    indirect access, including, where necessary, terminating the correspondent account. A covered financial institution may afford the foreign bank a reasonable opportunity to take corrective action prior to terminating the correspondent account. Should the foreign bank refuse to comply, or if the covered financial institution cannot obtain adequate assurances that the account will no longer be used for impermissible purposes, the covered financial institution must terminate the account within a commercially reasonable time. A covered financial institution may reestablish an account closed under the proposed rule if it determines that the account will not be used to provide banking services indirectly to CBS. FinCEN specifically solicits comment on the requirement under the proposed rule that a covered financial institution block indirect access to CBS, once such indirect access is identified. 
                </P>
                <HD SOURCE="HD3">3. Reporting Not Required </HD>
                <P>Section 103.188(b)(3) of the proposed rule clarifies that the rule does not impose any reporting requirement upon any covered financial institution that is not otherwise required by law or regulation. A covered financial institution must, however, document its compliance with the requirement that it notify its correspondent account holders that they may not provide CBS with access to the correspondent account maintained at the covered financial institution. </P>
                <HD SOURCE="HD1">IV. Request for Comments </HD>
                <P>FinCEN invites comments on all aspects of the proposal to prohibit the opening or maintaining of correspondent accounts for or on behalf of CBS, and specifically invites comments on the following matters: </P>
                <P>1. The appropriate form and scope of the notice to correspondent account holders that would be required under the rule; </P>
                <P>2. The appropriate scope of the proposed requirement for a covered financial institution to take reasonable steps to identify any indirect use of its correspondent accounts by CBS; </P>
                <P>3. The appropriate steps a covered financial institution should take once it identifies an indirect use of one of its correspondent accounts by CBS; and </P>
                <P>4. The impact of the proposed special measure upon legitimate transactions with CBS involving, for example, the U.S. Embassy, U.S. companies, multilateral organizations, and non-governmental and private voluntary organizations doing business in Syria, the availability of alternative banking facilities, and the need for an exception if suitable alternatives are not available. </P>
                <HD SOURCE="HD1">V. Regulatory Flexibility Act </HD>
                <P>
                    It is hereby certified that this proposed rule will not have a significant economic impact on a substantial number of small entities. FinCEN understands that CBS currently maintains only a handful of correspondent accounts in the United States, and that those accounts are maintained at very large banks. Thus, the prohibition on maintaining such accounts will not have a significant impact on a substantial number of small entities. In addition, all U.S. persons, including U.S. financial institutions, currently exercise some degree of due diligence in order to comply with U.S. sanctions programs, including sanctions against Syria. Thus, the special due diligence that would be required by this rulemaking—
                    <E T="03">i.e.</E>
                    , the one-time transmittal of notice to correspondent account holders—is not expected to impose a significant additional economic burden upon small U.S. financial institutions. FinCEN invites comments from members of the public who believe there will be a significant economic impact on small entities. 
                </P>
                <HD SOURCE="HD1">VI. Paperwork Reduction Act </HD>
                <P>
                    The collection of information contained in this proposed rule is being submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent (preferably by fax (202-395-6974)) to Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Office of Management and Budget, Paperwork Reduction Project (1506), Washington, DC 20503 (or by e-mail to 
                    <E T="03">jlackeyj@omb.eop.gov),</E>
                     with a copy to FinCEN by mail or e-mail at the addresses previously specified. Comments on the collection of information should be received by June 17, 2004. In accordance with the requirements of the Paperwork Reduction Act of 1995, 44 U.S.C. 3506(c)(2)(A), and its implementing regulations, 5 CFR 1320, the following information concerning the collection of information as required by 31 CFR 103.188 is presented to assist those persons wishing to comment on the information collection. 
                </P>
                <P>The collection of information in this proposed rule is in 31 CFR 103.188(b)(2)(i) and 31 CFR 103.188(b)(3)(i). The disclosure requirement in 31 CFR 103.188(b)(2)(i) is intended to ensure cooperation from correspondent account holders in denying access to the U.S. financial system, as well as to increase awareness within the international financial community of the risks and deficiencies of CBS. The information required to be maintained by 31 CFR 103.188(b)(3)(i) will be used by federal agencies and certain self-regulatory organizations to verify compliance by covered financial institutions with the provisions of 31 CFR 103.188. The class of financial institutions affected by the disclosure requirement is identical to the class of financial institutions affected by the recordkeeping requirement. The collection of information is mandatory. </P>
                <P>
                    <E T="03">Description of Affected Financial Institutions:</E>
                     Banks, broker-dealers in securities, futures commission merchants and introducing brokers, and mutual funds maintaining correspondent accounts. 
                </P>
                <P>
                    <E T="03">Estimated Number of Affected Financial Institutions:</E>
                     5,000. 
                </P>
                <P>
                    <E T="03">Estimated Average Annual Burden Hours Per Affected Financial Institution:</E>
                     The estimated average burden associated with the collection of information in this proposed rule is 1 hour per affected financial institution. 
                </P>
                <P>
                    <E T="03">Estimated Total Annual Burden:</E>
                     5,000 hours. 
                </P>
                <P>FinCEN specifically invites comments on: (a) Whether the proposed collection of information is necessary for the proper performance of the mission of FinCEN, including whether the information shall have practical utility; (b) the accuracy of FinCEN's estimate of the burden of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information required to be maintained; (d) ways to minimize the burden of the required collection of information, including through the use of automated collection techniques or other forms of information technology; and (e) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to maintain the information. </P>
                <HD SOURCE="HD1">VII. Executive Order 12866 </HD>
                <P>This proposed rule is not a significant regulatory action for purposes of Executive Order 12866, “Regulatory Planning and Review.” </P>
                <LSTSUB>
                    <HD SOURCE="HED">List of Subjects in 31 CFR Part 103 </HD>
                    <P>Administrative practice and procedure, Banks and banking, Brokers, Counter-money laundering, Counter-terrorism, and Foreign banking.</P>
                </LSTSUB>
                <HD SOURCE="HD1">Authority and Issuance </HD>
                <P>
                    For the reasons set forth in the preamble, part 103 of title 31 of the 
                    <PRTPAGE P="28104"/>
                    Code of Federal Regulations is proposed to be amended as follows: 
                </P>
                <PART>
                    <HD SOURCE="HED">PART 103—FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND FINANCIAL TRANSACTIONS </HD>
                    <P>1. The authority citation for part 103 is revised to read as follows: </P>
                    <AUTH>
                        <HD SOURCE="HED">Authority:</HD>
                        <P>12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5314, 5316-5332; title III, secs. 311, 312, 313, 314, 319, 326, 352, Pub. L. 107-56, 115 Stat. 307.</P>
                    </AUTH>
                    <P>2. Subpart I of part 103 is proposed to be amended by adding new § 103.188 to read as follows: </P>
                    <SECTION>
                        <SECTNO>§ 103.188 </SECTNO>
                        <SUBJECT>Special measures against Commercial Bank of Syria. </SUBJECT>
                        <P>
                            (a) 
                            <E T="03">Definitions.</E>
                             For purposes of this section: 
                        </P>
                        <P>
                            (1) 
                            <E T="03">Commercial Bank of Syria</E>
                             means any headquarters, branch, office, or subsidiary of Commercial Bank of Syria operating in Syria or in any other jurisdiction, including Syrian Lebanese Commercial Bank. 
                        </P>
                        <P>
                            (2) 
                            <E T="03">Correspondent account</E>
                             has the same meaning as provided in § 103.175(d)(1)(ii). 
                        </P>
                        <P>
                            (3) 
                            <E T="03">Covered financial institution</E>
                             has the same meaning as provided in § 103.175(f)(2) and also includes: 
                        </P>
                        <P>
                            (i) A futures commission merchant or an introducing broker registered, or required to register, with the Commodity Futures Trading Commission under the Commodity Exchange Act (7 U.S.C. 1 
                            <E T="03">et seq.</E>
                            ); and 
                        </P>
                        <P>(ii) An investment company (as defined in section 3 of the Investment Company Act (15 U.S.C. 80a-3)) that is an open-end company (as defined in section 5 of the Investment Company Act (15 U.S.C. 80a-5)) and that is registered, or is required to register, with the Securities and Exchange Commission under section 8 of the Investment Company Act (15 U.S.C. 80a-8). </P>
                        <P>
                            (4) 
                            <E T="03">Subsidiary</E>
                             means a company of which more than 50 percent of the voting stock or analogous equity interest is owned by another company. 
                        </P>
                        <P>
                            (b) 
                            <E T="03">Requirements for covered financial institutions—(1) Prohibition on direct use of correspondent accounts.</E>
                             A covered financial institution shall terminate any correspondent account that is established, maintained, administered, or managed in the United States for, or on behalf of, Commercial Bank of Syria. 
                        </P>
                        <P>
                            (2) 
                            <E T="03">Special due diligence of correspondent accounts to prohibit indirect use.</E>
                             (i) A covered financial institution shall apply special due diligence to its correspondent accounts that is reasonably designed to guard against their indirect use by Commercial Bank of Syria. At a minimum, that special due diligence must include: 
                        </P>
                        <P>(A) Notifying correspondent account holders that they may not provide Commercial Bank of Syria with access to the correspondent account maintained at the covered financial institution; and </P>
                        <P>(B) Taking reasonable steps to identify any indirect use of its correspondent accounts by Commercial Bank of Syria, to the extent that such indirect use can be determined from transactional records maintained in the covered financial institution's normal course of business. </P>
                        <P>(ii) A covered financial institution shall take a risk-based approach when deciding what, if any, additional due diligence measures it should adopt to guard against the indirect use of its correspondent accounts by Commercial Bank of Syria. </P>
                        <P>(iii) A covered financial institution that obtains knowledge that a correspondent account is being used by the foreign bank to provide indirect access to Commercial Bank of Syria, shall take all appropriate steps to block such indirect access, including, where necessary, terminating the correspondent account. </P>
                        <P>
                            (3) 
                            <E T="03">Recordkeeping and reporting.</E>
                             (i) A covered financial institution is required to document its compliance with the notice requirement set forth in paragraph (b)(2)(i)(A) of this section. 
                        </P>
                        <P>(ii) Nothing in this section shall require a covered financial institution to report any information not otherwise required to be reported by law or regulation. </P>
                    </SECTION>
                    <SIG>
                        <DATED>Dated: May 11, 2004. </DATED>
                        <NAME>William J. Fox, </NAME>
                        <TITLE>Director, Financial Crimes Enforcement Network. </TITLE>
                    </SIG>
                </PART>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11102 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4810-02-P</BILCOD>
        </PRORULE>
        <PRORULE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF DEFENSE</AGENCY>
                <AGENCY TYPE="O">GENERAL SERVICES ADMINISTRATION</AGENCY>
                <AGENCY TYPE="O">NATIONAL AERONAUTICS AND SPACE ADMINISTRATION</AGENCY>
                <CFR>48 CFR Part 25</CFR>
                <DEPDOC>[FAR Notice 2004-N1]</DEPDOC>
                <SUBJECT>Federal Acquisition Regulation; List of Nonavailable Articles Under the Buy American Act</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCIES:</HD>
                    <P>Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA).</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Request for public comments.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY: </HD>
                    <P>The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (the Councils) are seeking information that will assist in identifying domestic capabilities and for evaluating whether some articles on the list of nonavailable articles at FAR part 25 are now mined, produced, or manufactured in the United States in sufficient and reasonably available commercial quantities and of a satisfactory quality.</P>
                </SUM>
                <EFFDATE>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Interested parties should submit comments in writing to the FAR Secretariat at the address shown below on or before July 19, 2004. </P>
                </EFFDATE>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>
                        Submit printed comments to General Services Administration, FAR Secretariat (MVA), 1800 F Street, NW, Room 4035, ATTN: Laurie Duarte, Washington, DC 20405. Submit electronic comments via the Internet to the U.S. Government's Web site at 
                        <E T="03">http://www.regulations.gov,</E>
                         or to GSA's e-mailbox at 
                        <E T="03">farnotice.2004-n1@gsa.gov.</E>
                    </P>
                    <P>Please submit comments only and cite “FAR Notice 2004-N01” in all correspondence related to this case.</P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>The FAR Secretariat, Room 4035, GS Building, Washington, DC, 20405, at (202) 501-4755 for information pertaining to status or publication schedules. The TTY Federal Relay Number for further information is 1-800-877-8973. For clarification of content, contact Ms. Cecelia Davis, Procurement Analyst, at (202) 219-0202. Please cite “FAR Notice 2004-N1.”</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P SOURCE="NPAR">
                    A. The Buy American Act (41 U.S.C. 10a-10d) generally requires that only domestically mined, produced, or 
                    <PRTPAGE P="28105"/>
                    manufactured articles be procured for public use in the United States. The Buy American Act provides an exception for articles not mined, produced, or manufactured in the United States in sufficient and reasonably available commercial quantities and of a satisfactory quality. FAR 25.103(b)(1) provides a determination that articles listed at FAR 25.104(a) meet the conditions of this exception.
                </P>
                <P>
                    The established list of articles identified in FAR 25.104(a) is a comprehensive and wide-ranging mix of natural resources, compounds, materials, and other items of supply. Although some articles on the list have no known domestic production sources (
                    <E T="03">e.g.,</E>
                     quartz crystals or vanilla beans), many of the articles are known to have some domestic production sources, but those sources have been determined in the past to be inadequate to meet U.S. demand. Examples of such articles range from goat and kidskins (negligible domestic production), to crude iodine (5 percent of U.S. Government and nongovernment demand), to bismuth (not in excess of 50 percent of U.S. Government and nongovernment demand). The list has not been subjected to a thorough review since 1957. Currently, the procedures for updating articles on the list rely on a contracting officer's notice to the Defense Acquisition Regulations (DAR) Council or the Civilian Agency Acquisition Council (CAAC) (in accordance with agency procedures) for possible addition or removal of an article from the list (FAR 25.103(b)(2)(ii) and FAR 25.104(b)). With constantly changing market conditions, the Councils are seeking information to determine whether some articles should be removed from the list because they are now mined, produced, or manufactured in the United States in sufficient and reasonably available commercial quantities and of a satisfactory quality. Specific information with regard to domestic production capacity in relation to U.S. Government and nongovernment damand and the quality of domestically produced items would be most helpful in determining whether articles should remain on or be removed from the list. A sources-sought notice will be published in FedBizOpps in an effort to increase the awareness of this request and to receive greater responses from interested parties on the nonavailable articles listing.
                </P>
                <P>B. The FAR's current nonavailable listing is as follow:</P>
                <EXTRACT>
                    <FP SOURCE="FP-1">Acetylene, black.</FP>
                    <FP SOURCE="FP-1">Agar, bulk.</FP>
                    <FP SOURCE="FP-1">Anise.</FP>
                    <FP SOURCE="FP-1">Antimony, as metal or oxide.</FP>
                    <FP SOURCE="FP-1">Asbestos, amosite, chrysotile, and crocidolite.</FP>
                    <FP SOURCE="FP-1">Bananas.</FP>
                    <FP SOURCE="FP-1">Bauxite.</FP>
                    <FP SOURCE="FP-1">Beef, corned, canned.</FP>
                    <FP SOURCE="FP-1">Beef extract.</FP>
                    <FP SOURCE="FP-1">Bephenium hydroxynapthoate.</FP>
                    <FP SOURCE="FP-1">Bismuth.</FP>
                    <FP SOURCE="FP-1">Books, trade, text, technical, or scientific; newspapers; pamphlets; magazines; periodicals; printed briefs and films; not printed in the United States and for which domestic editions are not available.</FP>
                    <FP SOURCE="FP-1">Brazil nuts, unroasted.</FP>
                    <FP SOURCE="FP-1">Cadmium, ores and flue dust.</FP>
                    <FP SOURCE="FP-1">Calcium cyanamide.</FP>
                    <FP SOURCE="FP-1">Capers.</FP>
                    <FP SOURCE="FP-1"> Cashew nuts.</FP>
                    <FP SOURCE="FP-1">Castor beans and castor oil.</FP>
                    <FP SOURCE="FP-1">Chalk, English.</FP>
                    <FP SOURCE="FP-1">Chestnuts.</FP>
                    <FP SOURCE="FP-1">Chicle.</FP>
                    <FP SOURCE="FP-1">Chrome ore or chromite.</FP>
                    <FP SOURCE="FP-1">Cinchona bark.</FP>
                    <FP SOURCE="FP-1">Cobalt, in cathodes, rondelles, or other primary ore and metal forms.</FP>
                    <FP SOURCE="FP-1">Cocoa beans.</FP>
                    <FP SOURCE="FP-1">Coconut and coconut meat, unsweetened, in shredded, desiccated, or similarly prepared form.</FP>
                    <FP SOURCE="FP-1">Coffee, raw or green bean.</FP>
                    <FP SOURCE="FP-1">Colchicine alkaloid, raw.</FP>
                    <FP SOURCE="FP-1">Copra.</FP>
                    <FP SOURCE="FP-1">Cork, wood or bark and waste.</FP>
                    <FP SOURCE="FP-1">Cover glass, microscope slide,</FP>
                    <FP SOURCE="FP-1">Crane rail (85-pounds per foot).</FP>
                    <FP SOURCE="FP-1">Cryolite, natural.</FP>
                    <FP SOURCE="FP-1">Dammar gum.</FP>
                    <FP SOURCE="FP-1">Diamonds, Industrial, stones and abrasives.</FP>
                    <FP SOURCE="FP-1">Emetine, bulk.</FP>
                    <FP SOURCE="FP-1">Ergot, crude.</FP>
                    <FP SOURCE="FP-1">Erythrityl tetranitrate.</FP>
                    <FP SOURCE="FP-1">Fair linen, altar.</FP>
                    <FP SOURCE="FP-1">Fibers of the following types: abaca, abace, agave, coir, flax, jute, jute burlaps, palmyra, and sisal.</FP>
                    <FP SOURCE="FP-1">Goat and kidskins.</FP>
                    <FP SOURCE="FP-1">Graphite, natural, crystalline, crucible grade.</FP>
                    <FP SOURCE="FP-1">Hand file sets (Swiss pattern).</FP>
                    <FP SOURCE="FP-1">Handsewing needles.</FP>
                    <FP SOURCE="FP-1">Hemp  yarn.</FP>
                    <FP SOURCE="FP-1">Hog bristles for brushes.</FP>
                    <FP SOURCE="FP-1">Hyoscine, bulk.</FP>
                    <FP SOURCE="FP-1">Ipecac, root.</FP>
                    <FP SOURCE="FP-1">Iodine, crude.</FP>
                    <FP SOURCE="FP-1">Kaurigum.</FP>
                    <FP SOURCE="FP-1">Lac.</FP>
                    <FP SOURCE="FP-1">Leather, sheepskin, hair type.</FP>
                    <FP SOURCE="FP-1">Lavender oil.</FP>
                    <FP SOURCE="FP-1">Manganese.</FP>
                    <FP SOURCE="FP-1">Menthol, natural bulk.</FP>
                    <FP SOURCE="FP-1">Mica.</FP>
                    <FP SOURCE="FP-1">Microprocessor chips (brought onto a Government construction site as separate units for incorporation into building systems during construction or repair and alteration of real property).</FP>
                    <FP SOURCE="FP-1">Nickel, primary, in ingots, pigs, shots, cathodes, or similar forms; nickel oxide and nickel salts.</FP>
                    <FP SOURCE="FP-1">Nitroguanidine (also known as picrite).</FP>
                    <FP SOURCE="FP-1">Nux vomica, crude.</FP>
                    <FP SOURCE="FP-1">Oiticica oil.</FP>
                    <FP SOURCE="FP-1">Olive oil.</FP>
                    <FP SOURCE="FP-1">Olives (green), pitted or unpitted, or stuffed, in bulk.</FP>
                    <FP SOURCE="FP-1">Opium, crude.</FP>
                    <FP SOURCE="FP-1">Oranges, mandarin, canned.</FP>
                    <FP SOURCE="FP-1">Petroleum, crude oil, unfinished oils, and finished products.</FP>
                    <FP SOURCE="FP-1">Pine needle oil.</FP>
                    <FP SOURCE="FP-1">Platinum and related group metals, refined, as sponge, powder, ingots, or cast bars.</FP>
                    <FP SOURCE="FP-1">Pyrethrum flowers.</FP>
                    <FP SOURCE="FP-1">Quartz crystals.</FP>
                    <FP SOURCE="FP-1">Quebracho.</FP>
                    <FP SOURCE="FP-1">Quinidine.</FP>
                    <FP SOURCE="FP-1">Quinine.</FP>
                    <FP SOURCE="FP-1">Rabbit fur felt.</FP>
                    <FP SOURCE="FP-1">Radium salts, source and special nuclear materials.</FP>
                    <FP SOURCE="FP-1">Rosettes.</FP>
                    <FP SOURCE="FP-1">Rubber, crude and latex.</FP>
                    <FP SOURCE="FP-1">Rutile.</FP>
                    <FP SOURCE="FP-1">Santonin, crude.</FP>
                    <FP SOURCE="FP-1">Secretin.</FP>
                    <FP SOURCE="FP-1">Shellac.</FP>
                    <FP SOURCE="FP-1">Silk, raw and unmanufactured.</FP>
                    <FP SOURCE="FP-1">Spare and replacement parts for equipment of foreign manufacture, and for which domestic parts are not available.</FP>
                    <FP SOURCE="FP-1">Spices and herbs, in bulk.</FP>
                    <FP SOURCE="FP-1">Sugars, raw.</FP>
                    <FP SOURCE="FP-1">Swords and scabbards.</FP>
                    <FP SOURCE="FP-1">Talc, block, steatite.</FP>
                    <FP SOURCE="FP-1">Tantalum.</FP>
                    <FP SOURCE="FP-1">Tapioca flour and cassava.</FP>
                    <FP SOURCE="FP-1">Tartar, crude; tartaric acid and cream of tartar in bulk.</FP>
                    <FP SOURCE="FP-1">Tea in bulk.</FP>
                    <FP SOURCE="FP-1">Thread, metallic (gold).</FP>
                    <FP SOURCE="FP-1">Thyme oil.</FP>
                    <FP SOURCE="FP-1">Tin in bars, blocks, and pigs.</FP>
                    <FP SOURCE="FP-1">Triprolidine hydrochloride.</FP>
                    <FP SOURCE="FP-1">Tungsten.</FP>
                    <FP SOURCE="FP-1">Vanilla beans.</FP>
                    <FP SOURCE="FP-1">Venom, cobra.</FP>
                    <FP SOURCE="FP-1">Wax, carnauba.</FP>
                    <FP SOURCE="FP-1">Wire glass.</FP>
                    <FP SOURCE="FP-1">Woods; logs, veneer, and lumber of the following species: Alaskan yellow cedar, angelique, balsa, ekki, greenheart, lignum vitae, mahogany, and teak.</FP>
                    <FP SOURCE="FP-1">Yarn, 50 Denier rayon.</FP>
                </EXTRACT>
                <P>
                    C. The nonavailable listing will be amended to include the following articles below once FAR case 2003-007 is published in the 
                    <E T="04">Federal Register</E>
                     as a final rule. The articles are as follows:
                </P>
                <EXTRACT>
                    <FP SOURCE="FP-1">Bamboo shoots.</FP>
                    <FP SOURCE="FP-1">Goat hair canvas.</FP>
                    <FP SOURCE="FP-1">Grapefruit sections, canned.</FP>
                    <FP SOURCE="FP-1">Modacrylic fur ruff.</FP>
                    <FP SOURCE="FP-1">Water chestnuts.</FP>
                </EXTRACT>
                <LSTSUB>
                    <HD SOURCE="HED">List of Subjects in 48 CFR Part 25</HD>
                    <P>Government procurement.</P>
                </LSTSUB>
                <SIG>
                    <DATED>Dated: May 12, 2004.</DATED>
                    <NAME>Laura Auletta,</NAME>
                    <TITLE>Acting Director, Acquisition Policy Division.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11209 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 6820-EP-M</BILCOD>
        </PRORULE>
        <PRORULE>
            <PREAMB>
                <PRTPAGE P="28106"/>
                <AGENCY TYPE="N">DEPARTMENT OF COMMERCE</AGENCY>
                <SUBAGY>National Oceanic and Atmospheric Administration</SUBAGY>
                <CFR>50 CFR Part 635</CFR>
                <DEPDOC>[Docket No. 040506142-4142-01; I.D. 042204B]</DEPDOC>
                <RIN>RIN 0648-AS07</RIN>
                <SUBJECT>Atlantic Highly Migratory Species (HMS) Fisheries; Vessel Monitoring System (VMS) Requirement; Effective Date for Atlantic Shark Fisheries</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Proposed rule, request for comments.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>NMFS proposes to establish an effective date for the requirement to have a NOAA-approved VMS unit installed and operating on vessels with directed shark limited access permits (LAPs) and with gillnet or bottom longline gear on board.  VMS will aid in the enforcement of time/area closures.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Public comments must be received by July 2, 2004.</P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>You may submit comments, identified by  Docket Number 040506142-4142-01 or RIN Number 0648-AS07, by any of the following methods:</P>
                    <P>
                        • Federal eRulemaking Portal: 
                        <E T="03">http://www.regulations.gov.</E>
                         Follow the instructions for submitting comments.
                    </P>
                    <P>
                        • E-mail: 
                        <E T="03">042204B.issues@noaa.gov</E>
                        . Include the following document identifier: “RIN 0648-AS07 and I.D. 042204B” in the subject line of the message.
                    </P>
                    <P>• Fax: 301-713-1917.</P>
                    <P>• Mail: HMS Management Division, 1315 East-West Highway, Silver Spring, MD 20910. Please mark the outside of the envelope “Comments on Proposed VMS Requirement”.</P>
                    <P>
                        Comments regarding the collection-of-information requirements contained in this rule should be sent to the HMS Management Division at the address noted above and to the Office of Management and Budget (OMB) by e-mail to 
                        <E T="03">David_Rostker@omb.eop.gov</E>
                         or by fax to (202) 395-7285.
                    </P>
                    <P>To obtain copies of the list of NOAA-approved VMS mobile transmitting units and NOAA-approved VMS communications service providers, write to the NMFS Office for Law Enforcement (OLE), 8484 Georgia Avenue, Suite 415, Silver Spring, MD 20910.</P>
                    <P>
                        For copies of Amendment 1 to the Fisheries Management Plan for Atlantic Tunas, Swordfish, and Sharks or of its implementing regulations please write to Highly Migratory Species (HMS) Management Division (F/SF1), Office of Sustainable Fisheries, National Marine Fisheries Service, 1315 East-West Highway, Silver Spring, MD 20910.  Copies are also available on the internet at: 
                        <E T="03">http://www.nmfs.noaa.gov/sfa/hms/</E>
                        .
                    </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>For additional information regarding the proposed effective date specified in this document, contact Mike Clark, Chris Rilling, or Karyl Brewster-Geisz, phone 301-713-2347 or fax 301-713-1917.</P>
                    <P>For a current listing of NOAA-approved VMS units, contact Mark Oswell, phone 301-427-2300, fax 301-427-2055.</P>
                    <P>For questions regarding VMS installation and activation checklists, contact Jonathan Pinkerton, phone 301-427-2300, fax 301-427-2055.</P>
                    <P>
                        An installation checklist, and relevant updates are available at the OLE website: 
                        <E T="03">http://www.nmfs.noaa.gov/ole/vms.html</E>
                        .
                    </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>On December 24, 2003, NMFS issued a final rule (68 FR 74746) requiring the installation of a NOAA- approved VMS unit on: (1) all commercial vessels issued a directed shark LAP with bottom longline gear on board that are located between 33°00′ and 36°30′ N. latitudes between January 1 and July 31 and (2) all commercial vessels issued a directed shark LAP with gillnet gear on board during the right whale calving season (November 15 - March 31), regardless of location.  As specified in the final rule, the requirement to have VMS on board coincides with the start of time/area closures for the right whale calving season (effective as of November 15, 2004, for § 635.69(a)(3)) and the mid-Atlantic time/area closure (effective as of January 1, 2005, for § 635.69(a)(2)) for shark gillnet and bottom longline vessels, respectively.</P>
                <P>
                    The December 24, 2003, (68 FR 74746) VMS requirements were stayed pending the publication of a type-approval notice which was published in the 
                    <E T="04">Federal Register</E>
                     on April 15, 2004 (69 FR 19979).  The type-approval notice describes the relevant features of each unit for use by vessels engaged in HMS fisheries.  The units may be used by vessels participating in any HMS fishery including vessels with pelagic longline gear on board.
                </P>
                <P>This proposed rule does not revise any other requirement or management measure published in the December 24, 2003, final rule, but would establish the effective date for the VMS requirement as 30 days after publication of any final rule associated with this rulemaking.</P>
                <HD SOURCE="HD1">Classification</HD>
                <P>This action is published under the authority of the Magnuson-Stevens Fishery Conservation and Management Act.  The Assistant Administrator for Fisheries previously determined that the implementation of a VMS program in the shark gillnet and bottom longline fisheries is necessary to monitor and enforce closed areas implemented to reduce bycatch.</P>
                <P>
                    The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration that this proposed action would not have a significant economic impact on a substantial number of small entities.  This proposed rule would impact approximately 13 vessels, all of which are considered small entities.  As required under the Regulatory Flexibility Act, 5 U.S.C. 601 
                    <E T="03">et seq.</E>
                    , NMFS prepared an Initial Regulatory Flexibility Analysis (IRFA) for the VMS requirement in draft Amendment 1 and its proposed rule (68 FR 45196, August 1, 2003) and prepared a Final Regulatory Flexibility Analysis (FRFA) for the final rule, (68 FR 74746, December 24, 2003).  Economic impacts of the VMS requirement were addressed in those analyses.  Establishing an effective date will not result in any further economic impacts.  NMFS has certified that the preparation of an IRFA, specific to this proposed rule was not necessary.
                </P>
                <P>Pursuant to the procedures established to implement Executive Order 12866, the Office of Management and Budget has determined that this proposed rule is not significant.</P>
                <P>NMFS notified all states, consistent with the Coastal Zone Management Act, of the VMS requirement during the rulemaking for Amendment 1 of the HMS FMP.  No states indicated that the VMS requirement is inconsistent with their coastal zone management programs.  Thus, this proposed action is consistent to the maximum extent practicable with the enforceable policies of those Atlantic, Gulf of Mexico, and Caribbean states and territories that have approved coastal zone management programs.</P>
                <P>
                    VMS are intended to aid in the enforcement of time/area closures and thereby reduce interactions with endangered species.  The environmental impacts of the VMS requirement were analyzed during the development of Amendment 1 to the HMS FMP and the December 24, 2003 (68 FR 74746) final rule.  Establishing an effective date for 
                    <PRTPAGE P="28107"/>
                    this requirement is not expected to increase endangered species or marine mammal interaction rates beyond that considered permissible in the October 29, 2003, Biological Opinion on the continued operation of Atlantic shark fisheries under the FMP and Draft Amendment 1 to the HMS FMP issued by NMFS Office of Protected Resources.
                </P>
                <P>This proposed rule establishing the effective date on the VMS requirement refers to collection-of-information requirements subject to the Paperwork Reduction Act (PRA) which have been approved by OMB under control number 0648-0483.  The public's reporting burden for this collection of information is estimated at: 4 hours for the installation of a VMS, 5 minutes for the completion of a VMS certification statement, 2 hours per year for VMS maintenance, and &lt; 1 second for an automated position report from a VMS.</P>
                <P>
                    These estimates include the time for:  reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information requirements.  Written comments regarding these burden estimates or any other aspect of these data collection requirements, including suggestions for reducing the burden must be sent to NMFS and OMB (see 
                    <E T="02">ADDRESSES</E>
                    ).
                </P>
                <P>Notwithstanding any other provision of the law, no person is required to respond to, nor shall any person be subject to, a penalty for failure to comply with a collection of information requirement of the PRA unless that collection of information displays a currently valid OMB control number.</P>
                <LSTSUB>
                    <HD SOURCE="HED">List of Subjects in 50 CFR Part 635</HD>
                    <P>Fisheries, Fishing, Fishing vessels, Foreign relations, Imports, Penalties, Reporting and recordkeeping requirements, Treaties.</P>
                </LSTSUB>
                <SIG>
                    <DATED>Dated: May 12, 2004.</DATED>
                    <NAME>Rebecca Lent,</NAME>
                    <TITLE>Deputy Assistant Administrator for Regulatory Programs, National Marine Fisheries Service.</TITLE>
                </SIG>
                <P>For the reasons set forth in the preamble, 50 CFR part 635 is proposed to be amended as follows:</P>
                <PART>
                    <HD SOURCE="HED">PART 635—ATLANTIC HIGHLY MIGRATORY SPECIES</HD>
                </PART>
                <P>1.  The authority citation for 50 CFR 635 continues to read as follows:</P>
                <AUTH>
                    <HD SOURCE="HED">Authority:</HD>
                    <P>
                        16 U.S.C. 971 
                        <E T="03">et seq.</E>
                         16 U.S.C. 1801 
                        <E T="03">et seq.</E>
                    </P>
                </AUTH>
                <P>2.  In § 635.69, paragraphs(a)(2) and (a)(3) are revised to read as follows:</P>
                <SECTION>
                    <SECTNO>§ 635.69</SECTNO>
                    <SUBJECT>Vessel monitoring systems.</SUBJECT>
                    <P>(a) * * *</P>
                    <P>(2) As of January 1, 2005, whenever a vessel issued a directed shark LAP, is away from port with bottom longline gear on board, is located between 33°00′ N. lat. and 36°30′ N. lat., and the mid-Atlantic shark closed area is closed as specified in 635.21(d)(1); or</P>
                    <P>(3) As of November 15, 2004, whenever a vessel, issued a directed shark LAP, is away from port with a gillnet on board during the right whale calving season specified in the Atlantic Large Whale Take Reduction Plan in § 229.32(f) of this title.</P>
                    <STARS/>
                </SECTION>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11226 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 3510-22-S</BILCOD>
        </PRORULE>
    </PRORULES>
    <VOL>69</VOL>
    <NO>96</NO>
    <DATE>Tuesday, May 18, 2004</DATE>
    <UNITNAME>Notices</UNITNAME>
    <NOTICES>
        <NOTICE>
            <PREAMB>
                <PRTPAGE P="28108"/>
                <AGENCY TYPE="F">DEPARTMENT OF AGRICULTURE </AGENCY>
                <SUBAGY>Cooperative State Research, Education, and Extension Service </SUBAGY>
                <SUBJECT>Notice of Intent To Request an Extension of a Currently Approved Information Collection </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Cooperative State Research, Education, and Extension Service, USDA. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice and request for comments. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>In accordance with the Paperwork Reduction Act of 1995 and Office of Management and Budget (OMB) implementing regulations, this notice announces the Cooperative State Research, Education, and Extension Service's (CSREES) intention to request an extension of a currently approved information collection, Form CSREES-667 “Proposal Cover Sheet”, and Form CSREES-668, “Project Summary.” </P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Comments on this notice must be received on or before July 22, 2004, to be assured of consideration. </P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>
                        Address all comments regarding this notice to Louise Ebaugh, Deputy Administrator, Office of Extramural Programs, CSREES, USDA, STOP 2299, 1400 Independence Avenue, SW., Washington, DC 20250-2299. E-mail: 
                        <E T="03">RFP-OEP@csrees.usda.gov</E>
                        . 
                    </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Louise Ebaugh, (202) 720-9181. </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P SOURCE="NPAR">
                    <E T="03">Title:</E>
                     Grant Application Forms for the Small Business Innovation Research Grants Program. 
                </P>
                <P>
                    <E T="03">OMB Number:</E>
                     0524-0025. 
                </P>
                <P>
                    <E T="03">Expiration Date of Approval:</E>
                     October 31, 2004. 
                </P>
                <P>
                    <E T="03">Type of Request:</E>
                     Extension of a currently approved information collection for three years. 
                </P>
                <P>
                    <E T="03">Abstract:</E>
                     In 1982, the Small Business Innovation Research (SBIR) Program was authorized by Public Law 97-219, and in 1992 reauthorized through October 1, 2000, by Public Law 102-564. In 2000, the SBIR program was reauthorized through September 30, 2008, by Public Law 106-554. This Legislation requires each Federal agency with a research or research and development budget in excess of $100 million to establish an SBIR program. The objectives of the SBIR Program are to stimulate technological innovation in the private sector, strengthen the role of small businesses in meeting Federal research and development needs, increase private sector commercialization of innovations derived from Department of Agriculture (USDA)-supported research and development efforts, and foster and encourage participation by women-owned and socially and economically disadvantaged small business firms in technological innovation. The Program is carried out in three separate phases. The purpose of Phase I is to determine the scientific or technical feasibility of ideas; Phase II is the principal research or research and development effort; and Phase III is to stimulate technological innovation and national return on investment from research through the pursuit of commercial objectives resulting from work carried out in Phases I and II. 
                </P>
                <P>USDA conducts its SBIR program through the use of grant awards and these grants are administered by the Awards Management Branch, Office of Extramural Programs, CSREES. Each year for which funding is available, USDA issues an SBIR program solicitation requesting Phase I applications. These applications are evaluated by peer review panels and awarded on competitive basis. The SBIR Program Solicitation requests that applicants submit applications following the format outlined in the Small Business Administration (SBA) Policy Directive. This simplified and standardized application format is used by all of the Federal agencies participating in the SBIR Program in order to reduce the application burden of small business firms that wish to apply to more than one agency. </P>
                <P>Before awards can be made, certain information is required from applicants as part of an overall application package. This information includes project summaries, descriptions of the research or teaching efforts, literature reviews, curricula vitae of project directors, other relevant technical aspects of the proposed project, and supporting documentation of an administrative and budgetary nature. Because of the nature of the competitive, peer-reviewed process, it is important that information from applicants be available in a standardized format to ensure equitable treatment. </P>
                <P>This program also uses forms approved in the OMB-approved collection of information package 0524-0039. These forms include Form CSREES-2004, “Budget;” Form CSREES-2006, “National Environmental Policy Act Exclusions Form;” and Form CSREES-2008, “Assurance Statement(s).” </P>
                <P>Forms CSREES-667, “Phase I and Phase II Proposal Cover Sheet;” and CSREES-668, “Phase I and Phase II Project Summary” are used to obtain USDA recordkeeping data, required certifications, and information used to respond to inquiries from Congress, other Government agencies, and the grantee community concerning grant projects supported by the USDA SBIR Program. </P>
                <P>The following information has been collected and will continue to be collected: </P>
                <P>
                    Form CSREES-667—
                    <E T="03">Identification</E>
                    , designates the research topic area under which an application is submitted for consideration; 
                    <E T="03">USDA recordkeeping data</E>
                    , provides names and addresses of project directors and authorized agents of small business firms; and 
                    <E T="03">Certifications</E>
                    , provides required certifications (
                    <E T="03">e.g.</E>
                    , the applicant qualifies as a small business for purposes of the SBIR program; the applicant qualifies as a minority and disadvantaged and/or women-owned small business). 
                </P>
                <P>
                    Form CSREES-668—
                    <E T="03">Project summary</E>
                    , provides a Technical Abstract used when releasing information about grant projects supported and keywords to identify the technology/research thrust/ commercial application of the projects. 
                </P>
                <P>
                    <E T="03">Estimate of Burden</E>
                    : Public reporting burden for this collection of information is estimated to average 5.15 hours per response (1.4 hours and 3.75 hours for Forms CSREES-667 and CSREES-668, respectively). The average hours per 
                    <PRTPAGE P="28109"/>
                    response is based on the hour burden as currently reported to OMB. 
                </P>
                <P>
                    <E T="03">Respondents:</E>
                     Businesses or other for-profits. 
                </P>
                <P>
                    <E T="03">Estimated Number of Responses per Form:</E>
                     700 for Form CSREES-667 and 700 for Form CSREES-668. The estimate per form is based on the number of applications submitted in fiscal year 2003 to the SBIR Program rounded to the nearest hundred. 
                </P>
                <P>
                    <E T="03">Estimated Number of Responses per Respondent:</E>
                     1. 
                </P>
                <P>
                    <E T="03">Estimated Total Annual Burden on Respondents:</E>
                     3,605 hours, broken down by: 980 hours for Form CSREES-667 (1.4 hours per 700 respondents) and 2,625 hours for Form CSREES-668 (3.75 hours per 700 respondents). 
                </P>
                <P>
                    Copies of this information collection can be obtained without charge from Melanie Krizmanich, Policy and Program Liaison Staff, CSREES, (202) 401-1762. e-mail: 
                    <E T="03">RFP-OEP@csrees.usda.gov.</E>
                </P>
                <P>
                    <E T="03">Comments:</E>
                     Comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency's estimate of the burden of the proposed collection of information including the validity of the methodology and assumptions used; (c) ways to enhance the quality, utility and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology. Comments should be sent to the address stated in the preamble. 
                </P>
                <P>Comments also may be submitted directly to OMB and should be addressed to: Desk Officer for Agriculture, Office of Information and Regulatory Affairs, Office of Management and Budget, Washington, DC 20502. </P>
                <P>All responses to this notice will be summarized and included in the request for OMB approval. All comments will become a matter of public record. </P>
                <SIG>
                    <DATED>Done in Washington, DC, this 2nd day of May, 2004. </DATED>
                    <NAME>Joseph J. Jen, </NAME>
                    <TITLE>Under Secretary, Research, Education, and Economics. </TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11179 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 3410-22-P </BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF AGRICULTURE</AGENCY>
                <SUBAGY>Food and Nutrition Service</SUBAGY>
                <SUBJECT>Agency Information Collection Activities: Proposed Collection; Comment Request; FNS-46, Issuance Reconciliation Report</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Food and Nutrition Service, USDA.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>In accordance with the Paperwork Reduction Act of 1995, this notice invites the general public and other public agencies to comment on proposed information collection contained in Form FNS-46, Issuance Reconciliation Report.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Written comments must be submitted on or before July 19, 2004.</P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>Send comments and requests for copies of this information collection to: Lizbeth Silbermann, Chief, Electronic Benefit Transfer Branch, Benefit Redemption Division, Food and Nutrition Service, U.S. Department of Agriculture, 3101 Park Center Drive, Alexandria, VA 22302.</P>
                    <P>Comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.</P>
                    <P>All responses to this notice will be summarized and included in the request for Office of Management and Budget approval. All comments will also become a matter of public record.</P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Lizbeth Silbermann, Chief, Electronic Benefits Transfer Branch, (703) 305-2523.</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P SOURCE="NPAR">
                    <E T="03">Title:</E>
                     Form FNS-46, Issuance Reconciliation Report.
                </P>
                <P>
                    <E T="03">OMB Number:</E>
                     0584-0080.
                </P>
                <P>
                    <E T="03">Form Number:</E>
                     FNS-46.
                </P>
                <P>
                    <E T="03">Expiration Date:</E>
                     11/30/2004.
                </P>
                <P>
                    <E T="03">Type of Request:</E>
                     Revision of a currently approved collection.
                </P>
                <P>
                    <E T="03">Abstract:</E>
                     Section 7(d) of the Food Stamp Act of 1977 (the Act) (7 U.S.C. 2016 (d)) requires State agencies to report on their benefit issuance operations not less than monthly. Section 11(a) of the Act (7 U.S.C. 2020(a)) requires State agencies to assume responsibility for the issuance, control, and accountability of benefits. Regulations at 7 CFR 274.4(a) and 274.4(b)(2) require State agencies to account for all issuance through the reconciliations process and to submit a report on this process using Form FNS-46, Issuance Reconciliation Report. These reports must be submitted to the Food and Nutrition Service (FNS) monthly and must reach FNS no later that 90 days following the end of each report month. The FNS-46 report reflects the total issuance, returns, and unauthorized issuance amounts resulting in the net Federal obligation. The proposed revision to the information collection burden associated with FSP Form FNS-46, Issuance Reconciliation Report, reflects a reduction because of the requirement in section 7 (i) of the Act (7 U.S.C. 2016 (i)) for State agencies to change from coupon to EBT systems. States that implement EBT systems usually reduce their issuance reconciliation points to a single location. Therefore, the number of respondents and responses declines as the number of States with EBT systems increases.
                </P>
                <P>
                    <E T="03">Estimate of Burden:</E>
                     Currently, over 96 percent of FSP benefits are delivered via EBT; but by October 2004, we expect all States to have replaced their coupon systems with EBT systems. The total State agency respondent estimate is 1,152 for the Form FNS-46, Issuance Reconciliation Report, a reduction of 1,656 respondents from 2,808 respondents.
                </P>
                <P>
                    <E T="03">Affected Public:</E>
                     State and local government employees or contractors.
                </P>
                <P>
                    <E T="03">Estimated Number of Respondents:</E>
                     96.
                </P>
                <P>
                    <E T="03">Estimated Number of Responses per Respondent:</E>
                     12.
                </P>
                <P>
                    <E T="03">Estimated Time per Response:</E>
                     8 hours.
                </P>
                <P>
                    <E T="03">Estimated Total Annual Burden:</E>
                     9,216 hours annually.
                </P>
                <SIG>
                    <DATED>Dated: May 11, 2004.</DATED>
                    <NAME>Roberto Salazar,</NAME>
                    <TITLE>Administrator, Food and Nutrition Service.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11216 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 3410-30-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <PRTPAGE P="28110"/>
                <AGENCY TYPE="S">DEPARTMENT OF AGRICULTURE</AGENCY>
                <SUBAGY>Forest Service</SUBAGY>
                <SUBJECT>Thorne Bay Ranger District, Tongass National Forest, AK; North Thorne Environmental Impact Statement</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Forest Service, USDA.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of intent to prepare an environmental impact statement.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The Thorne Bay Ranger District proposes to implement a series of timber, road, and vegetation management projects in the 35,750-acre North Thorne project area near the community of Throne Bay, Alaska. The goal of this project is to implement Tongass National Forest Land and Resource Management Plan direction and move the project area toward the desired future condition described in that plan. Proposed actions include: harvest of about 10 million board feet of timber, construction of 4.7 miles of road, reconstruction of 31 miles of road, storage of 15 miles of drivable road, storage of 15 miles of non-drivable road, and treatment of 3,800 acres of young second-growth timber.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Comments concerning the scope of the analysis must be received within 30 days of the date of this notice. The draft environmental impact statement is expected December 2004 and the final environmental impact statement is expected April 2005. Public meetings are scheduled at the Thorne Bay Ranger District office, Thorne Bay Alaska: June 3, 2004, 6 p.m. and June 5, 2004, 10 a.m.</P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>You may comment on the project in the following ways:</P>
                    <P>• Mail: Thorne Bay Ranger District, Attn: North Thorne EIS, PO Box 19001, Thorne Bay, AK, 99919.</P>
                    <P>• FAX to 907-828-3902.</P>
                    <P>
                        • E-mail: 
                        <E T="03">comments-alaska-tongass-thorne-bay@fs.fed.us</E>
                         Subject: comments north thorne eis.
                    </P>
                    <P>• Hand delivery: Thorne Bay Ranger District, Forest Service Dr, Thorne Bay AK. Include your name, address, and organization name if you are commenting as a representative. Scanned signatures are accepted on e-mails.</P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Susan Howell, North Thorne EIS Project Leader, PO Box 19001, Thorne Bay, AK, 99919. Phone 907-828-3263.</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION: </HD>
                <P SOURCE="NPAR">
                    <E T="03">Purpose and Need for Action:</E>
                     The goal (need) of the North Thorne project is to implement Forest Plan direction and move the project area toward the desired future conditions described in that plan. The objectives (purpose) of the project are to:
                </P>
                <P>1. Provide socio-economic opportunities for local communities and Southeast Alaska through timber harvest, road construction and maintenance, and vegetation management projects.</P>
                <P>2. Improve vegetation conditions and wildlife habitat by treating densely stocked second-growth timber.</P>
                <P>3. Manage access and reduce damage to aquatic habitats by replacing or removing road crossing structures that restrict fish passage, reducing sedimentation, and improving maintenance of drivable roads.</P>
                <P>
                    <E T="03">Background:</E>
                     The proposed project area is located on the Thorne Bay Ranger District of the Tongass National Forest in Township 69, 70 and 71 South, Range 82, 83 and 84 East, Copper River Meridian in Southeast Alaska. The project are covers 35,750 acres and is located in VCUs 5750, 5780, 5790, 5800, 5810, 5830, 5840, 5850, 5860, 5971, 5972. The project area consists of three land use designations (LUDs) that allow for timber harvest: Timber Production (18,898 acres), Modified Landscape LUD (4,752 acres), Scenic Viewshed LUD (1,178 acres). There are alos three LUDs that either limit or prohibit timber harvest: Old-growth Habitat (6,726 acres), Scenic River (3,062 acres), and Recreation River (1,133 acres).
                </P>
                <P>The Thorne Bay Ranger District completed field reconnaissance of 27 potential timber harvest units in the North Thorne drainage between 1995 and 2000. An environmental assessment called North Thorne Timber Sale Project was scoped in September 2000 as a 5 MMBF environmental assessment. Internal and external concerns about the cumulative effects of past timber harvest on watershed health (especially fish and wildlife habitat), and the desire to make more volume available elevated the NEPA analysis level to an environmental impact statement. This project was sidelined until resources were available to complete the analysis.</P>
                <P>Responsible Official: Forrest Cole, Tongass National Forest Supervisor, 648 Mission Street, Ketchikan, Alaska, 99901.</P>
                <P>The Forest Supervisor will decide:</P>
                <P>1. The amount, location and method of timber harvest and vegetation treatment.</P>
                <P>2. Road management objectives including which roads will remain open to vehicle traffic.</P>
                <P>3. Whether there may be a significant restriction on subsistence uses.</P>
                <P>4. Watershed and stream restoration projects including which stream crossing structures will be replaced/removed.</P>
                <FP>
                    <E T="03">Scoping Process:</E>
                     In addition to this notice and the two public meetings listed under 
                    <E T="02">DATES</E>
                    , notices will be placed in the Juneau Empire and the Island News newspapers. The Juneau Empire is the official newspaper of record for this project. Scoping letters were mailed to individuals and agencies on the Thorne Bay Ranger District's public involvement list on May 10, 2004.
                </FP>
                <P>
                    <E T="03">Preliminary Issues:</E>
                     Previous scoping efforts have identified three preliminary issues: maintenance of a timber supply and local employment opportunities, management of roads in the project area, the cumulative effects of past harvest and road construction on vegetation conditions and fish and wildlife habitat.
                </P>
                <P>
                    Early notice of public participation: a draft environmental impact statement will be prepared for comment. The comment period on the draft environmental impact statement will be 45 days from the date the Environmental Protection Agency publishes the notice of availability in the 
                    <E T="04">Federal Register</E>
                    .
                </P>
                <P>
                    The Forest Service thinks, at this early stage, it is important to give reviewers notice of several court rulings related to public participation in the environmental review process. First, reviewers of draft environmental impact statements must structure their participation in the environmental review of the proposal so that it is meaningful and alerts an agency to the reviewer's position and contentions. 
                    <E T="03">Vermont Yankee Nuclear Power Corp.</E>
                     v. 
                    <E T="03">NRDC</E>
                    , 435 U.S. 519, 533 (1978). Also, environmental objections that could be raised at the draft environmental impact statement stage but that are not raised until after completion of the final environmental impact statement may be waived or dismissed by the courts. 
                    <E T="03">City of Angoon</E>
                     v. 
                    <E T="03">Hodel,</E>
                     803 F.2d 1016, 1022 (9th Cir. 1986) and 
                    <E T="03">Wisconsin Heritages, Inc.</E>
                     v. 
                    <E T="03">Harris,</E>
                     490 F. Sup. 1334, 1338 (E.D. Wis. 1980). Because of these court rulings, it is very important that those interested in this proposed action participate by the close of the 45-day comment period so that substantive comments and objections are made available to the Forest Service at a time when it can meaningfully consider them and respond to them in the final environmental impact statement.
                </P>
                <P>
                    To assist the Forest Service in identifying and considering issues and concerns on the proposed action, comments on the draft environmental impact statement should be as specific as possible. It is also helpful if comments refer to specific pages or chapters of the draft statement. Comments may also address the 
                    <PRTPAGE P="28111"/>
                    adequacy of the draft environmental impact statement or the merits of the alternatives formulated and discussed in the statement. Reviewers may wish to refer to the Council on Environmental Quality Regulations for implementing the procedural provisions of the National Environmental Policy Act at 40 CFR 1503.3 in addressing these points.
                </P>
                <P>Comments received, including the names and address of those who comment, will be considered part of the public record on this proposal and will be available for public inspection</P>
                <AUTH>
                    <HD SOURCE="HED">Authority:</HD>
                    <P>40 CFR 1501.7 and 1508.22; Forest Service Handbook 1909.15, section 21.</P>
                </AUTH>
                <SIG>
                    <NAME>Forrest Cole,</NAME>
                    <TITLE>Forest Supervisor.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-10529 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 3410-11-M</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF AGRICULTURE</AGENCY>
                <SUBAGY>Forest Service</SUBAGY>
                <SUBJECT>National Urban and Community Forestry Advisory Council</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Forest Service, USDA.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of meeting.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The National Urban and Community Forestry Advisory Council will meet in Detroit, Michigan, June 24-26, 2004. The purpose of the meeting is to discuss emerging issues in urban and community forestry.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>The meeting will be held June 24-26, 2004. A tour of local projects will be held June 24 from 9 a.m. to 4 p.m.</P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>The meeting will be held at the Omni Detroit River Place Hotel, 1000 River Place, Detroit, Michigan. Individuals who wish to speak at the meeting or to propose agenda items must send their names and proposals to Suzanne M. del Villar, Executive Assistant, National Urban and Community Forestry Advisory Council, P.O. Box 1003, Sugarloaf, CA 92386-1003. Individuals may fax their names and proposed agenda items to (909) 585-9527.</P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Suzanne M. del Villar, Urban and Community Forestry Staff, (909) 585-9268.</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>The meeting is open to the public. Council discussion is limited to Forest Service staff and Council members; however, persons who wish to bring urban and community forestry matters to the attention of the Council may file written statements with the Council staff before or after the meeting. Public input sessions will be provided.</P>
                <SIG>
                    <DATED>Dated: May 12, 2004.</DATED>
                    <NAME>Robin L. Thompson,</NAME>
                    <TITLE>Associate Deputy Chief, State and Private Forestry.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11207 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 3410-11-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF AGRICULTURE </AGENCY>
                <SUBAGY>Rural Business-Cooperative Service </SUBAGY>
                <SUBJECT>Notice of Funds Availability (NOFA) Inviting Applications for the Specific Risk Materials and Certain Cattle Renewable Energy Guaranteed Loan Pilot Program </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Rural Business-Cooperative Service, USDA. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>This NOFA announces an emergency Pilot Program (the “Pilot Program”) to provide guaranteed loans for developing renewable energy systems from the use of diseased livestock as a process raw material for the energy source. This Pilot Program is a further action to support the Departmental efforts to address the risks associated with Bovine Spongiform Encephalopathy (BSE). The Rural Business-Cooperative Service (RBS) expects projects to be constructed that will produce energy through the destruction of cattle. </P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Applications must be completed and submitted to the appropriate USDA State Rural Development Office on August 16, 2004. Applications received after August 16, 2004, will not be considered. Comments regarding the information collection requirements under the Paperwork Reduction Act of 1995 must be submitted on or before July 19, 2004. </P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>Applicants wishing to apply for a guaranteed loan under this Pilot Program must submit their application and one copy to the USDA State Rural Development Office where the proposed project is located or where the borrower is headquartered. A list of the Energy Coordinators and State Rural Development Office addresses and telephone numbers follow. </P>
                </ADD>
                <NOTE>
                    <HD SOURCE="HED">Note:</HD>
                    <P>Telephone numbers listed are not toll free. </P>
                </NOTE>
                <EXTRACT>
                    <HD SOURCE="HD1">USDA State Rural Development Offices </HD>
                    <HD SOURCE="HD2">Alabama </HD>
                    <FP SOURCE="FP-1">Chris Harmon, USDA Rural Development,  Sterling Center, Suite 601,  4121 Carmichael Road,  Montgomery, AL 36106-3683, (334) 279-3615. </FP>
                    <HD SOURCE="HD2">Alaska </HD>
                    <FP SOURCE="FP-1">Dean Stewart, USDA Rural Development, 800 West Evergreen, Suite 201,  Palmer, AK 99645-6539, (907) 761-7722. </FP>
                    <HD SOURCE="HD2">Arizona </HD>
                    <FP SOURCE="FP-1">Gary Mack, USDA Rural Development, 3003 North Central Avenue, Suite 900,   Phoenix, AZ 85012-2906, (602) 280-8717. </FP>
                    <HD SOURCE="HD2">Arkansas </HD>
                    <FP SOURCE="FP-1">Shirley Tucker, USDA Rural Development, 700 West Capitol Avenue, Room 3416, Little Rock, AR 72201-3225, (501) 301-3280. </FP>
                    <HD SOURCE="HD2">California </HD>
                    <FP SOURCE="FP-1">Charles Clendenin, USDA Rural Development, 430 G Street, Agency 4169,  Davis, CA 95616-4169, (530) 792-5825. </FP>
                    <HD SOURCE="HD2">Colorado </HD>
                    <FP SOURCE="FP-1">Linda Sundine, USDA Rural Development, 628 West 5th Street, Cortez, CO 81321, (720) 544-2929. </FP>
                    <HD SOURCE="HD2">Delaware-Maryland </HD>
                    <FP SOURCE="FP-1">James Waters, USDA Rural Development, 4607 South Dupont Hwy.,  P.O. Box 400,  Camden, DE 19934-0400, (302) 697-4324. </FP>
                    <HD SOURCE="HD2">Florida/Virgin Islands </HD>
                    <FP SOURCE="FP-1">Joe Mueller, USDA Rural Development, 4440 NW. 25th Place,  P.O. Box 147010,  Gainesville, FL 32614-7010, (352) 338-3482. </FP>
                    <HD SOURCE="HD2">Georgia </HD>
                    <FP SOURCE="FP-1">J. Craig Scroggs, USDA Rural Development, 333 Phillips Drive, McDonough, GA 30253, (678) 583-0866. </FP>
                    <HD SOURCE="HD2">Hawaii </HD>
                    <FP SOURCE="FP-1">Tim O'Connell, USDA Rural Development, Federal Building, Room 311,  154 Waianuenue Avenue,  Hilo, HI 96720, (808) 933-8313. </FP>
                    <HD SOURCE="HD2">Idaho </HD>
                    <FP SOURCE="FP-1">Dale Lish, USDA Rural Development, 725 Jensen Grove Drive, Suite 1, Blackfoot, ID 83221, (208) 785-5840, Ext. 118. </FP>
                    <HD SOURCE="HD2">Illinois </HD>
                    <FP SOURCE="FP-1">Cathy McNeal, USDA Rural Development, 2118 West Park Court, Suite A,  Champaign, IL 61821, (217) 403-6210. </FP>
                    <HD SOURCE="HD2">Indiana </HD>
                    <FP SOURCE="FP-1">Jerry Hay, USDA Rural Development, North Vernon Area Office, 2600 Highway 7 North,  North Vernon, IN 47265, (812) 346-3411, Ext. 4. </FP>
                    <HD SOURCE="HD2">Iowa </HD>
                    <FP SOURCE="FP-1">Jeff Kuntz, USDA Rural Development, Federal Building, Room 873, 210 Walnut Street,  Des Moines, IA 50309, (641) 932-3031. </FP>
                    <HD SOURCE="HD2">Kansas </HD>
                    <FP SOURCE="FP-1">
                        Larry Carnahan, USDA Rural Development, P.O. Box 437, 115 West 4th Street,  Altamont, KS 67330, (620) 784-5431. 
                        <PRTPAGE P="28112"/>
                    </FP>
                    <HD SOURCE="HD2">Kentucky </HD>
                    <FP SOURCE="FP-1">Dewayne Easter, USDA Rural Development, 771 Corporate Drive, Suite 200, Lexington, KY 40503, (859) 224-7435.</FP>
                    <HD SOURCE="HD2">Louisiana </HD>
                    <FP SOURCE="FP-1">Kevin Boone, USDA Rural Development, 3727 Government Street, Alexandria, LA 71302, (318) 473-7960. </FP>
                    <HD SOURCE="HD2">Maine </HD>
                    <FP SOURCE="FP-1">Valarie Flanders, USDA Rural Development, 967 Illinois Avenue, Suite 4, P.O. Box 405,  Bangor, ME 04402-0405, (207) 990-9168. </FP>
                    <HD SOURCE="HD2">Massachusetts/Rhode Island/Connecticut </HD>
                    <FP SOURCE="FP-1">Sharon Colburn, USDA Rural Development,  451 West Street, Suite 2,  Amherst, MA 01002-2999, (413) 253-4303. </FP>
                    <HD SOURCE="HD2">Michigan </HD>
                    <FP SOURCE="FP-1">Lee Bambusch, USDA Rural Development, 3001 Coolidge Road, Suite 200,  East Lansing, MI 48823, (517) 324-5257. </FP>
                    <HD SOURCE="HD2">Minnesota </HD>
                    <FP SOURCE="FP-1">David Gaffaney, USDA Rural Development, 375 Jackson Street, Suite 410, St. Paul, MN 55101-1853, (651) 602-7814. </FP>
                    <HD SOURCE="HD2">Mississippi </HD>
                    <FP SOURCE="FP-1">Charlie Joiner, USDA Rural Development, Federal Building, Suite 831,  100 West Capitol Street,  Jackson, MS 39269, (601) 965-5457. </FP>
                    <HD SOURCE="HD2">Missouri </HD>
                    <FP SOURCE="FP-1">D Clark Thomas, USDA Rural Development, 601 Business Loop 70 West,  Parkade Center, Suite 235,  Columbia, MO 65203, (573) 876-0995. </FP>
                    <HD SOURCE="HD2">Montana </HD>
                    <FP SOURCE="FP-1">John Guthmiller, USDA Rural Development, 900 Technology Blvd., Unit 1, Suite B,  P.O. Box 850,  Bozeman, MT 59771, (406) 585-2540. </FP>
                    <HD SOURCE="HD2">Nebraska </HD>
                    <FP SOURCE="FP-1">Cliff Kumm, USDA Rural Development, 201 North, 25 Street, Beatrice, NE 68310, (402) 223-3125. </FP>
                    <HD SOURCE="HD2">Nevada </HD>
                    <FP SOURCE="FP-1">Dan Johnson, USDA Rural Development, 555 West Silver Street, Suite 101, Elko, NV 89801, (775) 738-8468, Ext. 112. </FP>
                    <HD SOURCE="HD2">New Hampshire </HD>
                    <FP SOURCE="FP-1">See Vermont. </FP>
                    <HD SOURCE="HD2">New Jersey </HD>
                    <FP SOURCE="FP-1">Michael Kelsey, USDA Rural Development, 5th Floor North, Suite 500,  8000 Midlantic Drive, Mt. Laurel, NJ 08054, (856) 787-7700, Ext. 7751. </FP>
                    <HD SOURCE="HD2">New Mexico </HD>
                    <FP SOURCE="FP-1">Eric Vigil, USDA Rural Development, 6200 Jefferson Street, NE.,  Room 255,  Albuquerque, NM 87109, (505) 761-4952. </FP>
                    <HD SOURCE="HD2">New York </HD>
                    <FP SOURCE="FP-1">Scott Collins, USDA Rural Development, The Galleries of Syracuse, Suite 357,  441 South Salina Street,  Syracuse, NY 13202-2541, (315) 477-6409. </FP>
                    <HD SOURCE="HD2">North Carolina </HD>
                    <FP SOURCE="FP-1">H. Rossie Bullock, USDA Rural Development, P. O. Box 7426,  Lumberton, NC 28359-7426, (910) 739-3349. </FP>
                    <HD SOURCE="HD2">North Dakota </HD>
                    <FP SOURCE="FP-1">Dale Van Eckhout, USDA Rural Development, Federal Building, Room 208,  220 East Rosser Avenue,  P.O. Box 1737,  Bismarck, ND 58502-1737, (701) 530-2065. </FP>
                    <HD SOURCE="HD2">Ohio </HD>
                    <FP SOURCE="FP-1">James Cogan, USDA Rural Development, Federal Building, Room 507, 200 North High Street,  Columbus, OH 43215-2418, (614) 255-2420. </FP>
                    <HD SOURCE="HD2">Oklahoma </HD>
                    <FP SOURCE="FP-1">Jody Harris, USDA Rural Development, 100 USDA, Suite 108, Stillwater, OK 74074-2654, (405) 742-1036. </FP>
                    <HD SOURCE="HD2">Oregon </HD>
                    <FP SOURCE="FP-1">Don Hollis, USDA Rural Development, 1229 SE Third Street, Suite A, Pendleton, OR 97801-4198, (541) 278-8049, Ext. 129. </FP>
                    <HD SOURCE="HD2">Pennsylvania </HD>
                    <FP SOURCE="FP-1">Vincent Murphy, USDA Rural Development, One Credit Union Place, Suite 330,  Harrisburg, PA 17110-2996, (717) 237-2181. </FP>
                    <HD SOURCE="HD2">Puerto Rico </HD>
                    <FP SOURCE="FP-1">Virgilio Velez, USDA Rural Development, IBM Building, 654 Munoz Rivera Avenue, Suite 601,  Hato Rey, PR 00918-6106, (787) 766-5091, ext. 251. </FP>
                    <HD SOURCE="HD2">South Carolina </HD>
                    <FP SOURCE="FP-1">R. Gregg White, USDA Rural Development, Strom Thurmond Federal Building, 1835 Assembly Street, Room 1007,  Columbia, SC 29201, (803) 765-5881. </FP>
                    <HD SOURCE="HD2">South Dakota </HD>
                    <FP SOURCE="FP-1">Gary Korzan, USDA Rural Development, Federal Building, Room 210,  200 4th Street, SW.,  Huron, SD 57350, (605) 352-1142. </FP>
                    <HD SOURCE="HD2">Tennessee </HD>
                    <FP SOURCE="FP-1">Dan Beasley, USDA Rural Development, 3322 West End Avenue, Suite 300,  Nashville, TN 37203-1084, (615) 783-1341. </FP>
                    <HD SOURCE="HD2">Texas </HD>
                    <FP SOURCE="FP-1">Pat Liles, USDA Rural Development, Federal Building, Suite 102, 101 South Main Street,  Temple, TX 76501, (254) 742-9780.</FP>
                    <HD SOURCE="HD2">Utah </HD>
                    <FP SOURCE="FP-1">Richard Carrig, USDA Rural Development, Wallace F. Bennett Federal Building, 125 South State Street, Room 4311, Salt Lake City, UT 84138, (801) 524-4328. </FP>
                    <HD SOURCE="HD2">Vermont/New Hampshire </HD>
                    <FP SOURCE="FP-1">Lyn Millhiser, USDA Rural Development, City Center, 3rd Floor, 89 Main Street, Montpelier, VT 05602, (802) 828-6069. </FP>
                    <HD SOURCE="HD2">Virginia </HD>
                    <FP SOURCE="FP-1">Laurette Tucker, USDA Rural Development, Culpeper Building, Suite 238, 1606 Santa Rosa Road, Richmond, VA 23229, (804) 287-1594. </FP>
                    <HD SOURCE="HD2">Washington </HD>
                    <FP SOURCE="FP-1">Chris Cassidy, USDA Rural Development, 1606 Perry Street, Suite E, Yakima, WA 98902-5769, (509) 454-5743, Ext. 5. </FP>
                    <HD SOURCE="HD2">West Virginia </HD>
                    <FP SOURCE="FP-1">Cheryl Wolfe, USDA Rural Development, 75 High Street, Room 320, Morgantown, WV 26505-7500, (304) 284-4882. </FP>
                    <HD SOURCE="HD2">Wisconsin </HD>
                    <FP SOURCE="FP-1">Mark Brodziski, USDA Rural Development, 4949 Kirschling Court, Stevens Point, WI 54481, (715) 345-7615, Ext. 131. </FP>
                    <HD SOURCE="HD2">Wyoming </HD>
                    <FP SOURCE="FP-1">Jerry Tamlin, USDA Rural Development, 100 East B, Federal Building, Room 1005, P.O. Box 820, Casper, WY 82602, (307) 261-6319.</FP>
                </EXTRACT>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Diane Berger, Specialty Lenders Division, Rural Business-Cooperative Service, U.S. Department of Agriculture, Mail Stop 3225, 1400 Independence Ave., SW., Washington, DC 20250-3225, Telephone: (202) 720-1400. </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <HD SOURCE="HD1">Programs Affected </HD>
                <P>The Renewable Energy Program is listed in the Catalog of Federal Domestic Assistance under Number 10.775, Renewable Energy Systems and Energy Efficiency Improvements Program and 10.768, Business and Industry Loans.</P>
                <HD SOURCE="HD1">Paperwork Reduction Act </HD>
                <P>The collection of information requirements contained in this notice has received temporary emergency clearance by the Office of Management and Budget (OMB) under Control Number 0570-0049. However, in accordance with the Paperwork Reduction Act of 1995, RBS will seek standard OMB approval of the reporting and recordkeeping requirements contained in this notice and hereby opens a 60-day comment period. </P>
                <HD SOURCE="HD1">Abstract </HD>
                <P>The information requirements contained in this notice require information from guaranteed loan applicants and recipients. The information is vital for RBS to make wise decisions regarding the eligibility of applicants, establish selection priorities among competing applicants, ensure compliance with applicable RBS regulations, and effectively monitor the borrowers' activities to protect the Government's financial interest and ensure that funds obtained from the Government are use appropriately. </P>
                <P>
                    <E T="03">Estimate of Burden:</E>
                     Public reporting burden for this collection of information is estimated to average 8 hours per response. 
                </P>
                <P>
                    <E T="03">Respondents:</E>
                     Rural small businesses. 
                    <PRTPAGE P="28113"/>
                </P>
                <P>
                    <E T="03">Estimated Number of Respondents:</E>
                     25. 
                </P>
                <P>
                    <E T="03">Estimated Number of Responses per Respondent:</E>
                     14. 
                </P>
                <P>
                    <E T="03">Estimated Number of Responses:</E>
                     342. 
                </P>
                <P>
                    <E T="03">Estimated Total Annual Burden on Respondents:</E>
                     2,678. 
                </P>
                <P>
                    <E T="03">Type of Request:</E>
                     New collection. 
                </P>
                <P>Copies of this information collection can be obtained from Cheryl Thompson, Regulations and Paperwork Management Burden at (202) 692-0043.</P>
                <HD SOURCE="HD1">Comments </HD>
                <P>Comments are invited on (1) whether the proposed collection of information is necessary for the proper performance of the functions of RBS, including whether the information will have practical utility; (2) the accuracy of the new RBS estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology. Comments may be sent to: Cheryl Thompson, Regulations and Paperwork Management Branch, U.S. Department of Agriculture, Rural Development, STOP 0742, 1400 Independence Ave., SW., Washington, DC 20250. All responses to this notice will be summarized and included in the request for OMB approval. All comments will also become a matter of public record. </P>
                <HD SOURCE="HD1">Background </HD>
                <P>Bovine spongiform encephalopathy (BSE), commonly referred to as “mad cow” disease, is a slowly progressive, degenerative, fatal disease affecting the central nervous system of adult cattle. Between November 1986 and September 2002, approximately 181,000 cases of BSE were confirmed in the United Kingdom. Since 1989, when the first case was reported outside the UK, cases have appeared in other European countries, Israel, Japan, and Canada, but in relatively small numbers. In the United States, the Agency has conducted, since 1990, aggressive surveillance of the highest risk cattle going to slaughter, in which 10,000 to 20,000 animals per year have been tested. To date, only one cow, in December 2003, has been found to be infected with BSE. This cow was bought from a farm in Canada. </P>
                <P>Since finding that cow, USDA has conducted 189 epidemiological investigations, leading to complete herd inventories on 51 premises in three States “ Washington, Oregon, and Idaho. The inventories involved examining more than 75,000 animals, out of which 255 were identified as “animals of interest” because they were or could have been from the same herd as the cow found with BSE. None of these 255 animals were found to have BSE. </P>
                <P>BSE is a member of a family of transmissible spongiform encephalopathy (TSE). The agent that causes BSE and other TSEs has yet to be fully characterized. The theory that is most accepted in the scientific community is that the agent is a prion, which is an abnormal form of a normal protein known as cellular prion protein, although other types of agents have also been implicated. The agent is highly resistant to heat, ultraviolet light, ionizing radiation, and common disinfectants that normally inactivate viruses or bacteria. In humans, the most common form of TSE is Creutzfeldt-Jakob disease (CJD). While CJD is rare with a worldwide incidence of 1 case per million, humans who develop this disease slowly lose the ability to think and move properly and suffer from memory loss and progressive brain damage until they can no longer see, speak, or feed themselves. </P>
                <P>In 1996, a variant of CJD (vCJD) was first described. While similar to CJD, there are distinct differences. vCJD affects young people, with an average age of death under 30 years and it has a relatively longer duration of illness. In addition, vCJD is strongly linked to exposure, probably through food, to BSE, whereas other human TSEs have not been linked to food exposure. While the route of transmission of vCJD is not yet fully determined, it is generally accepted that it is transmitted through exposure to food contaminated with BSE. </P>
                <P>Even though no subsequent animals have yet to be found to have BSE in the United States, as a result of identifying the BSE-contaminated cow in the United States in December 2003, the Secretary of Agriculture made a commitment that specified risk materials associated with BSE and non-ambulatory cattle would not be allowed to enter the food supply. In an extensive study conducted by the UK as the result of the BSE outbreak there, traditional rendering processes were determined not to effectively deactivate the infectivity of prions (The BSE Inquiry: The Report, Volume 13, Industry Processes and Controls, 6. Rendering, paragraphs 6.46 and 6.47). In response to this situation, the Secretary of Agriculture required existing USDA programs to be reviewed to determine which program might facilitate the development of private sector solution to this disposal problem. </P>
                <P>Title 9006 of the Farm Security and Rural Investment Act of 2002 (2002 Act) was authorized to allow grant making and the issuance of direct and guaranteed loans to fund the development of renewable energy sources or energy efficiency opportunities. It is understood that cattle carcasses and parts of cattle can be a source of energy. In order to support the Departmental efforts to address the BSE situation, the Agency has determined that it is appropriate to develop this Pilot Program to guarantee loans to rural small businesses which may provide the means to effectively destroy specified risk materials that have been associated with BSE and cattle, while providing a bio-based source of energy. Funding for this Pilot Program is only anticipated to be available for the 2004 fiscal year. </P>
                <P>In addition to this notice, the Agency is also developing a proposed rule to create a program under the 2002 Act to make loans, loan guarantees, and grants to “a farmer, rancher, or rural small business” to purchase renewable energy systems and make energy efficiency improvements. The purpose of the program will be to help agricultural producers and rural small businesses to reduce energy costs and consumption. Lastly, the Agency is also concurrently developing a Notice of Availability of Funds to provide grants to these same constituents for renewable energy systems and energy efficiency improvements. These programs together provide an opportunity to develop renewable energy systems using a variety of renewable energy resources and, in the case of this notice, specified risk materials from non-ambulatory cattle, and other cattle that are deemed to be at risk of carrying BSE. </P>
                <P>
                    Because the Agency is developing these programs concurrently, we will be seeking comments on these programs as they are published. The order in which each of these programs will be published in the 
                    <E T="04">Federal Register</E>
                     is uncertain. Because of the obvious common characteristics in all of these programs, it is the Agency's intent to use relevant comments to help shape, as appropriate and if possible (depending on the actual timeframes), each of these programs. 
                </P>
                <HD SOURCE="HD1">Guaranteed Loan Funding </HD>
                <P>
                    Based on the 2002 Act, the amount of guaranteed loan funds that may be made 
                    <PRTPAGE P="28114"/>
                    available to an applicant for an eligible project will not exceed 50 percent of eligible project costs. Because of the serious risks and economic impacts of this situation, the Agency is seeking to maximize participation in this Pilot Program. To do this, the Agency is setting the maximum loan guarantee at 80 percent, regardless of loan size. The interest rate for guaranteed loans under this Pilot Program will be based on indices, such as money market indices, that are published in a recognized banking industry source and negotiated between the lender and the borrower. Interest rates will not be more than those rates customarily charged borrowers in similar circumstances in the ordinary course of business and are subject to Agency review and approval. Except as provided in this notice, the loan terms are the same as those in the RBS Business and Industry Guaranteed Loan program. 
                </P>
                <P>The Agency is limiting the maximum amount of total loan guarantees under the Pilot Program to $50 million. The Agency anticipates up to 3 awards will be made, although it is also possible that no applicants will qualify for loans guaranteed through this program. There is no size restriction associated with any one award (other than no more than $50 million in total loan guarantees will be made). Funds may be used only for certain specified project costs, provided these costs are an integral and necessary part of the total project. </P>
                <HD SOURCE="HD1">I. Eligibility Requirements for Guarantee Assistance </HD>
                <P>To be eligible to receive a guaranteed loan under this Pilot Program, a borrower must meet certain criteria including, but not limited to, each of the following three criteria, as applicable, which are identified in Section 9006 of the 2002 Act. </P>
                <P>A. The borrower must be a rural small business; </P>
                <P>B. Entities must be at least 51 percent owned, directly or indirectly, by individuals who are either citizens of the U.S. or reside in the U.S. after being legally admitted for permanent residence; and </P>
                <P>C. Both the borrower's business headquarters and the proposed project must be in a rural area. </P>
                <HD SOURCE="HD1">II. Additional Eligibility Requirements Required From Lender </HD>
                <P>To be eligible, the proposed project must meet certain criteria including, but not limited to, the following criteria: </P>
                <P>A. Demonstrate the ability to control the dissemination of any materials that may contain prions; </P>
                <P>B. The primary biomass used in the project must be specified risk materials, non-ambulatory cattle, or other cattle deemed to be at risk of carrying BSE; </P>
                <P>C. The ability to produce energy from the destruction of cattle and specified risk material; </P>
                <P>D. The technology must be pre-commercial or commercially available and replicable; and </P>
                <P>E. The project must be financially and technically feasible. </P>
                <P>Projects that are still in the research and development stage are not eligible for funds, because the Agency has determined that this emergency situation requires technologies that are available now. </P>
                <P>The technical feasibility of each proposed project will be based on all of the information provided by the applicant and on other sources of information, such as recognized industry experts in the applicable technology field, as necessary. Projects determined by the Agency to be not financially or technically feasible are ineligible. </P>
                <HD SOURCE="HD1">III. Applications </HD>
                <P>The lender must provide essentially the same application information, including forms, certifications, and agreements, as required for the B&amp;I program. Other information also required from the lender includes: </P>
                <P>A. A description of borrower eligibility and project eligibility; </P>
                <P>B. A description of the business and ownership; </P>
                <P>C. Management information; and </P>
                <P>D. The lender must also provide information on the availability of materials, labor, and equipment for the facility. </P>
                <P>Because of factors of cost and complexity for renewable energy system projects of more than $100,000, the lender must include a project-specific feasibility study prepared by a qualified independent consultant will be required. This feasibility study must be consistent with the terms for such feasibility studies identified in the B&amp;I program. </P>
                <P>A technical requirements report is also being required from the lender. The purpose of the technical requirements report is to ensure that the renewable energy system operates or performs as expected over its design life in a reliable and cost effective manner with regard to both energy production and the destruction of specified risk materials and of certain cattle and the control of material that may contain any prions. To this end, the lender must provide information on project design, procurement, startup, operation, and maintenance. The type of information to be provided includes the qualifications of the project team, agreements and permits, resource assessment, preliminary design and engineering, project development schedules, economic/feasibility modeling, equipment procurement, equipment installation, operations and maintenance, and project decommissioning. Projects costing more than $100,000 are required to employ the services of a professional engineer. </P>
                <P>The time available to obligate funds this current fiscal year is very short and there is insufficient time for resubmission of additional information. Therefore, it is imperative that applicants submit complete applications and that the applications be received by August 16, 2004. Ineligible or incomplete applications and those received after August 16, 2004, will be returned to the applicant and not evaluated further. The denial or rejection of an application under the Pilot Program may be appealed as provided in section 4279.16. </P>
                <HD SOURCE="HD1">IV. Evaluation of Applications </HD>
                <P>Submission of an application neither reserves funding nor ensures funding. The Agency will evaluate each application and make a determination as to whether the borrower is eligible, whether the lender is eligible, whether the proposed project is eligible, and whether the proposed funding request complies with all applicable statutes and regulations. The evaluation will be based on the information provided by the lender and on other sources of information, such as recognized industry experts in the applicable technology field, as necessary. </P>
                <P>The Agency will score each application in order to prioritize each proposed project. The evaluation criteria that the Agency will use to score these projects are different from those in the B&amp;I program and are based, for the most part, on requirements found in the 2002 Act. The scoring criteria are: </P>
                <P>A. Quantity of Energy Produced. Points are earned for the amount of energy replaced or the amount of energy generated, not both. A maximum of 20 points will be awarded. Energy replacement is based on the percentage of energy being replaced. Energy generation is based on the proposed amount of renewable saleable energy the system is intended to produce. </P>
                <P>
                    B. Environmental Benefits. Ten (10) points will be awarded if the purpose of the proposed project is to upgrade an existing facility or construct a new facility to meet applicable health or sanitary standards. 
                    <PRTPAGE P="28115"/>
                </P>
                <P>C. Commercial Availability. Ten (10) points will be awarded if the technology being used is commercially available and replicable. </P>
                <P>D. Cost Effectiveness. A maximum of 25 points will be awarded based on the return on investment of the proposed project. </P>
                <P>E. Matching Funds. A maximum of 15 points will be awarded based on the percentage of matching funds provided by the borrower. </P>
                <P>F. Management. Ten (10) points will be awarded if the proposed project is monitored and managed by a qualified third party. </P>
                <P>G. Loan Rate. A maximum of 10 points will be awarded depending on the final loan rate. </P>
                <P>H. Mobility. Ten (10) points will be awarded if the project is able to be moved to handle outbreaks in varying geographical areas. </P>
                <HD SOURCE="HD1">V. Applicability of Current Regulations </HD>
                <P>All guaranteed loan requests for this Pilot Program are subject to the provisions of this NOFA. In addition, guaranteed loan requests are subject to the requirements of 7 CFR part 4279, subparts A and B, and 7 CFR part 4287, subpart B, with the following modifications: </P>
                <HD SOURCE="HD2">A. Definitions </HD>
                <P>In addition to the definitions in § 4279.2, the following definitions are applicable and, for the purposes of this notice, the definition of negligent servicing has been expanded as shown below. </P>
                <P>
                    <E T="03">Annual receipts.</E>
                     The total income or gross income (sole proprietorship) plus cost of goods sold. 
                </P>
                <P>
                    <E T="03">Biogas.</E>
                     Biomass converted to gaseous fuels. 
                </P>
                <P>
                    <E T="03">Biomass.</E>
                     For the purposes of this notice, biomass means organic material the primary constituent of which is specified risk materials, non-ambulatory cattle, and other cattle deemed to be at risk of carrying BSE. 
                </P>
                <P>
                    <E T="03">Capacity.</E>
                     The load that a power generation unit or other electrical apparatus or heating unit is rated by the manufacturer to be able to meet or supply. 
                </P>
                <P>
                    <E T="03">Commercially available.</E>
                     Systems that have a proven operating history and an established design, installation, equipment, and service industry. 
                </P>
                <P>
                    <E T="03">Interconnection agreement.</E>
                     The terms and conditions governing the interconnection and parallel operation of the borrower's electric generation equipment and the utility's electric power system. 
                </P>
                <P>
                    <E T="03">Negligent servicing.</E>
                     The failure to perform those services which a reasonable, prudent lender would perform in servicing (including liquidation of) its own portfolio of loans that are not guaranteed. The term includes not only the concept of a failure to act, but also not acting in a timely manner, or acting in a manner contrary to the manner in which a reasonable, prudent lender would act. Negligent servicing includes any instance where a lender fails to ensure that all environmental laws are being complied with by an operation receiving guaranteed loan funds under this Pilot Program. 
                </P>
                <P>
                    <E T="03">Non-ambulatory disabled cattle.</E>
                     Non-ambulatory disabled cattle are cattle that cannot rise from a recumbent position or that cannot walk, including, but not limited to, those with broken appendages, severed tendons or ligaments, nerve paralysis, fractured vertebral column, or metabolic conditions. 
                </P>
                <P>
                    <E T="03">Other waste materials.</E>
                     Inorganic or organic materials that are used as inputs for energy production or are by-products of the energy production process. 
                </P>
                <P>
                    <E T="03">Power purchase arrangement.</E>
                     The terms and conditions governing the sale and transportation of electricity produced by the borrower to another party. 
                </P>
                <P>
                    <E T="03">Pre-commercial technology.</E>
                     Technologies that have emerged through the research and development process and have technical and economic potential for application in commercial energy markets but are not yet commercially available. 
                </P>
                <P>
                    <E T="03">Renewable energy system.</E>
                     A process that produces energy from a renewable energy source. 
                </P>
                <P>
                    <E T="03">Small business.</E>
                     A private entity including a sole proprietorship, partnership, corporation, and a cooperative (including a cooperative qualified under section 501(c)(12) of the Internal Revenue Code) but excluding any private entity formed solely for a charitable purpose, and which private entity is considered a small business concern in accordance with the Small Business Administration's (SBA) Small Business Size Standards by North American Industry Classification System (NAICS) Industry found in 13 CFR part 121; provided the entity has 500 or fewer employees and $20 million or less in total annual receipts including all parent, affiliate, or subsidiary entities at other locations. 
                </P>
                <P>
                    <E T="03">Specified Risk Material.</E>
                     Parts of cattle that have been determined by the Food Safety Inspection Service to be at risk of harboring potential infectivity of BSE. 9 CFR 310.22(a). 
                </P>
                <HD SOURCE="HD2">B. Eligible Lenders </HD>
                <P>Section 4279.29 applies with the exception of paragraph (b). </P>
                <HD SOURCE="HD2">C. Certified Lender Program </HD>
                <P>Section 4279.43 is not applicable. </P>
                <HD SOURCE="HD2">D. Civil Rights Impact Analysis </HD>
                <P>Section 4279.60 applies with the addition of Executive Order 12898, Environmental Justice. When guaranteed loans are proposed, RBS employees will conduct a Civil Rights Impact Analysis (CIRA) with regard to environmental justice. The CIRA must be conducted and the analysis documented utilizing Form RD 2006-38. This must be done prior to loan approval, obligation of funds, or other commitments of agency resources, including issuance of a Conditional Commitment of guarantee, whichever occurs first. </P>
                <HD SOURCE="HD2">E. Public Bodies and Nonprofit Corporations </HD>
                <P>Section 4279.71 is not applicable. </P>
                <HD SOURCE="HD2">F. Sale or Assignment of Guaranteed Loan </HD>
                <P>Section 4279.75 applies with the exception of paragraph (b). </P>
                <HD SOURCE="HD2">G. Guarantee Fee </HD>
                <P>(a) For guaranteed loans under the Pilot Program, the guarantee fee is 1 percent instead of 2 percent. </P>
                <P>(b) Paragraphs 4279.107(a) and (b) are not applicable. </P>
                <HD SOURCE="HD2">H. Eligible Borrowers </HD>
                <P>(a) Section 4279.108 applies with the exception of paragraph (a). </P>
                <P>(b) In addition to the requirements in § 4279.108(b), the following requirements will also be used to determine borrower eligibility: </P>
                <P>(i) The borrower must be a rural small business. </P>
                <P>(ii) If the borrower, or an owner, has an outstanding judgment obtained by the United States in a Federal Court (other than in the United States Tax Court), is delinquent in the payment of Federal income taxes, or is delinquent on a Federal debt, the borrower is not eligible to receive a guaranteed loan until the judgment is paid in full or otherwise satisfied or the delinquency is resolved. </P>
                <HD SOURCE="HD2">I. Eligible Loan Purposes </HD>
                <P>
                    The loan purposes identified in § 4279.113 are not applicable to this Pilot Program. Instead, for a project to be eligible to receive a guaranteed loan under this Pilot Program, the proposed project must meet each of the following criteria, as applicable. 
                    <PRTPAGE P="28116"/>
                </P>
                <P>(a) The project must destroy or otherwise deactivate prions. </P>
                <P>(b) The primary biomass used in the project must be specified risk materials, non-ambulatory cattle, and other cattle deemed to be at risk of carrying BSE. </P>
                <P>(c) The project must produce energy. </P>
                <P>(d) The technology used in the project must be pre-commercial or commercially available and replicable. </P>
                <P>(e) The project must be technically and economically feasible. </P>
                <P>(f) The project must be located in a rural area. </P>
                <P>(g) The borrower must be the owner of the system and control the operation and maintenance of the proposed project. A qualified third-party operator may be used to manage the operation and/or maintenance of the proposed project. </P>
                <P>(h) All projects financed under this Pilot Program must be based on satisfactory sources of revenues in an amount sufficient to provide for the operation and maintenance of the system or project. </P>
                <P>(i) No conflict of interest or appearance of conflict of interest will be allowed. For purposes of this Pilot Program, a conflict of interest includes, but is not limited to, the distribution or payment to an individual owner, partner, stockholder, or beneficiary of the borrower or a close relative of such an individual when such individual will retain any portion of the ownership of the borrower. </P>
                <HD SOURCE="HD2">J. Ineligible Purposes </HD>
                <P>Section 4279.114 is not applicable. </P>
                <HD SOURCE="HD2">K. Loan Guarantee Limits </HD>
                <P>(a) The requirements in § 4279.119(a) are not applicable. Instead, the amount of guaranteed loan funds that will be made available to an eligible project under this Pilot Program will not exceed 50 percent of eligible project costs. Eligible project costs are only those costs associated with the items listed in paragraphs (1) through (10) below, as long as the items are an integral and necessary part of the total project. </P>
                <P>(1) Post-application purchase and installation of equipment, except agricultural tillage equipment and vehicles; </P>
                <P>(2) Post-application construction or project improvements, except residential; </P>
                <P>(3) Permit fees; </P>
                <P>(4) Professional service fees, except for application preparation; </P>
                <P>(5) Feasibility studies; </P>
                <P>(6) Business plans; </P>
                <P>(7) Retrofitting; </P>
                <P>(8) Construction of a new facility only when the facility is used for the same purpose and is approximately the same size; </P>
                <P>(9) Working capital; and </P>
                <P>(10) Land acquisition. </P>
                <P>(b) The maximum percentages of guarantee and the loan values in § 4279.119(b) are not applicable. Instead, the maximum percentage guarantee for loans under this Pilot Program is 80 percent for any size loan. </P>
                <P>(c) The requirements in § 4279.119(b)(1) through (4) are not applicable. </P>
                <HD SOURCE="HD2">L. Appraisals </HD>
                <P>In complying with the appraisal requirements in § 4279.144, lenders shall use specialized appraisers. The Agency may waive the requirement to use a specialized appraiser only if a specialized appraiser does not exist in a specific industry or hiring one would cause an undue financial burden to the borrower. </P>
                <HD SOURCE="HD2">M. Feasibility Studies </HD>
                <P>Each application under this Pilot Program must include a project-specific feasibility study as specified in § 4279.150. </P>
                <HD SOURCE="HD2">N. Loan Priorities </HD>
                <P>The requirements in § 4279.155 are not applicable. Instead, Agency personnel will score and fund each application based on the evaluation criteria identified below. These criteria must be individually addressed in narrative form on a separate sheet of paper. </P>
                <P>
                    (a) 
                    <E T="03">Quantity of energy produced.</E>
                     Points may only be awarded for either energy replacement or energy generation, but not for both. 
                </P>
                <P>
                    (1) 
                    <E T="03">Energy replacement.</E>
                     If the proposed renewable energy system is intended primarily for self use by the rural small business and will provide energy replacement of greater than 75 percent, 20 points will be awarded; greater than 50 percent, but equal to or less than 75 percent, 15 points will be awarded; or greater than 25 percent, but equal to or less than 50 percent, 10 points will be awarded. The energy replacement should be determined by dividing the estimated quantity of energy to be generated by at least the past 12 months' energy profile of the small business or anticipated energy use. The estimated quantity of energy may be described in Btu's, kilowatts, or similar energy equivalents. Energy profiles can be obtained from the utility company; 
                </P>
                <P>
                    (2) 
                    <E T="03">Energy generation.</E>
                     If the proposed renewable energy system is intended primarily for production of energy for sale, 20 points will be awarded; 
                </P>
                <P>
                    (b) 
                    <E T="03">Environmental benefits.</E>
                     If the purpose of the proposed renewable energy system is to upgrade an existing facility or construct a new facility required to meet applicable health or sanitary standards, 10 points will be awarded. Documentation must be obtained by the applicant from the appropriate regulatory agency with jurisdiction to establish the standard, to verify that a bona fide standard exists, what that standard is, and that the proposed project is needed and required to meet the standard; 
                </P>
                <P>
                    (c) 
                    <E T="03">Commercial availability.</E>
                     If the renewable energy system is currently commercially available and replicable, an additional 10 points will be awarded; 
                </P>
                <P>
                    (d) 
                    <E T="03">Cost effectiveness.</E>
                     If the proposed renewable energy system will return the cost of the investment in 5 years or less, 25 points will be awarded; up to 10 years, 20 points will be awarded; up to 15 years, 15 points will be awarded; or up to 20 years, 10 points will be awarded. The estimated return on investment is calculated by dividing the total project cost by the estimated projected net annual income and/or energy savings of the renewable energy system; 
                </P>
                <P>
                    (e) 
                    <E T="03">Matching funds.</E>
                     If the rural small business has provided eligible matching funds of over 90 percent, 15 points will be awarded; 85-90 percent, 10 points will be awarded; or at least 80 and up to but not including 84 percent, 5 points will be awarded; 
                </P>
                <P>
                    (f) 
                    <E T="03">Management.</E>
                     If the renewable energy system will be monitored and managed by a qualified third-party operator, such as pursuant to a service contract, maintenance contract, or remote telemetry, an additional 10 points will be awarded; and 
                </P>
                <P>
                    (g) 
                    <E T="03">Loan rate.</E>
                     If the rate of the loan is below the Prime Rate (as published in The Wall Street Journal) plus 1.75 percent (5 points). If the rate of the loan is below the Prime Rate (as published in The Wall Street Journal) plus 1 percent (an additional 5 points). 
                </P>
                <P>
                    (h) 
                    <E T="03">Mobility.</E>
                     If the projects have the capability to relocate to various geographical areas to handle outbreaks, 10 points will be awarded. 
                </P>
                <HD SOURCE="HD2">O. Filing Preapplications and Applications </HD>
                <P>
                    (a) 
                    <E T="03">Preapplications.</E>
                     Section 4279.161(a) is not applicable. 
                </P>
                <P>
                    (b) 
                    <E T="03">Applications.</E>
                     The requirements in § 4279.161(b) are applicable except for § 4279.161(b)(2), (b)(14), and (b)(15). In addition, the following requirements also apply to all applications under this Pilot Program. 
                </P>
                <P>
                    (1) 
                    <E T="03">Application.</E>
                     Two applications (one original and one copy), including 
                    <PRTPAGE P="28117"/>
                    the technical requirements report, shall be submitted for each proposed project. The original and one copy shall be submitted to the USDA State Rural Development Office where the proposed project is located or where the borrower is headquartered. 
                </P>
                <P>
                    (i) 
                    <E T="03">Table of Contents.</E>
                     The first item in each application will be a detailed Table of Contents in the order presented below. Include page numbers for each component of the proposal. Begin pagination immediately following the Table of Contents. 
                </P>
                <P>
                    (ii) 
                    <E T="03">Project Summary.</E>
                     A summary of the project proposal, not to exceed one page, must include the following: Title of the project, description of the project including goals and tasks to be accomplished, names of the individuals responsible for conducting and completing the tasks, and the expected timeframes for completing all tasks, including an operational date. 
                </P>
                <P>
                    (iii) 
                    <E T="03">Eligibility.</E>
                     Each applicant must describe how the borrower meets the borrower eligibility requirements. 
                </P>
                <P>
                    (iv) 
                    <E T="03">Small business information.</E>
                     All applications must contain the following information on the small business seeking funds under this program: 
                </P>
                <P>(A) Business operation. </P>
                <P>
                    (
                    <E T="03">1</E>
                    ) A description of the ownership, including a list of individuals and/or entities with ownership interest, names of any corporate parents, affiliates, and subsidiaries, as well as a description of the relationship, including products, between these entities. 
                </P>
                <P>
                    (
                    <E T="03">2</E>
                    ) A description of the operation. 
                </P>
                <P>(B) Management. The resumes of key managers focusing on relevant business experience. If a third-party operator is used to monitor and manage the project, provide a discussion on the benefits and burdens of such monitoring and management as well as the qualifications of the third party. </P>
                <P>(C) Financial Information. </P>
                <P>
                    (
                    <E T="03">1</E>
                    ) A current balance sheet and income statement prepared in accordance with generally accepted accounting principles (GAAP) and dated within 90 days of the application. Financial information is required on the total operations of the small business and its parent, subsidiary, or affiliates at other locations. 
                </P>
                <P>
                    (
                    <E T="03">2</E>
                    ) Sufficient information to determine total annual receipts of the business and any parent, subsidiary, or affiliates at other locations. Information provided must be sufficient for the Agency to make a determination of total income and cost of goods sold by the business. 
                </P>
                <P>
                    (
                    <E T="03">3</E>
                    ) If available, historical financial statements prepared in accordance with GAAP for the past 3 years, including income statements and balance sheets 
                </P>
                <P>
                    (
                    <E T="03">4</E>
                    ) Pro forma balance sheet at startup of the small business' business that reflects the use of the loan proceeds; and 3 additional years, indicating the necessary start-up capital, operating capital, and short-term credit; and projected cash flow and income statements for 3 years supported by a list of assumptions showing the basis for the projections. 
                </P>
                <P>(D) Production information. </P>
                <P>
                    (
                    <E T="03">1</E>
                    ) Provide a statement as to whether the technology to be employed by the facility is commercially or pre-commercially available and replicable. Provide information to support this position. 
                </P>
                <P>
                    (
                    <E T="03">2</E>
                    ) Describe the availability of materials, labor, and equipment for the facility. 
                </P>
                <P>
                    (v) 
                    <E T="03">Appraisals.</E>
                     In addition to the requirements specified in § 4279.161(b)(6), if the appraisal has not been completed when the application is filed, the applicant must submit an estimated appraisal. In all cases, a completed appraisal must be submitted prior to the loan being closed. 
                </P>
                <P>(vi) In addition to the requirements specified in § 4279.161(b)(11), allow the Agency access to the project and its performance information during its useful life and permit periodic inspection of the project by a representative of the Agency. </P>
                <P>(vii) A certification by the lender that the proposed project will be in compliance with all applicable State environmental laws and regulations. </P>
                <P>(viii) A Dun and Bradstreet Universal Numbering System (DUNS) number. </P>
                <P>
                    (c) 
                    <E T="03">Technical requirements report.</E>
                     The technical report must demonstrate that the project design, procurement, installation, startup, operation and maintenance of the renewable energy system will operate or perform as specified with regard to the destruction of specified risk materials, non-ambulatory cattle, and other cattle deemed to be a risk of carrying BSE and the control of the dissemination of prions over its design life in a reliable and a cost effective manner. The technical report must also identify all necessary project agreements, demonstrate that those agreements will be in place, and that necessary project equipment and services are available over the design life. 
                </P>
                <P>All technical information provided must follow the format specified in paragraphs (1) through (10) below and must address both the destruction of specified risk materials, non-ambulatory cattle, and other cattle deemed to be a risk of carrying BSE and the control of the dissemination of prions and the production of energy from such inputs. Supporting information may be submitted in other formats. Design drawings and process flow charts are encouraged as exhibits. A discussion of each topic identified in paragraphs (1) through (10) is not necessary if the topic is not applicable to the specific project. Questions identified in the Agency's technical review of the project must be answered to the Agency's satisfaction before the application will be approved. Projects costing more than $100,000 require the services of a professional engineer (PE). Depending on the level of engineering required for the specific project or if necessary to ensure public safety, the services of a PE may be required for smaller projects. </P>
                <P>
                    (1) 
                    <E T="03">Qualifications of project team.</E>
                     The biomass project team will vary according to the complexity and scale of the project. For engineered systems, the project team should consist of a system designer, a project manager, an equipment supplier, a project engineer, a construction contractor or system installer, and a system operator and maintainer. One individual or entity may serve more than one role. 
                </P>
                <P>
                    The project team must have demonstrated expertise in similar biomass systems development (
                    <E T="03">e.g.</E>
                    , destruction of diseased animal carcasses), engineering, installation, and maintenance. The applicant must provide authoritative evidence that project team service providers have the necessary professional credentials or relevant experience to perform the required services for both the destruction or deactivation of prions and the production of energy. The applicant must also provide authoritative evidence that vendors of proprietary components can provide necessary equipment and spare parts for the system to operate over its design life. The application must:
                </P>
                <P>(i) Discuss the proposed project delivery method. Such methods include a design, bid, build where a separate engineering firm may design the project and prepare a request for bids and the successful bidder constructs the project at the applicant's risk, and a design build method, often referred to as turn key, where the applicant establishes the specifications for the project and secures the services of a developer who will design and build the project at the developer's risk; </P>
                <P>
                    (ii) Discuss the biomass system equipment manufacturers of major components being considered in terms of the length of time in business and the number of units installed at the capacity and scale being considered; 
                    <PRTPAGE P="28118"/>
                </P>
                <P>(iii) Discuss the project manager, equipment supplier, system designer, project engineer, and construction contractor qualifications for engineering, designing, and installing biomass energy systems including any relevant certifications by recognized organizations or bodies. Provide a list of the same or similar projects designed, installed, or supplied and currently operating and with references if available; and </P>
                <P>(iv) Describe the system operator's qualifications and experience for servicing, operating, and maintaining biomass renewable energy equipment or projects. Provide a list of the same or similar projects designed, installed, or supplied and currently operating and with references if available. </P>
                <P>
                    (2) 
                    <E T="03">Agreements and permits.</E>
                     The applicant must identify all necessary agreements and permits required for the project and the status and schedule for securing those agreements and permits, including the items specified in paragraphs (2)(i) through (vii). 
                </P>
                <P>(i) Biomass systems must be installed in accordance with applicable local, State, and national codes and regulations. Identify zoning and code issues, and required permits and the schedule for meeting those requirements and securing those permits. </P>
                <P>(ii) Identify licenses where required and the schedule for obtaining those licenses. </P>
                <P>(iii) Identify land use agreements required for the project and the schedule for securing the agreements and the term of those agreements. </P>
                <P>(iv) Identify any permits or agreements required for solid, liquid, and gaseous emissions or effluents and the schedule for securing those permits and agreements. </P>
                <P>(v) Identify available component warranties for the specific project location and size. </P>
                <P>(vi) Systems interconnected to the electric power system will need arrangements to interconnect with the utility. Identify utility system interconnection requirements, power purchase arrangements, or licenses where required and the schedule for meeting those requirements and obtaining those agreements. This is required even if the system is installed on the customer side of the utility meter. For systems planning to utilize a local net metering program, describe the applicable local net metering program. </P>
                <P>(vii) Identify all environmental issues, including environmental compliance issues, associated with the project. </P>
                <P>
                    (3) 
                    <E T="03">Resource assessment.</E>
                     The applicant must provide adequate and appropriate evidence of the availability of the biomass resource required for the system to operate as designed. Indicate the type and quantity of the biomass resource including storage, where applicable. Where applicable, also indicate shipping or receiving method and required infrastructure for shipping. For proposed projects with an established resource, provide a summary of the resource. 
                </P>
                <P>
                    (4) 
                    <E T="03">Design and engineering.</E>
                     The applicant must provide authoritative evidence that the system will be designed and engineered so as to meet its intended purposes (destruction or deactivation of prions and production of energy), will ensure public safety, and will comply with applicable laws, regulations, agreements, permits, codes, and standards. Projects shall be engineered by a qualified entity. Systems must be engineered as a complete, integrated system with matched components. The engineering must be comprehensive including site selection, system and component selection, and system monitoring equipment. Systems must be constructed by a qualified entity.
                </P>
                <P>(i) The application must include a concise but complete description of the project including location of the project; resource characteristics, including the kind and amount of biomass inputs; system specifications; electric power system interconnection, if applicable; kind, amount, and quality of the energy output; method to be used to destroy or otherwise deactivate prions; and monitoring equipment. Identify possible vendors and models of major system components. Describe the expected electric power, fuel production, or thermal energy production of the proposed system as rated and as expected in actual field conditions. For systems with a capacity more than 10 tons per day of biomass, address performance on a monthly and annual basis. For small projects such as a commercial biomass furnace or pelletizer of up to 5 tons daily capacity, proven, commercially available devices need not be addressed in detail. Describe the uses of or the market for electricity, heat, or fuel produced by the system. Discuss the impact of reduced or interrupted biomass availability on the system process, including any effect on the destruction or deactivation of prions. </P>
                <P>(ii) The application must include a description of the project site and address issues such as site access, foundations, backup equipment when applicable, and environmental concerns with emphasis on visibility, odor, noise, construction, and installation issues. Identify any unique construction and installation issues. </P>
                <P>(iii) Sites must be controlled by the small business for the proposed project life or for the financing term of any associated federal loans or loan guarantees. </P>
                <P>(iv) Where incinerators are used, they must conform to all EPA standards for incinerators or, in the case of State's with EPA-approved emissions guidelines, the applicable State incinerator and ambient air quality rules. </P>
                <P>
                    (5) 
                    <E T="03">Project development schedule.</E>
                     The applicant must identify each significant task, its beginning and end, and its relationship to the time needed to initiate and carry the project through startup and shakedown. Provide a detailed description of the project timeline including resource assessment, system and site design, permits and agreements, equipment procurement, and system installation from excavation through startup and shakedown. 
                </P>
                <P>
                    (6) 
                    <E T="03">Financial feasibility.</E>
                     The applicant must provide a study that describes costs and revenues of the proposed project to demonstrate the financial performance of the project. Provide a detailed analysis and description of project costs including project management, resource assessment, project design, project permitting, land agreements, equipment, site preparation, system installation, startup and shakedown, warranties, insurance, financing, professional services, and operations and maintenance costs. Provide a detailed analysis and description of annual project revenues and expenses. Provide a detailed description of applicable investment incentives, productivity incentives, loans, and grants. 
                </P>
                <P>
                    (7) 
                    <E T="03">Equipment procurement.</E>
                     The applicant must demonstrate that equipment required by the system is available and can be procured and delivered within the proposed project development schedule. Biomass systems may be constructed of components manufactured in more than one location. Provide a description of any unique equipment procurement issues such as scheduling and timing of component manufacture and delivery, ordering, warranties, shipping, receiving, and on-site storage or inventory. 
                </P>
                <P>
                    (8) 
                    <E T="03">Equipment installation.</E>
                     The applicant must fully describe the management of and plan for site development and system installation, provide details regarding the scheduling of major installation equipment needed for project construction, and provide a description of the startup and 
                    <PRTPAGE P="28119"/>
                    shakedown specification and process and the conditions required for startup and shakedown for each equipment item individually and for the system as a whole. 
                </P>
                <P>
                    (9) 
                    <E T="03">Operations and maintenance.</E>
                     The applicant must identify the operations and maintenance requirements of the system necessary for the system to operate as designed over the design life. The applicant must: 
                </P>
                <P>(i) Provide information regarding available system and component warranties and availability of spare parts; </P>
                <P>(ii) For systems having a biomass input capacity exceeding 10 tons of biomass per day, </P>
                <P>(A) Describe the routine operations and maintenance requirements of the proposed system, including maintenance schedule for the mechanical, piping, and electrical systems and system monitoring and control requirements. Provide information that supports expected design life of the system and timing of major component replacement or rebuilds; and </P>
                <P>(B) Discuss the costs and labor associated with operations and maintenance of system and plans for in or outsourcing. Describe opportunities for technology transfer for long term project operations and maintenance by a local entity or owner/operator; and </P>
                <P>(C) Provide and discuss the risk management plan for handling large, unanticipated failures or major components. Include in the discussion, costs and labor associated with operations and maintenance of system and plans for in-sourcing or out-sourcing. </P>
                <P>
                    (10) 
                    <E T="03">Decommissioning.</E>
                     When uninstalling or removing the project, describe the decommissioning process. Describe any issues, requirements, and costs for removal and disposal of the system. 
                </P>
                <HD SOURCE="HD2">P. Evaluation of Application</HD>
                <P>In addition to the requirements specified in § 4279.165(a), the Agency will determine a project's technical feasibility, including its ability to destroy or deactivate prions and produce a source of energy, based on the information provided by the applicant and on other sources of information, such as recognized industry experts in the applicable technology field, as necessary, to determine technical feasibility of the proposed project. The environmental procedures, including the emergency procedures described in § 1940.332(b), will be utilized. </P>
                <HD SOURCE="HD2">Q. Loan Approval and Obligating Funds </HD>
                <P>When issuing a Conditional Commitment under § 4279.173(a), one of the conditions shall be that the project receiving guaranteed loan funds under this Pilot Program will be in compliance with all applicable State environmental laws and regulations. </P>
                <HD SOURCE="HD2">R. Domestic Lamb Industry Adjustment Assistance Program Set Aside </HD>
                <P>Section 4279.175 is not applicable. </P>
                <HD SOURCE="HD2">S. Routine Servicing</HD>
                <P>In addition to complying with the requirements in part 4287, subpart B, once the renewable energy project has been constructed, the lender must provide the Agency periodic reports from the borrower commencing the first full calendar year following the year in which project construction was completed and continuing for the life of the project. The borrower's reports will include, but not be limited to, the information specified in the following paragraphs, as applicable. </P>
                <P>(a) The actual amount of energy produced in BTUs, kilowatts, or similar energy equivalents (first 3 full years after project construction completed). </P>
                <P>(b) If applicable, documentation that identified health and/or sanitation problem has been solved (for the life of the project). </P>
                <P>(c) The annual income and/or energy savings of the renewable energy system (first 3 full years after project construction completed). </P>
                <P>(d) A summary of the cost of operating and maintaining the facility (first 3 full years after project construction completed). </P>
                <P>(e) Description of any maintenance or operational problems associated with the facility (for the life of the project). </P>
                <P>(f) Recommendations for development of future similar projects (for the life of the project). </P>
                <P>(g) The amount (pounds) separately of specified risk materials, non-ambulatory cattle, and other cattle deemed to be a risk of carrying BSE processed (for the life of the project). </P>
                <P>(h) Demonstration that the project is and has been in compliance with all applicable State environmental laws and regulations (for the life of the project). </P>
                <HD SOURCE="HD2">T. Transfer and Assumption</HD>
                <P>In complying with the requirements in § 4287.134, loans to provide additional funds in connection with a transfer and assumption must be considered as a new loan application under § 4279.161. </P>
                <HD SOURCE="HD2">U. Forms</HD>
                <P>This Pilot Program relies on numerous existing forms in the Business and Industry Guaranteed Loan program. These forms are to be used for the Pilot Program as they currently exist and as approved by the Office of Management and Budget, except as follows: </P>
                <P>(a) Lender's Agreement (Form 4279-4). </P>
                <P>(1) Section I, Item B, is applicable with the addition that negligent servicing includes any instance where a lender fails to ensure that all environmental laws are being complied with by an operation receiving guaranteed loan funds under this Pilot Program. </P>
                <P>(2) Section III, Item A.2, is not applicable. </P>
                <P>(b) Loan Note Guarantee (Form 4279-5), Section 3, Full Faith and Credit, under Conditions of Guarantee is applicable with the addition that negligent servicing includes any instance where a lender fails to ensure that all environmental laws are being complied with by an operation receiving guaranteed loan funds under this Pilot Program. </P>
                <SIG>
                    <DATED>Dated: May 12, 2004. </DATED>
                    <NAME>Gilbert G. Gonzalez, Jr., </NAME>
                    <TITLE>Acting Under Secretary. </TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11244 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 3410-XY-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF COMMERCE</AGENCY>
                <SUBAGY>Bureau of Economic Analysis</SUBAGY>
                <SUBJECT>Proposed Data Sharing Activity</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Bureau of Economic Analysis, Department of Commerce.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice and request for public comment.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>
                        The Bureau of Economic Analysis (BEA) proposes to provide to the Bureau of the Census (Census Bureau) data collected in its surveys of foreign direct investment (FDI) in the United States for statistical purposes exclusively. In accordance with the requirement of section 524(d) of the Confidential Information Protection and Statistical Efficiency Act of 2002 (CIPSEA), we are providing the opportunity for public comment on this data-sharing action. The Census Bureau will link the FDI data, primarily those collected in the Benchmark Survey of Foreign Direct Investment in the United States—2002, to establishments in the Census Bureau's 2002 Economic Census and Business Register. Through the use of these shared data, the Census Bureau 
                        <PRTPAGE P="28120"/>
                        will augment and improve its establishment data on all U.S. businesses from the Economic Census by separately identifying data for the establishments of foreign-owned U.S. companies for specific detailed industries, and by identifying data quality issues arising from reporting differences in the Census Bureau and BEA surveys. The Census Bureau and BEA will publish non-confidential aggregate reports (public use) that have cleared BEA and Census Bureau disclosure review. Disclosure review is a process conducted to verify that the data to be released do not reveal any confidential information.
                    </P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Written comments must be submitted on or before July 19, 2004.</P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>Please direct all written comments on this proposed program to the Director, Bureau of Economic Analysis, (BE-1), Washington, DC 20230.</P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>
                        Requests for additional information on this proposed program should be directed to Christopher Emond, Chief, Special Surveys Branch, International Investment Division, Bureau of Economic Analysis (BE-50), Washington, DC 20230, by phone on (202) 606-9826 or by e-mail at 
                        <E T="03">christopher.emond@bea.gov.</E>
                    </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <HD SOURCE="HD1">Background</HD>
                <P>
                    CIPSEA (Pub. L. 107-347, Title V) and the International Investment and Trade in Services Survey Act (Pub. L. 94-472, 22 United States Code (U.S.C.) 3101-3108) allow BEA and the Census Bureau to share certain business data for exclusively statistical purposes. Section 524(d) of the CIPSEA requires a 
                    <E T="04">Federal Register</E>
                     notice announcing the intent to share data (allowing 60 days for public comment).
                </P>
                <P>Section 524(d) also requires us to provide information about the terms of the agreement for data sharing. For the purposes of this notice, BEA has decided to group these terms by three categories. The categories are:</P>
                <P>• Shared data.</P>
                <P>• Statistical purposes for the shared data.</P>
                <P>• Data access and confidentiality</P>
                <HD SOURCE="HD1">Shared Data</HD>
                <P>BEA proposes to provide the Census Bureau with data collected from the FDI surveys. The agreement also calls for the Census Bureau to share data collected from the 2002 Economic Census and Business Register. A separate notice will address this issue.</P>
                <P>BEA will provide the Census Bureau with only those data items necessary to link records from the FDI surveys with the establishments from the Business Register. The Census Bureau will use these data for statistical purposes exclusively. Through record linkage, the Census Bureau will augment and improve its establishment data on all U.S. businesses from the Economic Census by separately identifying data for the establishments of foreign-owned U.S. companies for specific detailed industries, and by identifying data quality issues arising from reporting differences in the Census Bureau and BEA surveys.</P>
                <HD SOURCE="HD1">Statistical Purposes for the Shared Data</HD>
                <P>
                    The data collected from the FDI surveys are used to estimate the financial and operating data, direct investment positions, and the international transactions data of U.S. affiliates of foreign companies. Statistics from these surveys are published in articles in the 
                    <E T="03">Survey of Current Business</E>
                     and in separate data publications. All data are collected under sections 3101-3108, of Title 22 U.S.C.
                </P>
                <HD SOURCE="HD1">Data Access and Confidentiality</HD>
                <P>Title 22, U.S.C. 3104 protects the confidentiality of these data. The data may be seen only by persons sworn to uphold the confidentiality of the information. Access to the shared data will be restricted to specifically authorized personnel and will be provided for statistical purposes only. The results of this project are subject to disclosure protection. All Census Bureau employees with access to these data will become BEA Special Sworn Employees—meaning that they, under penalty of law, must uphold the data's confidentiality. To further safeguard the confidentiality of the data, BEA has conducted an Information Technology security review of the Census Bureau.</P>
                <SIG>
                    <DATED>Dated: May 11, 2004.</DATED>
                    <NAME>J. Steven Landefeld,</NAME>
                    <TITLE>Director, Bureau of Economic Analysis.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11170 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 3510-06-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF COMMERCE</AGENCY>
                <SUBAGY>Bureau of Industry and Security</SUBAGY>
                <DEPDOC>[Docket No. 03-BIS-06]</DEPDOC>
                <SUBJECT>Under Secretary for Industry and; Security In the Matter of: Arian Transportvermittlungs GmbH, Morsestrasse 1, D-50769 Cologne, Germany, Respondent; Decision and Order</SUBJECT>
                <P>
                    On May 15, 2003 the Bureau of Industry and Security (“BIS”) issued a charging letter against the respondent, Arian Transportvermittlungs GmbH (Arian), that alleged two violations of the Export Administration Regulations (Regulations).
                    <SU>1</SU>
                    <FTREF/>
                     The charging letter alleged that Arian committed one violation of § 764.2(a) and one violation of § 764.2(e) of the Regulations, issued under the Export Administration Act of 1979, as amended (50 U.S.C. app. 2401-2420 (2000)) (“Act”).
                    <SU>2</SU>
                    <FTREF/>
                </P>
                <FTNT>
                    <P>
                        <SU>1</SU>
                         The violations charged occurred in 1999. The Regulations governing the violations at issue are found in the 1999 version of the Code of Federal Regulations (15 CFR parts 730-774 (1999)). The 2003 Regulations establish the procedures that apply to this matter.
                    </P>
                </FTNT>
                <FTNT>
                    <P>
                        <SU>2</SU>
                         From August 21, 1994 through November 12, 2000, the Act was in lapse. During that period, the President, through Executive Order 12924, which had been extended by successive Presidential Notices, the last of which was August 3, 2000 (3 CFR, 2000 Comp. 397 (2001)), continued the Regulations in effect under the International Emergency Economic Powers Act (50 U.S.C. 1701-1706 (2000)) (IEEPA). On November 13, 2000, the Act was reauthorized and it remained in effect through August 20, 2001. Executive Order 13222 of August 17, 2001 (3 CFR, 2001 Comp., p. 783 (2002)), which has been extended by successive Presidential Notices, the most recent being that of August 7, 2003 (68 FR 47833, August 11, 2003), continues the Regulations in effect under IEEPA.
                    </P>
                </FTNT>
                <P>Specifically, the charging letter alleged that, on or about July 17, 1999, Arian reexported certain computers and encryption software, items subject to the Regulations and classified under Export Control Classification Numbers 4A994 and 5D002, from Germany to Iran without obtaining a license from BIS as required by § 746.7 of the Regulations. BIS alleged that, by reexporting the computers and encryption software, Arian committed one violation of § 764.2(a) of the Regulations.</P>
                <P>
                    The charging letter further alleged that, in connection with the reexport, Arian caused the transport of certain computers and encryption software to Iran with knowledge that a violation of the Regulations would occur. BIS alleged that, by causing the reexport of items with knowledge that a violation of the Regulations would occur, Arian committed one violation of § 764.2(e) of the Regulations.
                    <PRTPAGE P="28121"/>
                </P>
                <P>On the basis of the factual record before the Administrative Law Judge (ALJ), he found that the respondent failed to file an answer to BIS's charging letter within the time required by the Regulations. Indeed, service of the notice of issuance of a charging letter on the respondent was properly effected on July 22, 2003, a response to the charging letter was due no later than August 21, 2003, and the record does not include any such response from Arian. The ALJ therefore held Arian in default.</P>
                <P>Under the default procedures set forth in § 766.7(a) of the Regulations, “[f]ailure of the respondent to file an answer within the time provided constitutes a waiver of the respondent's right to appear,” and “on BIS's motion and without further notice to the respondent, [the ALJ] shall find the facts to be as alleged in the charging letter.” Accordingly, on April 8, 2004, the ALJ issued a Recommended Decision and Order, in which he found that the facts alleged in the charging letter constitute the findings of fact in this matter and, thereby, establish that Arian committed one violation of § 764.2(a) and one violation of § 764.2(e) of the Regulations. The ALJ also recommended a penalty of a ten-year denial of Arian's export privileges.</P>
                <P>Pursuant to § 766.22 of the Regulations, the ALJ's Recommended Decision and Order has been referred to me for final action. Based on my review of the entire record, I find that the record supports the ALJ's findings of fact and conclusions of law regarding each of the above-referenced charges. I also find that the penalty recommended by the ALJ is appropriate, given the knowing nature of the violations and the importance of preventing future unauthorized exports to Iran, an embargoed country. I therefore affirm the findings of fact and conclusions of law in the ALJ's Recommended Decision and Order.</P>
                <P>
                    <E T="03">It is hereby ordered,</E>
                </P>
                <P>
                    <E T="03">First,</E>
                     that, for a period of 10 years from the date on which this Order takes effect, Arian Transportvermittlungs GmbH (“Arian”), Morsestrasse 1, D-50769 Cologne, Germany, and all of its successors or assigns, and, when acting for or on behalf of Arian, its officers, representatives, agents, and employees (individually referred to as “a Denied Person”), may not, directly or indirectly, participate in any way in any transaction involving any commodity, software, or technology (hereinafter collectively referred to as “item”) exported or to be exported from the United States that is subject to the Regulations, or in any other activity subject to the Regulations, including, but not limited to:
                </P>
                <P>A. Applying for, obtaining, or using any license, License Exception, or export control document;</P>
                <P>B. Carrying on negotiations concerning, or ordering, buying, receiving, using, selling, delivering, storing, disposing of, forwarding, transporting, financing, or otherwise servicing in any way, any transaction involving any item exported or to be exported from the United States that is subject to the Regulations, or in an other activity subject to the Regulations; or </P>
                <P>C. Benefiting in any way from any transaction involving any item exported or to be exported from the United States that is subject to the Regulations, or in connection with any other activity subject to the Regulations.</P>
                <P>
                    <E T="03">Second</E>
                    , that no person may, directly or indirectly, do any of the following:
                </P>
                <P>A. Export or reexport to or on behalf of a Denied Person any item subject to the Regulations;</P>
                <P>B. Take any action that facilitates the acquisition or attempted acquisition by a Denied Person of the ownership, possession, or control of any item subject to the Regulations that has been or will be exported from the United States, including financing or other support activities related to a transaction whereby a Denied person acquires or attempts to acquire such ownership, possession, or control;</P>
                <P>C. Take any action to acquire from or to facilitate the acquisition or attempted acquisition from a Denied person of any item subject to the Regulations that has been exported from the United States; </P>
                <P>D. Obtain from a Denied Person in the United States any item subject to the Regulations with knowledge or reason to know that the item will be, or is intended to be, exported from the United States; or </P>
                <P>E. Engage in any transaction to service any item subject to the Regulations that has been or will be exported from the United States and that is owned, possessed, or controlled by a Denied Person, or service any item, of whatever origin, that is owned, possessed, or controlled by a Denied Person if such service involves the use of any item subject to the Regulations that has been or will be exported from the United States. For purposes of this paragraph, “servicing” means installation, maintenance, repair, modification, or testing.</P>
                <P>
                    <E T="03">Third</E>
                    , that after notice and opportunity for comment as provided § 766.23 of the Regulations, any person, firm, corporation, or business organization related to a Denied Person by affiliation, ownership, control, or position of responsibility in the conduct of trade or related services may also be made subject to the provisions of this Order.
                </P>
                <P>
                    <E T="03">Fourth</E>
                    , that this Order shall be served on the Denied Persons and on BIS, and shall be published in the 
                    <E T="04">Federal Register</E>
                    . In addition, the ALJ's Recommended Decision and Order, except for the section with the heading “Recommended Order,” shall be published in the 
                    <E T="04">Federal Register</E>
                    .
                </P>
                <P>
                    This Order, which constitutes the final agency action in this matter, is effective upon publication in the 
                    <E T="04">Federal Register</E>
                    .
                </P>
                <SIG>
                    <DATED>Dated: May 12, 2004.</DATED>
                    <NAME>Kenneth I. Juster,</NAME>
                    <TITLE>Under Secretary of Commerce for Industry and Security.</TITLE>
                </SIG>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11210  Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 3510-33-M</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF COMMERCE</AGENCY>
                <SUBAGY>National Oceanic and Atmospheric Administration</SUBAGY>
                <DEPDOC>[I.D. 051004E]</DEPDOC>
                <SUBJECT>North Pacific Fishery Management Council; Public Meeting</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of a joint public meeting.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The North Pacific Fishery Management Council's (Council) Non-Target Species Committee and Ad Hoc Working Group will meet June 3-4, 2004, in Seattle, WA.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>The meeting will be held on Thursday, June 3 through Friday, June 4, 2004, from 9 a.m. until 4:30 p.m..</P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>The meeting will be held at the Alaska Fishery Science Center, 7600 Sand Point Way North East, Building 4, Room 2143, Seattle, WA 98115.</P>
                    <P>
                        <E T="03">Council address:</E>
                         North Pacific Fishery Management Council, 605 W. 4th Avenue, Suite 306, Anchorage, AK 99501-2252.
                    </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Jane DiCosimo, Council staff; telephone: 907-271-2809.</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>
                    The committee will review a discussion paper that summarizes the status of recommendations proposed by the Council, committee, and working group for management of non-target groundfish species in the North Pacific. The committee and working group will jointly address a series of decision points outlined in the discussion paper. 
                    <PRTPAGE P="28122"/>
                    Policy decisions include: terms of reference for the committee; problem statement; approaches for the analysis; timeline for Council action; and identification of fishery management units, component species, and management objectives. Additional policy questions include: the role of target and non-target species in the ecosystem; potential losses and gains from the proposed system; process for monitoring and identifying species of conservation concern to ensure their protection; criteria for determining the extent to which it is practicable to decrease the bycatch of non-target species; acceptability of non-target species falling into an overfished status; criteria for establishing retention limits or time area closures; ensuring sustainability if criteria can not be defined; indicators triggering an action; defining non-target complexes; assessing appropriate bycatch level as a minimum measure; managing the remaining species; revising the overfishing level tier system to eliminate tier 6 for target species; defining the threshold between target and non-target; and defining the role of the groundfish plan teams.
                </P>
                <P>Although non-emergency issues not contained in this agenda may come before this group for discussion, those issues may not be the subject of formal action during this meeting. Action will be restricted to those issues specifically identified in this notice and any issues arising after publication of this notice that require emergency action under section 305(c) of the Magnuson-Stevens Fishery Conservation and Management Act, provided the public has been notified of the Council's intent to take final action to address the emergency.</P>
                <HD SOURCE="HD1">Special Accommodations</HD>
                <P>These meetings are physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Gail Bendixen at 907-271-2809 at least seven working days prior to the meeting date.</P>
                <SIG>
                    <DATED>Dated: May 13, 2004.</DATED>
                    <NAME>Alan D. Risenhoover,</NAME>
                    <TITLE>Acting Director, Office of Sustainable Fisheries, National Marine Fisheries Service.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. E4-1179 Filed 5-17-03; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 3510-22-S</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF COMMERCE</AGENCY>
                <SUBAGY>National Oceanic and Atmospheric Administration</SUBAGY>
                <DEPDOC>[I.D. 051004D]</DEPDOC>
                <SUBJECT>Pacific Fishery Management Council; Public Meeting</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of a public meeting.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The Pacific Fishery Management Council's (Council) Highly Migratory Species Management Team (HMSMT) will hold a work session, which is open to the public.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>The work session will be Tuesday, June 1, 2004, from 9 a.m. until 5 p.m. and Wednesday, June 2, 2004, from 9 a.m. until business for the day is completed.</P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>The work session will be held at NMFS Southwest Fisheries Science Center, Large Conference Room, 8604 La Jolla Shores Drive, Room D-203, La Jolla, CA 92037; telephone: (858) 546-7000.</P>
                    <P>
                        <E T="03">Council address:</E>
                         Pacific Fishery Management Council, 7700 NE Ambassador Place, Suite 200, Portland, OR 97220-1384.
                    </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Dan Waldeck, Pacific Fishery Management Council; telephone: (503) 820-2280.</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>The main purpose of this work session is for the HMSMT to continue work on development of initial recommendations for a limited entry program for the high seas longline fishery and other matters that could be included in an amendment to the fishery management plan (FMP) for Pacific Coast HMS fisheries. Specifically, in line with Council direction from the April 2004 Council meeting, the HMSMT is developing estimates of acceptable thresholds of species specific sea turtle takes under the HMS FMP. This information might be used to develop a regulatory package for restructuring fisheries under the HMS FMP. In addition, information from the Council-managed drift gillnet (DGN) fishery will be added to the fleet profile database developed by the HMSMT; including information on current DGN permit holders and active fishery participants, and landings history for the period 1997 through the present. This additional information might provide a means to consider restructuring the DGN fishery in concert with the high seas longline fishery. The rationale for expanding the database to include DGN fishery information is that the DGN fishery and high seas longline fishery, if both fisheries were allowed to operate, could require restructuring in order to ensure sea turtle takes are kept at levels that will not result in jeopardy to any Endangered Species Act-listed species. The HMSMT will report to the Council at the September 2004 Council meeting.</P>
                <P>Although non-emergency issues not contained in the meeting agenda may be discussed, those issues may not be the subject of formal action during this meeting. Action will be restricted to those issues specifically listed in this document and any issues arising after publication of this document that require emergency action under section 305(c) of the Magnuson-Stevens Fishery Conservation and Management Act, provided the public has been notified of the intent to take final action to address the emergency.</P>
                <HD SOURCE="HD1">Special Accommodations</HD>
                <P>The meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Carolyn Porter at (503) 820-2280 at least five days prior to the meeting date.</P>
                <SIG>
                    <DATED>Dated: May 13, 2004.</DATED>
                    <NAME>Alan D. Risenhoover,</NAME>
                    <TITLE>Acting Director, Office of Sustainable Fisheries, National Marine Fisheries Service.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. E4-1178 Filed 5-17-03; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 3510-22-S</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF COMMERCE</AGENCY>
                <SUBAGY>National Oceanic and Atmospheric Administration</SUBAGY>
                <DEPDOC>[I.D. 051004J]</DEPDOC>
                <SUBJECT>Endangered Species; File No. 1462</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Receipt of application.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>
                        Notice is hereby given that Inwater Research Group, Inc., 4160 NE Hyline Dr., Jensen Beach, FL, has applied in due form for a permit to take loggerhead (
                        <E T="03">Caretta caretta</E>
                        ), green (
                        <E T="03">Chelonia mydas</E>
                        ), hawksbill (
                        <E T="03">Eretmochelys imbricata</E>
                        ), and Kemp's ridley (
                        <E T="03">Lepidochelys kempii</E>
                        ) sea turtles for purposes of scientific research.
                    </P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Written, telefaxed, or e-mail comments must be received on or before June 17, 2004.</P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>
                        The application and related documents are available for review 
                        <PRTPAGE P="28123"/>
                        upon written request or by appointment in the following office(s):
                    </P>
                    <P>Permits, Conservation and Education Division, Office of Protected Resources, NMFS, 1315 East-West Highway, Room 13705, Silver Spring, MD 20910; phone (301)713-2289; fax (301)713-0376; and</P>
                    <P>Southeast Region, NMFS, 9721 Executive Center Drive North, St. Petersburg, FL 33702-2432; phone (727)570-5301; fax (727)570-5320.</P>
                    <P>Written comments or requests for a public hearing on this application should be mailed to the Chief, Permits, Conservation and Education Division, F/PR1, Office of Protected Resources, NMFS, 1315 East-West Highway, Room 13705, Silver Spring, MD 20910.  Those individuals requesting a hearing should set forth the specific reasons why a hearing on this particular request would be appropriate.</P>
                    <P>Comments may be submitted by facsimile at (301)713-0376, provided the facsimile is confirmed by hard copy submitted by mail and postmarked no later than the closing date of the comment period.</P>
                    <P>
                        Comments may also be submitted by e-mail.  The mailbox address for providing email comments is 
                        <E T="03">NMFS.Pr1Comments@noaa.gov</E>
                        .  Include in the subject line of the e-mail comment the following document identifier: File No. 1462.
                    </P>
                </ADD>
                  
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Patrick Opay or Ruth Johnson, (301)713-2289.</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>
                    The subject permit is requested under the authority of the Endangered Species Act of 1973, as amended (ESA; 16 U.S.C. 1531 
                    <E T="03">et seq.</E>
                    ) and the regulations governing the taking, importing, and exporting of endangered and threatened species (50 CFR 222-226).
                </P>
                <P>The applicant proposed to annually capture 100 loggerhead, 150 green, 25 hawksbill and 25 Kemp's ridley sea turtles using a large mesh tangle net in the waters of Lake Worth and the Indian River Lagoons of Florida.  Animals will be measured, flipper and passive integrated transponder (PIT) tagged, weighed, blood sampled and released.  Dietary samples will also be extracted from a subset of 40 green sea turtles annually using a sampling technique called lavage.  This research will provide size frequency, disease rate, relative abundance and feeding ecology data on marine turtles utilizing Lake Worth and the Indian River Lagoon System of Florida.  Information collected from this study will benefit state and federal managers in the conservation of these marine turtle species.  The applicant requests a 5 year permit.</P>
                <SIG>
                    <DATED>Dated: May 12, 2004.</DATED>
                    <NAME>Stephen L. Leathery,</NAME>
                    <TITLE>Chief, Permits, Conservation and Education Division, Office of Protected Resources, National Marine Fisheries Service.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11227 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 3510-22-S</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">CONSUMER PRODUCT SAFETY COMMISSION</AGENCY>
                <SUBJECT>Proposed Collection; Comment Request—Recordkeeping Requirements Under the Safety Regulations for Full-Size Cribs</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Consumer Product Safety Commission.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>
                        As required by the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the Consumer Product Safety Commission requests comments on a proposed three year extension of approval of information collection requirements in the safety regulations for full-size cribs codified at 16 CFR 1500.18(a)(13) and Part 1508. These regulations were issued to reduce hazards of strangulation, suffocation, pinching, bruising, laceration, and other injuries associated with full-size cribs. (A full-size crib is a crib having an interior length ranging from 49
                        <FR>3/4</FR>
                         inches to 55 inches and an interior width ranging from 25
                        <FR>3/8</FR>
                         to 30
                        <FR>5/8</FR>
                         inches.) The regulations prescribe performance, design, and labeling requirements for full-size cribs. They also require manufacturers and importers of those products to maintain sales records for a period of three years after the manufacture or importation of full-size cribs. If any full-size cribs subject to provisions of 16 CFR 1500.18(a)(13) and Part 1508 fail to comply in a manner severe enough to warrant a recall, the required records can be used by the manufacturer or importer and by the Commission to identify those persons and firms who should be notified of the recall. The Commission will consider all comments received in response to this notice before requesting approval of this collection of information from the Office of Management and Budget.
                    </P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Written comments must be received by the Office of the Secretary not later than July 19, 2004.</P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>
                        Written comments should be captioned “Collection of Information—Requirements Under the Safety Regulations for Full-Size Cribs” and mailed to the Office of the Secretary, Consumer Product Safety Commission, Washington, DC 20207, or delivered to that office, room 502, 4330 East-West Highway, Bethesda, Maryland 20814. Written comments may also be sent to the Office of the Secretary by facsimile at (301) 504-0127 or by e-mail at 
                        <E T="03">cpsc-os@cpsc.gov.</E>
                    </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>
                        For information about the proposed renewal of collection of information, or to obtain a copy of the pertinent regulations, call or write Linda L. Glatz, Office of Planning and Evaluation, Consumer Product Safety Commission, Washington, DC 20207; telephone (301) 504-7671, or by e-mail to 
                        <E T="03">lglatz@cpsc.gov.</E>
                    </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P/>
                <HD SOURCE="HD1">A. Estimated Burden</HD>
                <P>The Commission staff estimates that there are approximately 54 firms required to annually maintain sales records of full-size cribs. The staff further estimates that the average burden per respondent is five hours per year, for a total of 270 hours and an annual cost of $6,610. (270 hrs. × $24.48/hr. (Based on total compensation of all civilian workers in the U.S., September 2003, Bureau of labor Statistics) = $6,610)).</P>
                <HD SOURCE="HD1">B. Request for Comments</HD>
                <P>The Commission solicits written comments from all interested persons about the proposed collection of information. The Commission specifically solicits information relevant to the following topics:</P>
                <FP SOURCE="FP-1">—Whether the collection of information described above is necessary for the proper performance of the Commission's functions, including whether the information would have practical utility;</FP>
                <FP SOURCE="FP-1">—Whether the estimated burden of the proposed collection of information is accurate;</FP>
                <FP SOURCE="FP-1">—Whether the quality, utility, and clarity of the information to be collected could be enhanced; and</FP>
                <FP SOURCE="FP-1">—Whether the burden imposed by the collection of information could be minimized by use of automated, electronic or other technological collection techniques, or other forms of information technology.</FP>
                <SIG>
                    <DATED>Dated: May 12, 2004.</DATED>
                    <NAME>Todd A. Stevenson,</NAME>
                    <TITLE>Secretary, Consumer Product Safety Commission.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11228 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 6355-01-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <PRTPAGE P="28124"/>
                <AGENCY TYPE="S">CONSUMER PRODUCT SAFETY COMMISSION</AGENCY>
                <SUBJECT>Proposed Collection; Comment Request—Recordkeeping Requirements Under the Safety Regulations for Non-Full-Size Cribs</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Consumer Product Safety Commission.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>
                        As required by the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the Consumer Product Safety Commission requests comments on a proposed three year extension of approval of information collection requirements in the safety regulations for non-full-size cribs codified at 16 CFR 1500.18(a)(14) and Part 1509. These regulations were issued to reduce hazards of strangulation, suffocation, pinching, bruising, laceration, and other injuries associated with non-full-size cribs. (A non-full-size crib is a crib having an interior length greater than 55 inches or smaller than 49
                        <FR>3/4</FR>
                         inches; or an interior width greater than 30
                        <FR>5/8</FR>
                         inches or smaller than 25
                        <FR>3/8</FR>
                         inches; or both.) The regulations prescribe performance, design, and labeling requirements for non-full-size cribs. They also require manufacturers and importers of those products to maintain sales records for a period of three years after the manufacture or importation of non-full-size cribs. If any non-full-size cribs subject to provisions of 16 CFR 1500.18(a)(14) and Part 1509 fail to comply in a manner severe enough to warrant a recall, the required records can be used by the manufacturer or importer and by the Commission to identify those persons and firms who should be notified of the recall. The Commission will consider all comments received in response to this notice before requesting approval of this collection of information from the Office of Management and Budget.
                    </P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Written comments must be received by the Office of the Secretary not later than July 19, 2004.</P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>
                        Written comments should be captioned “Collection of Information—Requirements Under the Safety Regulations for Non-Full-Size Cribs” and mailed to the Office of the Secretary, Consumer Product Safety Commission, Washington, DC 20207, or delivered to that office, room 502, 4330 East-West Highway, Bethesda, Maryland 20814. Written comments may also be sent to the Office of the Secretary by facsimile at (301) 504-0127 or by e-mail at 
                        <E T="03">cpsc-os@cpsc.gov.</E>
                    </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>
                        For information about the proposed renewal of this collection of information, or to obtain a copy of the pertinent regulations, call or write Linda L. Glatz, Office of Planning and Evaluation, Consumer Product Safety Commission, Washington, DC 20207; telephone (301) 504-7671, or by e-mail to 
                        <E T="03">lglatz@cpsc.gov.</E>
                    </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P/>
                <HD SOURCE="HD1">A. Estimated Burden</HD>
                <P>The Commission staff currently estimates that there are approximately 16 firms required to annually maintain sales records of non-full-size cribs. The staff further estimates that the average number of hours per respondent is five per year, for a total of 80 hours and an annual cost of $1,958. (80 hrs. × $24.48/hr. (Based on total compensation of all civilian workers in the U.S., September 2003, Bureau of labor Statistics) = $1,958).</P>
                <HD SOURCE="HD1">B. Request for Comments</HD>
                <P>The Commission solicits written comments from all interested persons about the proposed renewal of this collection of information. The Commission specifically solicits information relevant to the following topics:</P>
                <FP SOURCE="FP-1">—Whether the collection of information described above is necessary for the proper performance of the Commission's functions, including whether the information would have practical utility;</FP>
                <FP SOURCE="FP-1">—Whether the estimated burden of the proposed collection of information is accurate;</FP>
                <FP SOURCE="FP-1">—Whether the quality, utility, and clarity of the information to be collected could be enhanced; and</FP>
                <FP SOURCE="FP-1">—Whether the burden imposed by the collection of information could be minimized by use of automated, electronic or other technological collection techniques, or other forms of information technology.</FP>
                <SIG>
                    <DATED>Dated: May 12, 2004.</DATED>
                    <NAME>Todd A. Stevenson,</NAME>
                    <TITLE>Secretary, Consumer Product Safety Commission.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11229 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 6355-01-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF DEFENSE</AGENCY>
                <SUBAGY>Office of the Secretary</SUBAGY>
                <RIN>[RIN 0720-ZA05]</RIN>
                <SUBJECT>Office of the Secretary of Defense (Health Affairs)/TRICARE Management Activity</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Department of Defense.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of a TRICARE demonstration project for the State of Alaska. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>
                        This notice is to advise interested parties of a Military Health System (MHS) demonstration project entitled 
                        <E T="03">TRICARE Demonstration Project for the State of Alaska</E>
                        . The delivery of health care services in the State of Alaska represents a unique situation that cannot be addressed fully by applying all of the at-risk standards that apply to the health services and support contractors who provide services in the other 49 states without some modification. Under this demonstration, the health services and support contractor who will be providing healthcare services for the Western Region Health Services and Support contract will be exempt from the underwriting provisions for the cost of civilian health care in the State of Alaska.
                    </P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">EFFECTIVE DATE:</HD>
                    <P>Effective with the start date of health care delivery for the current TRICARE Regions September 9, 10, and 12, 2004 within the TRICARE Management Activity Health Services and Support Contract for the Western Region.</P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>TRICARE Management Activity (TMA), Regional Operations Directorate, 5111 Leesburg Pike, Suite 810, Falls Church, VA 22041-3206.</P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Mr. Michael Talisnik, Office of the Assistant Secretary of Defense (Health Affairs)—TRICARE Management Activity, (703) 681-0064.</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <HD SOURCE="HD1">A. Background</HD>
                <P>Alaska is a land of extremes and contradictions. It is the largest state in the United States, containing one-fifth of all United States land, yet is one of the least populated. It boasts both the highest mountain in North America and the longest coastline of any state. There are just a few major roads providing residents the ability to travel to the major cities in the state. Other means of transportation are by boat or plane which places severe hardships on beneficiaries attempting to access needed healthcare services. It has geography characterized by harsh ice islands and desert tundra, yet cradles lush meadows and rain forests. Alaska's citizens are no less diverse.</P>
                <P>
                    Alaska's population is just under 627,000. Of these, approximately 71,000 are Military Health System (MHS) beneficiaries. More than half of these beneficiaries reside in south-central Alaska in the state's largest city—
                    <PRTPAGE P="28125"/>
                    Anchorage. Alaska's Military Treatment Facilities (MTFs) meet a large percentage of Alaska's beneficiary healthcare needs. The remaining is referred to local civilian providers or to the lower 48 states.
                </P>
                <P>The TRICARE Western Region health services and support contract, which includes Alaska, requires the contractor to underwrite the costs of civilian health care services (also referred to as “purchased care”) which is defined as care provided to all Civilian Health and Medical Program of the Uniformed Services eligible beneficiaries residing in the Western Region. The following categories of care/beneficiaries are specifically excluded from the TRICARE Western Region contract: Outpatient retail and mail order pharmacy; active duty supplemental care including TRICARE Prime Remote for Service members only (family members are underwritten by the health services and support contractor); Continued Health Care Benefits Program; Foreign/Outside the Continental United States claims; Medicare dual-eligible TRICARE beneficiaries; and cancer/clinical trials.</P>
                <P>The underwriting mechanism of TRICARE Western Region health services and support contract consists of an underwriting fee which may be considered to be an underwriting premium associated with the risk assumed by the contractor. It will be subject to a fee-adjustment formula which allows for increases or decreases inversely related to the actual costs. There is potential of creating a negative fee.</P>
                <P>Predicated upon the foregoing mechanism, coupled with the environment in which healthcare services are delivered in Alaska, there is a concern that if health care is underwritten by the Western Region health services and support contractor, the contractor may experience increases in actual costs for healthcare outside the control of the contractor. This has the potential of creating an unwarranted negative fee.</P>
                <P>Because of this concern, the purpose of this demonstration is to validate that the Western Region health services and support contractor can avoid the vagaries of Alaska healthcare and the potential negative effect that it may have on the contractor's fee, by not underwriting these healthcare costs for Alaska beneficiaries. Under the demonstration, the costs will be paid by the government from pass through funds.</P>
                <HD SOURCE="HD1">B. Description of Demonstration Project</HD>
                <P>Under this demonstration, the Western Region health services and support contractor will not be responsible for the underwriting fee for healthcare costs for MHS beneficiaries residing in Alaska. The contractor shall provide all the Services required for Alaska as specified in the TRICARE Operations Manual, Chapter 23, but will not be responsible for the underwriting fee associated with providing those Services under that chapter. All other provisions contained in the TRICARE Health Services and Support Contract, TRICARE Operations Manual (6010.51-M), TRICARE Policy Manual (6010.54-M), TRICARE Systems Manual (7950.1-M), and TRICARE Reimbursement Manual (6010.55-M), shall apply in Alaska.</P>
                <HD SOURCE="HD2">I. Implementation</HD>
                <P>This demonstration will operate for up to five years after the start of health care delivery for the TRICARE Management Activity Health Services and Support Contract for the Western Region unless extended by separate action. Following program evaluation, the Department of Defense will seek permanent authority to determine program continuation.</P>
                <HD SOURCE="HD2">II. Exclusion to the Demonstration Project</HD>
                <P>Participation in this demonstration is limited to healthcare provided in the State of Alaska.</P>
                <HD SOURCE="HD2">III. Evaluation</HD>
                <P>An independent evaluation of the demonstration will be conducted under a separate contract.</P>
                <P>The evaluation will be designed to use a combination of administrative and survey measures of health care access to provide analyses and comment on the effectiveness of the demonstration in meeting its goal of improving beneficiary access to healthcare by maximizing the potential pool of healthcare providers in Alaska.</P>
                <P>TRICARE beneficiaries will be asked to comment on the quality of their experiences getting the health care that they need. It is anticipated that the evaluation will compare the reports of TRICARE user-beneficiaries in Alaska to those from the TRICARE region under the administration of TriWest (West) where TriWest is responsible for provider network development and at risk for health care costs. The evaluation will begin at the time health care services are delivered under TriWest administration in both regions.</P>
                <P>All analyses will be adjusted to account for demographic differences between these two geographic domains. It is also anticipated that analyses will develop measures of access from data developed in quarterly administration of the TRICARE Beneficiary Survey. Additional administrative claims based indicators of access to health care within the two study domains will also be considered.</P>
                <SIG>
                    <DATED>Dated: May 12, 2004.</DATED>
                    <NAME>L.M. Bynum,</NAME>
                    <TITLE>Alternate OSD Federal Register Liaison Officer, Department of Defense.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11205  Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 5001-06-M</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF DEFENSE</AGENCY>
                <SUBAGY>Office of the Secretary</SUBAGY>
                <SUBJECT>Defense Science Board</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Department of Defense.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of Advisory Committee meeting.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The Defense Science Board Task Force on Global Positioning System will meet in closed session on June 18, 2004, and July 29, 2004, at Strategic Analysis Inc., 3601 Wilson Boulevard, Arlington, VA. The Task Force will review a range of issues dealing with Galileo (or some other future radio navigation satellite system) and provide recommendations to address these issues.</P>
                    <P>The mission of the Defense Science Board is to advise the Secretary of Defense and the Under Secretary of Defense for Acquisition, Technology &amp; Logistics on scientific and technical matters as they affect the perceived needs of the Department of Defense. At these meetings, the Defense Science Board Task Force will address: Provision of capabilities and services within GPS to ensure its viability in commercial markets; the impact on frequency spectrum use, signal waveforms and power management; access and denial issues throughout the spectrum of conflict; possible alternatives to a global radio navigation system including the development of small compact timing devices and/or navigation units; and vulnerabilities and upgrade strategies for all global radio navigation satellite systems (GRNSS). In addition, the Task Force will assess areas in which DoD should seek strong partnering relationships outside DoD, both within government and industry. It will recommend research and development areas that are uniquely in DoD interest and might not be accomplished by the private sector.</P>
                    <P>
                        In accordance with section 10(d) of the Federal Advisory Committee Act, Public Law 92-463, as amended (5 U.S.C. App. II), it has been determined 
                        <PRTPAGE P="28126"/>
                        that these Defense Science Board Task Force meetings concern matters listed in 5 U.S.C. 552b(c)(1) and that, accordingly, these meetings will be closed to the public.
                    </P>
                </SUM>
                <SIG>
                    <DATED>Dated: May, 12, 2004.</DATED>
                    <NAME>L.M. Bynum,</NAME>
                    <TITLE>Alternate OSD Federal Register Liaison Officer, Department of Defense.</TITLE>
                </SIG>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11206 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 5001-06-M</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF EDUCATION</AGENCY>
                <SUBJECT>Submission for OMB Review; Comment Request</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Department of Education.</P>
                </AGY>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The Leader, Regulatory Information Management Group, Office of the Chief Information Officer invites comments on the submission for OMB review as required by the Paperwork Reduction Act of 1995.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Interested persons are invited to submit comments on or before June 17, 2004.</P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>Written comments should be addressed to the Office of Information and Regulatory Affairs, Attention: Alice Thaler, Desk Officer, Department of Education, Office of Management and Budget, 725 17th Street, NW., Room 10222, New Executive Office Building, Washington, DC 20503 or faxed to (202) 395-6974.</P>
                </ADD>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>
                    Section 3506 of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35) requires that the Office of Management and Budget (OMB) provide interested Federal agencies and the public an early opportunity to comment on information collection requests. OMB may amend or waive the requirement for public consultation to the extent that public participation in the approval process would defeat the purpose of the information collection, violate State or Federal law, or substantially interfere with any agency's ability to perform its statutory obligations. The Leader, Regulatory Information Management Group, Office of the Chief Information Officer, publishes that notice containing proposed information collection requests prior to submission of these requests to OMB. Each proposed information collection, grouped by office, contains the following: (1) Type of review requested, 
                    <E T="03">e.g.,</E>
                     new, revision, extension, existing or reinstatement; (2) Title; (3) Summary of the collection; (4) Description of the need for, and proposed use of, the information; (5) Respondents and frequency of collection; and (6) Reporting and/or Recordkeeping burden. OMB invites public comment.
                </P>
                <SIG>
                    <DATED>Dated: May 13, 2004.</DATED>
                    <NAME>Angela C. Arrington,</NAME>
                    <TITLE>Leader, Regulatory Information Management Group, Office of the Chief Information Officer.</TITLE>
                </SIG>
                <HD SOURCE="HD1">Office of Special Education and Rehabilitative Services</HD>
                <P>
                    <E T="03">Type of Review:</E>
                     Extension.
                </P>
                <P>
                    <E T="03">Title:</E>
                     Grantee Reporting Form.
                </P>
                <P>
                    <E T="03">Frequency:</E>
                     Annually.
                </P>
                <P>
                    <E T="03">Affected Public:</E>
                     Businesses or other for-profit; Not-for-profit institutions; State, Local, or Tribal Gov't, SEAs or LEAs.
                </P>
                <P>
                    <E T="03">Reporting and Recordkeeping Hour Burden:</E>
                </P>
                <P>Responses: 350. </P>
                <P>Burden Hours: 400.</P>
                <P>
                    <E T="03">Abstract:</E>
                     The Grantee Reporting Form is an information collection form that has been approved and extended with minor modifications by OMB until February 29, 2004. The Rehabilitation Services Administration (RSA) currently uses the Grantee Reporting Form to assess grantees' compliance with program requirements and to report to Congress performance and progress in meeting the purpose for training programs as mandated in Title III of the Rehabilitation Act of 1973, as amended: to “ensure that skilled personnel are available to provide rehabilitation services to individuals with disabilities through vocational, medical, social, and psychological rehabilitation programs * * *” The Grantee Reporting Form will provide specific information in this regard, including the number of RSA scholars entering the public vocational rehabilitation workforce, in what rehabilitation field, and in what type of employment (
                    <E T="03">e.g.,</E>
                     State VR agency, nonprofit service provider or practice group).
                </P>
                <P>
                    Requests for copies of the submission for OMB review; comment request may be accessed from 
                    <E T="03">http://edicsweb.ed.gov</E>
                    , by selecting the “Browse Pending Collections” link and by clicking on link number 2464. When you access the information collection, click on “Download Attachments” to view. Written requests for information should be addressed to Department of Education, 400 Maryland Avenue, SW., Potomac Center, 9th Floor, Washington, DC 20202-4700. Requests may also be electronically mailed to the Internet address 
                    <E T="03">OCIO_RIMG@ed.gov</E>
                     or faxed to 202-245-6623. Please specify the complete title of the information collection when making your request.
                </P>
                <P>
                    Comments regarding burden and/or the collection activity requirements should be directed to Sheila Carey at her e-mail address 
                    <E T="03">Sheila.Carey@ed.gov.</E>
                     Individuals who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1-800-877-8339.
                </P>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11219 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4000-01-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">ENVIRONMENTAL PROTECTION AGENCY</AGENCY>
                <DEPDOC>[ER-FRL-6651-5]</DEPDOC>
                <SUBJECT>Agency Information Collection Activities</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>U.S. Environmental Protection Agency (EPA), Region 6.</P>
                    <P>
                        <E T="03">Notice of Intent:</E>
                         To prepare an Environmental Impact Statement (EIS) for the proposed reissuance of National Pollutant Discharge Elimination System (NPDES) General Permits (GPs) OKG010000 and NMG010000 for Concentrated Animal Feeding Operations (CAFOs) in Oklahoma and New Mexico, and Indian lands in Oklahoma and New Mexico.
                    </P>
                    <P>
                        <E T="03">Purpose:</E>
                         To comply with the National Environmental Policy Act of 1969, as amended, (NEPA) and evaluate the potential impacts associated with the proposed reissuance of the NPDES GPs.
                    </P>
                </AGY>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The EPA promulgated effluent limitations guidelines (ELGs) and New Source Performance Standards (NSPS) for CAFOs on February 14, 1974. In 1993, EPA Region 6 issued NPDES GPs for CAFOs in the states of Louisiana, New Mexico, Oklahoma and Texas. EPA Region 6 issued an Environmental Assessment and Finding of No Significant Impact on that action, pursuant to NEPA, and thereafter performed supplemental NEPA review on newly proposed CAFOs submitting notices of intent to be covered by the GPs. Some CAFOs did not apply for coverage under the GPs, and others have been constructed since the GPs expired on March 10, 1998.</P>
                    <P>
                        EPA promulgated revised CAFO ELGs and NSPS on February 12, 2003. Among other things, the new ELGs apply to facilities that were not covered by the 1974 ELGs, and require all CAFOs to apply for permit coverage. EPA Region 6 now proposes to reissue GPs for the states of Oklahoma and New Mexico, and Indian lands in Oklahoma and New Mexico. All CAFOs that were subject to either the 1974 NSPS or the 2003 NSPS when they commenced construction, meet the new source criteria at 40 CFR 129.29 and are new source facilities for purposes of NEPA review. Given the potentially large number of CAFOs 
                        <PRTPAGE P="28127"/>
                        involved, their potential environmental impacts, and anticipated controversy, Region 6 has decided to prepare an EIS on the proposal to reissue the General Permit. The citation to the ELGs is 40 CFR part 412, published at 68 FR 7176, 7629 on February 12, 2003.
                    </P>
                    <P>
                        <E T="03">Alternatives:</E>
                         EPA may approve or deny the proposed NPDES GP for either or both the state of Oklahoma or New Mexico, or approve with modifications to mitigate or reduce adverse impacts to acceptable levels. Other reasonable alternatives, including those outside EPA's authority, may also be evaluated in the EIS.
                    </P>
                    <P>
                        <E T="03">Scoping:</E>
                         Scoping meetings will be conducted on June 22, 2004, at 6:30 p.m. at the Metro Tech Business Conference Center, 1900 Springlake Drive in Oklahoma City, Oklahoma, and on June 24, 2004, at 6:30 p.m. in the Doña Ana Room at the Corbett Center, New Mexico State University in Las Cruces, New Mexico, to solicit verbal or written comments regarding concerns and issues that should be addressed in the EIS.
                    </P>
                    <P>
                        <E T="03">For Scoping Comments, Additional Information, or To Be Placed on the Mailing List for the EIS:</E>
                         Write or call Office of Planning and Coordination, EPA Region 6, 1445 Ross Ave., Dallas, TX 75202; tel: (214) 665-8150.
                    </P>
                    <P>
                        <E T="03">Responsible Official:</E>
                         Richard E. Greene, Regional Administrator.
                    </P>
                </SUM>
                <SIG>
                    <DATED>Dated: May 13, 2004.</DATED>
                    <NAME>Kimberley DePaul,</NAME>
                    <TITLE>Deputy Director of OFA.</TITLE>
                </SIG>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11225 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 6560-50-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">FEDERAL COMMUNICATIONS COMMISSION </AGENCY>
                <SUBJECT>Notice of Public Information Collection(s) Being Reviewed by the Federal Communications Commission, Comments Requested; Withdrawal </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Federal Communications Commission. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>
                        This document withdraws a notice appearing in the 
                        <E T="04">Federal Register</E>
                         on May 11, 2004 (69 FR 26096), requesting public comment on a new collection of information concerning 
                        <E T="03">Application for Digital Channel Election for Television Broadcast Station,</E>
                         FCC Form 339, OMB Control Number 3060-XXXX. We inadvertently submitted this document for publication prior to Commission consideration. 
                    </P>
                </SUM>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Barbara Kreisman (202) 418-1600. </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>
                    This document withdraws a notice requesting public comment on a new collection of information concerning 
                    <E T="03">Application for Digital Channel Election for Television Broadcast Station,</E>
                     FCC Form 339, OMB Control Number 3060-XXXX on May 11, 2004 (69 FR 26096). 
                </P>
                <SIG>
                    <FP>Federal Communications Commission. </FP>
                    <NAME>Marlene H. Dortch, </NAME>
                    <TITLE>Secretary. </TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11320 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 6712-01-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">FEDERAL RESERVE SYSTEM</AGENCY>
                <SUBJECT>Formations of, Acquisitions by, and Mergers of Bank Holding Companies</SUBJECT>
                <P>
                    The companies listed in this notice have applied to the Board for approval, pursuant to the Bank Holding Company Act of 1956 (12 U.S.C. 1841 
                    <E T="03">et seq.</E>
                    ) (BHC Act), Regulation Y (12 CFR Part 225), and all other applicable statutes and regulations to become a bank holding company and/or to acquire the assets or the ownership of, control of, or the power to vote shares of a bank or bank holding company and all of the banks and nonbanking companies owned by the bank holding company, including the companies listed below.
                </P>
                <P>
                    The applications listed below, as well as other related filings required by the Board, are available for immediate inspection at the Federal Reserve Bank indicated.  The application also will be available for inspection at the offices of the Board of Governors.  Interested persons may express their views in writing on the standards enumerated in the BHC Act (12 U.S.C. 1842(c)).  If the proposal also involves the acquisition of a nonbanking company, the review also includes whether the acquisition of the nonbanking company complies with the standards in section 4 of the BHC Act (12 U.S.C. 1843).  Unless otherwise noted, nonbanking activities will be conducted throughout the United States.  Additional information on all bank holding companies may be obtained from the National Information Center website at 
                    <E T="03">www.ffiec.gov/nic/</E>
                    .
                </P>
                <P>Unless otherwise noted, comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors not later than June 11, 2004.</P>
                <P>
                    <E T="04">A.  Federal Reserve Bank of Kansas City</E>
                     (Donna J. Ward, Assistant Vice President) 925 Grand Avenue, Kansas City, Missouri 64198-0001:
                </P>
                <P>
                    <E T="03">1.  Pinnacle Bancorp, Inc.</E>
                    , Central City, Nebraska; to acquire 100 percent of Financial Services of the Rockies, Inc., and thereby indirectly acquire First National Bank of Colorado Springs, both of Colorado Springs, Colorado.
                </P>
                <P>
                    <E T="03">2.  Union National Bancshares, Inc., ESOP</E>
                    , Chandler, Oklahoma; to become a bank holding company by acquiring up to 32.76 percent of the voting shares of Union National Bancshares, Inc., and thereby indirectly acquire voting shares of Union Bank of Chandler, both of Chandler, Oklahoma.
                </P>
                <SIG>
                    <P>Board of Governors of the Federal Reserve System, May 12, 2004.</P>
                    <NAME>Robert deV. Frierson,</NAME>
                    <TITLE>Deputy Secretary of the Board.</TITLE>
                </SIG>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11182 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 6210-01-S</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF HEALTH AND HUMAN SERVICES</AGENCY>
                <SUBAGY>Centers for Disease Control and Prevention</SUBAGY>
                <DEPDOC>[Program Announcement 04248]</DEPDOC>
                <SUBJECT>Childhood Asthma Prevalence and Risk Factors at the Border; Notice of Intent to Fund Single Eligibility Award</SUBJECT>
                <HD SOURCE="HD1">A. Purpose</HD>
                <P>The Centers for Disease Control and Prevention (CDC) announces the intent to fund fiscal year (FY) 2004 funds for a grant program for Childhood Asthma Prevalence and Risk Factors at the Border. The Catalog of Federal Domestic Assistance number for this program is 93.283.</P>
                <HD SOURCE="HD1">B. Eligible Applicant</HD>
                <P>Assistance will be provided only to the California Department of Health Services. Staff at the California Department of Health Services has previously conducted asthma studies at the U.S./Mexico border, and serve as an invaluable resource for this activity. No other organization has the depth of collaborative history in asthma research studies in this geographic area along the U.S/Mexican border.</P>
                <HD SOURCE="HD1">C. Funding</HD>
                <P>Approximately $210,000 is available in FY 2004 to fund this award. It is expected that the award will begin in August 2004, and will be made for a 12-month budget period within a project period of one year. Funding estimates may change.</P>
                <HD SOURCE="HD1">D. Where To Obtain Additional Information</HD>
                <P>
                    For general comments or questions about this announcement, contact: Technical Information Management, CDC Procurement and Grants Office, 
                    <PRTPAGE P="28128"/>
                    2920 Brandywine Road, Atlanta, GA 30341-4146, Telephone: 770-488-2700.
                </P>
                <P>For technical questions about this program, contact: Gregory O. Crawford, Project Officer, 1600 Clifton Road NE., Atlanta, GA 30333, Telephone: 404-498-1022.</P>
                <SIG>
                    <DATED>Dated: May 12, 2004.</DATED>
                    <NAME>William P. Nichols,</NAME>
                    <TITLE>Acting Director, Procurement and Grants Office, Centers for Disease Control and Prevention.</TITLE>
                </SIG>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11195 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4163-18-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF HEALTH AND HUMAN SERVICES </AGENCY>
                <SUBAGY>Centers for Disease Control and Prevention </SUBAGY>
                <SUBJECT>Monitoring Atypical HIV Strains Among Persons Newly Diagnosed With HIV Using Dried Blood Spots vs. Diagnostic Sera </SUBJECT>
                <P>
                    <E T="03">Announcement Type:</E>
                     New. 
                </P>
                <P>
                    <E T="03">Funding Opportunity Number:</E>
                     04118. 
                </P>
                <P>
                    <E T="03">Catalog of Federal Domestic Assistance Number:</E>
                     93.944. 
                </P>
                <P>
                    <E T="03">Key Dates:</E>
                </P>
                <P>
                    <E T="03">Letter of Intent Deadline:</E>
                     June 1, 2004. 
                </P>
                <P>
                    <E T="03">Application Deadline:</E>
                     June 21, 2004. 
                </P>
                <HD SOURCE="HD1">I. Funding Opportunity Description </HD>
                <AUTH>
                    <HD SOURCE="HED">Authority:</HD>
                    <P>This program is authorized under the Public Health Service Act Sections 301 and 318(b) (42 U.S.C. 241 and 247c), as amended.</P>
                </AUTH>
                <P>
                    <E T="03">Purpose:</E>
                     The purpose of the program is to expand the ability of health departments to perform surveillance of the prevalence of atypical strains of HIV, including drug resistant strains and non-B subtypes, by piloting the use of dried blood spots as an additional specimen type for this purpose. The use of serum from an HIV diagnostic blood draw for surveillance of atypical strains is the methodology used in several HIV resistance surveillance projects in various stages of implementation with different health departments. Some diagnostic sites and clinical centers cannot currently be included in these projects, due to logistical problems with specimen availability, processing or volume. The purpose of CDC funding for this activity is to allow state and local health departments, including both those already participating in atypical HIV strain surveillance and those not yet participating, to: 
                </P>
                <P>(1) Evaluate the feasibility and efficiency of routine use of dried blood spots (DBS) for surveillance of atypical strains of HIV, including drug resistant strains and non-B subtypes, in persons newly diagnosed with HIV. </P>
                <P>(2) Monitor the prevalence of atypical HIV strains, including antiretroviral drug resistant strains and non-B subtypes, among persons newly diagnosed with HIV, including those for whom sera from a diagnostic blood draw are not available for surveillance purposes, and those for whom diagnostic sera are used for surveillance of atypical strains. Compare the prevalence among the two groups. </P>
                <P>This project will fulfill the purpose of monitoring prevalence of atypical strains by extending surveillance to sites that would currently be unable to provide sera for genotyping. DBS may also be collected for atypical strain surveillance in other sites where the collection of DBS may be more acceptable or require fewer resources than the collection of diagnostic sera. A comparison of resource requirements for the two methods in a variety of site types will be an important part of the evaluation. This program addresses the “Healthy People 2010” focus area(s) of HIV. </P>
                <P>Measurable outcomes of the program will be in alignment with one (or more) of the following performance goal(s) for the National Center for HIV, STD, and TB Prevention (NCHSTP): Strengthen the capacity nationwide to monitor the epidemic, develop and implement effective HIV prevention interventions and evaluate prevention programs. </P>
                <P>The expected outcome is an enhanced ability to collect data on atypical HIV strains in persons newly diagnosed with HIV. Data from surveillance of atypical strains of HIV are used to identify emerging epidemics, monitor trends in transmission, target prevention resources and interventions to areas and populations most heavily affected, and evaluate programs designed to prevent the transmission of HIV. </P>
                <HD SOURCE="HD2">Research Objectives </HD>
                <P>(1) To monitor the prevalence of HIV drug resistant strains and non-B HIV-1 subtypes in persons newly diagnosed with HIV in public or private settings, including those in which sera are not available for HIV genotyping and those in which sera are used. </P>
                <P>(2) To compare the results of HIV genotyping for atypical strain surveillance purposes from both a serum or plasma specimen and a dried blood spot collected not more than three months after diagnosis for at least 20 newly diagnosed persons per area. </P>
                <P>(3) To compare the prevalence of atypical strains of HIV among persons diagnosed at sites where HIV diagnostic specimens are used for HIV drug resistance and subtype surveillance, and sites where HIV diagnostic specimens cannot be used, such as: </P>
                <P>a. Sites where blood draws are not used for HIV diagnosis. </P>
                <P>b. Sites where blood draw volumes are consistently too low for 1 ml of serum to be set aside for HIV genotyping for the purpose of atypical strain surveillance. </P>
                <P>c. Sites where the use of sera from the diagnostic blood draw for HIV genotyping is not practical because the time between blood draw and processing is consistently greater than 96 hours, rendering the amplification of virus for HIV drug resistance genotyping problematic. </P>
                <P>d. Sites where the use of DBS for atypical HIV strain surveillance is more acceptable than the use of sera to staff or participants, or where fewer resources may be required to collect DBS than sera. </P>
                <P>(4) To evaluate the resources needed and the logistics involved in collecting and transporting specimens and amplifying HIV for genotyping from DBS, compared with using HIV diagnostic sera, for routine atypical HIV strain surveillance. </P>
                <HD SOURCE="HD2">Activities </HD>
                <P>Awardee activities for this program are as follows:</P>
                <P>1. Identify HIV diagnostic sites, Counseling, Testing and Referral Centers, and/or clinical sites where HIV drug resistance surveillance in newly diagnosed persons cannot take place using the serum/plasma based methodology funded under PA 01194, PA 04017, and PA 00005 because of one of the following conditions: </P>
                <P>a. Blood draws are not used for HIV diagnosis. </P>
                <P>b. Blood draw volumes are consistently too low for 1 ml of serum to be set aside for HIV drug resistance genotyping. </P>
                <P>c. The use of sera from the diagnostic blood draw for HIV genotyping is not practical because the time between blood draw and processing is consistently greater than 96 hours, rendering the amplification of virus for HIV drug resistance genotyping problematic. </P>
                <P>d. DBS are more acceptable to staff or participants, or their collection, processing, and transport may require fewer resources than sera. </P>
                <P>
                    2. Identify the subset of those sites from which DBS could be obtained for equal to or greater than 90 percent of persons newly diagnosed with HIV in each site, either at the time of HIV diagnosis or no more than three months after diagnosis. 
                    <PRTPAGE P="28129"/>
                </P>
                <P>3. Identify comparison sites from which HIV diagnostic sera are being used, or can be used, for routine surveillance of atypical strains of HIV, in which logistics, resources, and staff time needed to collect and process specimens can be compared to those in sites where DBS will be collected. These sites may include, but are not limited to, sites already participating in atypical HIV strain surveillance under PA 00005, PA 01194, or PA 04017. </P>
                <P>4. Identify one or more sites in which paired specimens (sera or plasma + DBS) can be collected no more than three months after diagnosis from at least 20 persons newly diagnosed with HIV annually. (Note that the paired specimens may be collected from a blood draw required for routine surveillance or clinical purposes no more than three months following diagnosis, but need not necessarily be collected as part of a diagnostic blood draw.) </P>
                <P>5. Develop and implement (after appropriate ethics review) a protocol to obtain and transfer DBS from selected sites identified in (2), sera from sites identified in (3), and at least 20 paired specimens consisting of sera or plasma + DBS from any atypical strain surveillance site, to a laboratory collaborating with CDC and local health department staff on surveillance of HIV drug resistance in newly diagnosed persons through HIV drug resistance genotyping under PA 00005, PA 01194, or PA 04017. </P>
                <P>6. Record or download minimum specimen tracking and non-identifying demographic and clinical information, in formats currently used in HIV drug resistance surveillance funded under 00005, 01194, and 04017, to be transferred to CDC. </P>
                <P>7. Make available the option for each participant to designate a provider to receive a clinician-friendly hard copy report of HIV drug resistance and subtype results from the genotyping laboratory, similar to that currently produced in current HIV drug resistance surveillance protocols. </P>
                <P>8. Store HIV drug resistance genotyping data electronically and analyze them along with risk factor information for use in HIV prevention and public health programs. </P>
                <P>9. Record minimum data to evaluate labor and resources used to collect and process DBS, and to collect and process diagnostic sera, for surveillance of atypical strains of HIV. </P>
                <P>10. Collaborate with CDC in analyzing the data. </P>
                <P>11. Provide results and share data with network participants, other collaborators in the field, and with CDC. </P>
                <P>12. Attend an annual meeting to discuss project activities and methods for data and specimen collection to facilitate representative surveillance. </P>
                <P>13. Collaborate with CDC in evaluating the feasibility and efficiency of using DBS to supplement or replace serum-based surveillance to monitor prevalence of HIV drug resistance and non-B HIV subtypes in persons newly infected or newly diagnosed with HIV. Further collaborate with CDC in planning the extension of the method as part of routine surveillance of atypical HIV strains, if the method proves successful and if funds are available. </P>
                <P>In a cooperative agreement, CDC staff is substantially involved in the program activities, above and beyond routine grant monitoring. </P>
                <P>CDC Activities for this program are as follows: </P>
                <P>1. Assist in the development of a protocol or project description for Institutional Review Board (IRB) review at all cooperating institutions participating in the project to request a non-research determination. The IRB review at each cooperating institution will be done by an Office of Human Research Protection (OHRP)-approved IRB with either a single, multiple, or federal-wide project assurance. The CDC IRB will review and approve the protocol initially and on at least an annual basis until the project is completed, or until a non-research determination is received. </P>
                <P>2. Provide assistance in the design and conduct of the project and statistical analysis. </P>
                <P>3. Provide assistance in training, if requested. </P>
                <P>4. Provide assistance in locating or contracting with a laboratory participating in CDC-funded HIV drug resistance surveillance genotyping to provide HIV genotypic testing of the DBS and sera (or plasma). Work with participating laboratories to develop laboratory procedures to extend and validate current HIV genotyping methods for use with DBS. </P>
                <P>5. Assist in the analysis of the data and the presentation and publication of results. </P>
                <P>6. Collaborate with participants in evaluating the feasibility and cost effectiveness of using DBS to supplement or replace collection of diagnostic sera to monitor prevalence of atypical strains in persons newly infected or newly diagnosed with HIV. Further collaborate in planning the extension of the project as a long-term network, if the pilot is successful and if funds are available. </P>
                <HD SOURCE="HD1">II. Award Information </HD>
                <P>
                    <E T="03">Type of Award:</E>
                     Cooperative Agreement. 
                </P>
                <P>CDC involvement in this program is listed in the Activities Section above. </P>
                <P>
                    <E T="03">Fiscal Year Funds:</E>
                     2004. 
                </P>
                <P>
                    <E T="03">Approximate Total Funding:</E>
                     $500,000. 
                </P>
                <P>
                    <E T="03">Approximate Number of Awards:</E>
                     Six. 
                </P>
                <P>
                    <E T="03">Approximate Average Award:</E>
                     $83,000 (This amount is for the first 12-month budget period, and includes both direct and indirect costs). 
                </P>
                <P>
                    <E T="03">Floor of Award Range:</E>
                     None. 
                </P>
                <P>
                    <E T="03">Ceiling of Award Range:</E>
                     $200,000 (This ceiling is for the first 12-month budget period.). 
                </P>
                <P>
                    <E T="03">Anticipated Award Date:</E>
                     September 1, 2004. 
                </P>
                <P>
                    <E T="03">Budget Period Length:</E>
                     12 months. 
                </P>
                <P>
                    <E T="03">Project Period Length:</E>
                     Five years. 
                </P>
                <P>Throughout the project period, CDC's commitment to continuation of awards will be conditioned on the availability of funds, evidence of satisfactory progress by the recipient (as documented in required reports), and the determination that continued funding is in the best interest of the Federal Government. </P>
                <HD SOURCE="HD1">III. Eligibility Information </HD>
                <HD SOURCE="HD2">III.1. Eligible Applicants </HD>
                <P>Applications may be submitted by health departments of States, U.S. territories or their bona fide agents, including the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, and the six independently-funded city health departments of Chicago, Houston, Los Angeles, New York City, Philadelphia, and San Francisco. </P>
                <P>A Bona Fide Agent is an agency/organization identified by the state as eligible to submit an application under the state eligibility in lieu of a state application. If you are applying as a bona fide agent of a state or local government, you must provide a letter from the state or local government as documentation of your status. Place this documentation behind the first page of your application form. </P>
                <P>Areas conducting these activities must have a sufficient volume of newly diagnosed HIV cases in order to assess the correlation in results between DBS and sera or plasma with adequate statistical precision. </P>
                <P>Eligible applicants are limited to areas that have an HIV case reporting system in place as of April 1, 2004. </P>
                <HD SOURCE="HD2">III.2. Cost Sharing or Matching </HD>
                <P>
                    Matching funds are not required for this program. 
                    <PRTPAGE P="28130"/>
                </P>
                <HD SOURCE="HD2">III.3. Other </HD>
                <P>CDC will accept and review applications with budgets greater than the ceiling of the award range. </P>
                <P>If your application is incomplete or non-responsive to the requirements listed in this section, it will not be entered into the review process. You will be notified that your application did not meet submission requirements. </P>
                <P>
                    <E T="03">Individuals Eligible To Become Principal Investigators:</E>
                     Any individual with the skills, knowledge, and resources necessary to carry out the proposed research is invited to work with their institution to develop an application for support. Individuals from underrepresented racial and ethnic groups as well as individuals with disabilities are always encouraged to apply for CDC programs. 
                </P>
                <NOTE>
                    <HD SOURCE="HED">Note:</HD>
                    <P>Title 2 of the United States Code section 1611 states that an organization described in section 501(c)(4) of the Internal Revenue Code that engages in lobbying activities is not eligible to receive Federal funds constituting an award, grant, or loan. </P>
                </NOTE>
                <HD SOURCE="HD1">IV. Application and Submission Information </HD>
                <HD SOURCE="HD2">IV.1. Address To Request Application Package </HD>
                <P>
                    To apply for this funding opportunity, use application form PHS 398 (OMB number 0925-0001 rev. 5/2001). Forms and instructions are available in an interactive format on the CDC Web site, at the following Internet address: 
                    <E T="03">http://www.cdc.gov/od/pgo/forminfo.htm</E>
                    . 
                </P>
                <P>
                    Forms and instructions are also available in an interactive format on the National Institutes of Health (NIH) Web site at the following Internet address: 
                    <E T="03">http://www.grants.nih.gov/grants/funding/phs398/phs398.html</E>
                    . 
                </P>
                <P>If you do not have access to the Internet, or if you have difficulty accessing the forms on-line, you may contact the CDC Procurement and Grants Office Technical Information Management Section (PGO-TIM) staff at: 770-488-2700. Application forms can be mailed to you. </P>
                <HD SOURCE="HD2">IV.2. Content and Form of Application Submission </HD>
                <P>
                    <E T="03">Letter of Intent (LOI):</E>
                     Your LOI must be written in the following format: 
                </P>
                <P>• Maximum number of pages: three. </P>
                <P>• Font size: 12-point unreduced. </P>
                <P>• Single spaced. </P>
                <P>• Paper size: 8.5 by 11 inches. </P>
                <P>• Page margin size: One inch. </P>
                <P>• Printed only on one side of page. </P>
                <P>• Written in plain language, avoid jargon. </P>
                <P>Your LOI must contain the following information:</P>
                <P>• Descriptive title of the proposed research. </P>
                <P>• Evidence that at least 40 cases of HIV were diagnosed in the area in the latest 12 months for which data are available, accompanied by a brief description of the method by which the figures were obtained (including the elimination of duplicates). </P>
                <P>• Name, address, E-mail address, and telephone number of the Principal Investigator. </P>
                <P>• Names of other key personnel. </P>
                <P>• Participating institutions. </P>
                <P>• Number and title of this Program Announcement (PA). </P>
                <P>
                    <E T="03">Application:</E>
                     Follow the PHS 398 application instructions for content and formatting of your application. For further assistance with the PHS 398 application form, contact PGO-TIM staff at 770-488-2700, or contact GrantsInfo, telephone (301) 435-0714, e-mail: 
                    <E T="03">GrantsInfo@nih.gov</E>
                    . 
                </P>
                <P>Your research plan should address activities to be conducted over the entire five-year project period. Your detailed line-item budget narrative should cover the costs of activities for first one-year budget period. </P>
                <P>
                    You are required to have a Dun and Bradstreet Data Universal Numbering System (DUNS) number to apply for a grant or cooperative agreement from the Federal government. Your DUNS number must be entered on line 11 of the face page of the PHS 398 application form. The DUNS number is a nine-digit identification number, which uniquely identifies business entities. Obtaining a DUNS number is easy and there is no charge. To obtain a DUNS number, access 
                    <E T="03">http://www.dunandbradstreet.com</E>
                     or call 1-866-705-5711. 
                </P>
                <P>
                    For more information, see the CDC Web site at: 
                    <E T="03">http://www.cdc.gov/od/pgo/funding/pubcommt.htm</E>
                    . 
                </P>
                <P>This PA uses just-in-time concepts. </P>
                <P>Additional requirements that may require you to submit additional documentation with your application are listed in section “VI.2. Administrative and National Policy Requirements.” </P>
                <HD SOURCE="HD2">IV.3. Submission Dates and Times </HD>
                <P>
                    <E T="03">LOI Deadline Date:</E>
                     June 1, 2004. 
                </P>
                <P>CDC requests that you send a LOI if you intend to apply for this program. Although the LOI is not required, not binding, and does not enter into the review of your subsequent application, the LOI will be used to gauge the level of interest in this program, and to allow CDC to plan the application review. </P>
                <P>
                    <E T="03">Application Deadline Date:</E>
                     June 21, 2004. 
                </P>
                <P>
                    <E T="03">Explanation of Deadlines:</E>
                     Applications must be received in the CDC Procurement and Grants Office by 4 p.m. eastern time on the deadline date. If you send your application by the United States Postal Service or commercial delivery service, you must ensure that the carrier will be able to guarantee delivery of the application by the closing date and time. If CDC receives your application after closing due to: (1) carrier error, when the carrier accepted the package with a guarantee for delivery by the closing date and time, or (2) significant weather delays or natural disasters, you will be given the opportunity to submit documentation of the carriers guarantee. If the documentation verifies a carrier problem, CDC will consider the application as having been received by the deadline. 
                </P>
                <P>This announcement is the definitive guide on application submission address and deadline. It supersedes information provided in the application instructions. If your application does not meet the deadline above, it will not be eligible for review, and will be discarded. You will be notified that your application did not meet the submission requirements. </P>
                <P>CDC will not notify you upon receipt of your application. If you have a question about the receipt of your application, first contact your courier. If you still have a question, contact the PGO-TIM staff at: 770-488-2700. Before calling, please wait two to three days after the application deadline. This will allow time for applications to be processed and logged. </P>
                <HD SOURCE="HD2">IV.4. Intergovernmental Review of Applications </HD>
                <P>
                    Your application is subject to Intergovernmental Review of Federal Programs, as governed by Executive Order (EO) 12372. This order sets up a system for state and local governmental review of proposed federal assistance applications. You should contact your state single point of contact (SPOC) as early as possible to alert the SPOC to prospective applications, and to receive instructions on your state's process. Click on the following link to get the current SPOC list: 
                    <E T="03">http://www.whitehouse.gov/omb/grants/spoc.html</E>
                    . 
                </P>
                <HD SOURCE="HD2">IV.5. Funding Restrictions </HD>
                <P>Restrictions, which must be taken into account while writing your budget, are as follows: </P>
                <P>
                    Funding cannot be used for purchase of major laboratory equipment for the performance of HIV genotyping. (Laboratory supplies and labor for specimen processing may be included.) 
                    <PRTPAGE P="28131"/>
                </P>
                <P>If you are requesting indirect costs in your budget, you must include a copy of your indirect cost rate agreement. If your indirect cost rate is a provisional rate, the agreement should be less than 12 months of age. </P>
                <P>Awards will not allow reimbursement of pre-award costs. </P>
                <HD SOURCE="HD2">IV.6. Other Submission Requirements </HD>
                <P>
                    <E T="03">LOI Submission Address:</E>
                     Submit your LOI by express mail, delivery service, fax, or e-mail to:  Andrew Vernon, Scientific Review Administrator, CDC, National Center for HIV, STD and TB Prevention,  Office of the Director, Associate Director for Science,  1600 Clifton Road, Mail-Stop E-07,  Atlanta, Georgia, 30333, telephone number: 404-639-8000, fax: 404-639-8600, e-mail address: 
                    <E T="03">avernon@cdc.gov</E>
                    . 
                </P>
                <P>
                    <E T="03">Application Submission Address:</E>
                     Submit the original and five hard copies of your application by mail or express delivery service to:  Technical Information Management-PA# 04118, CDC Procurement and Grants Office,  2920 Brandywine Road,  Atlanta, GA 30341. 
                </P>
                <P>Applications may not be submitted electronically at this time. </P>
                <HD SOURCE="HD1">V. Application Review Information </HD>
                <HD SOURCE="HD2">V.1. Criteria </HD>
                <P>You are required to provide measures of effectiveness that will demonstrate the accomplishment of the various identified objectives of the cooperative agreement. Measures of effectiveness must relate to the performance goals stated in the “Purpose” section of this announcement. Measures must be objective and quantitative, and must measure the intended outcome. These measures of effectiveness must be submitted with the application and will be an element of evaluation. </P>
                <P>The goals of CDC-supported research are to advance the understanding of biological systems, improve the control and prevention of disease and injury, and enhance health. In the written comments, reviewers will be asked to evaluate the application in order to judge the likelihood that the proposed research will have a substantial impact on the pursuit of these goals. </P>
                <P>The scientific review group will address and consider each of the following criteria in assigning the application's overall score, weighting them as appropriate for each application. The application does not need to be strong in all categories to be judged likely to have major scientific impact and thus deserve a high priority score. For example, an investigator may propose to carry out important work that by its nature is not innovative, but is essential to move a field forward. </P>
                <P>The criteria are as follows:</P>
                <P>
                    <E T="03">Significance:</E>
                     Does this study address an important problem? If the aims of the application are achieved, how will scientific knowledge be advanced? What will be the effect of these studies on the concepts or methods that drive this field? 
                </P>
                <P>
                    <E T="03">Approach:</E>
                     Applicants should demonstrate the ability to collect adequate numbers of DBS and sera specimens. 
                </P>
                <P>1. Areas having at least 100 newly diagnosed cases of HIV annually should demonstrate that they are able to provide ALL of the following: </P>
                <P>a. At least 80 specimens (sera, plasma, or DBS) annually for atypical strain surveillance. </P>
                <P>b. At least 30 dried blood spot specimens annually. </P>
                <P>c. At least 20 paired sera or plasma + DBS annually. </P>
                <P>2. Areas having 40-99 cases of HIV diagnosed annually should demonstrate that they are able to provide ALL of the following: </P>
                <P>a. Specimens (sera, plasma, or DBS) from at least 80 percent of newly diagnosed cases annually for atypical strain surveillance. </P>
                <P>b. DBS specimens from at least 20 HIV cases reported in the state or local area annually. </P>
                <P>c. At least 20 paired sera or plasma/DBS specimens (these may include specimens in categories 2b and 2c). </P>
                <P>Other issues to be examined in applicant's approach include:</P>
                <P>• Are the conceptual framework, design, methods, and analyses adequately developed, well-integrated, and appropriate to the aims of the project? </P>
                <P>• Does the applicant acknowledge potential problem areas and consider alternative tactics? </P>
                <P>• Is there evidence that the health department has an agreement to collaborate with one or more sites in the area to collect DBS at the diagnostic blood draw or another routine blood draw from at least 90 percent of persons newly diagnosed with HIV at that site/those sites annually? </P>
                <P>
                    <E T="03">Innovation:</E>
                     Does the project employ novel concepts, approaches or methods? Are the aims original and innovative? Does the project challenge existing paradigms or develop new methodologies or technologies? 
                </P>
                <P>
                    <E T="03">Investigator:</E>
                     Is the investigator appropriately trained and well suited to carry out this work? Is the work proposed appropriate to the experience level of the principal investigator and other researchers (if any)? 
                </P>
                <P>
                    <E T="03">Environment:</E>
                     Does the scientific environment in which the work will be done contribute to the probability of success? Do the proposed experiments take advantage of unique features of the scientific environment or employ useful collaborative arrangements? Is there evidence of institutional support? Has the applicant demonstrated collaborative planning by the state and local health department, the state or local HIV diagnostic laboratory, and one or more HIV diagnostic or clinical sites from which DBS can be obtained? 
                </P>
                <P>
                    <E T="03">Protection of Human Subjects from Research Risks:</E>
                     Does the application adequately address the requirements of 45 CFR part 46 for the protection of human subjects? This will not be scored; however, an application can be disapproved if the research risks are sufficiently serious and protection against risks is so inadequate as to make the entire application unacceptable. 
                </P>
                <P>
                    <E T="03">Inclusion of Women and Minorities in Research:</E>
                     Does the application adequately address the CDC Policy requirements regarding the inclusion of women, ethnic, and racial groups in the proposed research? This includes: (1) The proposed plan for the inclusion of both sexes and racial and ethnic minority populations for appropriate representation; (2) the proposed justification when representation is limited or absent; (3) a statement as to whether the design of the study is adequate to measure differences when warranted; and (4) a statement as to whether the plans for recruitment and outreach for study participants include the process of establishing partnerships with community(ies) and recognition of mutual benefits. 
                </P>
                <P>
                    <E T="03">Budget:</E>
                     The reasonableness of the proposed budget and the requested period of support in relation to the proposed research. 
                </P>
                <HD SOURCE="HD2">V.2. Review and Selection Process </HD>
                <P>Applications will be reviewed for completeness by the Procurement and Grants Office (PGO) and for responsiveness by NCHSTP. Incomplete applications and applications that are non-responsive to the eligibility criteria will not advance through the review process. Applicants will be notified that their application did not meet submission requirements. </P>
                <P>
                    Applications that are complete and responsive to the PA will be evaluated for scientific and technical merit by an appropriate peer review group or charter study section convened by NCHSTP in accordance with the review criteria listed above. As part of the initial merit review, all applications may: 
                    <PRTPAGE P="28132"/>
                </P>
                <P>• Undergo a process in which only those applications deemed to have the highest scientific merit, generally the top half of the applications under review, will be discussed and assigned a priority score. </P>
                <P>• Receive a written critique. </P>
                <P>• Receive a second level review by the CDC, NCHSTP, Division of HIV/AIDS Prevention (DHAP) Senior Staff. </P>
                <P>
                    <E T="03">Award Criteria:</E>
                     Criteria that will be used to make award decisions include: 
                </P>
                <P>• Scientific merit (as determined by peer review). </P>
                <P>• Availability of funds. </P>
                <P>• Programmatic priorities. </P>
                <HD SOURCE="HD2">V.3. Anticipated Announcement and Award Dates </HD>
                <P>October 15, 2004. </P>
                <HD SOURCE="HD1">VI. Award Administration Information </HD>
                <HD SOURCE="HD2">VI.1. Award Notices </HD>
                <P>Successful applicants will receive a Notice of Grant Award (NGA) from the CDC Procurement and Grants Office. The NGA shall be the only binding, authorizing document between the recipient and CDC. The NGA will be signed by an authorized Grants Management Officer, and mailed to the recipient fiscal officer identified in the application. </P>
                <P>Unsuccessful applicants will receive notification of the results of the application review by mail. </P>
                <HD SOURCE="HD2">VI.2. Administrative and National Policy Requirements </HD>
                <HD SOURCE="HD3">45 CFR Part 74 and Part 92 </HD>
                <P>
                    For more information on the Code of Federal Regulations, see the National Archives and Records Administration at the following Internet address: 
                    <E T="03">http://www.access.gpo.gov/nara/cfr/cfr-table-search.html.</E>
                </P>
                <P>The following additional requirements apply to this project:</P>
                <P>• AR-1 Human Subjects Requirements </P>
                <P>• AR-2 Requirements for Inclusion of Women and Racial and Ethnic Minorities in Research </P>
                <P>• AR-4 HIV/AIDS Confidentiality Provisions </P>
                <P>• AR-5 HIV Program Review Panel Requirements </P>
                <P>• AR-7 Executive Order 12372 </P>
                <P>• AR-9 Paperwork Reduction Act Requirements </P>
                <P>• AR-10 Smoke-Free Workplace Requirements </P>
                <P>• AR-11 Healthy People 2010 </P>
                <P>• AR-12 Lobbying Restrictions </P>
                <P>• AR-14 Accounting System Requirements </P>
                <P>• AR-22 Research Integrity </P>
                <P>• AR-24 Health Insurance Portability and Accountability Act Requirements </P>
                <P>• AR-25 Release and Sharing of Data </P>
                <P>
                    Additional information on these requirements can be found on the CDC Web site at the following Internet address: 
                    <E T="03">http://www.cdc.gov/od/pgo/funding/ARs.htm.</E>
                </P>
                <HD SOURCE="HD2">VI.3. Reporting </HD>
                <P>You must provide CDC with an original, plus two hard copies of the following reports: </P>
                <P>1. Interim progress report, (use form PHS 2590, OMB Number 0925-0001, rev. 5/2001 as posted on the CDC website) no less than 90 days before the end of the budget period. The progress report will serve as your non-competing continuation application, and must contain the following elements: </P>
                <P>a. Current Budget Period Activities Objectives. </P>
                <P>b. Current Budget Period Financial Progress. </P>
                <P>c. New Budget Period Program Proposed Activity Objectives. </P>
                <P>d. Budget. </P>
                <P>e. Additional Requested Information. </P>
                <P>f. Measures of Effectiveness. </P>
                <P>2. Financial status report and annual progress report, no more than 90 days after the end of the budget period. </P>
                <P>3. Final financial and performance reports, no more than 90 days after the end of the project period. </P>
                <P>These reports must be mailed to the Grants Management Specialist listed in the “Agency Contacts” section of this announcement. </P>
                <HD SOURCE="HD1">VII. Agency Contacts </HD>
                <P>For general questions about this announcement, contact: Technical Information Management Section, CDC Procurement and Grants Office, 2920 Brandywine Road, Atlanta, GA 30341, telephone: 770-488-2700. </P>
                <P>For scientific/research issues, contact:</P>
                <P>
                    Diane Bennett, M.D., Extramural Project Officer, CDC, National Center for HIV, STD and TB Prevention, Division of HIV/AIDS Prevention, 1600 Clifton Road, Mail-Stop E-47, telephone: 404-639-5349, e-mail: 
                    <E T="03">dbennett@cdc.gov.</E>
                </P>
                <P>
                    For questions about peer review, contact: Andrew Vernon, Scientific Review Administrator, CDC, National Center for HIV, STD and TB Prevention, Office of the Director, Associate Director for Science, 1600 Clifton Road, Mail-Stop E-07,  Atlanta, Georgia 30333, telephone: 404-639-8000, e-mail: 
                    <E T="03">avernon@cdc.gov.</E>
                </P>
                <P>
                    For financial, grants management, or budget assistance, contact: Brenda Hayes, Grants Management Specialist, CDC Procurement and Grants Office, 2920 Brandywine Road, Atlanta, GA 30341, telephone: 770-488-2741, e-mail: 
                    <E T="03">bkh4@cdc.gov.</E>
                </P>
                <P>
                    For financial, grants management, or budget assistance in the territories, contact: Vincent Falzone, Contract Specialist, CDC Procurement and Grants Office, 2920 Brandywine Road, Atlanta, GA 30341, telephone: 770-488-2763, e-mail: 
                    <E T="03">vcf6@cdc.gov.</E>
                </P>
                <SIG>
                    <DATED>Dated: May 11, 2004. </DATED>
                    <NAME>William P. Nichols, </NAME>
                    <TITLE>Acting Director, Procurement and Grants Office, Centers for Disease Control and Prevention. </TITLE>
                </SIG>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11192 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4163-18-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF HEALTH AND HUMAN SERVICES</AGENCY>
                <SUBAGY>Centers for Disease Control and Prevention</SUBAGY>
                <SUBJECT>Healthcare Infection Control Practices Advisory Committee</SUBJECT>
                <P>In accordance with section 10(a)(2) of the Federal Advisory Committee Act (Pub. L. 92-463), the Centers for Disease Control and Prevention (CDC) announces the following meeting.</P>
                <P>
                    <E T="03">Name:</E>
                     Healthcare Infection Control Practices Advisory Committee (HICPAC).
                </P>
                <P>
                    <E T="03">Times and Dates:</E>
                     8:30 a.m.-5 p.m., June 21, 2004; 8:30 a.m.-4 p.m., June 22, 2004.
                </P>
                <P>
                    <E T="03">Place:</E>
                     Swiss
                    <E T="52">o</E>
                    tel, 3391 Peachtree Road, NE., Atlanta, Georgia 30333.
                </P>
                <P>
                    <E T="03">Status:</E>
                     Open to the public, limited only by the space available.
                </P>
                <P>
                    <E T="03">Purpose:</E>
                     The committee is charged with providing advice and guidance to the Secretary, the Assistant Secretary for Health, the Director, CDC, and the Director, National Center for Infectious Diseases (NCID), regarding (1) the practice of hospital infection control; (2) strategies for surveillance, prevention, and control of infections (
                    <E T="03">e.g.</E>
                    , nosocomial infections), antimicrobial resistance, and related events in settings where healthcare is provided; and (3) periodic updating of guidelines and other policy statements regarding prevention of healthcare-associated infections and healthcare-related conditions.
                </P>
                <P>
                    <E T="03">Matters to be Discussed:</E>
                     The agenda items will include issues related to public reporting of healthcare-associated infection rates; influenza vaccination of healthcare personnel; infection control issues in ambulatory care settings; strategies for surveillance of healthcare-associated infections; and 
                    <PRTPAGE P="28133"/>
                    updates on CDC activities of interest to the committee.
                </P>
                <P>Agenda items are subject to change as priorities dictate.</P>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Michele L. Pearson, M.D., Executive Secretary, HICPAC, Division of Healthcare Quality Promotion, NCID, CDC, 1600 Clifton Road, NE., M/S A-07, Atlanta, Georgia 30333, telephone 404/498-1182.</P>
                    <P>
                        The Director, Management Analysis and Services Office, has been delegated the authority to sign 
                        <E T="04">Federal Register</E>
                         notices pertaining to announcements of meetings and other committee management activities, for both CDC and the Agency for Toxic Substances and Disease Registry.
                    </P>
                    <SIG>
                        <DATED>Dated: May 12, 2004.</DATED>
                        <NAME>Alvin Hall,</NAME>
                        <TITLE>Director, Management Analysis and Services Office, Centers for Disease Control and Prevention.</TITLE>
                    </SIG>
                </FURINF>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11194 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4163-18-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF HEALTH AND HUMAN SERVICES</AGENCY>
                <SUBAGY>Centers for Disease Control and Prevention</SUBAGY>
                <SUBJECT>National Institute for Occupational Safety and Health; Advisory Board on Radiation and Worker Health</SUBJECT>
                <P>In accordance with section 10(a)(2) of the Federal Advisory Committee Act (Pub. L. 92-463), the Centers for Disease Control and Prevention (CDC) announces the following committee meeting:</P>
                <P>
                    <E T="03">Name:</E>
                     National Institute for Occupational Safety and Health (NIOSH), Advisory Board on Radiation and Worker Health (ABRWH).
                </P>
                <P>
                    <E T="03">Times and Dates:</E>
                     8 a.m.-4 p.m., June 2, 2004; 7 p.m.-8:30 p.m., June 2, 2004; 8:30 a.m.-4:30 p.m., June 3, 2004.
                </P>
                <P>
                    <E T="03">Place:</E>
                     Hyatt Regency Buffalo, Two Fountain Plaza, Buffalo, New York 14202, telephone 716/856-1234, fax 716/855-4958.
                </P>
                <P>
                    <E T="03">Status:</E>
                     Open 8 a.m.-4 p.m., June 2, 2004; Open 7 p.m.-8:30 p.m., June 2, 2004; Open 8 a.m.-12 p.m., June 3, 2004; Closed 1:30 p.m.-4:30 p.m., June 3, 2004.
                </P>
                <P>The meeting room accommodates approximately 65 people.</P>
                <P>
                    <E T="03">Background:</E>
                     The Advisory Board on Radiation and Worker Health (“the Board”) was established under the Energy Employees Occupational Illness Compensation Program Act (EEOICPA) of 2000 to advise the President, through the Secretary of Health and Human Services (HHS), on a variety of policy and technical functions required to implement and effectively manage the new compensation program. Key functions of the Board include providing advice on the development of probability of causation guidelines which have been promulgated by HHS as a final rule, advice on methods of dose reconstruction which have also been promulgated by HHS as a final rule, evaluation of the scientific validity and quality of dose reconstructions conducted by NIOSH for qualified cancer claimants, and advice on petitions to add classes of workers to the Special Exposure Cohort.
                </P>
                <P>In December 2000 the President delegated responsibility for funding, staffing, and operating the Board to HHS, which subsequently delegated this authority to CDC. NIOSH implements this responsibility for CDC. The charter was issued on August 3, 2001, and renewed on August 3, 2003.</P>
                <P>
                    <E T="03">Purpose:</E>
                     This board is charged with (a) providing advice to the Secretary, HHS, on the development of guidelines under Executive Order 13179; (b) providing advice to the Secretary, HHS, on the scientific validity and quality of dose reconstruction efforts performed for this Program; and (c) upon request by the Secretary, HHS, advise the Secretary on whether there is a class of employees at any Department of Energy facility who were exposed to radiation but for whom it is not feasible to estimate their radiation dose, and on whether there is reasonable likelihood that such radiation doses may have endangered the health of members of this class.
                </P>
                <P>
                    <E T="03">Matters To Be Discussed:</E>
                     The agenda for this meeting will focus on Program Status Reports from NIOSH and Department of Labor, Site Profile Status, Report on Access to Information for Performance of Dose Reconstruction, and a Board working session. There will be an evening public comment period scheduled for June 2, 2004, and the meeting will convene in closed session on June 3, 2004, from 1:30 p.m. to 4:30 p.m.
                </P>
                <P>The closed portion of the meeting on the afternoon of June 3rd will involve discussion of the Task Order proposal and Independent Government Cost Estimate (IGCE), which could lead to a revision of the IGCE. This contract will serve to provide technical support consultation to assist the ABRWH in fulfilling its statutory duty to advise the Secretary, HHS, on the scientific validity and quality of dose estimation and reconstruction efforts under the EEOICPA.</P>
                <P>This portion of the meeting will be closed to the public in accordance with provisions set forth regarding subject matter considered confidential under the terms of 5 U.S.C. 552b(c)(9)(B), 48 CFR 5.401(b)(1) and (4), and 48 CFR 7.304(d), and the Determination of the Director, Management Analysis and Services Office, Centers for Disease Control and Prevention, pursuant to Public Law 92-463.</P>
                <P>A summary of this meeting will be prepared and submitted within 14 days of the close of the meeting.</P>
                <P>The agenda is subject to change as priorities dictate.</P>
                <P>
                    <E T="03">Contact Person for More Information:</E>
                     Larry Elliott, Executive Secretary, ABRWH, NIOSH, CDC, 4676 Columbia Parkway, Cincinnati, Ohio 45226, telephone 513/533-6825, fax 513/533-6826.
                </P>
                <P>
                    The Director, Management Analysis and Services Office, has been delegated the authority to sign 
                    <E T="04">Federal Register</E>
                     notices pertaining to announcements of meetings and other committee management activities for both CDC and the Agency for Toxic Substances and Disease Registry.
                </P>
                <SIG>
                    <DATED>Dated: May 12, 2004.</DATED>
                    <NAME>Alvin Hall,</NAME>
                    <TITLE>Director, Management Analysis and Services Office, Centers for Disease Control and Prevention.</TITLE>
                </SIG>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11193 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4163-19-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF HEALTH AND HUMAN SERVICES </AGENCY>
                <SUBAGY>Centers for Medicare &amp; Medicaid Services </SUBAGY>
                <DEPDOC>[CMS-2189-N] </DEPDOC>
                <RIN>RIN 0938-ZA46 </RIN>
                <SUBJECT>Medicaid Program; Real Choice Systems Change Grants </SUBJECT>
                <HD SOURCE="HD1">Part 1. Overview Information </HD>
                <P>
                    <E T="03">Funding Opportunity Title:</E>
                     Medicaid Program; Real Choice Systems Change Grants. 
                </P>
                <P>
                    <E T="03">Announcement Type:</E>
                     Notice of funding availability (new announcement). 
                </P>
                <P>
                    <E T="03">Funding Opportunity Number:</E>
                     Not applicable. 
                </P>
                <P>
                    <E T="03">Catalog of Federal Domestic Assistance (CFDA) No.:</E>
                     93.779. 
                </P>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>
                        <E T="03">Deadline for Letter of Intent To Apply:</E>
                         States are encouraged to submit a notice of intent to apply for a grant no later than June 8, 2004. 
                    </P>
                    <P>
                        <E T="03">Date of Applicant's Teleconference:</E>
                         Information regarding the time and call-
                        <PRTPAGE P="28134"/>
                        in number for an open applicant's teleconference is available on the CMS Web site at 
                        <E T="03">http://www.cms.hhs.gov/newfreedom</E>
                        . 
                    </P>
                    <P>
                        <E T="03">Deadline for Grant Submission:</E>
                         Grant applications are due by July 19, 2004. All grant awards will be made before September 30, 2004. All grants awarded under this funding opportunity will have a budget period of 36 months and a start date of no later than October 1, 2004. 
                    </P>
                </DATES>
                <HD SOURCE="HD1">Part 2. Full Text of the Announcement </HD>
                <HD SOURCE="HD1">I. Funding Opportunity Description </HD>
                <HD SOURCE="HD2">A. Overview of Funding Opportunity </HD>
                <P>This notice announces the availability of funding from the Centers for Medicare &amp; Medicaid Services (CMS) for Real Choice Systems Change Grants. The Conference Report accompanying the Consolidated Appropriations Act, 2004 (Pub. L. 108-199) contained language expressing an intent to fund the Real Choice Systems Change Grants at $40 million. Although the Congress appropriated $40 million in funding for Real Choice Systems Change activities, the Congress also passed an across-the-board rescission of .59 percent and a second rescission of .6864 percent which would reduce the original $40 million to $39,491,060. Some of these funds will be used for fiscal year (FY) 2004 Aging and Disabilities Resource Centers grants that CMS will fund in collaboration with the Administration on Aging (AoA). This notice announces the availability of approximately $31 million in funding for nine grant opportunities pursuant to the President's Executive Order 13217 “Community-Based Alternatives for Individuals with Disabilities” and authorized under section 1110 of the Social Security Act (the Act). </P>
                <P>
                    The Congress recognized that States face formidable challenges in their efforts to fulfill their legal responsibilities under the Americans with Disabilities Act (ADA). In fiscal years 2001, 2002, and 2003, the Congress appropriated funds for “Real Choice Systems Change Grants” specifically to improve community-integrated services; and CMS awarded grants totaling approximately $158 million to 49 States, the District of Columbia, and two territories. With this support, States are continuing to address issues such as personal assistance services, direct service worker shortages, transitions from institutions to the community, respite service for caregivers and family members, and better transportation options. CMS has an ambitious national technical assistance strategy to support States' efforts to improve community-based service systems and enhance employment supports. CMS is also helping States assist each other by posting a repository of “Promising Practices” on its Web site at 
                    <E T="03">http://www.cms.hhs.gov/promisingpractices</E>
                     and by supporting the dissemination of technical assistance materials at 
                    <E T="03">http://www.hcbs.org</E>
                    . 
                </P>
                <P>Real Choice Systems Change Grants are a part of the President's New Freedom Initiative to eliminate barriers to equality and grant a “New Freedom” to children and adults of all ages who have a disability or long-term illness so that they may live and prosper in their communities. They are designed to assist States and others in building infrastructure that will result in effective and enduring improvements in long-term support systems. These systemic changes are designed to enable children and adults of any age who have a disability or long-term illness to: </P>
                <P>• Live in the most integrated community setting appropriate to their individual support requirements and preferences; </P>
                <P>• Exercise meaningful choices about their living environment, the providers of services they receive, the types of supports they use and the manner by which services are provided; and </P>
                <P>• Obtain quality services in a manner as consistent as possible with their community living preferences and priorities. </P>
                <P>
                    The complete solicitation package for the Real Choice Systems Change Grants, which includes programmatic, administrative, and eligibility information needed to apply for these grants is available at 
                    <E T="03">http://www.cms.hhs.gov/newfreedom/2004solicitation.pdf.</E>
                </P>
                <HD SOURCE="HD2">B. Description of Grant Opportunities </HD>
                <P>
                    Following are brief descriptions of the nine grant opportunities available under this notice. A full description of the programmatic requirements for each of the funding opportunities under the Real Choice Systems Change Grants is available in the solicitation package for these grants at 
                    <E T="03">http://www.cms.hhs.gov/newfreedom/2004solicitation.pdf.</E>
                </P>
                <HD SOURCE="HD3">1. Quality Assurance &amp; Quality Improvement System in Home and Community-Based Services (HCBS) </HD>
                <P>The purpose of the Quality Assurance &amp; Quality Improvement Systems in HCBS grant opportunity is to assist States to: (a) Fulfill their commitment to assure the health and welfare of individuals who participate in the State's home and community-based waivers under section 1915(c) of the Social Security Act (the Act); (b) develop effective methods to meet statutory requirements and CMS expectations by the use of ongoing quality management strategies; and (c) develop methods to involve program participants and community members in active roles in the State quality management activities. </P>
                <HD SOURCE="HD3">2. Integrating Long Term Supports With Affordable Housing </HD>
                <P>The purpose of the Long Term Supports coordinated with Affordable and Accessible Housing grant opportunity is to remove barriers that prevent Medicaid-eligible individuals with disabilities of all ages from residing in the community or in the housing arrangement of their choice. A major barrier to community living for these individuals is limited access to affordable, accessible, and quality housing that incorporates long term supports. This grant will assist States to create the infrastructure to increase the access to and the capacity of affordable and accessible housing, and to coordinate with supports funded through State Plan services, waiver services or other service agencies. It is not the intent of this grant opportunity to fund a nursing home transition initiative, nor is it intended as a vehicle for Medicaid to pay for housing costs, except for expenses associated with the transition of individuals from institutions. </P>
                <HD SOURCE="HD3">3. Portals from Early Periodic Screening, Diagnosis, and Treatment (EPSDT) to Adult Supports </HD>
                <P>
                    The purpose of the Portals from EPSDT to Adult Supports grant opportunity is to assist States in addressing the needs of children who have disabilities who receive community health services through EPDST and who are re-determined to be eligible for Supplemental Security Income (SSI)/Medicaid at age 21 (or younger at the discretion of the State). CMS will assist States in: (a) Developing and implementing a State Plan amendment, (b) developing a waiver or demonstration application to provide new supports to this population and implement enrollment into the waiver or demonstration; or (c) developing a waiver amendment application to expand either services or slots in the State's existing targeted disability waiver(s). These projects must evidence coordination with pertinent transition resources that are provided through the Social Security Administration (SSA), Department of Labor (DOL), or the Office of Special Education and Rehabilitation Services (OSERS). 
                    <PRTPAGE P="28135"/>
                </P>
                <HD SOURCE="HD3">4. Comprehensive Systems Reform Effort </HD>
                <P>The purpose of the Comprehensive Systems Reform Effort grant opportunity is to assist States to decrease their reliance on institutional services and increase the level of supports that are controlled by the individuals that receive them by supporting a comprehensive planning, designing, and implementation effort to reform their long term care systems. </P>
                <HD SOURCE="HD3">5. Mental Health: Systems Transformation </HD>
                <P>The purpose of the Mental Health: Systems Transformation grant opportunity is to provide funding to improve the ability of States to offer evidence-based and recovery-oriented services to consumers with mental illnesses with support of the Medicaid system. In July 2003, the President's New Freedom Commission on Mental Health finished its work and published its final report: Achieving the Promise: Transforming Mental Health Care in America. This grant opportunity will assist States in addressing recommendations made in this report to further align their mental health system with the recovery orientation of mental health practice. </P>
                <HD SOURCE="HD3">6. Rebalancing Initiative </HD>
                <P>The purpose of the Rebalancing Initiative grant opportunity is to enable States to develop and implement strategies to reform the financing and service designs of State long-term support systems to decrease reliance on institutional forms of care and increase the utilization of community-based long-term supports. These rebalancing strategies are likely to include systems for increasing access to home and community based services and transitioning individuals out of institutions. </P>
                <HD SOURCE="HD3">7. Living With Independence, Freedom, and Equality (LIFE) Account Feasibility and Demonstration </HD>
                <P>The purpose of the LIFE Account Feasibility and Demonstration grant opportunity is to enable States to conduct studies assessing the feasibility of developing LIFE Account savings programs. States may examine the feasibility of establishing and maintaining a program of individual savings accounts which eligible Medicaid participants can save money without affecting their eligibility or benefit levels for the State's Medicaid program, Supplemental Security Income, Social Security Disability Income, or any Federal assistance program. The LIFE Account savings program is intended to enable people with a disability or chronic condition to become more independent, assume increased responsibilities, and contribute to the communities in which they live. </P>
                <HD SOURCE="HD3">8. Family-to-Family Health Care Information and Education Centers </HD>
                <P>The purpose of this grant opportunity is to support the development of Family-to-Family Health Care Information and Education Centers. Organizations will use grant funds to establish Statewide family-run centers that will: (a) Provide education and training opportunities for families with children with special health care needs; (b) develop and disseminate needed health care and home and community-based services (HCBS) information to families and providers; (c) collaborate with existing Family-to-Family Health Care Information and Education Centers to benefit children with special health care needs; and (d) promote the philosophy of individual and family-directed supports. </P>
                <HD SOURCE="HD3">9. National State-to-State Technical Assistance Program for Community Living </HD>
                <P>This national technical assistance grant will support all of the FY 2004 “Real Choice Systems Change Grants” efforts for the entire 36-month project period. CMS expects that the technical assistance Grantee will engage in activities that include: (a) Providing technical assistance to the FY 2004 Real Choice Systems Change Grantees, FY 2004 Aging and Disability Resource Center Grantees, and others; (b) providing on-site State-to-State technical assistance; (c) developing technical assistance materials; (d) developing or providing expertise for States and children and adults of any age with a disability or long-term illness; (e) working with individual States, national associations of State agencies, consumer organizations, the National Governors Association, the National Conference of State Legislatures, and others to collect, refine, and disseminate information that aids in the effective administration of programs for community living; and (f) developing, gathering, analyzing, and disseminating relevant practical information. </P>
                <HD SOURCE="HD1">II. Award Information </HD>
                <HD SOURCE="HD2">Funding Available </HD>
                <P>
                    This notice announces the availability of Real Choice Systems Change funding of approximately $31 million for FY 2004. CMS anticipates making approximately 46 to 76 grants to States and others in nine categories. The anticipated number of awards, individual award amounts, and period of performance are detailed in section VIII of this notice in the table, “Table of Real Choice Systems Change Grants—FY 2004.” In this table, the amounts listed in the “maximum award” and “anticipated average award” columns refer to the amount available for the entire project period (that is, up to 36 months) and 
                    <E T="03">not</E>
                     an annual award amount renewable every 12 months. 
                </P>
                <P>
                    Grant applications are due on July 19, 2004. All grant awards will be made before September 30, 2004. All grants awarded under this funding opportunity will have a budget period of 36 months and a start date of no later than October 1, 2004. No more than one grant award per type of grant will be made to any State. A full description of the eligibility requirements for each of the funding opportunities under the Real Choice Systems Change Grants is available in the solicitation package for these grants at 
                    <E T="03">http://www.cms.hhs.gov/newfreedom/2004solicitation.pdf.</E>
                </P>
                <HD SOURCE="HD1">III. Eligibility Information </HD>
                <HD SOURCE="HD2">1. Eligible Applicants </HD>
                <P>
                    A. 
                    <E T="03">States.</E>
                     By “State” we refer to the definition provided under 45 CFR 74.2 as “any of the several States of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, or any agency or instrumentality of a State exclusive of local governments.” By “territory or possession” we mean Guam, the U.S. Virgin Islands, American Samoa, and the Commonwealth of the Northern Mariana Islands. 
                </P>
                <P>
                    States may and are encouraged to apply for more than one grant opportunity. For example, a State may apply for a Mental Health: Systems Transformation and a Rebalancing Initiative grant. Additionally, different State agencies may apply for different grant opportunities. For example, the single State Medicaid agency might apply for the Quality Assurance &amp; Quality Improvement Systems in HCBS grant and the agency administering a relevant section 1915(c) (of the Act) waiver might apply for the Portals From EPSDT to Adult Supports grant. However, no State may be awarded more than one grant per type of grant opportunity. For example, a State may not receive two Mental Health Systems Transformation grants, two Rebalancing Initiative grants, or two Integrating Long Term Supports with Affordable Housing grants. States may apply for any grant 
                    <PRTPAGE P="28136"/>
                    except the Family-to-Family Health Care Information and Education Center grants. 
                </P>
                <P>
                    B. 
                    <E T="03">State agencies or instrumentalities</E>
                     may apply for funding under any grant except the Family-to-Family Health Care Information and Education Centers grants. If an application is from an applicant that is not the Single State Medicaid Agency, a letter of endorsement from the Governor, State Medicaid Director, or Agency administering a relevant section 1915(c) (of the Act) home and community-based waiver must accompany the application; this requirement does not apply to applicants for the National State-to-State Technical Assistance Program for Community Living grant. To apply for a Mental Health: Systems Transformation grant, the Single State Medicaid Agency must have the support of the Mental Health Authority as demonstrated by a letter of endorsement from the State Mental Health Director. 
                </P>
                <P>
                    C. 
                    <E T="03">Any entity</E>
                     may apply for the National State-to-State Technical Assistance Program for Community Living grant. 
                </P>
                <P>
                    D. 
                    <E T="03">Any nonprofit organization</E>
                    , as defined as a corporation or association whose profits may not lawfully accrue to the benefit of any private shareholder or individual, may apply for the Family-to-Family Health Care Information and Education Center grant. Nonprofits whose mission includes services to families with children with special health care needs and whose Board of Directors have a majority of parents of children with special health care needs are especially encouraged to apply. 
                </P>
                <HD SOURCE="HD2">2. Cost Sharing or Matching </HD>
                <P>
                    Grantees are required to make a non-financial contribution of 5 percent of the total grant award (including all direct and indirect costs). Non-financial contributions may include the value of goods and/or services contributed by the Grantee (for example, salary and fringe benefits of staff devoting a percentage of their time to the grant not otherwise included in the budget or derived from Federal funds). The non-financial contribution requirement may also be satisfied if a third party participating in the grant makes an “in-kind contribution,” provided that the Grantee's contribution and/or the third-party in-kind contribution equals five percent of the total grant award (including all direct and indirect costs). Third-party in-kind contributions may include the value of the time spent by consumer task force members (using appropriate cost allocation methods to the extent that non-Federal funds are involved) who specifically contribute to the design, development, and implementation of the grant. Non-financial contributions must be included in the applicant's budget in Item 15 (Estimated Funding) on Standard Form 424A and described in the budget narrative/justification section of the solicitation package. The solicitation package for these grants is available at 
                    <E T="03">http://www.cms.hhs.gov/newfreedom/2004solicitation.pdf.</E>
                </P>
                <HD SOURCE="HD2">3. Eligibility Threshold Criteria </HD>
                <P>Applications that are not received by the application deadline will not be reviewed. </P>
                <P>
                    Even though an application may be reviewed and scored, it will not be funded if the application fails to meet any requirements as outlined in the “Format and Content of Applications” or “Eligibility Information” sections of the solicitation package at 
                    <E T="03">http://www.cms.hhs.gov/newfreedom/2004solicitation.pdf.</E>
                </P>
                <P>Applications from an eligible applicant will not be considered for funding if they submit the same or substantially similar scope of work (a) under more than one of this year's grant opportunities or (b) from the applicant's Real Choice Systems Change Grant that was funded in FY 2001, 2002, or 2003. </P>
                <P>For all grant opportunities except the Family-to-Family Health Care Information and Education Centers, only one application per grant category will be considered per State. Should a State submit multiple applications for a single grant category, only the highest-ranked application received from that State would be considered for funding. </P>
                <P>Although more than one non-profit organization within a State may submit an application for a Family-to-Family Health Care Information and Education Centers grant, a letter of endorsement from the Governor, State Medicaid Director, or Agency administering a relevant section 1915(c) (of the Act) home and community-based waiver (if applicable) is required for each applicant under this grant opportunity and no more than one application per State will be awarded in this grant opportunity. </P>
                <P>To apply for the Mental Health: Systems Transformation grant, the Single State Medicaid Agency and the State Mental Health Authority must both endorse the grant application. Either the Medicaid Agency or the Mental Health Authority may serve as the project lead. </P>
                <P>States that received a Assurance and Quality Improvement in Home and Community-Based Services grant in FY 2003 (that is, California, Colorado, Connecticut, Delaware, Georgia, Indiana, Maine, Minnesota, Missouri, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, West Virginia, Wisconsin) are not eligible for a Quality Assurance &amp; Quality Improvement in HCBS grant award from CMS in FY 2004. </P>
                <P>No CMS Family-to-Family Health Care Information and Education grant awards in FY 2004 will be made to any organization within a State that already has an entity that: </P>
                <P>• Was awarded a Family-to-Family Health Care Information and Education grant in FY 2003 (that is, Alaska, Colorado, Indiana, Maryland, Montana, Nevada, New Jersey, South Dakota, Wisconsin) or </P>
                <P>• Currently operates a Family-to-Family Health Care Information and Education Center funded through the Health Resources and Services Administration (HRSA) (that is, California, Florida, Maine, Minnesota, Tennessee, and Vermont). </P>
                <P>States that received a Money Follows the Person Rebalancing Initiative grant in FY 2003 (that is, California, Idaho, Maine, Michigan, Nevada, Pennsylvania, Texas, Washington, and Wisconsin) that plan to apply for a Rebalancing Initiative grant are strongly cautioned that CMS will not fund applications that propose activities that are currently funded under a State's existing CMS grants. </P>
                <HD SOURCE="HD1">IV. Application and Submission Information </HD>
                <HD SOURCE="HD2">1. Address To Request Application Package </HD>
                <P>
                    A complete electronic application package, including all required forms, for the Real Choice Systems Change Grants is available at 
                    <E T="03">http://www.grants.gov.</E>
                     Applicants are strongly encouraged to submit their applications electronically through 
                    <E T="03">http://www.grants.gov.</E>
                </P>
                <P>
                    Standard application forms and related instructions are available online at 
                    <E T="03">http://www.whitehouse.gov/omb/grants/sf424.pdf.</E>
                </P>
                <P>
                    Standard application forms, related instructions, and the solicitation package are also available from Nicole Nicholson, Centers for Medicare &amp; Medicaid Services, Office of Operations Management, Acquisition and Grants Group, C2-21-15 Central Building, 7500 Security Boulevard, Baltimore, MD 21244-1850, (410) 786-5158, e-mail: 
                    <E T="03">NNicholson@cms.hhs.gov.</E>
                </P>
                <HD SOURCE="HD2">2. Content and Form of Application Submission </HD>
                <P>
                    Applicants are encouraged to submit a Notice of Intent to Apply. Submission 
                    <PRTPAGE P="28137"/>
                    of a Notice of Intent to Apply is not required, does not bind the applicant to apply, nor does its submission cause an application to be reviewed more favorably. The receipt of Notices enables CMS to better plan the application review process. A Notice of Intent to Apply may be submitted in any format; however, a sample Notice is available in the solicitation package for these grants at 
                    <E T="03">http://www.cms.hhs.gov/newfreedom/2004solicitation.pdf.</E>
                </P>
                <P>
                    A full description of the content and form of applications for each of the funding opportunities under the Real Choice Systems Change Grants is available in the solicitation package for these grants at 
                    <E T="03">http://www.cms.hhs.gov/newfreedom/2004solicitation.pdf.</E>
                     A complete application consists of the following materials organized in the following sequence: (a) Title Page and Cover Letter; (b) Standard Forms, (c) Letter of Endorsement (if applicable); (d) Project Abstract; (e) Project Narrative; (f) Budget Narrative/Justification; (g) Required Attachments; and (h) Other Appendices. Applicants may meet CMS' pre-award requirements for documentation to verify cost sharing requirements of this notice through (a) letters of support and commitment from partners who will supply a non-financial match and/or (b) the project budget which specifies the non-financial match provided by the applicant organization. 
                </P>
                <HD SOURCE="HD2">3. Submission Dates and Times </HD>
                <P>
                    Information regarding the time and call-in number for an open applicant's teleconference is available on the CMS Web site at 
                    <E T="03">http://www.cms.hhs.gov/newfreedom.</E>
                </P>
                <P>
                    Notices of Intent to Apply for a grant are due by June 8, 2004. All grant applications are due by July 19, 2004. Applications submitted through 
                    <E T="03">http://www.grants.gov</E>
                     until 11:59 p.m. eastern time on July 19, 2004, will receive an automatic time stamp upon submission and be considered “on time.” Applicants will receive an automatic reply email acknowledging the application's receipt. 
                </P>
                <P>Applications mailed through the U.S. Postal Services or a commercial delivery service will be considered “on time” if received by close of business on July 19, 2004, or postmarked (first class mail) by July 19, 2004, and received within five (5) business days. If express, certified, or registered mail is used, proof of timely mailing is a legible dated mailing receipt from the U.S. Postal Service. Private metered postmarks are not acceptable as proof of timely mailings. Applicants who submit applications through the U.S. Postal Services or a commercial delivery service will not receive official notification that their application has been received on time from CMS. Applications that do not meet the above criteria will be considered late. Late applications will not be reviewed. </P>
                <HD SOURCE="HD2">4. Intergovernmental Review </HD>
                <P>Applications for these grants are not subject to review by States under Executive Order 12372, “Intergovernmental Review of Federal Programs” (45 CFR part 100). </P>
                <HD SOURCE="HD2">5. Funding Restrictions </HD>
                <P>
                    Reimbursement of indirect costs under this notice is governed by the provisions of OMB Circular A-87. A copy of OMB Circular A-87 is available online at: 
                    <E T="03">http://www.whitehouse.gov/omb/circulars/a087/a087.html.</E>
                     Additional information regarding the Department's internal policies for indirect rates is available online at: 
                    <E T="03">http://www.hhs.gov/grantsnet/adminis/gpd/gpd301.htm.</E>
                </P>
                <P>Grant funds under this notice may be used for direct services to beneficiaries for the Quality Assurance &amp; Quality Improvement in HCBS and Integrating Long Term Supports with Affordable Housing grant opportunities only. Direct Services do not include expenses: (a) Budgeted for consumer task force member participation in Real Choice Systems Change Conferences, (b) the provision of technical assistance; or (c) attendance at technical assistance conferences sponsored by CMS or its national technical assistance providers for the benefit of Real Choice Systems Change Grantees. No grant awards made under this notice may be used to reimburse pre-award costs. </P>
                <HD SOURCE="HD2">6. Other Submission Requirements </HD>
                <P>
                    Applicants may submit 
                    <E T="03">either</E>
                     an electronic application or a paper copy application. Applicants 
                    <E T="03">may not</E>
                     submit the same application in more than one format, and the choice of one application format over another will not cause an application to be reviewed more favorably. All standard application forms may be obtained as detailed in section IV of this notice. Additional submission requirements for the Real Choice Systems Change Grants is available in the solicitation package for these grants at 
                    <E T="03">http://www.cms.hhs.gov/newfreedom/2004solicitation.pdf.</E>
                </P>
                <P>
                    Applicants are strongly encouraged to submit their applications electronically. Electronic applications may be submitted through 
                    <E T="03">http://www.grants.gov.</E>
                     For complete explanation of the electronic application process, applicants should review the “getting started” information provided at 
                    <E T="03">http://www.grants.gov/GetStarted.</E>
                </P>
                <P>Applicants that choose to submit a paper application are required to submit one original application and two copies to: Real Choice Systems Change Grants, Attn: Marian Webb, Centers for Medicare &amp; Medicaid Services, Acquisition and Grants Group, AGG/DRCG, Mail Stop C2-21-15, 7500 Security Boulevard, Baltimore, MD 21244-1850. </P>
                <P>
                    Beginning October 1, 2003, applicants are required to have a Dun and Bradstreet (DUNS) number to apply for a grant or cooperative agreement from the Federal Government. The DUNS number is a nine-digit identification number, which uniquely identifies business entities. Obtaining a DUNS number is easy and there is no charge. To obtain a DUNS number, access the following Web site: 
                    <E T="03">http://www.dunandbradstreet.com</E>
                     or call 1-866-705-5711. This number should be entered in the block with the applicant's name and address on the cover page of the application (Item 5 on the Form SF-424, Application for Federal Assistance), with the annotation “DUNS” followed by the DUNS number that identified the applicant. The name and address in the application should be exactly as given for the DUNS number. 
                </P>
                <HD SOURCE="HD1">V. Application Review Information </HD>
                <HD SOURCE="HD2">1. Criteria </HD>
                <P>
                    Each of the nine funding opportunities available under the Real Choice Systems Change Grants have extremely detailed evaluation criteria, which are available in the solicitation package at 
                    <E T="03">http://www.cms.hhs.gov/newfreedom/2004solicitation.pdf.</E>
                     Although the specific criteria and point values differ by funding opportunity, all proposals will be evaluated on strength of their (a) identification of problems or system issues, (b) project description and methodology, (c) significance and sustainability, (d) partnerships, and (e) budget justification and resources. 
                </P>
                <HD SOURCE="HD2">2. Review and Selection Process </HD>
                <HD SOURCE="HD3">A. How the Merit of Applications Will Be Determined </HD>
                <P>CMS will employ a multiphase review process to determine the applications that will be reviewed and the merit of the applications that are reviewed. The multiphase application review process includes the following: </P>
                <P>
                    • Applications will be screened by Federal staff to determine eligibility for further review using the criteria detailed in section III “Eligibility Information” of this notice. Applications that that are 
                    <PRTPAGE P="28138"/>
                    received late or fail to meet the eligibility requirements as detailed in the “Eligibility Information” section of this notice will not be reviewed. 
                </P>
                <P>• Applications will be objectively reviewed by a panel of experts, the exact number and composition of which will be determined by CMS at its discretion, but may include private sector subject matter experts, beneficiaries of Medicaid supports, and Federal and State policy staff. The review panels will utilize objective criteria to establish an overall numeric score for each application. </P>
                <P>• Results of the objectively review of applications will be used to advise the approving CMS official. Additionally, CMS staff will make final recommendations to the approving official after ranking applications using the scores and comments from the review panel and weighing other factors as described in the “Factors Other than Merit that May be Used in Selecting Applications for Award” section of this notice. </P>
                <HD SOURCE="HD3">B. Factors Other Than Merit That May Be Used in Selecting Applications for Award </HD>
                <P>CMS may assure reasonable balance among the grants to be awarded in a particular category in terms of key factors such as geographic distribution and broad target group representation. </P>
                <P>CMS may redistribute grant funds based upon the number and quality of applications received for each grant opportunity (for example, to adjust the minimum or maximum awards permitted or adjust the aggregate amount of Federal funds allotted to a particular category of grants). </P>
                <P>CMS will not fund activities that are duplicative of efforts funded through its grant programs or other Federal resources. </P>
                <P>For applicants that have been awarded previous Real Choice Systems Change Grants, past programmatic performance will be considered in selecting applications for award. To assess the applicant's past programmatic performance, CMS will use the semi-annual, annual, and financial reports submitted by the applicant under the Terms and Conditions of their previously awarded Real Choice Systems Change Grant. </P>
                <P>For applicants that have never received a Real Choice Systems Change Grant, past programmatic performance will not be a consideration in selecting applications for award. </P>
                <HD SOURCE="HD1">VI. Award Administration Information </HD>
                <HD SOURCE="HD2">1. Award Notices </HD>
                <P>Successful applicants will receive a Notice of Grant Award (NGA) signed and dated by the CMS Grants Management Officer. The NGA is the document authorizing the grant award, and it will be sent through the U.S. Postal Service to the applicant organization. Any communication between CMS and applicants before the issuance of the NGA is not an authorization to begin performance of a project. Unsuccessful applicants will be notified by letter, sent through the U.S. Postal Service to the applicant organization, after October 1, 2004. </P>
                <HD SOURCE="HD2">2. Administrative and National Policy Requirements </HD>
                <P>
                    All relevant provisions of 45 CFR part 74 and 45 CFR part 92 will apply to these awards. A full description of the administrative and national policy requirements for the Real Choice Systems Change Grants is available in the solicitation package for these grants at 
                    <E T="03">http://www.cms.hhs.gov/newfreedom/2004solicitation.pdf.</E>
                </P>
                <P>This funding opportunity will lead to awards with CMS' standard terms and conditions and may lead to awards with additional “special” terms and conditions. Potential applicants should be aware that special requirements could apply to particular awards based on the particular circumstances of the effort to be supported and/or deficiencies (for example, failure to supply or an acceptable Work Plan or detailed 36-month budget) identified in the application by CMS. </P>
                <HD SOURCE="HD2">3. Reporting </HD>
                <P>Grantees must agree to cooperate with any Federal evaluation of the program and provide semi-annual (every 6 months) and final reports (at the end of the grant period) in a form prescribed by CMS (including the SF-269a “Financial Status Report” forms). Reports may be submitted electronically. These reports will outline how grant funds were used, describe program progress, and describe any barriers and measurable outcomes. CMS will provide a format for reporting and technical assistance necessary to complete required report forms. Grantees must also agree to respond to requests that are necessary for the evaluation of the national Real Choice Systems Change Grants efforts and provide data on key elements of their Real Choice Systems Change Grant activities. </P>
                <HD SOURCE="HD1">VII. Agency Contacts </HD>
                <P>Programmatic questions about the Real Choice Systems Change Grants may be directed to: </P>
                <P>
                    • An e-mail address that multiple people access so that someone will respond even if others are unexpectedly absent during critical periods: 
                    <E T="03">RealChoiceFY2004@cms.hhs.gov</E>
                     or 
                </P>
                <P>• Mary Guy, Centers for Medicare &amp; Medicaid Services, Center for Medicaid and State Operations, DEHPG/DCSI, Mail Stop S2-14-26, 7500 Security Boulevard, Baltimore, MD 21244-1850, 410-786-2772 (voice), or 410-786-9004 (fax). </P>
                <P>
                    Administrative questions about the Real Choice Systems Change Grants may be directed to: Nicole Nicholson, Centers for Medicare &amp; Medicaid Services, Acquisition and Grants Group, AGG/DRCG, Mail Stop C2-21-15, 7500 Security Boulevard, Baltimore, MD 21244-1850, 410-786-5158 (voice), 410-786-9088 (fax), or by e-mail at 
                    <E T="03">NNicholson@cms.hhs.gov.</E>
                </P>
                <BILCOD>BILLING CODE 4120-01-P</BILCOD>
                <GPH SPAN="3" DEEP="640">
                    <PRTPAGE P="28139"/>
                    <GID>EN18MY04.429</GID>
                </GPH>
                <GPH SPAN="3" DEEP="620">
                    <PRTPAGE P="28140"/>
                    <GID>EN18MY04.430</GID>
                </GPH>
                <BILCOD>BILLING CODE 4120-01-C</BILCOD>
                <HD SOURCE="HD1">IX. Approval of Collection of Information </HD>
                <P>
                    This notice informs interested parties of an opportunity to apply for Real Choice Systems Change Grants. If interested, applicants must submit a completed grant application that can be found at 
                    <E T="03">http://www.grants.gov.</E>
                    <PRTPAGE P="28141"/>
                </P>
                <P>This information collection requirement is subject to the PRA; however, the burden for this collection requirement is currently approved under OMB control number 0938-0836 entitled “Real Choice Systems Grants; Nursing Facility Transition/Access Housing Grants; Community Personal Assistance Service and Supports Grants, National Technical Assistance and Learning Collaborative Grants to Support Systems Change for Community Living” with a current expiration date of 1/31/2007. </P>
                <SIG>
                    <DATED>Dated: March 12, 2004. </DATED>
                    <NAME>Dennis G. Smith, </NAME>
                    <TITLE>Acting Administrator, Centers for Medicare &amp; Medicaid Services. </TITLE>
                </SIG>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11241 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4120-01-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF HEALTH AND HUMAN SERVICES</AGENCY>
                <SUBAGY>Substance Abuse and Mental Health Services Administration</SUBAGY>
                <SUBJECT>Agency Information Collection Activities: Submission for OMB Review; Comment Request</SUBJECT>
                <P>Periodically, the Substance Abuse and Mental Health Services Administration (SAMHSA) will publish a summary of information collection requests under OMB review, in compliance with the Paperwork Reduction Act (44 U.S.C. Chapter 35). To request a copy of these documents, call the SAMHSA Reports Clearance Officer on (301) 443-7978.</P>
                <P>Confidentiality of Alcohol and Drug Abuse Patient Records—(OMB No. 0930-0092, Extension, no change)—Statute (42 U.S.C. 290dd-2) and regulations (42 CFR Part 2) require Federally conducted, regulated, or directly or indirectly assisted alcohol and drug abuse programs to keep alcohol and drug abuse patient records confidential. Information requirements are (1) written disclosure to patients about Federal laws and regulations that protect the confidentiality of each patient, and (2) documenting “medical personnel” status of recipients of a disclosure to meet a medical emergency. The annual burden estimates for these requirements are summarized in the table below.</P>
                <GPOTABLE COLS="5" OPTS="L2,tp0,i1" CDEF="s100,14,14,14,14">
                    <TTITLE>  </TTITLE>
                    <BOXHD>
                        <CHED H="1">  </CHED>
                        <CHED H="1">
                            Annual
                            <LI>respondents </LI>
                        </CHED>
                        <CHED H="1">Responses per respondent </CHED>
                        <CHED H="1">
                            Burden per
                            <LI>response </LI>
                            <LI>(hours) </LI>
                        </CHED>
                        <CHED H="1">Annual burden hours </CHED>
                    </BOXHD>
                    <ROW>
                        <ENT I="01">Disclosure 42 CFR 2.22 </ENT>
                        <ENT>10,363 </ENT>
                        <ENT>168 </ENT>
                        <ENT>.20 </ENT>
                        <ENT>347,960 </ENT>
                    </ROW>
                    <ROW RUL="n,s">
                        <ENT I="01">Recordkeeping 42 CFR 2.51 </ENT>
                        <ENT>10,363 </ENT>
                        <ENT>2 </ENT>
                        <ENT>.26 </ENT>
                        <ENT>5,389 </ENT>
                    </ROW>
                    <ROW>
                        <ENT I="03">Total </ENT>
                        <ENT>10,363 </ENT>
                        <ENT>  </ENT>
                        <ENT>  </ENT>
                        <ENT>353,349 </ENT>
                    </ROW>
                </GPOTABLE>
                <P>Written comments and recommendations concerning the proposed information collection should be sent by June 17, 2004 to: SAMHSA Desk Officer, Human Resources and Housing Branch, Office of Management and Budget, New Executive Office Building, Room 10235, Washington, DC 20503; due to potential delays in OMB's receipt and processing of mail sent through the U.S. Postal Service, respondents are encouraged to submit comments by fax to: 202-395-6974.</P>
                <SIG>
                    <DATED>Dated: May 11, 2004.</DATED>
                    <NAME>Anna Marsh,</NAME>
                    <TITLE>Executive Officer, SAMHSA.</TITLE>
                </SIG>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11196 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4162-20-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF HOMELAND SECURITY</AGENCY>
                <SUBAGY>Transportation Security Administration</SUBAGY>
                <SUBJECT>Reports, Forms, and Record Keeping Requirements: Agency Information Collection Activity Under OMB Review; Aviation Security Infrastructure Fee (ASIF) Records Retention</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Transportation Security Administration (TSA), DHS.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>
                        TSA has forwarded the Information Collection Request (ICR) abstracted below to the Office of Management and Budget (OMB) for review and clearance under the Paperwork Reduction Act of 1995 (Pub. L. 104-13, 44 U.S.C. 35). The ICR describes the nature of the information collection and its expected burden. TSA published a 
                        <E T="04">Federal Register</E>
                         notice, with a 60-day comment period soliciting comments, of the following collection of information on January 27, 2004, 69 FR 3938.
                    </P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Send your comments by June 17, 2004. A comment to OMB is most effective if OMB receives it within 30 days of publication.</P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>Comments may be faxed to the Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: DHS-TSA Desk Officer, at (202) 395-5806.</P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Conrad Huygen, Privacy Act Officer, Information Management Programs, Office of Finance and Administration, TSA-17, 601 South 12th Street, Arlington, Virginia 22202-4220; telephone (571) 227-1954; facsimile (571) 227-2912.</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <HD SOURCE="HD1">Transportation Security Administration (TSA)</HD>
                <P>
                    <E T="03">Title:</E>
                     Aviation Security Infrastructure Fee (ASIF) Records Retention.
                </P>
                <P>
                    <E T="03">Type of Request:</E>
                     New collection.
                </P>
                <P>
                    <E T="03">OMB Control Number:</E>
                     Not yet assigned.
                </P>
                <P>
                    <E T="03">Forms(s):</E>
                     NA.
                </P>
                <P>
                    <E T="03">Affected Public:</E>
                     Air carriers and foreign air carriers that incurred costs for the screening of passengers and property in calendar year 2000.
                </P>
                <P>
                    <E T="03">Abstract:</E>
                     To help defray TSA's costs of providing civil aviation security services, and as authorized by 49 U.S.C. 44940, TSA published in the 
                    <E T="04">Federal Register</E>
                     on February 20, 2002, an interim final rule adding part 1511 to the Transportation Security Regulations, which imposed a fee known as the Aviation Security Infrastructure Fee (ASIF) on certain air carriers and foreign air carriers. See 67 FR 7926. The amount of ASIF collected by TSA from the carriers, both overall and per carrier, is based upon the carriers' aggregate and individual costs, respectively, for screening passengers and property in calendar year 2000. Under part 1511, carriers are required to retain any and all documents, records, or information related to the amount of the ASIF, including all information applicable to the carrier's calendar year 2000 security costs and information reasonably necessary for TSA to complete an audit. TSA is seeking a three-year OMB approval to require air carriers to retain the records that support carriers' cost submissions that were collected under control number 2110-0002.
                </P>
                <P>
                    <E T="03">Number of Respondents:</E>
                     195.
                </P>
                <P>
                    <E T="03">Estimated Annual Burden Hours:</E>
                     650.
                </P>
                <P>
                    TSA is soliciting comments to—
                    <PRTPAGE P="28142"/>
                </P>
                <P>(1) evaluate whether the proposed information requirement is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;</P>
                <P>(2) evaluate the accuracy of the agency's estimate of the burden;</P>
                <P>(3) enhance the quality, utility, and clarity of the information to be collected; and</P>
                <P>(4) minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.</P>
                <SIG>
                    <DATED>Issued in Arlington, Virginia, on May 11, 2004.</DATED>
                    <NAME>Susan T. Tracey,</NAME>
                    <TITLE>Chief Administrative Officer.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11140 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4910-62-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF HOMELAND SECURITY</AGENCY>
                <SUBAGY>Transportation Security Administration</SUBAGY>
                <SUBJECT>Notice of Intent To Request Approval From the Office of Management and Budget (OMB) for a Public Collection of Information; Passengers With Disabilities Screening Program Performance Survey</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Transportation Security Administration (TSA), DHS.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>TSA invites public comment on a new information collection requirement abstracted below that will be submitted to OMB for approval in compliance with the Paperwork Reduction Act.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Send your comments by July 19, 2004.</P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>Comments may be mailed or delivered to Kathleen Blank, Office of Transportation Security Policy, TSA-9, 601 South 12th Street, Arlington, VA 22202.</P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>
                        Kathleen Blank at the above address or by telephone (571) 227-3254; facsimile (571) 227-1374; or e-mail 
                        <E T="03">Kathleen.Blank@dhs.gov</E>
                        .
                    </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>
                    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501, 
                    <E T="03">et seq.</E>
                    ), a Federal agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a valid OMB control number. Therefore, in preparation for submission to obtain clearance of the following information collection, TSA solicits comments in order to—
                </P>
                <P>(1) Evaluate whether the proposed information requirement is necessary for the proper performance of TSA functions, including whether the information will have practical utility;</P>
                <P>(2) Evaluate the accuracy of TSA's estimate of the burden;</P>
                <P>(3) Enhance the quality, utility, and clarity of the information to be collected; and</P>
                <P>(4) Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.</P>
                <HD SOURCE="HD1">Purpose of Data Collection</HD>
                <P>TSA has implemented a number of standard operating procedures to screen passengers with disabilities who travel by commercial airline and proceed through passenger security checkpoints at airports. TSA seeks to be a performance-based organization—one that evaluates programs and measures its performance based on credible, objective data. For functions that involve public interaction, such as screening of air travelers, TSA believes that it is imperative to include the opinion of the passengers served as part of our performance measurement.</P>
                <P>TSA already conducts population-wide passenger surveys and collects passenger complaints and compliments at the airport and through the TSA Contact Center. We now seek to collect data from passengers with disabilities to evaluate whether screeners are implementing the standard operating procedures properly. We also seek to determine whether passengers with disabilities feel that TSA is treating them with respect and attention to their needs while keeping air travel secure.</P>
                <HD SOURCE="HD1">Description of Data Collection</HD>
                <P>TSA intends to collect data via a passenger satisfaction survey distributed by TSA screeners to passengers with disabilities at the conclusion of the screening process. Screeners will be trained to provide the survey to passengers and request their voluntary participation to measure and improve TSA's service. This 10-minute survey will be provided to an expected 30,000 passengers (approximately 300 passengers at each of the 82 major airports, plus a sample from members of stakeholder groups) for an estimated total burden of 5,000 hours. Results will be anonymous, but will be linked to the airport at which the service occurred to help TSA identify high- and low-performing airports.</P>
                <P>TSA screeners at the 82 largest airports, which account for approximately 90% of total passengers screened, will distribute the surveys over a two-month period each time a passenger with disabilities is screened. The survey will be self-addressed and postage-paid so that the passenger can return it to TSA at their convenience. Alternatively, passengers may return the survey directly to the TSA screener, if they choose to complete it at the airport. TSA will also distribute surveys to advocacy groups that have worked with us to develop the standard operating procedures for screening passengers with disabilities. These groups will distribute surveys to their members to be returned to TSA.</P>
                <P>The survey will seek feedback on TSA's standard procedures for screening (1) passengers with hearing, vision, mobility, and hidden disabilities, as well as other medical conditions, and (2) the assistive devices, equipment, aids, and supplies accompanying passengers in each category. It will ask questions designed to measure whether the standard operating procedures are being met, to assess overall satisfaction and confidence with the screening process, and to help TSA understand its performance in different demographic areas. It will also have space for open-ended comments if passengers wish to provide additional feedback to TSA. The survey will include the mailing address, e-mail address, and phone number of the TSA Screening of Persons with Disabilities Program Office in case passengers have additional questions or want to provide additional information.</P>
                <HD SOURCE="HD1">Use of Results</HD>
                <P>
                    TSA personnel from Headquarters and individual airports will use the results to evaluate and improve service to passengers with disabilities. We will analyze questions related to various elements of the standard operating procedures, with respect to each of the four disability types, and with respect to other relevant demographics. The results will not be statistically representative of any population beyond the sample of survey respondents, but will present a relatively comprehensive snapshot of TSA's screening of passengers with disabilities during the two-month period of data collection. The results also will be part of the DHS annual reporting to Congress under the Government Performance and Results Act (GPRA). The TSA Screening of Persons with Disabilities Program is one of the department's top four disability initiatives for this year to ensure the 
                    <PRTPAGE P="28143"/>
                    inclusion of people with disabilities in the workforce, operations, and programs.
                </P>
                <SIG>
                    <DATED>Issued in Arlington, Virginia, on May 11, 2004.</DATED>
                    <NAME>Susan T. Tracey,</NAME>
                    <TITLE>Chief Administrative Officer.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11141 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4910-62-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF THE INTERIOR</AGENCY>
                <SUBAGY>Geological Survey</SUBAGY>
                <SUBJECT>Scientific Earthquake Studies Advisory Committee</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>U.S. Geological Survey.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of meeting.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>Pursuant to Public Law 106-503, the Scientific Earthquake Studies Advisory Committee (SESAC) will hold its seventh meeting. The meeting location is the FedEx Institute of Technology, campus of the University of Memphis, 365 Innovation Drive, Memphis, Tennessee 38152-3115. The Committee is comprised of members from academia, industry, and State government. The Committee shall advise the Director of the U.S. Geological Survey (USGS) on matters relating to the USGS's participation in the National Earthquake Hazards Reduction Program.</P>
                    <P>The Committee will review the overall direction of the U.S. Geological Survey's Earthquake Hazards Program with emphasis on developing the next generation of seismic hazard maps and activities in the Central United States.</P>
                    <P>Meetings of the Scientific Earthquake Studies Advisory Committee are open to the public.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>June 3, 2004, commencing at 9 a.m. and adjourning at noon on June 4, 2004.</P>
                </DATES>
                <FURINF>
                    <HD SOURCE="HED">CONTACT:</HD>
                    <P>Dr. David Applegate, U.S. Geological Survey, MS 905, 12201 Sunrise Valley Drive, Reston, Virginia 20192, (703) 648-6714.</P>
                    <SIG>
                        <DATED>Dated: May 12, 2004.</DATED>
                        <NAME>P. Patrick Leahy,</NAME>
                        <TITLE>Associate Director for Geology.</TITLE>
                    </SIG>
                </FURINF>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11162 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4310-Y7-M</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF THE INTERIOR</AGENCY>
                <SUBAGY>Bureau of Land Management</SUBAGY>
                <DEPDOC>[WY-957-02-1420-BJ]</DEPDOC>
                <SUBJECT>Notice of Filing of Plats of Survey, Wyoming</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Bureau of Land Management, Interior.</P>
                </AGY>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The Bureau of Land Management (BLM) has filed the plats of survey of the lands described below in the BLM Wyoming State Office, Cheyenne, Wyoming, on dates that they were accepted.</P>
                </SUM>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Bureau of Land Management, 5353 Yellowstone Road, P.O. Box 1828, Cheyenne, Wyoming 82003.</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>These surveys were executed at the request of the Bureau of Land Management, and are necessary for the management of resources. The lands surveyed are:</P>
                <P>The plat representing the dependent resurvey of a portion of the north boundary, a portion of the subdivisional lines, and the subdivision of certain sections, Township 43 North, Range 108 West, Sixth Principal Meridian, Wyoming, was accepted December 5, 2003.</P>
                <P>The plat representing the dependent resurvey of a portion of the subdivisional lines, and the subdivision of section 20, Township 20 North, Range 105 West, Sixth Principal Meridian, Wyoming, was accepted January 29, 2004.</P>
                <P>The plat representing the corrective dependent resurvey of a portion of the subdivisional lines, Township 18 North, Range 85 West, Sixth Principal Meridian, Wyoming, was accepted March 12, 2004.</P>
                <P>The supplemental plat showing a subdivision of the original lot 3, section 7, Township 33 North, Range 109 West, Sixth Principal Meridian, Wyoming, is based on the original survey approved June 25, 1894, and on a survey by Skylar Wilson, Wyoming Registered Land Surveyor No. 4274, shown on Record of Survey No. 299904, recorded in the Sublette County Clerk's Office, September 26, 2003 in Book 76 Misc., Page 197, was accepted February 20, 2004.</P>
                <P>The supplemental plat showing the corrected lotting and acreage, section 1, Township 44 North, Range 74 West, Sixth Principal Meridian, Wyoming, is based on the survey approved March 3, 1997, was accepted March 12, 2004.</P>
                <P>The supplemental plat showing the corrected lotting and acreage, section 5, Township 47 North, Range 76 West, Sixth Principal Meridian, Wyoming, is based on the survey approved August 17, 1995, was accepted March 12, 2004.</P>
                <P>The supplemental plat showing the corrected lotting and acreage, section 4, Township 45 North, Range 77 West, Sixth Principal Meridian, Wyoming, is based on the survey approved August 17, 1995, was accepted April 9, 2004.</P>
                <P>Copies of the preceding described plats are available to the public.</P>
                <SIG>
                    <DATED>Dated: May 12, 2004.</DATED>
                    <NAME>John P. Lee,</NAME>
                    <TITLE>Chief Cadastral Surveyor, Division of Support Services.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11197 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4310-22-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF THE INTERIOR </AGENCY>
                <SUBAGY>National Park Service </SUBAGY>
                <SUBJECT>Route 66 Corridor Preservation Program Advisory Council Establishment </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>National Park Service, Interior. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of committee establishment. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>This notice is published in accordance with section 9(a) of the Federal Advisory Committee Act of 1972 (5 U.S.C. Appendix). Following consultation with the General Services Administration, notice is hereby given that the Secretary of the Interior has formally established the Route 66 Corridor Preservation Program Advisory Council to provide advice and recommendations on program guidance relating to Route 66 Corridor preservation. Public Law 106-45 (16 U.S.C. 461 note), August 10, 1999, authorizes the Secretary of the Interior, acting through the National Park Service, to provide a program of technical assistance and grants that will set priorities for the preservation of the Route 66 corridor, which passes through Illinois, Missouri, Kansas, Oklahoma, Texas, New Mexico, Arizona and California. Members of the committee represent states through which Route 66 passes, non-profit Route 66 preservation entities and other interested organizations. </P>
                </SUM>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Michael Taylor, National Park Service, Long Distance Trails Group Office—Santa Fe, PO Box 728, 1100 Old Santa Fe Trail, Santa Fe, NM 87504-0728; (505) 988-6742.</P>
                    <SIG>
                        <PRTPAGE P="28144"/>
                        <DATED>Dated: May 4, 2004. </DATED>
                        <NAME>Bernard C. Fagan, </NAME>
                        <TITLE>Deputy Chief, Office of Policy, National Park Service. </TITLE>
                    </SIG>
                </FURINF>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11169 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4312-52-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF THE INTERIOR </AGENCY>
                <SUBAGY>National Park Service </SUBAGY>
                <SUBJECT>Lake Meredith National Recreation Area </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>National Park Service, DOI. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of availability, and request for comments. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>Pursuant to § 9.52(b) of Title 36 of the Code of Federal Regulations, the National Park Service (NPS) announces the availability of a Plan of Operations to continue operating two natural gas wells by SNW Operating Company within Lake Meredith National Recreation Area. An Environmental Assessment is also available. </P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>The NPS will accept comments from the public on the documents for 30 days after publication of this notice. </P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>The documents are available for review in the Office of the Superintendent, Lake Meredith National Recreation Area, 419 E. Broadway, Fritch, Texas. Copies are available, for a duplication fee, from the Superintendent, Lake Meredith National Recreation Area, P.O. Box 1460, Fritch, Texas 79306-1460. </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Paul Eubank, Lake Meredith National Recreation Area, telephone: 806-865-3874, extension 35. </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>If you wish to comment, you may submit comments by mailing them to the post office address provided above, or you may hand-deliver comments to the park at the street address provided above. Our practice is to make comments, including names and home addresses of responders, available for public review during regular business hours. Individual respondents may request that we withhold their home address from the decision-making record, which we will honor to the extent allowable by law. There also may be circumstances in which we would withhold from the decision-making record a respondent's identity, as allowable by law. If you wish us to withhold your name and/or address, you must state this prominently at the beginning of your comment. We will make all submissions from organizations or businesses, and from individuals identifying themselves as representatives or officials of organizations or businesses, available for public inspection in their entirety. </P>
                <SIG>
                    <DATED>Dated: April 21, 2004. </DATED>
                    <NAME>Karren C. Brown, </NAME>
                    <TITLE>Superintendent. </TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11164 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4312-KE-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF THE INTERIOR </AGENCY>
                <SUBAGY>National Park Service </SUBAGY>
                <SUBJECT>General Management Plan, Final Environmental Impact Statement, Navajo National Monument, AZ</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>National Park Service, Department of the Interior. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of availability of a Record of Decision on the Final Environmental Impact Statement for the General Management Plan, Navajo National Monument. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>Pursuant to § 102(2)(C) of the National Environmental Policy Act of 1969, Pub. L. 91-190, 83 Stat. 852, 853, codified as amended at 42 U.S.C. 4332(2)(C), the National Park Service announces the availability of the Record of Decision for the General Management Plan/Final Environmental Impact Statement for Navajo National Monument, Arizona. On March 11, 2004, the Director, Intermountain Region approved the Record of Decision for the project. As soon as practicable, the National Park Service will begin to implement the Preferred Alternative contained in the FEIS issued on October 22, 2003. The following course of action will occur under the preferred alternative: </P>
                    <P>The National Park Service would continue to manage the existing land base and in addition would share common goals with American Indian tribes and others to protect resources and promote visitor understanding of the entire region. The NPS would look beyond the boundary for accomplishing joint purposes through cooperation and partnerships. Opportunities for more innovative and diverse programs, education and outreach, science and research, cross training, and broader resource management would be greatly enhanced by a collaborative regional effort. This course of action and two alternatives were analyzed in the Draft and Final Environmental Impact Statements. The full range of foreseeable environmental consequences was addressed, and appropriate mitigating measures were identified. </P>
                    <P>The Record of Decision includes a statement of the decisions made, synopses of other alternatives considered, the basis for the decision, a description of the environmentally preferred alternative, a finding on impairment of park resources and values, a listing of measures to minimize environmental harm, and an overview of public involvement in the decision-making process. </P>
                </SUM>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>
                        The office of the Superintendent, Roger Moder, Navajo National Monument, HC 71, Box 3, Tonalea, Arizona 86044-9704. Phone: (928) 672-2700 or e-mail the park at the park Web site “contact us” section at: 
                        <E T="03">http://www.nps.gov/nava/pphtml/contact.html.</E>
                    </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>
                    Copies of the Record of Decision may be obtained from the contacts above or online at: 
                    <E T="03">http://www.nps.gov/planning/nava.</E>
                </P>
                <SIG>
                    <DATED>Dated: March 11, 2004. </DATED>
                    <NAME>Stephen P. Martin, </NAME>
                    <TITLE>Director, Intermountain Region, National Park Service. </TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11167 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4312-EH-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF THE INTERIOR </AGENCY>
                <SUBAGY>National Park Service </SUBAGY>
                <SUBJECT>Draft General Management Plan; Middle and South Forks Kings River Wild and Scenic River Comprehensive Management Plan; North Fork Kern River Wild and Scenic River Comprehensive Management Plan; Sequoia and Kings Canyon National Parks; Tulare and Fresno Counties, CA; Notice of Availability of Draft Environmental Impact Statement </SUBJECT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>
                        Pursuant to § 102(2)(C) of the National Environmental Policy Act of 1969 (Pub. L. 91-190, as amended), and the Council on Environmental Quality Regulations (40 CFR part 1500-1508), the National Park Service (NPS), Department of the Interior, has prepared a Draft General Management Plan (GMP) and Comprehensive River Management Plan/Environmental Impact Statement (EIS) for the Middle and South Forks Kings River and the North Fork Kern River and for Sequoia and Kings Canyon National Parks located in California. The purpose and need for the plan is to establish a park vision for the next 15-20 years, provide direction for the management of wild and scenic rivers, replace an outdated master plan, guide management of cultural resources, address unresolved issues in specific areas, resolve special use permit cabin issues for the Mineral King area; and address the changing context of the parks within the regional ecosystem. 
                        <PRTPAGE P="28145"/>
                        This document describes and analyzes five alternatives which respond to both NPS planning requirements and to the issues identified during the public scoping process. 
                    </P>
                    <P>The No-Action alternative would continue current management direction, and it is the baseline for comparing the other alternatives (it was originally Alternative B when the alternatives were first presented to the public in the winter of 2000). The Preferred Alternative would accommodate sustainable growth and visitor enjoyment, protect ecosystem diversity, and preserve basic character while adapting to changing user groups (this is also identified in the EIS as “environmentally preferred”). Alternative A would emphasize natural ecosystems and biodiversity, with reduced use and development; Alternative C would preserve the parks' traditional character and retain the feel of yesteryear, with guided growth; and Alternative D would preserve the basic character and adapt to changing user groups. This document also includes a comprehensive river management plan for the portions of the Middle and South Forks of the Kings River and the North Fork of the Kern River, which have been designated by Congress as components of the national wild and scenic rivers system. The purpose of the river management plan is to provide direction and overall guidance on the management of lands and uses within the river corridors. The environmental consequences of all the alternatives, and mitigation strategies, are identified and analyzed in the EIS. </P>
                    <P>
                        <E T="03">Scoping:</E>
                         Nine scoping meetings were held, seven planning newsletters issued; alternatives planning workshops were held in seven cities; and the resulting mailing list consists of over 3700 entries. The park has held regular communication with the cooperating association and concessioners authorized to operate in the parks. Meetings and contacts have occurred with special use permittees (Southern California Edison, Mineral King District Association, and the Boy Scouts of America); private landowners (Wilsonia District Association, Silver City, Oriole Lake); and other stakeholders (Backcountry Horsemen, High Sierra Hikers, Friends of the River, National Parks Conservation Association, Sierra Club, The National Park Foundation, Three Rivers community, Clean Air groups, Mineral King Advocates, Mineral King Preservation Society, Tulare Country Historical Society, California Department of Transportation, Tulare County, Fresno County, Save-the-Redwoods League, local and regional business groups, educational institutions and the Sequoia Federal managers group). 
                    </P>
                    <P>Accompanying the project introduction in Newsletter 1—summer 1997/reprinted winter 1998, public meetings were held in six locations in the parks during the summer of 1997; and in Three Rivers, Visalia and Fresno/Clovis in the winter of 1998. Comments and ideas were recorded from all meetings. Newsletter 2—June 1998 summarized public scoping, desired visions for the park, issues, type of decisions to be made, and provided background information about the Mineral King area. Newsletter 3—March 1999, described a transportation study conducted in 1997-98 and a 1998 visitor satisfaction survey. It also summarized the finding of a 1998 study to determine the eligibility of Mineral King Road corridor for the National Register of Historic Places as a cultural landscape. Newsletter 4—spring 1999, a 24-page workbook with maps to prepare for alternatives workshops, consisted of issue discussion and asked tradeoff questions; a total of 745 responses were received. Alternatives workshops to ensure that public ideas were incorporated into the range of alternatives to be assessed were attended by about five hundred people. These April 1999 workshops were held in San Francisco, Sacramento, Bishop, Los Angeles, Three Rivers, Visalia and Fresno/Clovis. In the summer of 1999 fourteen Native American tribal governments or entities were consulted. Ideas from scoping, public workshops and consultations guided the development of the range of alternatives, and suggested wording was used for alternative titles and descriptions. Newsletter 5—winter 2000, described a range of four alternatives that would be assessed in the draft environmental impact statement; included a pullout of alternatives maps; and presented draft parkwide zoning prescriptions. Newsletter 6—December 2000, an update, described establishment of Giant Sequoia National Monument; announced the eligibility of the Mineral King Road Cultural Landscape District; announced inclusion of the Wild and Scenic River Plan into the GMP process; announced that the plan would be delayed until a new superintendent was in place; and answered public questions about wilderness designation, and stated that a summary would be sent to people on the mailing list. Newsletter 7—spring 2002 was a brief update announcing the new Superintendent and the addition of the 1540-acre Dillonwood Grove of giant sequoias to the park; asked about document format; and described the process known as “choosing by advantages” that was used to develop a preferred alternative. The process combined elements of all the alternatives to maximize benefits to the parks and cost-effectiveness. Newsletter 7, by asking what document format (CDs or printed copy) was desired, revised the Newsletter 6 approach that would send a printed summary to everyone. The newsletter stated if NPS was not notified a CD would be sent; approximately one hundred people specifically requested CDs and less than fifty requested printed copies. </P>
                    <P>
                        <E T="03">Proposed Plan and Alternatives:</E>
                         The draft EIS/GMP/Comprehensive River Management Plan includes four action alternatives and a no-action alternative which continues current management. The Comprehensive River Management Plan and approved plans would be common to every alternative. 
                    </P>
                    <P>
                        The 
                        <E T="03">No-Action Alternative</E>
                         (Continue Current Management): The parks are managed as they are now in accordance with approved plans (such as development concept plans, and the 1996 Giant Forest Interim Management Plan); negative resource impacts and visitor demands are responded to by relocating development, reducing some uses, or confining new developed areas. Visitor uses are reassessed and revised as new information about natural and cultural resource impacts and visitor needs emerges. Current facilities are inadequate for park needs and visitor use levels, and crowding is common in some areas. 
                    </P>
                    <P>
                        The 
                        <E T="03">Preferred Alternative:</E>
                         The parks' appeal is broadened to be more relevant to diverse user groups. Increased day use is accommodated, and overnight visitation is retained. The integrity of park resources is paramount. Stronger educational and outreach programs provide enjoyment and instill park conservation values. The basic character of park activities and the rustic architecture of facilities are retained so that the parks remain strikingly different from surrounding areas. Park administrative facilities are redesigned and may be relocated outside the parks. Park facilities accommodate sustainable growth. Stock use continues with appropriate management and monitoring. 
                    </P>
                    <P>
                        <E T="03">Alternative A:</E>
                         Emphasize Natural Ecosystems and Biodiversity; Reduce Use and Development: The parks are natural resource preserves; they are primarily valued because they contain publicly owned resources that will be conserved for the future. Levels of use are lower than at present, and visitor 
                        <PRTPAGE P="28146"/>
                        experiences are more directly connected to natural resources and provide more solitude. The parks strongly contrast with surrounding lands that are under increasing pressure for use and development. Park managers aggressively cooperate with the managers of surrounding lands to enhance range-wide biodiversity.
                    </P>
                    <P>
                        <E T="03">Alternative B:</E>
                         Preserve Traditional Character and Retain the Feel of Yesteryear; Guide Growth: The parks present a traditional park character and a feeling of yesteryear, where experiences are more reminiscent of how visitors used the parks in the past. This is conveyed through rustic architecture and lower impact recreational activities (such as sightseeing and hiking) that were popular from the 1920s to the 1960s, and providing an experience that is strikingly different from that in an urban setting. Redesigned developed areas accommodate limited growth; overnight stays are encouraged. Negative impacts on natural resources are controlled, so as to maintain or improve resource conditions. 
                    </P>
                    <P>
                        <E T="03">Alternative C:</E>
                         Preserve Basic Character and Adapt to Changing User Groups; Guide Growth: The parks preserve some of their traditional character and rustic architecture, but diverse new user groups and uses are encouraged. Day use is more common. Facilities are expanded to meet users' needs, while frequent interpretive programs are offered to educate, entertain, and instill a sense of park conservation values. Negative impacts on natural resources are controlled or mitigated, so as to maintain or improve resource conditions. 
                    </P>
                    <P>
                        <E T="03">Public Review and Comment:</E>
                         The draft EIS/GMP is now available for public review. Requests for the document (by those not presently on the mailing list) should be addressed to: GMP, Sequoia and Kings Canyon National Parks, 47050 Generals Hwy., Three Rivers, CA 93271-9651, by telephone at (559) 565-3101, or by e-mail at 
                        <E T="03">seki_superintendent@nps.gov.</E>
                         The document may also be reviewed at park area libraries, or obtained electronically via the “Management Docs” link from the parks' Web site 
                        <E T="03">http://www.nps.gov/seki</E>
                         or at the NPS planning Web site 
                        <E T="03">http://planning.den.nps.gov/</E>
                        , selecting plans, and choosing “What's New” under the listing for Sequoia and Kings Canyon National Parks. Printed copies and CDs will be sent to agencies and organizations listed as recipients in the Consultation and Coordination section of the document. 
                    </P>
                    <P>
                        Persons and organizations wishing to comment on the proposed General Management Plan must do so by writing to: GMP team leader Susan Spain, NPS Denver Service Center, 12795 W Alameda Parkway, Denver, CO 80225-0287 (or via e-mail to 
                        <E T="03">susan_spain@nps.gov</E>
                        ); or GMP Coordinator David Graber, Sequoia and Kings Canyon National Parks, 47050 Generals Highway, Three Rivers, CA 93271-9651 (or via e-mail to 
                        <E T="03">david_graber@nps.gov</E>
                        ). In addition, the parks will conduct public meetings to facilitate review and comment on the draft EIS/GMP; these will be held during the comment period both in the parks, as well as in the following locations: Three Rivers, Visalia, Fresno/Clovis, Sacramento, San Francisco, Los Angeles and Bishop. Confirmed details on meeting locations, dates and times will be posted on the parks' Web site; updates can also be obtained by telephone at (559) 565-3101. 
                    </P>
                    <P>
                        All comments must be postmarked or transmitted not later than 90 days following the date EPA's notice of filing is published in the 
                        <E T="04">Federal Register</E>
                        —immediately upon determination of the actual date it will be announced via local and regional news media and posted on the parks' Web site. All comments will become part of the public record. If individuals submitting comments request that their name or address be withheld from public disclosure, the request will be honored to the extent permitted by law. Such requests must be stated prominently at the beginning of the comments. There also may be circumstances wherein the NPS will elect to withhold a respondent's identity as permitted by law. As always, the NPS will make available for public inspection all submissions from organizations or businesses and from persons identifying themselves as representatives or officials of organizations; anonymous comments will not be considered. 
                    </P>
                    <P>
                        <E T="03">Decision:</E>
                         Following the review period for the draft EIS/GMP, all signed comments received will be considered in preparing the final EIS/GMP/Comprehensive River Management Plan. The final document is anticipated to be completed by mid-2005. Its availability will be similarly announced in the 
                        <E T="04">Federal Register</E>
                        . As this is a delegated EIS, the official responsible for the final decision is the Regional Director of the NPS Pacific West Region; subsequently the official responsible for implementation will be the Superintendent of Sequoia and Kings Canyon National Parks. 
                    </P>
                </SUM>
                <SIG>
                    <DATED>Dated: April 26, 2004. </DATED>
                    <NAME>Jonathan B. Jarvis, </NAME>
                    <TITLE>Regional Director, Pacific West Region. </TITLE>
                </SIG>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11166 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4312-F6-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF THE INTERIOR</AGENCY>
                <SUBAGY>National Park Service</SUBAGY>
                <SUBJECT>General Management Plan, Final Environmental Impact Statement, Sunset Crater Volcano and Wupatki National Monuments, AZ</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>National Park Service, Department of the Interior.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of availability of a Record of Decision on the Final Environmental Impact Statement for the General Management Plans for Sunset Crater Volcano and Wupatki National Monuments.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>Pursuant to section 102(2)(C) of the National Environmental Policy Act of 1969, Pub. L. 91-190, 83 Stat. 852, 853, codified as amended at 42 U.S.C. 4332(2)(C), the National Park Service announces the availability of the Record of Decision for the General Management Plan, Sunset Crater Volcano and Wupatki National Monuments, Arizona. On March 3, 2004, the Director, Intermountain Region approved the Record of Decision for the project. As soon as practicable, the National Park Service will begin to implement the Preferred Alternative contained in the FEIS issued on February 16, 2003. The preferred alternative and other alternatives were analyzed in the Draft and Final Environmental Impact Statements. The full range of foreseeable environmental consequences was assessed, and appropriate mitigating measures were identified.</P>
                    <P>The Record of Decision includes a statement of the decision made, synopses of other alternatives considered, the basis for the decision, a description of the environmentally preferable alternative, a finding on impairment of park resources and values, a listing of measures to minimize environmental harm, and an overview of public involvement in the decision-making process.</P>
                </SUM>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Todd Metzger, Acting Superintendent, Flagstaff Area Monuments, 6400 N. Highway 89, Flagstaff, Arizona, 86004 (928) 526-1157.</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>Copies of the Record of Decision may be obtained from the contact listed above.</P>
                <SIG>
                    <PRTPAGE P="28147"/>
                    <DATED>Dated: March 3, 2004.</DATED>
                    <NAME>Stephen P. Martin,</NAME>
                    <TITLE>Director, Intermountain Region, National Park Service.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11163 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4312-DY-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF THE INTERIOR </AGENCY>
                <SUBAGY>National Park Service </SUBAGY>
                <SUBJECT>Notice of Intent </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>National Park Service (NPS). </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of intent to terminate an Environmental Impact Statement for a Proposed Land Exchange Between the National Park Service and the Eastern Band of Cherokee Indians at Great Smoky Mountains National Park and the Blue Ridge Parkway. </P>
                </ACT>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>John Yancy, Associate Regional Director, Natural Resources, 100 Alabama Street, SW., Atlanta, Georgia 30303. </P>
                </FURINF>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>Pursuant to section 102(2)(c) of the National Environmental Policy Act of 1969, the President's Council on Environmental Quality Regulations (40 CFR 1500-1508), as implemented by Director's Order 12, and Public Law 108-108, Section 138, the National Park Service (NPS) announces the termination of a EIS. The EIS examined a proposed land exchange between the NPS and the Eastern Band of Cherokee Indians (EBCI) in North Carolina. </P>
                    <P>On November 10, 2003, the President signed into law Public Law 108-108, Section 138 of which constituted the “Eastern Band of Cherokee Indians Land Exchange Act of 2003”. The Act ratified a proposed land exchange between the Eastern Band of Cherokee Indians (218-acre Waterrock Knob) and the National Park Service (143-acre Ravensford) that has been studied extensively by the parties pursuant to the terms of General Agreement number GA-GRSM-01-FY00 since June 14, 2000. Congress declared that the Ravensford tract would be held in trust for the EBCI upon review of title and acceptance of a conveyance to the United States of the Waterrock Knob tract. </P>
                    <P>The enactment of the “Act” eliminates the need to publish a Final Environmental Impact Statement along with an associated Record of Decision. </P>
                </SUM>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>The Draft EIS was issued for public review under a Notice of Availability on June 20, 2003 for a period of 60 days. Subsequent to its release. Pub. L. 108-108 was signed to direct the exchange on November 10, 2003. </P>
                <SIG>
                    <DATED>Dated: February 23, 2004. </DATED>
                    <NAME>Patricia A. Hooks, </NAME>
                    <TITLE>Regional Director, Southeast Region. </TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11168 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4310-70-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF THE INTERIOR </AGENCY>
                <SUBAGY>National Park Service </SUBAGY>
                <SUBJECT>Record of Decision, Final Rural Landscape Management Program Environmental Impact Statement, Cuyahoga Valley National Park, OH</SUBJECT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>
                        The National Park Service (NPS) has prepared this Record of Decision (ROD) for the final rural landscape management program environmental impact statement (EIS) for Cuyahoga Valley National Park, Ohio (CUVA). The final EIS addresses the long-term management of the rural landscape (
                        <E T="03">i.e.</E>
                        , agricultural lands and associated structures) in the park. This ROD is a concise statement of the decisions made, other alternatives considered, the basis for the decision, the environmentally preferable alternative, the mitigating measures developed to avoid or minimize environmental harm, and the public involvement in the decision-making process. 
                    </P>
                </SUM>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Superintendent, Cuyahoga Valley National Park, 15610 Vaughn Road, Brecksville, Ohio 44141, or by phone 440-546-5903. </P>
                    <HD SOURCE="HD1">Background of the Project </HD>
                    <P>
                        Preservation of the rural landscape (
                        <E T="03">i.e.</E>
                        , lands and structures modified by humans for agricultural use) is central to CUVA's legislative mandate. The CUVA encompasses approximately 33,000 acres of relatively undeveloped land along 22 miles of the Cuyahoga River between the metropolitan areas of Cleveland and Akron, Ohio. Within the legislative boundary, the NPS owns approximately 18,500 acres. The remainder of land is owned and under management by other public or quasi-public entities, or remains in private ownership. Management of the rural landscape on the federally-owned acres within park boundaries is the focus of the Final EIS (
                        <E T="03">i.e.</E>
                        , 1,345 acres of land and 58 properties with 175 structures as described in final EIS, section 2.3). The law that established CUVA mandates the “preservation of the historic, scenic, natural, and recreational values of the Cuyahoga Valley” (Public Law 93-555, 1974). One component of the historic and scenic values of CUVA is the rural landscape. Throughout the park's history, efforts to preserve the rural landscape have been sporadic; there has never been a comprehensive program to manage the rural landscape. As a result, many of the park's rural landscape resources have been lost. Therefore, CUVA is proposing to better protect and revitalize this cultural resource by implementing an integrated rural landscape management program, with the goal of more effectively and systematically preserving and protecting the rural landscape resources in the park. The final EIS analyzes four alternatives and their associated impacts. 
                    </P>
                    <P>Farming history in the park and in the Cuyahoga Valley Region is significant. For the past one thousand years, there has been some form of agriculture in the Valley. In the more recent past, specifically the 1800s, agriculture was the dominant and very prosperous way of life, particularly due to efficient transportation of goods via the Ohio &amp; Erie Canal and the railroad system. But by the 20th century, new developments in agriculture in other parts of the State and country surpassed the Valley's farming methods. As a result, farming in northeast Ohio began to decline, while industrial, commercial, and residential development increased. However, the Cuyahoga Valley Region was largely spared from extensive development due to its challenging geography and geology. The 33,000-acre CUVA was created in December 1974, effectively halting the conversions of historic farmsteads into residential and commercial uses. Today, the total amount of active farming in CUVA is about 3.6 percent of park land. Private farmers or other groups on non-Federal lands conduct half of this farming (590 acres). </P>
                    <P>
                        As the NPS began to acquire land for the new park, beginning in 1975, the focus was on protecting land from development pressures. However, once acquired, farm structures and farm fields were not given priority attention. Most of the farm buildings were allowed to stand vacant and deteriorating, and farm fields were untended and prone to ecological succession. While undeveloped lands in natural condition were seen to benefit from this “hands off” management strategy, farm properties suffered severe negative impacts. Attempts to address this shortcoming in rural landscape management were slow and haphazard and usually occurred in a very opportunistic fashion. Efforts including occasional mowing of farm fields, involvement of local farmers through short-term special use permits, and adaptive re-use of scattered historic 
                        <PRTPAGE P="28148"/>
                        farm buildings proved to be inadequate given the magnitude of the rural landscape preservation challenge. 
                    </P>
                    <P>The most recent effort to address rural landscape management is significant. To develop CUVA's first long-term, comprehensive, agricultural plan, park managers conceptualized a new program called the Countryside Initiative (CI). The park assisted with the formation of a nonprofit partner, the Cuyahoga Valley Countryside Conservancy (CVCC), to help develop and facilitate the CI. The NPS has developed a cooperative agreement with the CVCC for this purpose. A request for proposals (RFP) for five sustainable agriculture farmsteads was offered in January 2001. The park has recently negotiated three leases as a pilot project for the CI. The expansion of this program is outlined as alternative 2 (the preferred alternative) in the Final EIS. (Final EIS appendices B, E and G contain information about the agricultural leasing program, sustainable agricultural practices and fencing guidelines). </P>
                    <P>The NPS has several mechanisms that allow for agriculture in parks. One of those is its Management Policies (2001) document, which states that agriculture is allowed when those agricultural activities  “* * * do not result in unacceptable impacts on park resources, values, or purposes, conform to activities that occurred during the historic period, and support the park's interpretive themes.” Agricultural uses that do not conform to those in practice during the historic period may be allowed if they “* * * contribute to the maintenance of a cultural landscape * * *” or “* * * are carried out as part of a living exhibit or interpretive demonstration.” The NPS may also allow livestock use “* * * when required in order to maintain a historic scene.” </P>
                    <P>Similarly, on the park level, CUVA has developed several planning documents that address the topic of preserving the rural landscape. In particular, the park's general management plan (GMP; NPS 1977) states that “the rural character of America is readily communicated in the agricultural landscapes that have survived to the present day. These and other valuable resources suggest both careful preservation and imaginative interpretation to ensure they become an integral part of the Cuyahoga environment” (p. 35). The GMP, as well as several other planning documents, which are examined in detail in final EIS chapter 1, trace the park's continued desire to preserve the rural landscape and show what steps the park has taken over the years to do so. CUVA currently implements 11 management methods that help preserve the rural landscape, such as several types of leasing, special use permits and mowing to name a few. All 11 of these are explained in the final EIS section 1.2.4.5. Individually, each of these methods has benefits and drawbacks. Collectively however, it is the inherent drawbacks of these methods that do not allow for the comprehensive management of the entire rural landscape. Although individuals with special use permits are farming some fields, this is generally done on a short-term basis so the farmers usually are not focused on long-term care of the land. There are many other fields that could contribute to the rural landscape, but if they are not tended to regularly by permit holders, lessees, or the NPS mow crew, the fields become overgrown. There are more buildings in the park than the park can actually use for its own purposes, so many buildings sit idle and are subject to vandalism and/or deterioration and ultimately, demolition. Unfortunately, the opportunistic fashion in which the many methods have been applied has made rural landscape management in the park a laborious, expensive, and less than effective undertaking. </P>
                    <P>Agricultural open space is defined in this final EIS to be approximately 1,345 acres of Federal land. Currently, the NPS manages approximately 740 acres using one of the 11 methods described in final EIS section 1.24.5. The remaining 605 acres of available open space are not currently actively managed for rural landscape value. The proposed action would designate these areas for mowing or potential agricultural use. A total of 85 properties with 267 structures contribute to the rural landscape in CUVA (these are identified in final EIS Appendix A). Fifty-eight properties consisting of 175 structures are considered to be available for modified management under the proposed action using the various methods described in the alternatives. The preferred rural landscape management approach at CUVA will:</P>
                    <P>Continue the agricultural tradition—Agricultural activity, or the appearance thereof, must be preserved in order to maintain agricultural open space and promote the historic character of the Cuyahoga Valley. Either active farming or open rural landscapes without active farming would be acceptable means of achieving this objective. Preserve scenic values—CUVA's enabling legislation mandates the preservation of scenic values, which include cultural and natural elements. The preservation of agricultural lands and structures that make up the park's rural landscape will help achieve this objective, but any action must be balanced with effects on natural scenic values.</P>
                    <P>Use environmentally sound practices—NPS policies and practices promote responsible stewardship of the land. Because the proposed action described in this document will affect the park landscape broadly, environmentally sound practices are imperative.</P>
                    <HD SOURCE="HD1">Decision (Selected Action)</HD>
                    <P>Under the selected alternative (alternative 2: Countryside Initiative), the rural landscape would be managed largely by issuing long-term leases to private individuals for the purpose of conducting sustainable agricultural activities and revitalizing a ‘sense of place’ in the Cuyahoga Valley. Lands and structures would be leased together for agricultural use, at a rate of 2-3 farms per year for ten years, for periods of up to 60 years. Agricultural open space associated with these farmsteads and not currently managed would be cleared by mowing and/or brush hogging in preparation for farming activities over the next decade.</P>
                    <P>Farmers would be selected for the leasing program through a RFP. These farmers would be required to submit annual farm operating that describe proposed farm activities such as new construction, crop and livestock selection, farming practices, and pesticide, fertilizer, and water use. All farm activities will require NPS approval. </P>
                    <P>Land management and day-to-day maintenance of farm buildings would become largely the responsibility of the lessees. Pesticide use in the park would be expected to increase as more land is put into active economically-based production, but the types of pesticides used would be largely biological rather than chemical. The use of cultural practices, biological pesticides and controls, and NPS integrated pest management practices would be emphasized over chemical uses. Changes to the landscape elements are expected. Fencing, outbuildings, farm-related structures, bridges, windmills and other structures could be built on leased farmsteads. Because these farms need to be economically viable, farmers will need to protect their products from foraging wildlife, so the increase in fencing is expected to be substantial. However, all fences will conform to the fencing guidelines in appendix G of the final EIS. </P>
                    <P>
                        Farmers would be expected to use the common marketing methods used in sustainable farming such as pick-your-
                        <PRTPAGE P="28149"/>
                        own opportunities, community supported agriculture, restaurant supported agriculture, roadside stands, or weekly farmers markets. 
                    </P>
                    <P>In addition to the actions described above, the following actions are part of the selected alternative and all other alternatives that were considered (described in the next section). The actions common to all the alternatives include: </P>
                    <P>
                        <E T="03">Policies, Protocols, and Monitoring:</E>
                         Each alternative will conform to a common set of applicable regulations, NPS guidelines, policies, and procedures. 
                    </P>
                    <P>
                        <E T="03">Common Vista Management Actions:</E>
                         Two large areas will be managed (through mowing or habitat management) as grassland habitat and one area will continue to be mowed for recreational purposes; these 135 acres are not available for agricultural use. 
                    </P>
                    <P>
                        <E T="03">Management Methods Available:</E>
                         All possible management methods may be used in any of the alternatives, so the alternatives primarily differ in the emphasis of one or two methods over the others. 
                    </P>
                    <P>
                        <E T="03">Rehabilitation and Maintenance of Properties:</E>
                         The NPS will rehabilitate properties and be responsible for major property maintenance over time. Day-to-day maintenance may be the responsibility of the particular user if other than the NPS. Also, the rate at which properties are rehabilitated is constant among alternatives (approximately 3-4 per year for 10 years), although the type of rehabilitation may differ. Properties will be rehabilitated in order of priority for use. Structures on properties pending rehabilitation will undergo interim stabilization measures and associated lands will be maintained to control succession. 
                    </P>
                    <P>
                        <E T="03">Resources Reviews:</E>
                         Natural and cultural resource staff will review all lands and structures that will undergo any change in current management methods before any changes are approved. 
                    </P>
                    <P>
                        <E T="03">New Acquisitions and Unforeseen Circumstances:</E>
                         If additional lands and structures are acquired by the NPS, they will be assessed as described in the final EIS for current NPS lands and structures, and then managed under the selected alternative. 
                    </P>
                    <HD SOURCE="HD1">Mitigation Measures and Monitoring </HD>
                    <P>Several mitigation measures and monitoring efforts have been developed to reduce and minimize adverse impacts from the selected alternative. These include the mitigation of possible impacts to grassland and old field habitats and associated wildlife, water resources, and cultural resources and comprehensive monitoring efforts. </P>
                    <P>In order to minimize and mitigate the effects of changing agricultural land uses on species dependent upon open grassland areas and older fields, the park has set aside lands for grassland management and will develop a habitat management plan for old field and shrub habitats within 5 years. </P>
                    <P>Two large areas in the rural landscape were designated as grassland habitat management areas under all alternatives. These areas are currently open meadows and will be kept open primarily for their habitat values and rural character by mowing or other means. This acreage will not be available for other management methods. Two of the largest and most significant existing grassland habitat blocks have been designated for this purpose including the site of the old Richfield Coliseum (Coliseum) (75.5 acres) and a large restored area along the Cuyahoga River between the I-271 and I-80 bridges (35.4 acres). The Coliseum site has recently been restored and now provides high quality habitat for several rare or declining grassland bird species. </P>
                    <P>The continued loss of older fields over time to successional growth will likely exacerbate the adverse impacts of the proposed action on wildlife dependent upon these habitats. To help mitigate these impacts, a significant portion of the older fields were intentionally left in the landscape during planning, including the preservation of some of the largest tracts available (several 50-acre blocks) on Federal land. </P>
                    <P>
                        The Habitat Management Plan will be developed to prescribe appropriate clearing schedules and methods that will maximize grassland and old field habitat values. In this plan, the park will evaluate the desired successional stages, total acreage, landscape distribution, temporal management regimes, and available tools for managing these habitats and balance the benefits of preserving rare habitats with the adverse effects of arresting succession (
                        <E T="03">i.e.</E>
                        , edge effects and fragmentation). Such a plan will identify park goals and areas for maintenance as old field or shrub habitats and outline grassland habitat management efforts for the two grassland management areas. These habitat management efforts are in compliance with guidance provided in executive order 13186. Management plans will reflect any additional NPS guidance related to this order as it becomes available. Appropriate NEPA compliance and environmental analysis will be required for such a plan. The NPS has developed protection plans for CUVA wetland and riparian areas that will prevent most direct and indirect impacts on the Cuyahoga River, streams, and wetlands from NPS activities on agricultural lands. Effective protection for these resources will be afforded through the establishment of protective buffer zones that are required under all alternatives. Summaries of these plans are found in final EIS, appendix H. Should any buffers be found to be ineffective through park monitoring efforts, corrective measures and mitigation will be undertaken. 
                    </P>
                    <P>It is possible that the NPS, after determining that no practicable alternative exists, may decide to expressly permit some level of adverse impact on wetlands or other water resources or their buffers to increase the utility or cultural resource value of a structure or farmstead. Such situations can not be readily identified at this time as they are related to site-specific plans not yet developed. Should these situations arise, the NPS will implement environmental compliance and documentation procedures as required under the Clean Water Act, NEPA, and Director's Order 77-1 (Wetland Protection) to examine site-specific impacts. The NPS will first seek to avoid impacts to wetlands. Unavoidable impacts will be minimized and mitigated. </P>
                    <P>As guided by National Register criteria and the Cultural Resources Management Guideline (NPS 1997a), mitigation measures for cultural resources would be implemented when it is not possible to protect archeological resources, historic structures, and cultural landscapes and an adverse impact is expected. Mitigation measures typically consist of data recovery and detailed recording. Data recovery projects will be designed in consultation with the State Historic Preservation Office (SHPO) and will conform to NPS and professional standards. Archeological data recovery projects, in particular, will include a written mitigation plan and Memorandum of Agreement between the park and the SHPO. This agreement will then be filed with the Advisory Council on Historic Preservation. </P>
                    <P>In order to ensure that agricultural activity conforms to final EIS policies and protocols and that undesirable impacts are not occurring, the following monitoring efforts will be implemented (as detailed in final EIS Appendix B):</P>
                    <P>• An interdisciplinary NPS committee was created to oversee and review agricultural plans and activities in the park. </P>
                    <P>
                        • The NPS Historical Architect will conduct annual inspections to assess the 
                        <PRTPAGE P="28150"/>
                        condition of historic fabric to ensure that properties are being preserved adequately. 
                    </P>
                    <P>• NPS cultural landscape staff will conduct annual farm visits to ensure the preservation and protection of the rural landscape. Farms will be assessed for undocumented changes to the landscape in agricultural fields and curtilage. In addition, the general condition of farm landscapes will be assessed to ensure adequate upkeep. </P>
                    <P>• NPS Resources Management staff will inspect wetland and riparian buffer boundaries adjacent to agricultural lands annually through site visits during the growing season. </P>
                    <P>• The CVCC has broad monitoring responsibilities for CI farmers. The CVCC staff maintains close contact with lessees, normally visiting farms several times each month to observe operations, and to offer guidance on management issues. In addition to such continuous, informal monitoring, CVCC more formally assists lessees' preparation of an annual operating plan, and an annual operating review. Thereafter, CVCC helps the NPS evaluate these documents for compliance with park policies and guidelines. While CVCC has a general oversight function for all aspects of lessee farm use, it is particularly responsible for observing and comparing their production practices with commonly accepted standards for sustainable agriculture. </P>
                    <P>• NPS staff, cooperators and independent researchers will continue to research and monitor natural resources in and around agricultural areas. The park will encourage and support new projects that examine the effects of agricultural activities on natural resources and identify important ecological indicators. Several such agricultural research projects are currently underway or planned. </P>
                    <P>Due to the programmatic nature of the rural landscape management program final EIS, specific projects will be reviewed as necessary for compliance with NEPA, National Historic Preservation Act, and other applicable Federal and State laws and regulations prior to project clearance and implementation. Additional mitigation measures would be developed as needed should undesirable impacts to resources be identified. </P>
                    <HD SOURCE="HD1">Other Alternatives Considered </HD>
                    <HD SOURCE="HD2">Alternative 1: No Action </HD>
                    <P>Under Alternative 1, the NPS would continue to manage the rural landscape under current park plans and practices using the available management methods. In other words, the various methods would continue to be applied to unmanaged areas and structures opportunistically as needs arise. There would be no significant change in the emphasis of how these methods are used. </P>
                    <P>Agricultural special use permits (SUP) and vista management by mowing would continue to be the dominant land management strategy, so a mix of conventional farming, sustainable farming, and equestrian uses would be expected. Adaptive park uses and long-term leasing would dominate structure management. Land management and day-to-day maintenance of farm buildings and curtilage lands would be shared in many ways among leaseholders and NPS staff. Little new construction or fencing is expected because the short-term nature of SUP farms does not motivate many farmers to take on this kind of expense. Finally, pesticide use in the park may increase if more land is leased, but the proportion of leased lands treated with pesticides and the type of pesticides used is expected to remain relatively constant. Because of the opportunistic nature of this alternative, some loss of land to succession and loss of structures to deterioration is expected. </P>
                    <HD SOURCE="HD2">Alternative 3: Vista Management </HD>
                    <P>In this alternative, the NPS would manage the rural landscape primarily for scenic values. The most significant change would be that upon expiration, agricultural SUPs and other agricultural activities on park property, would convert to mowing and non-agricultural use. Regarding structures, the restoration of currently unused farm structures would primarily be as scene-setters (buildings that strictly add to the aesthetics of the park as features of the cultural landscape without any operational function), or secondarily as residential, office, or other non-agricultural use. </P>
                    <P>Regarding lands, lands would be used for non-agricultural purposes and be mowed to maintain open fields or as wildlife habitat. Curtilage lands will be mowed by NPS to maintain open space. Areas identified as significant for rare, threatened, endangered, or declining plants and animals would be identified and managed to increase habitat value, usually by adjusting mow frequency and timing. Mowing and other land management and maintenance activities would be largely the responsibility of NPS. Little new construction or installation of fencing is expected. Pesticide use would be expected to decrease as land is taken out of agricultural use. </P>
                    <HD SOURCE="HD2">Alternative 4: NPS Farming </HD>
                    <P>In this alternative, the NPS would manage the rural landscape primarily by hiring employees or contractors to implement a network of farmed areas as directed by the NPS to give the appearance of active farming in the park. Under this option, lands not under agricultural use would be put into agricultural use and unused structures would be rehabilitated primarily as scene-setters or to support NPS farming activities. Curtilage lands around these structures would be mowed. A farming program directed by the NPS could also include a few farms demonstrating various themes such as sustainability and farming practices of specific historical eras. Basically, the NPS would fill any gaps in agricultural activity on rural lands. This alternative seeks to preserve not only the open space and vistas associated with agricultural areas, but also the agricultural activities associated with those areas. </P>
                    <P>Areas currently farmed would continue to be farmed under the management method already in place, but areas currently managed as open vistas would gradually be converted to NPS farming. Whether SUP farmers or NPS farmers were doing the farming, agriculture would be increased above current levels under this alternative. Therefore, land management activities and day-to-day maintenance of farm buildings would become largely the responsibility of NPS staff or contractors. Since the emphasis here would be on the activities relating to farming—plowing, sowing, and harvesting—little emphasis on crop protection or production would be made, therefore, an increase in fencing or pesticide use is not likely to occur. </P>
                    <HD SOURCE="HD1">Basis for Decision </HD>
                    <P>
                        The selected alternative best supports the park's purpose and significance and accomplishes the statutory mission of the NPS to provide long-term protection of park resources while allowing for appropriate levels of visitor use and means of visitor enjoyment. As required by NEPA, the selection of an alternative was based solely on the information gathered and analyzed in the final EIS. In full consideration of NPS and park mandates outlined in this document, the beneficial effects and negative impacts on all aspects of the human environment are compared along with the expected economic costs and technical aspects of each alternative. A review of costs indicates that while all alternatives considered have start-up costs ranging from $20-$27 million over the first 20 years, alternative 2 would 
                        <PRTPAGE P="28151"/>
                        result in the establishment of a rural landscape management program with the lowest overall annual costs to the park over the long-term. 
                    </P>
                    <P>Inherent to this decision-making process are trade-offs between natural and cultural resources. In many cases, actions that provide the most benefit to cultural resources also have the greatest negative effects on natural resources, and the opposite is often true as well. These inherent trade-offs largely explain why the park's preferred alternative (which provides the greatest benefit to cultural resources by recreating a “living landscape” but also unavoidably negatively affects natural resources) has been selected over the environmentally preferred alternative (which provides overall minor or moderate benefits to both natural and cultural resources). </P>
                    <HD SOURCE="HD1">Impairment </HD>
                    <P>The NPS Organic Act directs the NPS to manage the parks “to conserve the scenery and the natural and historic objects and the wildlife therein and to provide for the enjoyment of the same in such manner and by such means as will leave them unimpaired for the enjoyment of future generations.” Both the NPS Organic Act and the General Authorities Act prohibit an impairment of park resources. The NPS Management Policies (2001, section 1.4.5) provides additional guidance on what resources and impacts may constitute an impairment. An impact is more likely to constitute an impairment to the extent that it affects a resource or value whose conservation is: (1) Necessary to fulfill a specific purpose identified in the establishing legislation or proclamation of the park; (2) key to the natural or cultural integrity of the park or to opportunities for enjoyment of the park; or (3) identified as a goal in the park's general management plan or other relevant NPS planning documents. An impact would be less likely to constitute impairment to the extent that it is an unavoidable result of an action necessary to preserve or restore the integrity of park resources or values, which cannot reasonably be further mitigated. Impairment is an impact that, in the professional judgment of the responsible NPS manager, would harm the integrity of park resources or values, including opportunities that otherwise would be present for the enjoyment of those resources. </P>
                    <P>After careful consideration of all impacts to resources that might result from actions taken by the park in implementing the selected alternative, the NPS found that no impairment of park resources or values would occur. Few resources would be expected to experience major or moderate adverse impacts from implementing the selected alternative (see table 2.9 and chapter 4 of the final EIS for more information). Where such impacts are expected, they are largely unavoidable or the result of cumulative actions outside the park's authority to control. </P>
                    <P>Some actions may have unavoidable adverse impacts, but many of these have been minimized or reasonably mitigated. For example, the conversion of grasslands and “older fields” to agricultural use has direct consequences on species that live in those habitats, so two large grassland habitat management areas were designated to preserve the largest and highest quality habitat for rare and declining bird species and other species dependent on that habitat. Similarly, some of the largest existing areas of shrub habitat were preserved and not targeted for agricultural use and a Habitat Management Plan will be drafted within 5 years to address the long-term maintenance of these open habitats. </P>
                    <P>Also, the preservation of open space in a largely forested landscape contributes to forest fragmentation levels and related edge effects. The selected alternative alone would not lead to impairment, but the cumulative effects on forests from continued regional losses and increased fragmentation of forested areas outside of the park and the effects of regionally overabundant deer populations could possibly lead to the eventual local extirpation of some sensitive forest interior species that need large, uninterrupted expanses of land. This would constitute a major adverse impact, but is not likely to lead to impairment due to the small number of species involved and the indirect and unavoidable nature of the impact. </P>
                    <P>Finally, if under the selected alternative, white-tailed deer are forced to browse more heavily in bottomland forests because farm fields and open habitats are suddenly off limits, bottomland forests may be less likely to regenerate. The effects of this action alone would not lead to impairment, but the action could contribute to impairment if bottomland forests are lost. Mitigation associated with this potential impact is beyond the scope of the final EIS; however, the NPS has already initiated planning for a full separate environmental impact analysis under NEPA to assess possible management alternatives for reducing deer-related impacts and preventing impairment of park resources and values. </P>
                    <P>Based on the analysis in the final EIS, the selected alternative will not lead to the impairment of park resources and will not violate the NPS Organic Act. </P>
                    <HD SOURCE="HD1">Environmentally Preferred Alternative </HD>
                    <P>The environmentally preferable alternative is defined as “the alternative or alternatives that will promote the national environmental policy as expressed in section 101 of the NEPA. Ordinarily, this means the alternative that causes least damage to the biological and physical environment; it also means the alternative that best protects, preserves, and enhances historic, cultural, and natural resources” (“Forty Most Asked Questions Concerning Council on Environmental Quality's (CEQ) NEPA Regulations,” 1981). It should be noted when identifying the environmentally preferred alternative, economic, recreational and technical issues are not considered. </P>
                    <P>Under alternatives 1 and 4, the adverse impacts associated with conventional agricultural uses will largely be compensated for by the maintenance of open; mostly unfenced agricultural lands and hayfields that still provide many benefits to wildlife that depend on them. Overall, only relatively minor adverse impacts are expected on the biological and physical environment from these Alternatives. Alternative 1 would only minimally protect historic and cultural resources, while alternative 4 provides a higher level of protection and enhancement of those resources from a larger increase in farming in the park. </P>
                    <P>
                        In contrast, the selected alternative (alternative 2) has the potential to have overall moderate adverse effects on biological and physical resources. This is primarily due to the fact that farming under this alternative is economically-driven and requires farmers to largely exclude wildlife from areas they now use through fencing, guardian animals, and other deterrents. The conversion of high-quality forage areas (
                        <E T="03">i.e.</E>
                        , crops such as corn) and habitats (
                        <E T="03">i.e.</E>
                        , hayfields) to other, better protected crops will effectively result in a net loss of forage areas and habitat. Additionally, new construction is expected to be highest under this alternative which may have additional adverse effects on the biological and physical environment. 
                    </P>
                    <P>
                        While having the greatest impacts on the biological and physical environment, alternative 2 is also the only alternative that provides major benefits to the historic and cultural environment through a significant increase in agricultural activity by resident farmers. The establishment of a living and working rural landscape that 
                        <PRTPAGE P="28152"/>
                        only this alternative provides has the highest possible value to the parks cultural and historical environment and is the primary reason this alternative is the park's preferred alternative. 
                    </P>
                    <P>Under alternative 3, active agricultural activity is largely eliminated from the park and replaced with relatively innocuous mowing regimes to keep areas open. This alternative actually provides minor to moderate overall benefits to many wildlife species that depend on these habitats. It is the only alternative that actually provides net benefits to natural resources from the removal of many potential environmental stressors and potential new construction actions directly related to agricultural activity. This alternative also provides moderate benefits to the historic and cultural environment, though not nearly as much as alternatives 2 and 4. </P>
                    <P>Alternative 3 is therefore considered to be the environmentally preferred alternative in this EIS as defined by the Council on Environmental Quality because it causes the least amount of impact on biological and physical resources, and provides at least moderate benefits to the natural, cultural and historical environment of the park. </P>
                    <HD SOURCE="HD1">Measures To Minimize Harm </HD>
                    <P>All practicable means to avoid or minimize environmental harm that could result from implementation of the preferred alternative have been identified and incorporated into the alternative (as described above). They include, but are not limited to, setting aside and managing grassland areas for habitat values (section 2.4.3 of the final EIS), resource monitoring and management; buffering of water resources from agricultural activity, cultural and natural resource surveys and consultation prior to new construction or the use or modification of lands and structures, and the commitment to develop a Habitat Management Plan for grassland and shrub areas (section 4.3.3 of the final EIS). Additional mitigation measures would be developed as needed should undesirable impacts to resources be identified. </P>
                    <P>Due to the programmatic nature of the rural landscape management program final EIS, specific projects will be reviewed as necessary for compliance with the NEPA, National Historic Preservation Act, and other applicable Federal and State laws and regulations prior to project clearance and implementation. </P>
                    <HD SOURCE="HD1">Public Involvement </HD>
                    <P>A summary of public involvement in the initial scoping and planning activities is outlined in Section 1.4 and appendix C of the final EIS. Since 1999, the NPS has conducted preliminary internal and external scoping activities to discuss the management of the park's rural landscape by meeting with other agencies, organizations, and individuals. Through these preliminary scoping activities, the NPS proposed a change in the rural landscape management practices at the park. </P>
                    <P>When the proposed changes were identified as potentially affecting the human environment, the NPS decided to prepare an environmental assessment for the proposed action in May 2001. Environmental Assessments (EA) are written when the potential environmental impacts of an action are unknown. Formal scoping activities began for the EA in May 2001. Letters were mailed to natural and cultural resource agencies and organizations and a press release to major media outlets was issued. The letters and releases suggested a range of alternatives for rural landscape management. Twenty comments were received and several newspapers carried editorials and letters from the public on the issue. The NPS soon decided that due to the scale and complexity of the proposed action and the possibility that significant impacts may result from the action, the preparation of an EIS would be required. Public and agency comments received during the EA scoping process were summarized and kept for use in the EIS scoping process. </P>
                    <P>
                        The NPS initiated the process of preparing an environmental impact statement for rural landscape management in the park by publishing a notice of intent in the 
                        <E T="04">Federal Register</E>
                         on July 27, 2001. The notice of intent suggested a range of alternatives for rural landscape management, noted that public meetings were to be scheduled, and directed the public to a special park website for more information. Subsequently, a press release containing similar information was issued to approximately 160 local media contacts and to a list of 400 individuals who had expressed specific interest in park agricultural activities. The press release and the summary of issues and alternatives identified during the EA scoping process were placed on the park website. Additionally, letters specifically requesting input were mailed to 93 natural and cultural resource agencies, agricultural groups, local municipalities, universities, tribes, organizations, and 26 individuals. Two public open houses held on August 22, 2001, were attended by approximately 40 people. Public input was accepted until September 11, 2001. Seventeen written comments were received. 
                    </P>
                    <P>The public and other agencies identified many environmental issues associated with the proposed action during the scoping process. Briefly, concerns about possible impacts from the proposed action on park cultural resources and landscapes, scenic values, wildlife and vegetation, water resources, and other natural resources were raised. Social issues such as public health and safety, changes in recreational opportunities, and economic impacts on local communities and school districts were also identified. </P>
                    <P>In addition to public scoping, numerous agencies and organizations have been consulted throughout the preparation of this document. Cultural resource compliance for this project as required under section 106 of the National Historic Preservation Act, as amended, has been completed. Additionally, a consultation with the U.S. Fish and Wildlife Service was completed, and will continue as required in accordance with the Endangered Species Act. </P>
                    <P>
                        The draft EIS was made available for a 60-day public review period from February 14-April 15, 2003. We distributed copy of the document to a list of over 100 agencies, organizations, local communities, tribes, Members of Congress, and individuals listed in the draft EIS, section 52. Notices of availability of the draft EIS were published in the 
                        <E T="04">Federal Register</E>
                         by the NPS (February 5, 2003) and the U.S. Environmental Protection Agency (February 14, 2003). Press releases to local media, paid announcements in the major local newspapers, and the park web site also announced the availability of the document. Reference copies were made available at park headquarters and ten local libraries. The document was also available on the park web site for viewing or downloading. A copy of the draft EIS was sent to anyone that requested one. 
                    </P>
                    <P>Public meetings were held in the park on March 19, 2003, from 12-2 p.m., and March 20, 2003, from 6-8 p.m. to solicit further comments. Approximately 20 people attended each meeting. Comments made during the public meetings as noted by NPS staff are included in section 5.3 responses to comments. </P>
                    <P>
                        The NPS received 77 formal written comments during the comment period in addition to the public meeting comments. Comments received within two weeks after the comment period 
                        <PRTPAGE P="28153"/>
                        closed were accepted. All comments are reprinted in full in Final EIS Section 5.3 Responses to Comments. The NPS responses to substantive comments are also provided in that section. The final EIS includes corrections and additions based on the substantive comments received. Additional revisions not affecting the analysis to correct errata and improve consistency are also included in the final EIS. 
                    </P>
                    <P>
                        A notice of availability for the final Rural Landscape Management Program Environmental Impact Statement for CUVA was published in the 
                        <E T="04">Federal Register</E>
                         on January 2, 2004. Since the notice was to appear in the December 24, 2003, 
                        <E T="04">Federal Register</E>
                        , the Environmental Protection Agency indicated the 30-day no-action period ended on January 22, 2004. 
                    </P>
                    <HD SOURCE="HD1">Conclusion </HD>
                    <P>Full consideration of the park's purpose and significance and its statutory mission, the benefits and costs to the human environment, and public input resulted in the selection of the final program, as described in the “Alternative 2—Countryside Initiative (Preferred Alternative)” section of the Final Environmental Impact Statement. </P>
                    <SIG>
                        <DATED>Dated: February 13, 2004. </DATED>
                        <NAME>Ernest Quintana, </NAME>
                        <TITLE>Regional Director, Midwest Region. </TITLE>
                    </SIG>
                </FURINF>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11165 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4312-52-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF THE INTERIOR </AGENCY>
                <SUBAGY>Bureau of Reclamation </SUBAGY>
                <SUBJECT>Quarterly Status Report of Water Service, Repayment, and Other Water-Related Contract Negotiations </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Bureau of Reclamation, Interior. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>
                        Notice is hereby given of contractual actions that have been proposed to the Bureau of Reclamation (Reclamation) and are new, modified, discontinued, or completed since the last publication of this notice on February 27, 2004. This notice is one of a variety of means used to inform the public about proposed contractual actions for capital recovery and management of project resources and facilities consistent with section 9(f) of the Reclamation Project Act of 1939. Additional announcements of individual contract actions may be published in the 
                        <E T="04">Federal Register</E>
                         and in newspapers of general circulation in the areas determined by Reclamation to be affected by the proposed action. 
                    </P>
                </SUM>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>
                        The identity of the approving officer and other information pertaining to a specific contract proposal may be obtained by calling or writing the appropriate regional office at the address and telephone number given for each region in the 
                        <E T="02">SUPPLEMENTARY INFORMATION</E>
                         section. 
                    </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Sandra L. Simons, Manager, Contract Services Office, Bureau of Reclamation, PO Box 25007, Denver, Colorado 80225-0007; telephone 303-445-2902. </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>Consistent with section 9(f) of the Reclamation Project Act of 1939 and the rules and regulations published in 52 FR 11954, April 13, 1987 (43 CFR 426.22), Reclamation will publish notice of proposed or amendatory contract actions for any contract for the delivery of project water for authorized uses in newspapers of general circulation in the affected area at least 60 days prior to contract execution. Announcements may be in the form of news releases, legal notices, official letters, memorandums, or other forms of written material. Meetings, workshops, and/or hearings may also be used, as appropriate, to provide local publicity. The public participation procedures do not apply to proposed contracts for the sale of surplus or interim irrigation water for a term of 1 year or less. Either of the contracting parties may invite the public to observe contract proceedings. All public participation procedures will be coordinated with those involved in complying with the National Environmental Policy Act. Pursuant to the “Final Revised Public Participation Procedures” for water resource-related contract negotiations, published in 47 FR 7763, February 22, 1982, a tabulation is provided of all proposed contractual actions in each of the five Reclamation regions. When contract negotiations are completed, and prior to execution, each proposed contract form must be approved by the Secretary of the Interior, or pursuant to delegated or redelegated authority, the Commissioner of Reclamation or one of the regional directors. In some instances, congressional review and approval of a report, water rate, or other terms and conditions of the contract may be involved. </P>
                <P>Public participation in and receipt of comments on contract proposals will be facilitated by adherence to the following procedures: </P>
                <P>1. Only persons authorized to act on behalf of the contracting entities may negotiate the terms and conditions of a specific contract proposal. </P>
                <P>2. Advance notice of meetings or hearings will be furnished to those parties that have made a timely written request for such notice to the appropriate regional or project office of Reclamation. </P>
                <P>3. Written correspondence regarding proposed contracts may be made available to the general public pursuant to the terms and procedures of the Freedom of Information Act, as amended. </P>
                <P>4. Written comments on a proposed contract or contract action must be submitted to the appropriate regional officials at the locations and within the time limits set forth in the advance public notices. </P>
                <P>5. All written comments received and testimony presented at any public hearings will be reviewed and summarized by the appropriate regional office for use by the contract approving authority. </P>
                <P>6. Copies of specific proposed contracts may be obtained from the appropriate regional director or his designated public contact as they become available for review and comment. </P>
                <P>7. In the event modifications are made in the form of a proposed contract, the appropriate regional director shall determine whether republication of the notice and/or extension of the comment period are necessary. </P>
                <P>Factors considered in making such a determination shall include, but are not limited to (i) the significance of the modification, and (ii) the degree of public interest which has been expressed over the course of the negotiations. At a minimum, the regional director shall furnish revised contracts to all parties who requested the contract in response to the initial public notice. </P>
                <P>The February 27, 2004, notice should be used as a reference point to identify changes. The numbering system in this notice corresponds with the numbering system in the February 27, 2004. </P>
                <HD SOURCE="HD1">Definitions of Abbreviations Used in This Document </HD>
                <FP SOURCE="FP-1">BCP—Boulder Canyon Project </FP>
                <FP SOURCE="FP-1">Reclamation—Bureau of Reclamation </FP>
                <FP SOURCE="FP-1">CAP—Central Arizona Project </FP>
                <FP SOURCE="FP-1">CVP—Central Valley Project </FP>
                <FP SOURCE="FP-1">CRSP—Colorado River Storage Project </FP>
                <FP SOURCE="FP-1">FR—Federal Register </FP>
                <FP SOURCE="FP-1">IDD—Irrigation and Drainage District </FP>
                <FP SOURCE="FP-1">ID—Irrigation District </FP>
                <FP SOURCE="FP-1">M&amp;I—Municipal and Industrial </FP>
                <FP SOURCE="FP-1">O&amp;M—Operation and Maintenance </FP>
                <FP SOURCE="FP-1">
                    P-SMBP—Pick-Sloan Missouri Basin Program 
                    <PRTPAGE P="28154"/>
                </FP>
                <FP SOURCE="FP-1">PPR-Present Perfected Right </FP>
                <FP SOURCE="FP-1">SOD—Safety of Dams </FP>
                <FP SOURCE="FP-1">WD-Water District</FP>
                <P>
                    <E T="03">Pacific Northwest Region:</E>
                     Bureau of Reclamation, 1150 North Curtis Road, Suite 100, Boise, Idaho 83706-1234, telephone 208-378-5223. 
                </P>
                <HD SOURCE="HD2">Completed Contract Action </HD>
                <P>8. Baker Valley ID, Baker Project, Oregon: Warren Act contract with cost of service charge to allow for use of project facilities to store nonproject water. Contract executed on February 28, 2004.</P>
                <P>
                    <E T="03">Mid-Pacific Region:</E>
                     Bureau of Reclamation, 2800 Cottage Way, Sacramento, California 95825-1898, telephone 916-978-5250.
                </P>
                <HD SOURCE="HD2">New Contract Action</HD>
                <P>39. Pershing County Water Conservation District, Humboldt Project, Nevada: Title transfer agreement for conveyance of the Humboldt Project. Modified contract action:</P>
                <P>5. Sutter Extension WD, Delano-Earlimart ID, and the State of California Department of Water Resources, CVP, California: Pursuant to Pub. L. 102-575, cooperative agreements with non-Federal entities for the purpose of providing funding for CVP refuge water wheeling facility improvements to provide water for refuge and private wetlands.</P>
                <HD SOURCE="HD2">Discontinued Contract Actions</HD>
                <P>16. City of Redding, CVP, California: Amend water service contract No. 14-06-200-5272A, for the purpose of renegotiating the provisions of contract Article 15, “Water Shortage and Apportionment,” to conform to current CVP M&amp;I water shortage policy. </P>
                <P>27. Contra Costa WD, CVP, California: Amend water service contract No. I75r-3401A to extend the date for renegotiation of the provisions of contract Article 12 “Water Shortage and Apportionment.”</P>
                <HD SOURCE="HD2">Completed Contract Actions</HD>
                <P>21. El Dorado ID, CVP, California: Title transfer agreement for conveyance of CVP facilities. This agreement will allow transfer of title for Sly Park Dam, Jenkinson Lake, and appurtenant facilities from the CVP to El Dorado ID. Title transfer completed on December 23, 2003. </P>
                <P>35. Banta-Carbona ID, CVP, California: Proposed partial assignment of up to 5,000 acre-feet of Banta Carbona ID's CVP water to the City of Tracy for M&amp;I use. Partial assignment executed on February 27, 2004. </P>
                <P>36. The West Side ID, CVP, California: Proposed partial assignment of up to 5,000 acre-feet of the West Side ID's CVP irrigation water to the City of Tracy for M&amp;I use. Partial assignment executed in February 27, 2004. </P>
                <P>
                    <E T="03">Lower Colorado Region:</E>
                     Bureau of Reclamation, PO Box 61470 (Nevada Highway and Park Street), Boulder City, Nevada 89006-1470, telephone 702-293-8536. 
                </P>
                <HD SOURCE="HD2">New Contract Actions</HD>
                <P>45. Miscellaneous PPR No. 43, BCP, California: Contract with the City of Needles for 1,500 acre-feet diversion and 950 acre-feet consumptive use. </P>
                <P>46. Metropolitan Domestic Water Improvement District, CAP, Arizona: Subcontract for 8,858 acre-feet of water for M&amp;I use. </P>
                <P>47. Cortaro-Marina ID, CAP, Arizona: Agreement with Reclamation and Arizona municipalities concerning the operation of a managed effluent recharge facility in the Santa Cruz River Channel. </P>
                <HD SOURCE="HD2">Modified Contract Actions</HD>
                <P>3. GOBO Farms, BCP, Arizona: Colorado River water delivery contract for 924 acre-feet of Colorado River water per year as recommended by the Arizona Department of Water Resources. </P>
                <P>26. Jessen Family Limited Partnership, BCP, Arizona: Contract for delivery of 1,080 acre-feet of Colorado River water for agricultural purposes. </P>
                <HD SOURCE="HD2">Completed Contract Actions</HD>
                <P>41. Green Valley Water Company, CAP, Arizona: Assignment of subcontract entitlement of 1,900 acre-feet of M&amp;I water per year to Green Valley Domestic Improvement District.</P>
                <P>42. Midvale Farms Water Company, CAP, Arizona: Assignment of allocation for 1,500 acre-feet of M&amp;I water per year to the City of Tucson. </P>
                <P>46. Metropolitan Domestic Water Improvement District, CAP, Arizona: Subcontract for 8,858 acre-feet of water for M&amp;I use. </P>
                <P>
                    <E T="03">Upper Colorado Region:</E>
                     Bureau of Reclamation, 125 South State Street, Room 6107, Salt Lake City, Utah 84138-1102, telephone 801-524-3864. 
                </P>
                <HD SOURCE="HD2">New Contract Actions</HD>
                <P>1.(e) Thomas Chapman, Aspinall Storage Unit, CRSP: Mr. Chapman has requested a 40-year water service contract for 1 acre-foot of water out of Blue Mesa Reservoir to support his pending plan of augmentation, Water Division 4. </P>
                <P>23. State of Colorado, Animas-La Plata Project, Colorado and New Mexico: Cost sharing/repayment contract for up to 10,440 acre-feet per year of M&amp;I water; contract terms to be consistent with the Colorado Ute Settlement Act Amendments of 2000 (Title III of Pub. L. 106-554). </P>
                <P>24. Coon Creek Reservoir and Ditch Company, Collbran Project: The Coon Creek Reservoir and Ditch Company and the Collbran Conservancy District have requested a nonproject irrigation carriage contract (40-year) to have 3 cfs, not to exceed 1,000 acre-feet annually, of their direct flow irrigation water rights diverted into and delivered through the existing Southside Canal, a feature of the Collbran Project delivery structures. </P>
                <HD SOURCE="HD2">Discontinued Contract Actions</HD>
                <P>1.(a) United States Fish and Wildlife Service, Aspinall Unit, CRSP; Colorado: Contract for 25 acre-feet to support an augmentation plan to provide water for the Hotchkiss Fish Hatchery ponds, used to grow out endangered fish, which is a part of the Endangered Fish Recovery Program.</P>
                <P>13. Castle Valley Special Service District, City of Huntington, Emery County Project: Assignment of contract for 189 acre-feet of water for municipal purposes. </P>
                <P>17. South Cache Water Users Association, Hyrum Project, Utah: Contract to allow the Association to convert up to 1,000 acre-feet of project irrigation water annually to municipal, domestic, and industrial uses. </P>
                <P>
                    <E T="03">Great Plains Region:</E>
                     Bureau of Reclamation, PO Box 36900, Federal Building, 316 North 26th Street, Billings, Montana 59107-6900, telephone 406-247-7790. 
                </P>
                <HD SOURCE="HD2">New Contract Actions</HD>
                <P>36. Municipal Subdistrict of the Northern Colorado Water Conservancy District, Colorado-Big Thompson Project, Colorado: Consideration of a new long-term contract or amendment of contract No. 4-07-70-W0107 with the Municipal Subdistrict and the Northern Colorado Water Conservancy District for the proposed Windy Gap Firming Project. </P>
                <P>37. Northern Integrated Supply Project, Colorado-Big Thompson Project, Colorado: Consideration of a new long-term contract with approximately 14 regional water suppliers and the Northern Colorado Water Conservancy District for the Northern Integrated Supply Project. </P>
                <P>
                    38. Kansas-Bostwick ID No. 2; Franklin, Superior-Courtland, and Courtland Units; Bostwick Division; P-SMBP; Courtland, Kansas: The District requested a deferment of its 2004 repayment obligation. A request is being prepared to amend contract No. 
                    <PRTPAGE P="28155"/>
                    009D6B0120 to defer payments in accordance with the Act of September 21, 1959. 
                </P>
                <P>39. Frenchman Valley ID, Frenchman Unit, Frenchman-Cambridge Division, P-SMBP, Culbertson, Nebraska: The District requested a deferment of its 2004 repayment and reserve fund obligations. A request is being prepared to amend contract No. 009E6B0123 to defer payments in accordance with the Act of September 21, 1959. </P>
                <P>40. Bostwick ID; Franklin, Superior-Courtland, and Courtland Units; Bostwick Division; P-SMBP; Red Cloud, Nebraska: The District requested a deferment of its 2004 repayment and water service obligations. A request is being prepared to amend contract No. 009E6B0121 to defer payments in accordance with the Act of September 21, 1959. </P>
                <P>41. Frenchman-Cambridge ID; Meeker-Driftwood, Red Willow, and Cambridge Units; Frenchman-Cambridge Division; P-SMBP; Cambridge, Nebraska: The District requested a deferment of its 2004 repayment obligation. A request is being prepared to amend contract No. 009D6B0122 to defer payments in accordance with the Act of September 21, 1959. </P>
                <HD SOURCE="HD2">Modified Contract Actions</HD>
                <P>14. Lower Marias Unit, P-SMBP, Montana: Negotiating for a long-term water service contract with Julie Peterson for the use of up to 478 acre-feet of storage water from Tiber Reservoir to irrigate 239 acres. Temporary/interim contracts are being issued to allow continued delivery of water and the time necessary to complete required actions for the long-term contract process. </P>
                <P>22. Helena Valley Unit, P-SMBP, Montana: Initiating discussions with Helena Valley ID for renewal of Part A of the A/B contract which expires December 31, 2004. </P>
                <P>23. Crow Creek Unit, P-SMBP, Montana: Initiating discussions with Toston ID for renewal of Part A of the A/B contract which expires December 31, 2004. </P>
                <P>28. Helena Valley Unit, P-SMBP, Montana: The long-term water service contract with the City of Helena, Montana, expires December 31, 2004. Initiating discussions for contract renewal for an annual supply of raw water for domestic and M&amp;I use from Helena Valley Reservoir. </P>
                <HD SOURCE="HD2">Completed Contract Actions</HD>
                <P>32. Town of Deaver, Shoshone Project, Wyoming: Negotiate a long-term contract for up to 475 acre-feet of irrigation water from the two drains below Deaver Reservoir. The contract was executed December 27, 2003. </P>
                <P>33. Tom Green County Water Control and Improvement District No. 1, San Angelo Project, Texas: The District has requested a partial deferment of its 2003 repayment obligation. An amendment to contract No. 14-06-500-369 was executed January 29, 2004. </P>
                <SIG>
                    <DATED>Dated: March 25, 2004. </DATED>
                    <NAME>Roseann Gonzales, </NAME>
                    <TITLE>Director, Office of Program and Policy Services. </TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11198 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4310-MN-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">INTERNATIONAL TRADE COMMISSION </AGENCY>
                <DEPDOC>[Inv. No. 337-TA-469] </DEPDOC>
                <SUBJECT>Certain Bearings and Packaging Thereof; Notice of Commission Determination To Reverse an Initial Determination of the Administrative Law Judge That Section 337 Has Been Violated; Termination of Investigation With a Finding of No Violation of Section 337 </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>U.S. International Trade Commission. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>Notice is hereby given that the U.S. International Trade Commission has determined to reverse the presiding administrative law judge's finding of violation of section 337 of the Tariff Act of 1930, as amended, in the above-referenced investigation, and has terminated the investigation with a finding of no violation of section 337. </P>
                </SUM>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>
                        Jean Jackson, Esq., Office of the General Counsel, U.S. International Trade Commission, 500 E Street, SW., Washington, DC 20436, telephone (202) 205-3104. Copies of the Commission's Order, the public version of the ALJ's final initial determination (ID), and all other nonconfidential documents filed in connection with this investigation are or will be available for inspection during official business hours (8:45 a.m. to 5:15 p.m.) in the Office of the Secretary, U.S. International Trade Commission, 500 E Street, SW., Washington, DC 20436, telephone 202-205-2000. General information concerning the Commission may also be obtained by accessing its Internet server 
                        <E T="03">(http://www.usitc.gov)</E>
                        . The public record for this investigation may be viewed on the Commission's electronic docket (EDIS) at 
                        <E T="03">http://edis.usitc.gov</E>
                        . Hearing-impaired persons are advised that information on this matter can be obtained by contacting the Commission's TDD terminal on 202-205-1810. 
                    </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>The Commission instituted this investigation on April 16, 2002, based on a complaint filed by SKF USA, Inc. (SKF USA) of Norristown, PA against fourteen respondents. 67 FR. 18632 (2002). Four respondents remain active in the investigation, with ten respondents having either settled with complainant or been found in default. The complaint, as supplemented, alleged violations of section 337 of the Tariff Act of 1930 in the importation into the United States, sale for importation, and sale within the United States after importation of certain bearings by reason of infringement of registered and common law trademarks, dilution of trademarks, various acts in violation of the Lanham Act, and passing off. A count concerning “unfair pecuniary benefits” was dismissed by the Commission on September 23, 2002. </P>
                <P>On April 10, 2003, the ALJ issued his ID on violation and his recommended determination on remedy and bonding. The ALJ found a violation of section 337 by reason of infringement of SKF USA's registered and common law trademarks by each of the four remaining respondents, viz., Bearings Limited, Bohls Bearing and Transmission Service, CST Bearing Company, and McGuire Bearings Company, and recommended the issuance of a general exclusion order and cease and desist orders to the respondents found in violation. All active parties remaining in the investigation, including the Commission investigative attorney, filed petitions for review on April 21, 2003, and replies to the petitions on April 28, 2003. </P>
                <P>
                    On May 27, 2003, the Commission determined to review the ID in part and asked the parties to brief several questions relating to the issue of material differences in the context of trademark infringement by gray market goods. 68 FR 32766-7 (June 2, 2002). Responses to the Commission's questions were filed on June 6, 2003, by all parties remaining in the investigation. Replies to the responses were filed by the same parties on June 13, 2003. Having examined the parties' submissions and the record in this investigation, including the ALJ's ID, the petitions for review, and the responses thereto, the Commission determined on August 6, 2003, to remand the investigation to the ALJ for further fact finding concerning the material differences between 
                    <PRTPAGE P="28156"/>
                    complainant's and respondents' bearings. In order to allow sufficient time for the further fact finding, the Commission extended the target date for completion until May 12, 2004. The ALJ issued his additional findings on December 30, 2003. The parties to the investigation filed comments on the additional findings on January 12, 2004, and response comments on January 20, 2004. 
                </P>
                <P>The authority for the Commission's determination is contained in section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 1337), and in section 210.45(c) of the Commission's Rules of Practice and Procedure (19 CFR 210.45(c)). </P>
                <SIG>
                    <DATED>Issued: May 12, 2004. </DATED>
                    <P>By order of the Commission. </P>
                    <NAME>Marilyn R. Abbott, </NAME>
                    <TITLE>Secretary to the Commission. </TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11190 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 7020-02-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">INTERNATIONAL TRADE COMMISSION</AGENCY>
                <DEPDOC>[Investigations Nos. 731-TA-776-779 (Review)]</DEPDOC>
                <SUBJECT>Certain Preserved Mushrooms From Chile, China, India, and Indonesia</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>United States International Trade Commission.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Scheduling of full five-year reviews concerning the antidumping duty orders on certain preserved mushrooms from Chile, China, India, and Indonesia.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The Commission hereby gives notice of the scheduling of full reviews pursuant to section 751(c)(5) of the Tariff Act of 1930 (19 U.S.C. 1675(c)(5)) (the Act) to determine whether revocation of the antidumping duty orders on certain preserved mushrooms from Chile, China, India, and Indonesia would be likely to lead to continuation or recurrence of material injury within a reasonably foreseeable time. For further information concerning the conduct of these reviews and rules of general application, consult the Commission's Rules of Practice and Procedure, part 201, subparts A through E (19 CFR part 201), and part 207, subparts A, D, E, and F (19 CFR part 207).</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">EFFECTIVE DATE:</HD>
                    <P>May 12, 2004.</P>
                </DATES>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>
                        Christopher J. Cassise (202-708-5408), Office of Investigations, U.S. International Trade Commission, 500 E Street, SW., Washington, DC 20436. Hearing-impaired persons can obtain information on this matter by contacting the Commission's TDD terminal on 202-205-1810. Persons with mobility impairments who will need special assistance in gaining access to the Commission should contact the Office of the Secretary at 202-205-2000. General information concerning the Commission may also be obtained by accessing its Internet server (
                        <E T="03">http://www.usitc.gov</E>
                        ). The public record for these reviews may be viewed on the Commission's electronic docket (EDIS) at 
                        <E T="03">http://edis.usitc.gov</E>
                        .
                    </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P SOURCE="NPAR">
                    <E T="03">Background</E>
                    .—On February 6, 2004, the Commission determined that responses to its notice of institution of the subject five-year reviews were such that full reviews pursuant to section 751(c)(5) of the Act should proceed (69 FR 7793, February 19, 2004). A record of the Commissioners' votes, the Commission's statement on adequacy, and any individual Commissioner's statements are available from the Office of the Secretary and at the Commission's web site.
                </P>
                <P>
                    <E T="03">Participation in the reviews and public service list</E>
                    .—Persons, including industrial users of the subject merchandise and, if the merchandise is sold at the retail level, representative consumer organizations, wishing to participate in these reviews as parties must file an entry of appearance with the Secretary to the Commission, as provided in section 201.11 of the Commission's rules, by 45 days after publication of this notice. A party that filed a notice of appearance following publication of the Commission's notice of institution of the reviews need not file an additional notice of appearance. The Secretary will maintain a public service list containing the names and addresses of all persons, or their representatives, who are parties to the reviews.
                </P>
                <P>
                    <E T="03">Limited disclosure of business proprietary information (BPI) under an administrative protective order (APO) and BPI service list</E>
                    .—Pursuant to section 207.7(a) of the Commission's rules, the Secretary will make BPI gathered in these reviews available to authorized applicants under the APO issued in the reviews, provided that the application is made by 45 days after publication of this notice. Authorized applicants must represent interested parties, as defined by 19 U.S.C. 1677(9), who are parties to the reviews. A party granted access to BPI following publication of the Commission's notice of institution of the reviews need not reapply for such access. A separate service list will be maintained by the Secretary for those parties authorized to receive BPI under the APO.
                </P>
                <P>
                    <E T="03">Staff report</E>
                    .—The prehearing staff report in the reviews will be placed in the nonpublic record on August 19, 2004, and a public version will be issued thereafter, pursuant to section 207.64 of the Commission's rules.
                </P>
                <P>
                    <E T="03">Hearing</E>
                    .—The Commission will hold a hearing in connection with these reviews beginning at 9:30 a.m. on September 9, 2004, at the U.S. International Trade Commission Building. Requests to appear at the hearing should be filed in writing with the Secretary to the Commission on or before September 1, 2004. A nonparty who has testimony that may aid the Commission's deliberations may request permission to present a short statement at the hearing. All parties and nonparties desiring to appear at the hearing and make oral presentations should attend a prehearing conference to be held at 9:30 a.m. on September 3, 2004, at the U.S. International Trade Commission Building. Oral testimony and written materials to be submitted at the public hearing are governed by sections 201.6(b)(2), 201.13(f), 207.24, and 207.66 of the Commission's rules. Parties must submit any request to present a portion of their hearing testimony 
                    <E T="03">in camera</E>
                     no later than 7 days prior to the date of the hearing.
                </P>
                <P>
                    <E T="03">Written submissions</E>
                    .—Each party to the reviews may submit a prehearing brief to the Commission. Prehearing briefs must conform with the provisions of section 207.65 of the Commission's rules; the deadline for filing is September 2, 2004. Parties may also file written testimony in connection with their presentation at the hearing, as provided in section 207.24 of the Commission's rules, and posthearing briefs, which must conform with the provisions of section 207.67 of the Commission's rules. The deadline for filing posthearing briefs is September 20, 2004; witness testimony must be filed no later than three days before the hearing. In addition, any person who has not entered an appearance as a party to the reviews may submit a written statement of information pertinent to the subject of the reviews on or before September 20, 2004. On October 8, 2004, the Commission will make available to parties all information on which they have not had an opportunity to comment. Parties may submit final comments on this information on or before October 12, 2004, but such final comments must not contain new factual information and must otherwise comply with section 207.68 of the Commission's rules. All written submissions must conform with the provisions of section 
                    <PRTPAGE P="28157"/>
                    201.8 of the Commission's rules; any submissions that contain BPI must also conform with the requirements of sections 201.6, 207.3, and 207.7 of the Commission's rules. The Commission's rules do not authorize filing of submissions with the Secretary by facsimile or electronic means, except to the extent permitted by section 201.8 of the Commission's rules, as amended, 67 FR. 68036 (November 8, 2002).
                </P>
                <P>In accordance with sections 201.16(c) and 207.3 of the Commission's rules, each document filed by a party to the reviews must be served on all other parties to the reviews (as identified by either the public or BPI service list), and a certificate of service must be timely filed. The Secretary will not accept a document for filing without a certificate of service.</P>
                <AUTH>
                    <HD SOURCE="HED">Authority:</HD>
                    <P>These reviews are being conducted under authority of title VII of the Tariff Act of 1930; this notice is published pursuant to section 207.62 of the Commission's rules.</P>
                </AUTH>
                <SIG>
                    <DATED>Issued: May 13, 2004.</DATED>
                    <P>By order of the Commission.</P>
                    <NAME>Marilyn R. Abbott,</NAME>
                    <TITLE>Secretary to the Commission.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11220 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 7020-02-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF JUSTICE</AGENCY>
                <SUBAGY>Office of Justice Programs</SUBAGY>
                <DEPDOC>[OJP(OJJDP) Docket No. 1399]</DEPDOC>
                <SUBJECT>Office of Juvenile Justice and Delinquency Prevention: Meeting of the Coordinating Council on Juvenile Justice and Delinquency Prevention</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Office of Juvenile Justice and Delinquency Prevention, Office of Justice Programs, Justice.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of meeting.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The Coordinating Council on Juvenile Justice and Delinquency Prevention (Council) is announcing the June 4, 2004, meeting of the Council.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Friday, June 4, 2004, from 9:30 a.m. to 1 p.m.</P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>The meeting will take place at the White House Conference Center (Truman Room), 726 Jackson Place, NW., Washington, DC.</P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>
                        Timothy Wight, Designated Federal Official for the Coordinating Council on Juvenile Justice and Delinquency Prevention, OJJDP, by telephone at (202) 514-2190, or by e-mail at 
                        <E T="03">WightT@ojp.usdoj.gov.</E>
                    </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>
                    The Coordinating Council on Juvenile Justice and Delinquency Prevention, established pursuant to section 3(2)A of the Federal Advisory Committee Act (5 U.S.C. App. 2), will meet to carry out its advisory functions under section 206 of the Juvenile Justice and Delinquency Prevention Act of 2002, 42 U.S.C. 5601, 
                    <E T="03">et seq.</E>
                     Documents such as meeting announcements, agendas, minutes, and interim and final reports will be available on the Council's Web page at 
                    <E T="03">http://www.ojjdp.ncjrs.org/council/index.html.</E>
                     (You may also verify the status of the meeting at that Web address.)
                </P>
                <P>The agenda for this meeting will include: (a) Review of past Council actions, (b) coordination of mentoring programs, and (c) discussion of the Final Report of the White House Task Force for Disadvantaged Youth.</P>
                <P>
                    <E T="03">Written Comments:</E>
                     Interested parties may submit written comments by May 21, 2004, to Timothy Wight, Designated Federal Official for the Coordinating Council on Juvenile Justice and Delinquency Prevention, OJJDP, at 
                    <E T="03">WightT@ojp.usdoj.gov.</E>
                     The Coordinating Council on Juvenile Justice and Delinquency Prevention expects public statements presented at its meetings will not be repetitive of previously submitted statements. No oral comments will be permitted at this meeting.
                </P>
                <P>
                    For security purposes, members of the public who wish to attend the meeting must pre-register by calling the Juvenile Justice Resource Center at 301-519-6473 (Daryel Dunston) or 301-519-5790 (Karen Boston), no later than May 21, 2004. To register on-line, please go to 
                    <E T="03">http://www.ojjdp.ncjrs.org/council/meetings.html.</E>
                     Space is limited.
                </P>
                <NOTE>
                    <HD SOURCE="HED">Note:</HD>
                    <P>Photo identification will be required for admission to the meeting. </P>
                </NOTE>
                <SIG>
                    <DATED>Dated: May 12, 2004.</DATED>
                    <NAME>J. Robert Flores,</NAME>
                    <TITLE>Administrator, Office of Juvenile Justice and Delinquency Prevention, and Vice-Chair, Coordinating Council on Juvenile Justice and Delinquency Prevention.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11129 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4410-18-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF LABOR </AGENCY>
                <SUBAGY>Occupational Safety and Health Administration </SUBAGY>
                <SUBJECT>Susan Harwood Training Grant Program, FY 2004 Budget </SUBJECT>
                <P>
                    <E T="03">Announcement Type:</E>
                     Initial announcement of availability of funds and solicitation for grant applications. 
                </P>
                <P>
                    <E T="03">Catalog of Federal Domestic Assistance No.:</E>
                     17.502. 
                </P>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Grant applications must be received by the OSHA Office of Training and Education in Arlington Heights, Illinois, by 4:30 p.m. (central time) on Friday, June 18, 2004. </P>
                </DATES>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>This notice contains all of the necessary information and forms needed to apply for grant funding. The U.S. Department of Labor, Occupational Safety and Health Administration (OSHA) awards funds to nonprofit organizations to provide training and education programs or to develop training materials for employers and workers about safety and health topics selected by OSHA. Any nonprofit organization, including community-based and faith-based organizations, that is not an agency of a State or local government, is eligible to apply. State or local government-supported institutions of higher education are eligible to apply in accordance with 29 CFR part 95. This notice announces grant availability for two different categories of Susan Harwood Training grants. General descriptions of the two categories of grants are provided below. </P>
                    <HD SOURCE="HD1">Targeted Topic Grants </HD>
                    <P>The Targeted Topic category grants are available to nonprofit organizations to conduct training for employers and employees on four different occupational safety and health topic areas selected by OSHA. </P>
                    <HD SOURCE="HD1">OSHA Training Materials Development Grants </HD>
                    <P>The OSHA Training Materials Development category grants are available to nonprofit organizations to develop, evaluate, and validate training materials on four different occupational safety and health topic areas selected by OSHA. The materials are to be tailored to the industry or hazard and selected target audience. Training materials are to be developed in portable formats that are suitable for hard-copy publication and distribution and for Internet publication and distribution. The materials are intended for use by employers, employees, and other interested parties for the conduct of training or for self-study. </P>
                </SUM>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>Grant applications must be sent to the attention of: Grants Officer, U.S. Department of Labor, OSHA, Office of Training and Education—OETP, 2020 S. Arlington Heights Road, Arlington Heights, Illinois 60005-4102. </P>
                </ADD>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">
                    SUPPLEMENTARY INFORMATION:
                    <PRTPAGE P="28158"/>
                </HD>
                <HD SOURCE="HD1">I. Funding Opportunity Description </HD>
                <HD SOURCE="HD2">Overview of the Susan Harwood Training Grant Program </HD>
                <P>The Susan Harwood Training Grant Program provides funds for programs to train workers and employers to recognize, avoid, and prevent safety and health hazards in their workplaces. The program emphasizes three areas: </P>
                <P>• Educating workers and employers in small businesses. A small business has 250 or fewer workers. </P>
                <P>• Training workers and employers about new OSHA standards. </P>
                <P>• Training workers and employers about high risk activities or hazards identified by OSHA through its Strategic Management Plan, or as part of an OSHA special emphasis program. </P>
                <HD SOURCE="HD2">Grant Categories Being Announced </HD>
                <P>OSHA will accept applications for two different categories of grants in FY 2004: </P>
                <P>• Targeted Topic training category grants. </P>
                <P>• OSHA Training Materials Development category grants. </P>
                <HD SOURCE="HD2">Training Topics for the Targeted Topic Category Grants </HD>
                <P>Grantees funded for Targeted Topic category grants are expected to provide occupational safety and health training programs on topics selected by OSHA, develop safety and health training and/or educational programs, recruit workers and employers for the training, and conduct and evaluate the training. Grantees are also expected to follow up with people trained by their program to determine what, if any, changes were made to reduce hazards in their workplaces as a result of the training. If your organization plans to train workers or employers in any of the 26 states operating OSHA-approved State Plans, State OSHA requirements should be included in the training. </P>
                <P>
                    Four different topic areas were selected for this grant announcement. OSHA may award grants for some or all of the listed Targeted Topics. Applicants wishing to apply for more than one grant topic must submit a separate grant application for each topic. Each application must propose a plan for developing and conducting training programs addressing the recognition and prevention of safety and health hazards for 
                    <E T="03">one</E>
                     of the four following industries or topics of emphasis: 
                </P>
                <P>
                    <E T="03">Construction Industry Hazards.</E>
                     Programs that train workers and employers in the recognition and prevention of safety and health hazards in one of the following subject areas: 
                </P>
                <P>• Excavation and trenching. </P>
                <P>• Residential construction. </P>
                <P>• Commercial Roofing. </P>
                <P>
                    <E T="03">General Industry Hazards.</E>
                     Programs that train workers and employers in the recognition and prevention of safety and health hazards in one of the following industries: 
                </P>
                <P>• Food processing industry involved in preserving fruits and vegetables (SIC 203/NAICS 3114). </P>
                <P>• Concrete and concrete products (SIC 327 except 3274 and 3275/NAICS 32733). </P>
                <P>• Public warehousing and storage (SIC 422/NAICS 4931). </P>
                <P>• Landscaping/horticultural services (SIC 078/NAICS 56173). </P>
                <P>
                    <E T="03">Ergonomics.</E>
                     Programs that are based on OSHA's industry-specific ergonomics guidelines that train workers and employers on ergonomic hazards. Other industries that have high incidence rates for ergonomic injuries, for which guidelines are not available, can be proposed by applicants. Select one of the following industries: 
                </P>
                <P>• Poultry Processing Industry. </P>
                <P>• Retail Grocery Stores. </P>
                <P>• Other Industry. The selected industry must have a high incidence rate for ergonomic injuries. The applicant must substantiate the rate based on Bureau of Labor Statistics (BLS) data in its proposal. The training program should follow established best practices or follow a combination of effective practices for addressing the ergonomic risk factors for the industry being targeted to receive this training. </P>
                <P>
                    <E T="03">Healthcare Industry.</E>
                     Programs that train workers and employers about the prevention of respiratory diseases and exposures, including tuberculosis, in one of the following healthcare settings: 
                </P>
                <P>• Hospitals (SIC 806/NAICS 6221). </P>
                <P>• Nursing Homes (SIC 805/NAICS 6231). </P>
                <HD SOURCE="HD2">Topics for the OSHA Training Materials Development Category Grants </HD>
                <P>Grantees funded for OSHA Training Materials Development category grants are expected to develop, evaluate, and validate “classroom-quality” training materials on occupational safety and health topics selected by OSHA that may be used immediately for classroom or worksite training or for self-study. The objective is to make quality training materials available for training and education purposes that have broad applicability. The training materials should be tailored to the topic, industry, and targeted audience announced in this solicitation. While limited on-site training may be proposed for evaluation and validation purposes, the conduct of training programs should not be a significant workplan element in the grant proposal. The training materials are to be developed in portable formats that are suitable for hard-copy publication and distribution and Internet publication and distribution. </P>
                <P>Grantees developing training materials under this grant category will be required to post the training materials on their organization's Web site for two years after receiving OSHA approval of their final products, and provide access to users at no cost. OSHA may list the grantees' URL addresses to access these materials or directly link to the materials on the grantees' Web sites from OSHA's Web site. In addition, these grantees will also be required to track and report quarterly to OSHA on the distribution and use of these training materials during the two years the materials are posted on their Web site. Grantees will collect and report on training materials product usage by tracking the number of times the grantee's training materials Web site was visited, and the number of times the training materials were downloaded. After the two year period, OSHA may continue to post or to link to the materials on the Internet for no-cost access by any interested party. </P>
                <P>Four different topic areas were selected for this grant announcement. OSHA may award grants for some or all of the OSHA Training Materials Development topics. Applicants wishing to apply for more than one grant topic must submit a separate grant application for each topic. Each application must propose a plan for developing, evaluating and validating training materials for one of the four following industries or topics of emphasis: </P>
                <P>
                    <E T="03">Construction Industry Hazards.</E>
                     Programs suitable for training others or for self-study in the recognition and prevention of safety and health hazards in one of the following subject areas:. 
                </P>
                <P>• Excavation and trenching. </P>
                <P>• Residential construction. </P>
                <P>• Commercial Roofing. </P>
                <P>
                    <E T="03">General Industry Hazards.</E>
                     Programs suitable for training others or for self-study in the recognition and prevention of safety and health hazards in one of the following industries: 
                </P>
                <P>• Food processing industry involved in preserving fruits and vegetables (SIC 203/NAICS 3114). </P>
                <P>• Concrete and concrete products (SIC 327 except 3274 and 3275/NAICS 32733). </P>
                <P>• Steel works, blast furnaces, and rolling and finishing mills (SIC 331/NAICS 3311 and 3312). </P>
                <P>
                    • Ship and boat building and repair (SIC 373/NAICS 33661). 
                    <PRTPAGE P="28159"/>
                </P>
                <P>• Public warehousing and storage (SIC 422/NAICS 4931). </P>
                <P>• Landscaping/horticultural services (SIC 078/NAICS 56173). </P>
                <P>• Oil and gas field services (SIC 138/NAICS 213111 and 213112). </P>
                <P>
                    <E T="03">Lead Exposure.</E>
                     Programs suitable for training others or for self-study in the recognition and the prevention of exposure to lead hazards in one of the following industries: 
                </P>
                <P>• Lead hazards in construction. </P>
                <P>• Lead hazards in general industry. </P>
                <P>
                    <E T="03">Transportation Fatalities, Work-Related.</E>
                     Programs suitable for training others or for self-study about the principles of safe driving and the prevention of work-related transportation fatalities. 
                </P>
                <P>• Work-related motor vehicle accident and fatality prevention program. </P>
                <HD SOURCE="HD1">II. Award Information </HD>
                <P>Targeted Topic category grants will be awarded for a 12-month period. The performance period for these grants begins September 30, 2004, and ends September 30, 2005. There is approximately $1.3 million available for this grant category. The average Federal award will be $150,000. </P>
                <P>OSHA Training Materials Development category grants will be awarded for a 12-month period. The performance period for these grants begins September 30, 2004, and ends September 30, 2005. There is approximately $4 million available for this grant category. The average Federal award will be $200,000. </P>
                <HD SOURCE="HD1">III. Eligibility Information </HD>
                <HD SOURCE="HD2">1. Eligible Applicants </HD>
                <P>Any nonprofit organization, including community-based and faith-based organizations, that is not an agency of a State or local government, is eligible to apply. State or local government supported institutions of higher education are eligible to apply in accordance with 29 CFR part 95. Eligible organizations can apply independently for funding, or in partnership with other eligible organizations, but in such a case, a lead organization must be identified. Sub-contracts must be awarded in accordance with 29 CFR 95.40-48, including OMB circulars requiring free and open competition for procurement transactions. </P>
                <P>
                    A 501(c)(4) nonprofit organization, as described in 26 U.S.C. 501(c)(4), that engages in lobbying activities will not be eligible for the receipt of Federal funds constituting an award, grant or loan. 
                    <E T="03">See</E>
                     1 U.S.C. 1611. 
                </P>
                <P>Applicants other than State or local government supported institutions of higher education will be required to submit evidence of nonprofit status, preferably from the Internal Revenue Service (IRS). </P>
                <P>
                    <E T="03">Authorities:</E>
                     The Occupational Safety and Health Act of 1970 and the Consolidated Departments Appropriations Act Resolution 2003, Pub. L. 108-7, authorize this program. 
                </P>
                <HD SOURCE="HD2">2. Cost Sharing or Matching </HD>
                <P>Applicants are not required to contribute non-Federal resources towards the grant. </P>
                <HD SOURCE="HD2">3. Other Eligibility Requirements </HD>
                <HD SOURCE="HD3">A. Legal Rules That Apply to Faith-Based Organizations That Receive Federal Financial Assistance </HD>
                <P>
                    The government is prohibited from providing direct financial assistance for religious activity
                    <SU>*</SU>
                    <FTREF/>
                    . These grants may not be used for religious instruction, worship, prayer, proselytizing or other inherently religious practices. Neutral, non-religious criteria that neither favor nor disfavor religion will be employed in the selection of grant recipients and must be used by grantees in the selection of sub-recipients. 
                </P>
                <FTNT>
                    <P>
                        <SU>*</SU>
                         In this context, the term direct financial assistance means financial assistance that is provided directly by a government entity or an intermediate organization, as opposed to financial assistance that an organization receives as the result of the genuine and independent private choice of a beneficiary. In other contexts, the term “direct” financial assistance may be used to refer to financial assistance that an organization receives directly from the Federal government as “discretionary” assistance), as opposed to assistance that it receives from a State or Local government (also known as “indirect” or “block” grant assistance). The term “direct” has the former meaning throughout this solicitation for grant applications (SGA).
                    </P>
                </FTNT>
                <HD SOURCE="HD1">Application and Submission Information </HD>
                <HD SOURCE="HD1">IV. Application and Submission Information </HD>
                <HD SOURCE="HD2">1. Address To Request Application Package </HD>
                <P>
                    Application forms are published as part of this 
                    <E T="04">Federal Register</E>
                     notice and in the 
                    <E T="04">Federal Register</E>
                    , which may be obtained from your nearest U.S. Government office or public library or online at 
                    <E T="03">http://www.archives.gov/federal_register/index.html.</E>
                     The complete 
                    <E T="04">Federal Register</E>
                     notice may also be downloaded from the OSHA Susan Harwood Training Grant Program Web site at 
                    <E T="03">http://www.osha.gov/fso/ote/training/sharwood/sharwood.html</E>
                    . 
                </P>
                <HD SOURCE="HD2">2. Content and Form of Application Submission </HD>
                <P>Separate grant applications must be submitted by organizations interested in applying for a grant under more than one grant category and by organizations interested in applying for more than one topic area under each category. </P>
                <HD SOURCE="HD3">A. Required Contents </HD>
                <P>To be considered for a Harwood grant, an application must include all of the information listed below. A complete application will contain the following forms and narrative sections. The parts are listed in the order in which they should appear in the application. </P>
                <P>(a) Application for Federal Assistance form (SF 424). </P>
                <P>(b) Survey on Ensuring Equal Opportunity for Applicants form. </P>
                <P>(c) Program Summary. The program summary is a short one-to-two page abstract that summarizes the proposed project and provides information about the applicant organization. </P>
                <P>(d) Budget Information forms (SF 424A). </P>
                <P>(e) Detailed Project Budget Backup. The detailed budget will break out the costs that are listed in Section B of the SF 424A Budget Information form. </P>
                <P>(f) A description of any voluntary non-Federal resource contribution to be provided by the applicant, including source of funds and estimated amount. </P>
                <P>(g) Technical Proposal, program narrative, not to exceed 30 single-sided pages, double-spaced, 12-point font, containing: Problem Statement/Need for Funds; Administrative and Program Capability; and Workplan. </P>
                <P>(h) Assurances form (SF 424B). </P>
                <P>(i) Certifications form (OSHA 189). </P>
                <P>(j) Supplemental Certification Regarding Lobbying Activities form. </P>
                <P>(k) Organizational Chart. </P>
                <P>(l) Evidence of Non-Profit status, if applicable. (Does not apply to State and local government-supported institutions of higher education.) </P>
                <P>
                    (m) Accounting System Certification, if applicable. Organizations that receive less than $1 million annually in Federal grants must attach a certification signed by your certifying official stating that your organization has a functioning accounting system that meets the criteria below. Your organization may also designate a qualified entity (include the name and address in the documentation) to maintain a functioning accounting system that meets the criteria below. The certification should attest that your organization's accounting system provides for the following: 
                    <PRTPAGE P="28160"/>
                </P>
                <P>1. Accurate, current and complete disclosure of the financial results of each federally sponsored project. </P>
                <P>2. Records that identify adequately the source and application of funds for federally sponsored activities. </P>
                <P>3. Effective control over and accountability for all funds, property and other assets. </P>
                <P>4. Comparison of outlays with budget amounts. </P>
                <P>5. Written procedures to minimize the time elapsing between the transfer of funds. </P>
                <P>6. Written procedures for determining the reasonableness, allocability and allowability of costs. </P>
                <P>7. Accounting records, including cost accounting records, that are supported by source documentation. </P>
                <P>(n) Any attachments such as resumes, exhibits, lists of previous grants, and letters of support. </P>
                <P>
                    The forms listed above are included as a part of this 
                    <E T="04">Federal Register</E>
                     notice. The forms are also available on the OSHA grant Web page at 
                    <E T="03">http://www.osha.gov/fso/ote/training/sharwood/sharwood.html#apply.</E>
                     These forms do not count toward the page limitation specified. 
                </P>
                <HD SOURCE="HD3">B. Technical Proposal </HD>
                <P>
                    The Technical Proposal will contain the narrative segments of the application including the Program Summary abstract, not to exceed two pages; and the Program Narrative section, not to exceed 30 single-sided, double-spaced, 12-point font, typed pages in length; consisting of the Problem Statement/Need for Funds; Administrative and Program Capability; and Workplan. Reviewers will only consider Technical Proposal Program Narrative information up to the 30-page limit. The Technical Proposal must demonstrate the capability to successfully administer the grant and to meet the objectives of this solicitation. The Technical Proposal will be rated in accordance with the selection criteria specified in section V., A. (
                    <E T="04">Note:</E>
                     Separate review criteria are provided for each grant category.) 
                </P>
                <P>The Technical Proposal must include the following sections. </P>
                <P>(a) Program Summary; an abstract of the application, not to exceed two pages, that must include the following information: </P>
                <P>• Applicant organization's full legal name. </P>
                <P>• Project director's name, title, street address, and mailing address if it is different from the street address, telephone and fax numbers, and e-mail address. The Project Director is the person who will be responsible for the day-to-day operations and administration of the program. </P>
                <P>• Certifying Representative's name, title, street address, and mailing address if it is different from the street address, telephone and fax numbers, and e-mail address. The Certifying Representative is the official in your organization who is authorized to enter into grant agreements. </P>
                <P>• Funding requested. List how much Federal funding you are requesting. If your organization is contributing non-Federal resources, also list the amount of non-Federal resources your organization is contributing.</P>
                <P>
                    • Grant Category. List the grant category your organization is applying under, 
                    <E T="03">i.e.</E>
                    , Targeted Topic category, or OSHA Training Materials Development category. 
                </P>
                <P>• Grant Topic. List the grant topic and industry or subject area your organization has selected to target in its application. </P>
                <P>• Summary of the Program. Write a brief summary of your program. </P>
                <P>• Applicant Background. Describe your applicant organization, including its mission and a description of your membership, if any. </P>
                <P>(b) The Program Narrative segment, which is not to exceed 30 pages in length, should address each section listed below. </P>
                <P>• Problem Statement/Need for Funds. Describe the hazards that will be addressed in your program, the target population(s) that will benefit from your training and education program, and the barriers that have prevented this population from receiving adequate training. When you discuss target populations, include geographic location(s), and the number of workers and employers. </P>
                <P>• Administrative and Program Capability. Briefly describe your organization's functions and activities. Relate this description of functions to your organization chart that is included in the application. If your organization is conducting, or has conducted within the last five years, any other government (Federal, State, local) grant programs, the application must include an attachment (which will not count towards the page limit) providing information regarding previous grants including (a) the organization for which the work was done, and (b) the dollar value of the grant. If your organization has no previous grant experience, you may partner with an organization that has grant experience to manage the grant. If you use this approach, the management organization should be identified and its grant program experience discussed. </P>
                <P>Program Experience. Describe your organization's experience conducting the type of program that you are proposing. Include program specifics such as program title, numbers trained and duration of training. Experience includes safety and health experience, training experience with adults, and programs operated specifically for the selected target population(s). Nonprofit organizations, including community-based and faith-based organizations, that do not have prior experience in safety and health may partner with an established safety and health organization to acquire safety and health expertise. </P>
                <P>• Staff Experience. Describe the qualifications of the professional staff you will assign to the program. Include resumes of staff already on board. If some positions are vacant, include position descriptions/minimum hiring qualifications instead of resumes. Qualified staff are those with safety and health experience, training experience and experience working with the target population. </P>
                <P>• Workplan. The 12-month workplan should correlate with the period of performance that will begin September 30, 2004, and end September 30, 2005. An outline of specific items required in your workplan follows. </P>
                <P>Plan Overview. Describe your plan for grant activities and the anticipated outcomes. The overall plan will describe such things as the recruiting of trainees, the training content, where or how training will take place, and the anticipated benefits to workers and employers receiving the training. </P>
                <P>Activities. Break your overall plan down into activities or tasks. For each activity, explain what will be done, who will do it, when it will be done, and the results of the activity. When you discuss training include the subjects to be taught, the length of the training sessions, and training location (classroom, worksites.) Describe how you will recruit trainees for the training. </P>
                <P>
                    Quarterly Projections. For training and other quantifiable activities, estimate how many you will do each quarter of the grant (grant quarters match calendar quarters (
                    <E T="03">i.e.</E>
                    , January to March, April to June)) and provide the training number totals for the grant. Quarterly projections are used to measure your actual performance against your plans. If you plan to conduct a train-the-trainer program, estimate the number of individuals you expect to be trained during the grant period by those who received the train-the-trainer training. These second tier training numbers should only be included if your organization is 
                    <PRTPAGE P="28161"/>
                    planning to follow up with the trainers to obtain this data during the grant period. 
                </P>
                <P>Materials. Describe each educational material you will produce under the grant, if not treated as a separate activity under Activities above. Provide a timetable for developing and producing the material. OSHA must review and approve training materials for technical accuracy before the materials are used in your grant program. Therefore, your timetable must include provisions for an OSHA review of draft and camera-ready products as well as any commercially acquired training materials being proposed for use in your training programs. </P>
                <P>Evaluation. There are three types of evaluations that should be conducted. First, describe plans to evaluate the training sessions or the training materials being developed. Second, describe your plans to evaluate your progress in accomplishing the grant work activities listed in your application. This includes comparing planned and actual accomplishments. Discuss who is responsible for taking corrective action if plans are not being met. Third, describe your plans to assess the effectiveness of the training your organization is conducting or to evaluate and validate the training materials your organization is developing. This will involve following-up, by survey or on-site review, if feasible, with people who attended the training or utilized your training materials to find out what changes were made to abate hazards in their workplaces. Include timetables for follow-up and for submitting a summary of the assessment results to OSHA. </P>
                <P>(c) An organizational chart of the staff that will be working on this grant and their location within the applicant organization. </P>
                <P>(d) A Detailed Project Budget that clearly details the costs of performing all of the requirements presented in this solicitation. The detailed budget will break out the costs that are listed in section B of the SF 424A Budget Information form. </P>
                <P>(e) A description of any voluntary non-Federal resource contribution to be provided by the applicant, including source of funds and estimated amount. </P>
                <P>
                    <E T="03">Attachments:</E>
                     Summaries of other relevant organizational experiences; information on prior government grants; resumes of key personnel and/or position descriptions; and signed letters of commitment to the project. 
                </P>
                <P>
                    To be considered responsive to this solicitation the application must consist of the above mentioned separate parts. The Technical Proposal narrative is not to exceed 30 single-sided (8
                    <FR>1/2</FR>
                    ″ x 11″ or A4), double-spaced, 12-point font, typed pages. Major sections and sub-sections of the application should be divided and clearly identified (
                    <E T="03">e.g.</E>
                    , with tab dividers), and all pages shall be numbered. Standard Forms, attachments, resumes, exhibits, letters of support, and the abstract are not counted toward the page limit. 
                </P>
                <P>
                    Applicants are reminded to budget for compliance with the administrative requirements set forth (copies of all regulations that are referenced in this SGA are available at no cost, on-line, at 
                    <E T="03">http://www.osha.gov/fso/ote/training/sharwood/sharwood.html)</E>
                    . This includes the costs of performing activities such as travel for two staff members, one program and one financial, to the Chicago area to attend a new grantee orientation meeting; financial audit, if required; project closeout; document preparation (
                    <E T="03">e.g.</E>
                    , quarterly progress reports, project document); and ensuring compliance with procurement and property standards. The Detailed Project Budget should identify administrative costs separately from programmatic costs for both Federal and non-Federal funds. Administrative costs include indirect costs from the costs pool and the cost of activities, materials, meeting close-out requirements as described in section VI, and personnel (
                    <E T="03">e.g.</E>
                    , administrative assistants) who support the management and administration of the project but do not provide direct services to project beneficiaries. Administrative costs cannot exceed 25% of the total grant budget. The project budget should clearly demonstrate that the total amount and distribution of funds is sufficient to cover the cost of all major project activities identified by the applicant in its proposal, and must comply with Federal cost principles (which can be found in the applicable OMB Circulars). 
                </P>
                <HD SOURCE="HD2">3. Submission Date, Times, and Addresses </HD>
                <P>
                    <E T="03">Date:</E>
                     The closing date for receipt of applications is Friday, June 18, 2004. Applications must be received by 4:30 p.m. (central time) at the address below. Applications sent by e-mail, telegram, or facsimile (fax) will not be accepted. Applications sent by other delivery services, such as Federal Express, UPS, etc., will be accepted; the applicant, however, bears the responsibility for timely submission. Applications that do not meet the conditions set forth in this notice will not be honored. No exceptions to the mailing and delivery requirements set forth in this notice will be granted. 
                </P>
                <P>Applications must be delivered to: Grants Officer, U.S. Department of Labor, OSHA, Office of Training and Education—OETP, 2020 S. Arlington Heights Road, Arlington Heights, Illinois 60005-4102. </P>
                <P>The individual signing the SF 424 form on behalf of the applicant must be authorized to bind the applicant. </P>
                <P>One (1) blue ink-signed original complete application in English plus two (2) copies of each application must be received at the designated place by the date and time specified, or it will not be considered unless it is received before the award is made and: </P>
                <P>(a) It was sent by registered or certified mail no later than the fifth calendar day before the closing date; or </P>
                <P>(b) It was sent by U.S. Postal Service Express Mail/Next Day Service from the post office to the addressee no later than 4:45 p.m. at the place of mailing two (2) working days (excluding weekends and Federal holidays and days when the Federal government is closed), prior to the closing date; or </P>
                <P>(c) It is determined by the Government that the late receipt was due solely to mishandling by the Government after receipt at the U.S. Department of Labor at the address indicated. </P>
                <P>The only acceptable evidence to establish the date of mailing of a late application sent by registered or certified mail is the U.S. Postal Service postmark on the envelope or wrapper and on the original receipt from the U.S. Postal Service. If the postmark is not legible, an application received after the above closing time and date shall be processed as if mailed late. “Postmark” means a printed, stamped, or otherwise placed impression (not a postage meter machine impression) that is readily identifiable without further action as having been applied and affixed by an employee of the U.S. Postal Service on the date of mailing. Therefore, applicants should request that the postal clerk place a legible hand cancellation “bulls-eye” postmark on both the receipt and the envelope or wrapper. </P>
                <P>
                    The only acceptable evidence to establish the date of mailing of a late application sent by U.S. Postal Service Express Mail/Next Day Service from the Post Office to the addressee is the date entered by the Post Office receiving clerk on the “Express Mail/Next Day Service—Post Office to Addressee” label and the postmark on the envelope or wrapper on the original receipt from the U.S. Postal Service. “Postmark” has the same meaning as defined above. 
                    <PRTPAGE P="28162"/>
                </P>
                <HD SOURCE="HD2">4. Intergovernmental Review </HD>
                <P>The Harwood Training Grant Program is not subject to Executive Order 12372 Intergovernmental Review of Federal Programs. </P>
                <HD SOURCE="HD2">5. Funding Restrictions </HD>
                <P>Grant funds may be spent on the following. </P>
                <P>(a) Conducting training. </P>
                <P>(b) Conducting other activities that reach and inform workers and employers about workplace occupational safety and health hazards and hazard abatement. </P>
                <P>(c) Conducting outreach and recruiting activities to increase the number of workers and employers participating in the program. </P>
                <P>(d) Developing educational materials for use in training. </P>
                <P>(e) For the OSHA Training Materials Development category grants, purchase of software necessary to track the number of visits to the grantee's training materials Web site and the number of times the training materials were downloaded. </P>
                <P>Grant funds may not be used for the following activities under the terms of the grant program. </P>
                <P>(a) Any activity that is inconsistent with the goals and objectives of the Occupational Safety and Health Act of 1970. </P>
                <P>(b) Training individuals not covered by the Occupational Safety and Health Act. </P>
                <P>(c) Training workers or employers from workplaces not covered by the Occupational Safety and Health Act. Examples include: State and local government workers in non-State Plan States, and workers covered by section 4(b)(1) of the Act. </P>
                <P>(d) Training on topics that do not cover the recognition, avoidance, and prevention of unsafe or unhealthy working conditions. Examples of unallowable topics include: workers' compensation, first aid, and publication of materials prejudicial to labor or management. </P>
                <P>(e) Assisting workers in arbitration cases or other actions against employers, or assisting employers and workers in the prosecution of claims against Federal, State or local governments. </P>
                <P>(f) Duplicating services offered by OSHA, a State under an OSHA-approved State Plan, or consultation programs provided by State designated agencies under section 21(d) of the Occupational Safety and Health Act. </P>
                <P>(g) Generating membership in the grantee's organization. This includes: activities to acquaint nonmembers with the benefits of membership, inclusion of membership appeals in materials produced with grant funds, membership drives. </P>
                <P>While the activities described above may be part of an organization's regular programs, the costs of these activities cannot be paid for by grant funds, whether the funds are from matching resources or from the Federally funded portion of the grant. </P>
                <P>
                    Determinations of allowable costs will be made in accordance with the applicable Federal cost principles, 
                    <E T="03">e.g.</E>
                    , Nonprofit Organizations—OMB Circular A-122; Educational Institutions—OMB Circular A-21. Disallowed costs are those charges to a grant that the grantor agency or its representative determines to not be allowed in accordance with the applicable Federal Cost Principles or other conditions contained in the grant. 
                </P>
                <P>No applicant at any time will be entitled to reimbursement of pre-award costs. </P>
                <HD SOURCE="HD1">V. Application Review Information </HD>
                <P>Grant applications will be reviewed by technical panels comprised of OSHA staff. The results of the grant reviews will be presented to the Assistant Secretary who will make the selection of organizations to be awarded grants. Agency priorities and geographic factors may also be taken into consideration in the selection process. OSHA may award grants for some or all of the listed topic areas. It is anticipated that the grant awards will be announced in September 2004. </P>
                <HD SOURCE="HD2">1. Criteria </HD>
                <P>The technical panel will review grant applicants against the criteria listed below, which are separately listed for the “Targeted Topic” and “OSHA Training Materials Development” categories, on the basis of 100 points. </P>
                <P>
                    <E T="03">Targeted Topic category grant applications will be reviewed and rated as follows.</E>
                </P>
                <HD SOURCE="HD3">A. Technical Approach—55 points </HD>
                <NOTE>
                    <HD SOURCE="HED">(Note:</HD>
                    <P> Separate review criteria are provided for each grant category.) </P>
                </NOTE>
                <HD SOURCE="HD3">Program Design </HD>
                <P>(1) The proposed training and education program addresses the recognition and prevention of safety and health hazards for one of the four following industries or topics of emphasis. (5 points) </P>
                <P>
                    <E T="03">Construction Industry Hazards.</E>
                     Programs that train workers and employers in the recognition and prevention of safety and health hazards in one of the following subject areas: 
                </P>
                <P>• Excavation and trenching. </P>
                <P>• Residential construction. </P>
                <P>• Commercial Roofing. </P>
                <P>
                    <E T="03">General Industry</E>
                    . Programs that train workers and employers in the recognition and prevention of safety and health hazards in one of the following industries: 
                </P>
                <P>• Food processing industry involved in preserving fruits and vegetables (SIC 203/NAICS 3114). </P>
                <P>• Concrete and concrete products (SIC 327 except 3274 and 3275/NAICS 32733). </P>
                <P>• Public warehousing and storage (SIC 422/NAICS 4931). </P>
                <P>• Landscaping/horticultural services (SIC 078/NAICS 56173). </P>
                <P>
                    <E T="03">Ergonomics</E>
                    . Programs that are based on OSHA's industry-specific ergonomics guidelines that train workers and employers on ergonomic hazards. Other industries that have high incidence rates for ergonomic injuries, that guidelines are not available for, can be proposed by applicants. Select one of the following industries: 
                </P>
                <P>• Poultry Processing Industry. </P>
                <P>• Retail Grocery Stores. </P>
                <P>• Other Industry. The selected industry must have a high incidence rate for ergonomic injuries. The applicant must substantiate the rate based on Bureau of Labor Statistics (BLS) data in its proposal. The training program should follow established best practices or follow a combination of effective practices for addressing the ergonomic risk factors for the industry being targeted to receive this training. </P>
                <P>
                    <E T="03">Healthcare Industry</E>
                    . Programs that train workers and employers about the prevention of respiratory diseases and exposures, including tuberculosis, in 
                    <E T="03">one</E>
                     of the following healthcare settings: 
                </P>
                <P>• Hospitals (SIC 806/NAICS 6221). </P>
                <P>• Nursing Homes (SIC 805/NAICS 6231). </P>
                <P>(2) The proposal plans to train workers and/or employers and clearly estimates the numbers to be trained, and clearly identifies the types of workers and employers to be trained. The training will reach workers and employers from multiple employers. (5 points) </P>
                <P>(3) If the proposal contains a train-the-trainer program, the following information must be provided: </P>
                <P>• What ongoing support the grantee will provide to new trainers; </P>
                <P>• The number of individuals to be trained as trainers; </P>
                <P>• The estimated number of courses to be conducted by the new trainers; </P>
                <P>• The estimated number of students to be trained by these new trainers; and </P>
                <P>
                    • A description of how the grantee will obtain data from the new trainers about their classes and student numbers. (3 points) 
                    <PRTPAGE P="28163"/>
                </P>
                <P>
                    (4) The planned activities and training are tailored to the needs and levels of the workers and employers to be trained. The target population to be served through the grant program is described. The training materials and training programs are to be tailored to the training needs of one or more of the following target audiences: Small businesses; minority businesses; limited English proficiency, non-literate and low literacy workers; youth; immigrant and minority workers; and other hard-to-reach workers; and workers in high-hazard industries and industries with high fatality rates. Organizations proposing to develop Spanish-language training materials for the construction industry should utilize the 
                    <E T="03">English-to-Spanish OSHA Dictionary of Construction Terms</E>
                     for terminology. The Dictionary is available on the OSHA Web site at 
                    <E T="03">http://www.osha.gov/as/opa/spanish/dict_const_e-s.html.</E>
                     (7 points) 
                </P>
                <P>(5) There is a plan to recruit trainees for the program. (7 points) </P>
                <P>(6) If the proposal includes developing educational materials for use in the training program, there is a plan for OSHA to review the educational materials for technical accuracy during development. If commercially-developed training products will be used for the program, applicants should also plan for OSHA to review the materials before using the products. (5 points) </P>
                <P>(7) There is a plan to evaluate the program's effectiveness and impact to determine if the safety and health training and services provided resulted in workplace change. This includes a description of the evaluation plan to follow up with trainees to determine the impact the program has had in abating hazards and reducing worker injuries. (5 points) </P>
                <P>(8) The application is complete, including forms, budget detail, narrative and workplan, and required attachments. (3 points) </P>
                <HD SOURCE="HD2">Budget</HD>
                <P>(1) The budgeted costs are reasonable. No more than 25% of the total budget is for administration. (5 points) </P>
                <P>(2) The budget complies with Federal cost principles (which can be found in the applicable OMB Circulars) and with OSHA budget requirements contained in the grant application instructions. (5 points) </P>
                <P>(3) The cost per trainee is less than $500 and the cost per training hour is reasonable. (5 points) </P>
                <HD SOURCE="HD3">B. Past Performance—20 points </HD>
                <P>(1) The organization applying for the grant demonstrates experience with occupational safety and health. Applicants that do not have prior experience in providing safety and health training to workers or employers may partner with an established safety and health organization to acquire safety and health expertise. (6 points) </P>
                <P>(2) The organization applying for the grant demonstrates experience in training adults in work-related subjects or in providing services to its target audience. (6 points) </P>
                <P>(3) The application demonstrates that the applicant has strong financial management and internal control systems. The applicant organization demonstrates experience managing a variety of programs. (5 points) </P>
                <P>(4) Information regarding any Federal and/or State grants that the organization has administered over the past five years is provided. (3 points) </P>
                <HD SOURCE="HD3">C. Experience and Qualification of Personnel—25 points </HD>
                <P>(1) The staff to be assigned to the project has experience in occupational safety and health, the specific topic chosen, and in training adults. (15 points) </P>
                <P>(2) Project staff have experience in recruiting, training, and working with the population your organization proposes to serve under the grant. (10 points) </P>
                <P>
                    <E T="03">OSHA Training Materials Development</E>
                     category grant applications will be reviewed and rated as follows. 
                </P>
                <HD SOURCE="HD3">A. Technical Approach—55 points</HD>
                <NOTE>
                    <HD SOURCE="HED">Note:</HD>
                    <P>Separate review criteria are provided for each grant category.)</P>
                </NOTE>
                <P>Grantees will be expected to develop, evaluate and validate training materials that are tailored to a specific topic, industry and target audience that could be used to supplement materials that are currently available from OSHA and other government agencies. More than one target audience may be selected. The training materials must include: </P>
                <P>• Detailed description of the most dangerous tasks/job duties. </P>
                <P>• Identification of the hazards associated with these tasks. </P>
                <P>• Methods of abating these hazards. </P>
                <P>• Training materials should be tailored directly to the target audience participant. Grantees will be expected to submit “classroom quality” products. Classroom quality materials should follow the commonly accepted instructional systems design process that OSHA has adopted as a quality measure for all of its education and training products. OSHA has outlined a seven-step design process in the U.S. Department of Labor publication OSHA 2254 (1998 Revised) Training Requirements in OSHA Standards and Training Guidelines OSHA's seven-step model is: Determine if training is needed; identify training needs; identify goals and objectives; develop learning activities; conduct the training; evaluate program effectiveness; and improve the program. </P>
                <P>• Grantees are to develop the training materials in a portable format that is suitable for hard-copy publication and distribution and Internet publication and distribution. </P>
                <P>• Grantees will be required to post the approved final product training materials on their Web site for two years at no cost to users. OSHA may list the grantees' URL addresses to access these materials or directly link to the materials on the grantees' Web sites from OSHA's Web site. </P>
                <P>• Grantees will be required to track and report quarterly to OSHA on the usage of the training materials developed under this grant. Usage statistics would include the number of times the training materials Web site was visited, and the number of times the training materials were downloaded from the Internet during the two-year period. </P>
                <HD SOURCE="HD3">Program Design </HD>
                <P>(1) The proposed training and educational materials are tailored to the specific topic, industry and a selected target audience and address one of the four selected training materials topics. (5 points) </P>
                <P>
                    <E T="03">Construction Industry Hazards.</E>
                     Programs that train workers and employers in the recognition and prevention of safety and health hazards in 
                    <E T="03">one</E>
                     of the following areas: 
                </P>
                <P>• Excavation and trenching. </P>
                <P>• Residential construction. </P>
                <P>• Commercial Roofing. </P>
                <P>
                    <E T="03">General Industry Hazards</E>
                    . Programs that address the recognition and prevention of safety and health hazards in one of the following industries: 
                </P>
                <P>• Food processing industry involved in preserving fruits and vegetables (SIC 203/NAICS 3114). </P>
                <P>• Concrete and concrete products (SIC 327 except 3274 and 3275/NAICS 32733). </P>
                <P>• Steel works, blast furnaces, and rolling and finishing mills (SIC 331/NAICS 3311 and 3312). </P>
                <P>• Ship and boat building and repair (SIC 373/NAICS 33661). </P>
                <P>
                    • Public warehousing and storage (SIC 422/NAICS 4931). 
                    <PRTPAGE P="28164"/>
                </P>
                <P>• Landscaping/horticultural services (SIC 078/NAICS 56173). </P>
                <P>• Oil and gas field operations (SIC 138/NAICS 213111 and 213112). </P>
                <P>
                    <E T="03">Lead Hazards.</E>
                     Programs that train employers and workers about the recognition of lead hazards within their industry and the prevention of exposure. Applicants should select 
                    <E T="03">one</E>
                     of the following industries: 
                </P>
                <P>• Lead hazards in construction. </P>
                <P>• Lead hazards in general industry. </P>
                <P>
                    <E T="03">Transportation Fatalities, Work-Related.</E>
                     Programs that train workers and employers about the principles of safe driving and the prevention of work-related transportation fatalities: 
                </P>
                <P>• Work-related motor vehicle accident and fatality prevention program. </P>
                <P>
                    (2) The intended audience(s) for this training is identified. Evidence will be provided of a plan to analyze the training needs of the selected target audience. Training programs and materials are to be tailored to the training needs of one or more of the following target audiences: Small businesses; minority businesses; limited English proficiency, non-literate and low literacy workers; youth; immigrant and minority workers; other hard-to-reach workers; and workers in high-hazard industries or industries with high fatality rates. Organizations proposing to develop Spanish-language training materials for the construction industry should utilize the 
                    <E T="03">English-to-Spanish OSHA Dictionary of Construction Terms</E>
                     for terminology. The Dictionary is available on the OSHA Web site at 
                    <E T="03">http://www.osha.gov/as/opa/spanish/dict_const_e-s.html.</E>
                     (7 points) 
                </P>
                <P>(3) Tasks/job duties that will be discussed during training are described. An explanation will be provided of how the tasks/job duties or other unique characteristics of the intended audience will be incorporated into the training materials. Occupational safety and health hazards associated with the featured tasks/job duties are described. An explanation of how these hazards were identified and a description of the method(s) being proposed to eliminate or control the hazards to be highlighted during the training process are provided. (5 points) </P>
                <P>(4) A written set of objectives is provided for each course or set of training materials. Proposed method(s) to evaluate and verify how the training objectives will be met are described. There is a clear link between objectives and evaluation criteria. (7 points) </P>
                <P>(5) A brief outline of the proposed course or training program content is provided. A sample lesson/training module or a detailed description of the lesson/training module is included. (5 points) </P>
                <P>(6) Description of the items that will be included as the final training products/materials is provided. These may include instructor's manuals, student's manuals, brochures, visual aids, videotapes, or technology-based training materials such as digital photos, CDs, DVDs, or Web-based products. (4 points) </P>
                <P>(7) Proposal includes a plan for OSHA to review the educational materials for (1) technical accuracy and (2) quality of instructional design during development. (5 points) </P>
                <P>(8) Proposal explains how the grantee will track and report on the usage of the training materials during the two-year time period the materials are to be posted on the grantee's Web site. (4 points) </P>
                <P>(9) The application is complete, including forms, budget detail, narrative and workplan, and required attachments. (3 points) </P>
                <HD SOURCE="HD2">Budget</HD>
                <P>(1) The budgeted costs are reasonable. No more than 25% of the total budget is for administration. (5 points) </P>
                <P>(2) The budget complies with Federal cost principles (which can be found in applicable OMB Circulars) and with OSHA budget requirements contained in the grant application instructions. (5 points) </P>
                <HD SOURCE="HD3">B. Past Performance—20 points </HD>
                <P>(1) Applicant organization demonstrates experience with occupational safety and health. Applicants that do not have prior experience in safety and health may partner with an established safety and health organization to acquire safety and health expertise. (6 points) </P>
                <P>(2) Applicant organization demonstrates experience training adults in work-related subjects or in recruiting, training, and working with the population it proposes to serve under the grant. (6 points) </P>
                <P>(3) Applicant organization demonstrates that it has strong financial management and internal control systems. The applicant organization demonstrates experience managing a variety of programs. (5 points) </P>
                <P>(4) Any Federal and/or State grants that the organization has administered over the past five years are listed. (3 points) </P>
                <HD SOURCE="HD3">C. Experience and Qualifications of Personnel—25 points </HD>
                <P>(1) The staff to be assigned to the project has experience in occupational safety and health, the specific topic chosen, and training adults. (15 points) </P>
                <P>(2) Staff has experience in recruiting, training, and working with the population it proposes to serve under the grant. (10 points) </P>
                <HD SOURCE="HD2">2. Review and Selection Process </HD>
                <P>OSHA will screen all applications to determine whether all required proposal elements are present and clearly identifiable. Those that do not may be deemed non-responsive and may not be evaluated. A technical panel will objectively rate each complete application against the criteria described in this announcement. The panel recommendations to the Assistant Secretary are advisory in nature. The Assistant Secretary may establish a minimally acceptable rating range for the purpose of selecting qualified applicants. The Assistant Secretary will make a final selection determination based on what is most advantageous to the Government, considering factors such as panel findings, geographic presence of the applicants, and the best value to the government, cost, and other factors. The Assistant Secretary's determination for award under this SGA is final. </P>
                <HD SOURCE="HD2">3. Anticipated Announcement and Award Dates </HD>
                <P>Announcement of these awards is expected to occur by September 30, 2004. The grant agreement will be awarded by no later than September 30, 2004. </P>
                <HD SOURCE="HD1">VI. Award Administration Information </HD>
                <HD SOURCE="HD2">1. Award Notices </HD>
                <P>Organizations selected as grant recipients will be notified by a representative of the Assistant Secretary, usually from an OSHA Regional office. An applicant whose proposal is not selected will be notified in writing. </P>
                <P>Notice that an organization has been selected as a grant recipient does not constitute approval of the grant application as submitted. Before the actual grant award, OSHA will enter into negotiations concerning such items as program components, staffing and funding levels, and administrative systems. If the negotiations do not result in an acceptable submittal, the Assistant Secretary reserves the right to terminate the negotiation and decline to fund the proposal.</P>
                <NOTE>
                    <HD SOURCE="HED">Note:</HD>
                    <P>
                        Except as specifically provided, OSHA's acceptance of a proposal and an award of Federal funds to sponsor any program(s) does not provide a waiver of any grant requirement and/or procedures. For 
                        <PRTPAGE P="28165"/>
                        example, if an application identifies a specific sub-contractor to provide the services, the USDOL OSHA award does not provide the justification or basis to sole-source the procurement, 
                        <E T="03">i.e.</E>
                        , to avoid competition. 
                    </P>
                </NOTE>
                <HD SOURCE="HD2">2. Administrative and National Policy Requirements </HD>
                <P>All grantees, including faith-based organizations, will be subject to applicable Federal laws and regulations (including provisions of appropriations law) and the applicable Office of Management and Budget (OMB) Circulars. The grant award(s) awarded under this SGA will be subject to the following administrative standards and provisions, if applicable. </P>
                <P>29 CFR part 95, which covers grant requirements for nonprofit organizations, including universities and hospitals. These are the Department of Labor regulations implementing OMB Circular A-110. </P>
                <P>29 CFR part 93, new restrictions on lobbying. </P>
                <P>29 CFR part 98, governmentwide debarment and suspension (nonprocurement) and governmentwide requirements for drug-free workplace (grants.) </P>
                <P>OMB Circular A-21, which describes allowable and unallowable costs for educational institutions. </P>
                <P>OMB Circular A-122, which describes allowable and unallowable costs for other nonprofit organizations. </P>
                <P>OMB Circulars A-133, 29 CFR parts 96 and 99, which provide information about audit requirements. </P>
                <P>29 CFR parts 31, 32 and 36 as applicable. </P>
                <P>Certifications. All applicants are required to certify to a drug-free workplace in accordance with 29 CFR part 98, to comply with the New Restrictions on Lobbying published at 29 CFR part 93, to make a certification regarding the debarment rules at 29 CFR part 98, and to complete a special lobbying certification. </P>
                <P>Students. Grant-funding training programs must serve multiple employers and their employees. Grant-funded training programs must serve individuals covered by the Occupational Safety and Health Act of 1970. As a part of the grant close-out process, grantees must self-certify that their grant-funded programs and materials were not provided to ineligible audiences. </P>
                <P>Other. In keeping with the policies outlined in Executive Orders 13256, 12928, 13230, and 13021 as amended, the grantee is strongly encouraged to provide subgranting opportunities to Historically Black Colleges and Universities, Hispanic Serving Institutions,and Tribal Colleges and Universities. </P>
                <HD SOURCE="HD2">3. Special Program Requirements </HD>
                <P>
                    <E T="03">OSHA review of educational materials.</E>
                     OSHA will review all educational materials produced by the grantee for technical accuracy and quality of instructional design during development and before final publication. OSHA will also review training curricula and purchased training materials for accuracy before they are used. Grantees developing training materials must follow all copyright laws and document that their materials are free from copyright infringements. 
                </P>
                <P>When grant recipients produce training materials, they must provide copies of completed materials to OSHA before the end of the grant period. OSHA has a lending program that circulates grant-produced audiovisual materials. Audiovisual materials produced by the grantee as a part of its grant program will be included in this lending program. In addition, all materials produced by grantees must be provided to OSHA in hard copy as well as in a digital format (CD Rom/DVD) for possible publication on the Internet by OSHA. Three copies of the materials must be provided to OSHA. Acceptable formats for training materials include Microsoft Word 2000 and Microsoft PowerPoint 2000.</P>
                <P>As listed in 29 CFR 95.36, the Department of Labor reserves a royalty-free, nonexclusive and irrevocable right to reproduce, publish, or otherwise use the work for Federal purposes, and to authorize others to do so. </P>
                <P>
                    <E T="03">Posting of OSHA Training Materials Development Training Materials on the Internet.</E>
                     Grantees developing training materials under the OSHA Training Materials Development grant category will be required to post the training materials on their organization's Web site for two years after receiving OSHA approval of their final products, and provide access to users at no cost. OSHA may list the grantees' URL addresses to access these materials or directly link to the materials on the grantees' Web sites from OSHA's Web site. In addition, these grantees will also be required to track and report quarterly to OSHA on the distribution and use of these training materials during the two years the materials are posted on their Web site. Grantees will collect and report on training materials product usage by tracking the number of times the grantee's training materials Web site was visited, and the number of times the training materials were downloaded. 
                </P>
                <P>
                    <E T="03">Acknowledgment of USDOL Funding.</E>
                     Printed Materials: In all circumstances, all approved grant-funded materials developed by a grantee shall contain the following disclaimer: 
                </P>
                <EXTRACT>
                    <P>This material was produced under grant number____from the Occupational Safety and Health Administration, U.S. Department of Labor. It does not necessarily reflect the views or policies of the U.S. Department of Labor, nor does mention of trade names, commercial products, or organizations imply endorsement by the U.S. Government. </P>
                </EXTRACT>
                <P>
                    <E T="03">Public reference to grant:</E>
                     When issuing statements, press releases, requests for proposals, bid solicitations, and other documents describing projects or programs funded in whole or in part with Federal money, all Grantees receiving Federal funds must clearly state: 
                </P>
                <P>• The percentage of the total costs of the program or project, that will be financed with Federal money; </P>
                <P>• The dollar amount of Federal financial assistance for the project or program; and </P>
                <P>• The percentage and dollar amount of the total costs of the project or program that will be financed by non-governmental sources. </P>
                <HD SOURCE="HD2">4. Reporting </HD>
                <P>Grantees are required by Departmental regulations to submit program and financial reports each calendar quarter. All reports are due no later than 30 days after the end of the fiscal quarter and shall be submitted to the appropriate OSHA Regional Office. </P>
                <P>
                    <E T="03">Financial:</E>
                     The Grantee(s) shall submit financial reports on a quarterly basis. The first reporting period shall end on the last day of the fiscal quarter (December 31, March 31, June 30, or September 30) during which the grant was signed. Financial reports are due within 30 days of the end of the reporting period (
                    <E T="03">i.e.</E>
                    , by January 30, April 30, July 30, and October 30). 
                </P>
                <P>The Grantee(s) shall use Standard Form (SF) 269A, Financial Status Report, to report the status of the funds, at the project level, during the grant period. A final SF269A shall be submitted no later than 90 days following completion of the grant period. </P>
                <P>
                    If the Grantee(s) uses the U.S. Department of Health and Human Services Payment Management System (HHS PMS), it must also send USDOL copies of the PSC 272 that it submits to HHS, on the same schedule. Otherwise, the Grantee(s) shall submit Standard Form (SF) 272, Federal Cash Transactions Report, on the same schedule as the SF269A. 
                    <PRTPAGE P="28166"/>
                </P>
                <P>
                    <E T="03">Technical Program:</E>
                     After signing the agreement, the Grantee(s) shall submit technical progress reports to USDOL/OSHA Regional Offices at the end of each fiscal quarter. Technical progress reports provide both quantitative and qualitative information and a narrative assessment of performance for the preceding three-month period. OSHA Form 171 shall be used for reporting training numbers and a narrative report shall be provided that details grant activities conducted during the quarter, information on how the project is progressing in achieving its stated objectives, and notes any problems or delays along with corrective actions proposed. The first reporting period shall end on the last day of the fiscal quarter (December 31, March 31, June 30, or September 30) during which the Grant was signed. Quarterly progress reports are due within 30 days of the end of the report period (
                    <E T="03">i.e.</E>
                    , by January 30, April 30, July 30, and October 30.) Between reporting dates, the Grantees(s) shall also immediately inform USDOL/OSHA of significant developments and/or problems affecting the organization's ability to accomplish work. 
                </P>
                <HD SOURCE="HD1">VII. Agency Contacts </HD>
                <P>
                    Any questions regarding this SGA should be directed to Cindy Bencheck, e-mail address: 
                    <E T="03">Bencheck.Cindy@dol.gov,</E>
                     tel: 847-297-4810 (note that this is not a toll-free number), or Ernest Thompson, 
                    <E T="03">Thompson.Ernest@dol.gov,</E>
                     tel 847-297-4810. To obtain further information on the Susan Harwood Training Grant Program of the U.S. Department of Labor, visit the OSHA Web site of the Occupational Safety and Health Administration at 
                    <E T="03">http://www.osha.gov</E>
                    . 
                </P>
                <SIG>
                    <DATED>Signed in Washington, DC, this 12th day of May in the year 2004. </DATED>
                    <NAME>John L. Henshaw, </NAME>
                    <TITLE>Assistant Secretary of Labor.</TITLE>
                </SIG>
                <HD SOURCE="HD1">Project Document Format </HD>
                <P>SF 424, Application for Federal Assistance form. </P>
                <P>
                    Your organization is required to have a Data Universal Number System (DUNS) number (received from Dun and Bradstreet) to complete this form. Information about “Obtaining a DUNS Number—A Guide for Federal Grant and Cooperative Agreement Applicants” is available at 
                    <E T="03">http://www.whitehouse.gov/omb/grants/duns_num_guide.pdf</E>
                    . 
                </P>
                <FP SOURCE="FP-1">Survey on Ensuring Equal Opportunity for Applicants form. </FP>
                <FP SOURCE="FP-1">Program Summary (not to exceed two pages). </FP>
                <FP SOURCE="FP-1">Budget Information, SF 424A form. </FP>
                <FP SOURCE="FP-1">Detailed Project Budget Backup. </FP>
                <P>If applicable: Provide a copy of approved indirect cost rate agreement, and statement of program income. </P>
                <P>Technical Proposal, program narrative, not to exceed 30 single-sided pages, double-spaced, 12-point font, containing: </P>
                <FP SOURCE="FP-1">Problem Statement/Need for Funds; Administrative and Program Capability; Workplan. </FP>
                <FP SOURCE="FP-1">Assurances (SF 424B). </FP>
                <FP SOURCE="FP-1">Certifications form (OSHA 189). </FP>
                <FP SOURCE="FP-1">Supplemental Certification Regarding Lobbying Activities. </FP>
                <FP SOURCE="FP-1">Organizational Chart. </FP>
                <FP SOURCE="FP-1">Evidence of Nonprofit status, (letter from the IRS) if applicable. </FP>
                <FP SOURCE="FP-1">Accounting System Certification, if applicable. </FP>
                <P>Organizations that receive less than $1 million annually in Federal grants must attach a certification signed by your certifying official stating that your organization has a functioning accounting system that meets the criteria below. Your organization may also designate a qualified entity (include the name and address in the documentation) to maintain a functioning accounting system that meets the criteria below. The certification should attest that your organization's accounting system provides for the following: </P>
                <P>1. Accurate, current and complete disclosure of the financial results of each federally sponsored project. </P>
                <P>2. Records that identify adequately the source and application of funds for federally sponsored activities. </P>
                <P>3. Effective control over and accountability for all funds, property and other assets. </P>
                <P>4. Comparison of outlays with budget amounts. </P>
                <P>5. Written procedures to minimize the time elapsing between the transfer of funds. </P>
                <P>6. Written procedures for determining the reasonableness, allocability and allowability of costs. </P>
                <P>7. Accounting records, including cost accounting records, that are supported by source documentation. </P>
                <P>Any attachments such as: </P>
                <P>Summaries of other relevant organizational experience; information on prior government grants; resumes of key personnel or position descriptions; signed letters of commitment to the project. </P>
                <HD SOURCE="HD1">Attachments (Forms) </HD>
                <FP SOURCE="FP-1">SF-424, Application for Federal Assistance. </FP>
                <FP SOURCE="FP-1">Survey on Ensuring Equal Opportunity for Applicants form. </FP>
                <FP SOURCE="FP-1">SF-424A, Budget Information form. </FP>
                <FP SOURCE="FP-1">SF 424B, Assurances. </FP>
                <FP SOURCE="FP-1">OSHA 189 form, Certification. </FP>
                <FP SOURCE="FP-1">Supplemental Certification Regarding Lobbying Activities. </FP>
                <P>
                    The forms are also available at: 
                    <E T="03">http://www.osha.gov/fso/ote/training/sharwood/sharwood.html</E>
                    . 
                </P>
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                </GPH>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11128 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4510-26-C</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">LEGAL SERVICES CORPORATION</AGENCY>
                <SUBJECT>Sunshine Act Meeting of the Board of Directors</SUBJECT>
                <PREAMHD>
                    <HD SOURCE="HED">Time and Date:</HD>
                    <P>The Board of Directors of the Legal Services Corporation will meet on May 24, 2004 via conference call. The meeting will begin at 1:30 p.m. and continue until conclusion of the Board's agenda.</P>
                </PREAMHD>
                <PREAMHD>
                    <HD SOURCE="HED">Location:</HD>
                    <P>3333 K Street, NW., Washington, DC 20007, 3rd Floor Conference Room.</P>
                </PREAMHD>
                <PREAMHD>
                    <HD SOURCE="HED">Status of Meeting:</HD>
                    <P> Open. Directors will participate by telephone conference in such a manner as to enable interested members of the public to hear and identify all persons participating in the meeting. Members of the public wishing to observe the meeting may do so by joining participating staff at the location indicated above.</P>
                </PREAMHD>
                <PREAMHD>
                    <HD SOURCE="HED">Matters To Be Considered:</HD>
                    <P SOURCE="NPAR">1. Approval of the agenda.</P>
                    <P>2. Consider and act on Board of Directors' response to the Inspector General's Semiannual Report to Congress for the period of October 1, 2003 through March 31, 2004.</P>
                    <P>3. Consider and act on other business.</P>
                    <P>4. Public comment.</P>
                </PREAMHD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Victor M. Fortuno, Vice President for Legal Affairs, General Counsel &amp; Corporate Secretary, at (202) 295-1500.</P>
                </FURINF>
                <PREAMHD>
                    <HD SOURCE="HED">Special Needs:</HD>
                    <P>Upon request, meeting notices will be made available in alternate formats to accommodate visual and hearing impairments. Individuals who have a disability and need an accommodation to attend the meeting may notify Patricia Batie, Manager of Board Operations, at (202) 295-1500.</P>
                </PREAMHD>
                <SIG>
                    <DATED>Dated: May 13, 2004.</DATED>
                    <NAME>Victor M. Fortuno,</NAME>
                    <TITLE>Vice President for Legal Affairs, General Counsel &amp; Corporate Secretary.</TITLE>
                </SIG>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11255 Filed 5-13-04; 4:33 pm]</FRDOC>
            <BILCOD>BILLING CODE 7050-01-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <PRTPAGE P="28180"/>
                <AGENCY TYPE="N">NATIONAL AERONAUTICS AND SPACE ADMINISTRATION</AGENCY>
                <DEPDOC>[Notice 04-063]</DEPDOC>
                <SUBJECT>Government-Owned Inventions, Available for Licensing</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>National Aeronautics and Space Administration.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of Availability of Inventions for Licensing.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The inventions listed below are assigned to the National Aeronautics and Space Administration, have been filed in the United States Patent and Trademark Office, and are available for licensing.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>May 18, 2004.</P>
                </DATES>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Rob M. Padilla, Patent Counsel, Ames Research Center, Code 202A-4, Moffett Field, CA 94035-1000; telephone (650) 604-5104; fax (650) 604-2767.</P>
                    <P>NASA Case No. ARC-14743-1: High-Efficiency Tantalum-Based Ceramic Composite Structures (HETC); </P>
                    <FP>NASA Case No. ARC 14970-1: Intelligent Weather Agent; </FP>
                    <FP SOURCE="FP-1">NASA Case No. ARC 15042-2: Metallic Nanowire Interconnections For Integrated Circuit Fabrication; </FP>
                    <FP SOURCE="FP-1">NASA Case No. ARC 15051-1: Bucky Paper System For Treatment of Acute Wounds; </FP>
                    <FP SOURCE="FP-1">NASA Case No. ARC 15058-1: Inductive Monitoring System Constructed From Nominal System Data And Its Use In Real-Time System Monitoring; </FP>
                    <FP SOURCE="FP-1">NASA Case No. ARC 15101-1: Powder Handling Device For Analytical Instruments; </FP>
                    <FP SOURCE="FP-1">NASA Case No. ARC 15201-1: Toughened Uni-piece Fibrous Reinforced Oxidation-Resistant Composite; </FP>
                    <FP SOURCE="FP-1">NASA Case No. ARC 15247-1: Bucky Paper System For Treatment Of Chronic Wounds.</FP>
                    <SIG>
                        <DATED>Dated: May 12, 2004.</DATED>
                        <NAME>Keith T. Sefton,</NAME>
                        <TITLE>Chief of Staff, Office of the General Counsel.</TITLE>
                    </SIG>
                </FURINF>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11171 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 7510-01-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">NATIONAL AERONAUTICS AND SPACE ADMINISTRATION</AGENCY>
                <DEPDOC>[Notice 04-064]</DEPDOC>
                <SUBJECT>Government-Owned Inventions, Available for Licensing</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>National Aeronautics and Space Administration.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of availability of inventions for licensing.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The inventions listed below are assigned to the National Aeronautics and Space Administration, have been filed in the United States Patent and Trademark Office, and are available for licensing.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>May 18, 2004.</P>
                </DATES>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Kent N. Stone, Patent Counsel, Glenn Research Center at Lewis Field, Code 500-118, Cleveland, OH 44135; telephone (216) 433-8855; fax (216) 433-6790.</P>
                    <FP SOURCE="FP-1">NASA Case No. LEW-17230-2: Compact Plasma Accelerator; </FP>
                    <FP SOURCE="FP-1">NASA Case No. LEW-17317-1: Process For Improving Properties Of Silicon Carbide (SiC) Fibers And SiC Fiber-Reinforced Ceramic Matrix Composites.</FP>
                    <SIG>
                        <DATED>Dated: May 12, 2004.</DATED>
                        <NAME>Keith T. Sefton,</NAME>
                        <TITLE>Chief of Staff, Office of the General Counsel.</TITLE>
                    </SIG>
                </FURINF>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11172 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 7510-01-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">NATIONAL AERONAUTICS AND SPACE ADMINISTRATION</AGENCY>
                <DEPDOC>[Notice (04-065)]</DEPDOC>
                <SUBJECT>Government-Owned Inventions, Available for Licensing</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>National Aeronautics and Space Administration.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of availability of inventions for licensing.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The inventions listed below are assigned to the National Aeronautics and Space Administration, have been filed in the United States Patent and Trademark office, and are available for licensing.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>May 18, 2004.</P>
                </DATES>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Diana M. Cox, Patent Counsel, Goddard Space Flight Center, Mail Code 503, Greenbelt, MD 20771-0001; telephone (301) 286-7351; fax (301) 286-9502.</P>
                    <FP SOURCE="FP-1">NASA Case No. GSC-14389-1: System And Method For Deriving A Process-Based Specification; </FP>
                    <FP SOURCE="FP-1">NASA Case No. GSC-14439-1: Spectral-Ratio Biospheric Lidar; </FP>
                    <FP SOURCE="FP-1">NASA Case No. GSC-14461-1: Space Qualified Local Area Network; </FP>
                    <FP SOURCE="FP-1">NASA Case No. GSC-14480-1: Partial Tooth Gear Bearings.</FP>
                    <SIG>
                        <DATED>Dated: May 12, 2004.</DATED>
                        <NAME>Keith T. Sefton,</NAME>
                        <TITLE>Chief of Staff, Office of the General Counsel.</TITLE>
                    </SIG>
                </FURINF>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11173 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 7510-01-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">NATIONAL AERONAUTICS AND SPACE ADMINISTRATION</AGENCY>
                <DEPDOC>[Notice (04-066)]</DEPDOC>
                <SUBJECT>Government-Owned Inventions, Available for Licensing</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>National Aeronautics and Space Administration.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of availability of inventions for licensing.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The invention listed below is assigned to the National Aeronautics and Space Administration, has been filed in the United States Patent and Trademark office, and is available for licensing.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>May 18, 2004.</P>
                </DATES>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Edward K. Fein, Patent Counsel, Johnson Space Center, Mail Code HA, Houston, TX 77058-8452; telephone (281) 483-4871; fax (281) 244-8452.</P>
                    <FP SOURCE="FP-1">NASA Case No. MSC-23513-1: An Optical Oxygen Sensor, Control Software Therefore And Uses Thereof.</FP>
                    <SIG>
                        <DATED>Dated: May 12, 2004.</DATED>
                        <NAME>Keith T. Sefton,</NAME>
                        <TITLE>Chief of Staff, Office of the General Counsel.</TITLE>
                    </SIG>
                </FURINF>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11174 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 7510-01-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">NATIONAL AERONAUTICS AND SPACE ADMINISTRATION</AGENCY>
                <DEPDOC>[Notice (04-067)]</DEPDOC>
                <SUBJECT>Government-Owned Inventions, Available for Licensing</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>National Aeronautics and Space Administration.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of availability of inventions for licensing.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The inventions listed below are assigned to the National Aeronautics and Space Administration, have been filed in the United States Patent and Trademark office, and are available for licensing.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>May 18, 2004.</P>
                </DATES>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Randy Heald, Patent Counsel, Kennedy Space Center, Mail Code CC-A, Kennedy Space Center, FL 32899; telephone (321) 867-7214; fax (321) 867-1817.</P>
                    <FP SOURCE="FP-1">NASA Case No. KSC-12278: Image Edge Extraction Via Fuzzy Reasoning; </FP>
                    <FP SOURCE="FP-1">NASA Case No. KSC-12490: Optimal Binarization Of Gray-Scaled Digital Images Via Fuzzy Reasoning; </FP>
                    <FP SOURCE="FP-1">NASA Case No. KSC-12505: Method And System For Measuring Feature Dimensions In Images Using Reference Marks.</FP>
                    <SIG>
                        <PRTPAGE P="28181"/>
                        <DATED>Dated: May 12, 2004.</DATED>
                        <NAME>Keith T. Sefton,</NAME>
                        <TITLE>Chief of Staff, Office of the General Counsel.</TITLE>
                    </SIG>
                </FURINF>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11175 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 7510-01-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">NATIONAL AERONAUTICS AND SPACE ADMINISTRATION</AGENCY>
                <DEPDOC>[Notice (04-068)]</DEPDOC>
                <SUBJECT>Government-Owned Inventions, Available for Licensing</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>National Aeronautics and Space Administration.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of availability of inventions for licensing.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The inventions listed below are assigned to the National Aeronautics and Space Administration, have been filed in the United States Patent and Trademark Office, and are available for licensing.</P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>May 18, 2004.</P>
                </DATES>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Linda Blackburn, Patent Counsel, Langley Research Center, Mail Code 212, Hampton, VA 23681-2199; telephone (757) 864-9260; fax (757) 864-9190.</P>
                    <FP SOURCE="FP-1">NASA Case No. LAR-16324-2: Self-Activating System and Method for Alerting When an Object or a Person Is Left Unattended; </FP>
                    <FP SOURCE="FP-1">NASA Case No. LAR-16406-1-CU: Ultrasonic Apparatus and Method To Assess Compartment Syndrome; </FP>
                    <FP SOURCE="FP-1">NASA Case No. LAR 16606-1: Catalytic Oxidation System.</FP>
                    <SIG>
                        <DATED>Dated: May 12, 2004.</DATED>
                        <NAME>Keith T. Sefton,</NAME>
                        <TITLE>Chief of Staff, Office of the General Counsel.</TITLE>
                    </SIG>
                </FURINF>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11176 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 7510-01-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">NATIONAL WOMEN'S BUSINESS COUNCIL </AGENCY>
                <SUBJECT>Notice of Public Meeting </SUBJECT>
                <P>In accordance with the Women's Business Ownership Act, Pub. L. 106-554 as amended, the National Women's Business Council (NWBC) would like to announce a forthcoming Council meeting. Topics will include a discussion on the Council's March web cast, a September issue roundtable discussion on Federal procurement outreach to women-owned businesses, a review of recent international events, an open dialogue on women's business issues and the Small Business Administration, and the wearing in of new Council members. </P>
                <P>
                    <E T="03">Dates:</E>
                     June 10, 2004. 
                </P>
                <P>
                    <E T="03">Addresses:</E>
                     The House Small Business Committee hearing room, 2360 Rayburn House Office Building, Washington, DC. 
                </P>
                <P>
                    <E T="03">Time:</E>
                     9:30 a.m. to 3 p.m. 
                </P>
                <P>
                    <E T="03">Status:</E>
                     Open to the public. Attendance by RSVP only. 
                </P>
                <P>
                    <E T="03">Contact:</E>
                     National Women's Business Council, 202/205-6695—Katherine Stanley. 
                </P>
                <P>Anyone wishing to attend and make an oral presentation at the meeting must contact Katherine Stanley, no later than Monday, June 7, 2004 at (202) 205-6695. </P>
                <SIG>
                    <NAME>Matthew K. Becker, </NAME>
                    <TITLE>Committee Management Officer. </TITLE>
                </SIG>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11349 Filed 5-14-04; 2:17 pm] </FRDOC>
            <BILCOD>BILLING CODE 8025-01-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">NUCLEAR REGULATORY COMMISSION </AGENCY>
                <SUBJECT>Agency Information Collection Activities: Proposed Collection; Comment Request </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>U.S. Nuclear Regulatory Commission (NRC). </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice of pending NRC action to submit an information collection request to OMB and solicitation of public comment. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The NRC is preparing a submittal to OMB for review of continued approval of information collections under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). </P>
                    <P>Information pertaining to the requirement to be submitted: </P>
                    <P>
                        1. 
                        <E T="03">The title of the information collection:</E>
                         10 CFR Part 63—Disposal of High-Level Radioactive Wastes in a Proposed Geologic Repository at Yucca Mountain, Nevada. 
                    </P>
                    <P>
                        2. 
                        <E T="03">Current OMB approval number:</E>
                         3150-0199. 
                    </P>
                    <P>
                        3. 
                        <E T="03">How often the collection is required:</E>
                         One time. 
                    </P>
                    <P>
                        4. 
                        <E T="03">Who is required or asked to report:</E>
                         The State of Nevada, local governments, or affected Indian Tribes, or their representatives, requesting consultation with the NRC staff regarding review of the potential high-level waste geologic repository site, or wishing to participate in a license application review for the potential geologic repository. 
                    </P>
                    <P>
                        5. 
                        <E T="03">The estimated number of annual respondents:</E>
                         3. 
                    </P>
                    <P>
                        6. 
                        <E T="03">The number of hours needed annually to complete the requirement or request:</E>
                         363 (An average of 40 hours per response for consultation requests, 80 hours per response for license application review participation proposals, and one hour per response for statements of representative authority). 
                    </P>
                    <P>
                        7. 
                        <E T="03">Abstract:</E>
                         10 CFR Part 63 requires the State of Nevada, local governments, or affected Indian Tribes to submit certain information to the NRC if they request consultation with the NRC staff concerning the review of the potential repository site, or wish to participate in a license application review for the potential repository. Representatives of the State of Nevada, local governments, or affected Indian Tribes must submit a statement of their authority to act in such a representative capacity. The information submitted by the State, local governments, and affected Indian Tribes is used by the Director of the Office of Nuclear Material Safety and Safeguards as a basis for decisions about the commitment of NRC staff resources to the consultation and participation efforts. 
                    </P>
                    <P>Submit, by July 19, 2004, comments that address the following questions:</P>
                    <P>1. Is the proposed collection of information necessary for the NRC to properly perform its functions? Does the information have practical utility? </P>
                    <P>2. Is the burden estimate accurate? </P>
                    <P>3. Is there a way to enhance the quality, utility, and clarity of the information to be collected? </P>
                    <P>4. How can the burden of the information collection be minimized, including the use of automated collection techniques or other forms of information technology? </P>
                    <P>
                        A copy of the draft supporting statement may be viewed free of charge at the NRC Public Document Room, One White Flint North, 11555 Rockville Pike, Room O-1 F21, Rockville, MD 20852. OMB clearance requests are available at the NRC worldwide Web site: 
                        <E T="03">http://www.nrc.gov/public-involve/doc-comment/omb/index.html.</E>
                         The document will be available on the NRC home page site for 60 days after the signature date of this notice. 
                    </P>
                    <P>
                        Comments and questions about the information collection requirements may be directed to the NRC Clearance Officer, Brenda Jo. Shelton, (T-5 F52), U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, by telephone at 301-415-7233, or by Internet electronic mail to 
                        <E T="03">INFOCOLLECTS@NRC.GOV.</E>
                    </P>
                </SUM>
                <SIG>
                    <DATED>Dated at Rockville, Maryland, this 12th day of May, 2004. </DATED>
                    <PRTPAGE P="28182"/>
                    <FP>For the Nuclear Regulatory Commission. </FP>
                    <NAME>Brenda Jo. Shelton, </NAME>
                    <TITLE>NRC Clearance Officer, Office of the Chief Information Officer. </TITLE>
                </SIG>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11184 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 7590-01-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">NUCLEAR REGULATORY COMMISSION</AGENCY>
                <SUBJECT>Sunshine Act Meeting</SUBJECT>
                <PREAMHD>
                    <HD SOURCE="HED">Agency Holding the Meeting:</HD>
                    <P>Nuclear Regulatory Commission.</P>
                </PREAMHD>
                <PREAMHD>
                    <HD SOURCE="HED">Date:</HD>
                    <P>Weeks of May 17, 24, 31, June 7, 14, 21, 2004.</P>
                </PREAMHD>
                <PREAMHD>
                    <HD SOURCE="HED">Place:</HD>
                    <P>Commissioners' Conference Room, 11555 Rockville Pike, Rockville, Maryland.</P>
                </PREAMHD>
                <PREAMHD>
                    <HD SOURCE="HED">Status:</HD>
                    <P>Public and Closed.</P>
                </PREAMHD>
                <PREAMHD>
                    <HD SOURCE="HED">Matters to be considered:</HD>
                    <P/>
                </PREAMHD>
                <HD SOURCE="HD2">Week of May 17, 2004</HD>
                <P>There are no meetings scheduled for the Week of May 17, 2004.</P>
                <HD SOURCE="HD2">Week of May 24, 2004—Tentative</HD>
                <HD SOURCE="HD3">Tuesday, May 25, 2004</HD>
                <FP SOURCE="FP-1">2 p.m.—Discussion of Management Issues (Closed—Ex. 2)</FP>
                <HD SOURCE="HD3">Wednesday, May 26, 2004</HD>
                <FP SOURCE="FP-1">10:30 a.m.—All Employees Meeting (Public Meeting)</FP>
                <FP SOURCE="FP-1">1:30 p.m.—All Employees Meeting (Public Meeting)</FP>
                <HD SOURCE="HD2">Week of May 31, 2004—Tentative</HD>
                <HD SOURCE="HD3">Wednesday, June 2, 2004</HD>
                <FP SOURCE="FP-1">9:30 a.m.—Briefing on Equal Employment Opportunity Program (Public Meeting) (Contact: Corenthis Kelley, 301-415-7380)</FP>
                <FP SOURCE="FP1-2">
                    This meeting will be webcast live at the Web address—
                    <E T="03">http://www.nrc.gov</E>
                </FP>
                <FP SOURCE="FP-1">1:30 p.m.—Meeting with Advisory Committee on Reactor Safeguards (ACRS) (Public Meeting) (Contact: John Larkins, 301-415-7360)</FP>
                <FP SOURCE="FP1-2">
                    This meeting will be webcast live at the Web address—
                    <E T="03">http://www.nrc.gov</E>
                </FP>
                <HD SOURCE="HD2">Week of June 7, 2004—Tentative</HD>
                <HD SOURCE="HD3">Thursday, June 10, 2004</HD>
                <FP SOURCE="FP-1">1:30 p.m.—Discussion of Security Issues (Closed—Ex. 1)</FP>
                <HD SOURCE="HD2">Week of June 14, 2004—Tentative</HD>
                <P>There are no meetings scheduled for the Week of June 14, 2004.</P>
                <HD SOURCE="HD2">Week of June 21, 2004—Tentative</HD>
                <P>There are no meetings scheduled for the Week of June 21, 2004.</P>
                <P>*The schedule for Commission meetings is subject to change on short notice. To verify the status of meetings call (recording)—(301) 415-1292. Contact person for more information: Dave Gamberoni, (301) 415-1651.</P>
                <STARS/>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>By a vote of 3-0 on May 7 and 10, the Commission determined pursuant to U.S.C. 552b(e) and § 9.107(a) of the Commission's rules that “Affirmation of Final Rule: Revision 10 CFR 50.48 to Allow Performance-Based Approaches Using National Fire Protection Association (NFPA) Standard 805 (NFPA 805), ‘Performance-Based Standard for Fire Protection for Light Water Reactor Electric Generating Plants,’ 2001 Edition” be held on May 11, and on less than one week's notice to the public.</P>
                <STARS/>
                <P>
                    The NRC Commission Meeting Schedule can be found on the Internet at: 
                    <E T="03">http://www.nrc.gov/what-we-do/policy-making/schedule.html</E>
                    .
                </P>
                <STARS/>
                <P>
                    This notice is distributed by mail to several hundred subscribers; if you no longer wish to receive it, or would like to be added to the distribution, please contact the Office of the Secretary, Washington, DC 20555 (301-415-1969). In addition, distribution of this meeting notice over the Internet system is available. If you are interested in receiving this Commission meeting schedule electronically, please send an electronic message to 
                    <E T="03">dkw@nrc.gov</E>
                    .
                </P>
                <SIG>
                    <DATED>Dated: May 13, 2004.</DATED>
                    <NAME>Dave Gamberni,</NAME>
                    <TITLE>Office of the Secretary.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11292  Filed 5-14-04; 11:42 am]</FRDOC>
            <BILCOD>BILLING CODE 7590-01-M</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">SECURITIES AND EXCHANGE COMMISSION </AGENCY>
                <DEPDOC>[Release No. 34-49669; File No. S7-24-89] </DEPDOC>
                <SUBJECT>Joint Industry Plan; Notice of Filing and Summary Effectiveness of Amendment No.13C to the Reporting Plan for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privilege Basis; Submitted by the National Association of Securities Dealers, Inc., the Boston Stock Exchange, Inc., the Chicago Stock Exchange, Inc., the Cincinnati Stock Exchange, Inc., the Pacific Exchange, Inc., the American Stock Exchange LLC, and the Philadelphia Stock Exchange, Inc. </SUBJECT>
                <DATE>May 7, 2004. </DATE>
                <HD SOURCE="HD1">I. Introduction </HD>
                <P>
                    Pursuant to Rule 11Aa3-2
                    <SU>1</SU>
                    <FTREF/>
                     and Rule 11Aa3-1
                    <SU>2</SU>
                    <FTREF/>
                     under the Securities Exchange Act of 1934 (“Act” or “Exchange Act”), notice is hereby given that on April 22, 2004, the Cincinnati Stock Exchange, Inc. (“CSE”)
                    <SU>3</SU>
                    <FTREF/>
                     on behalf of itself and the National Association of Securities Dealers, Inc. (“NASD”), the American Stock Exchange LLC (“Amex”), the Boston Stock Exchange, Inc. (“BSE”), the Chicago Stock Exchange, Inc. (“CHX”), the Pacific Exchange, Inc. (“PCX”), and the Philadelphia Stock Exchange, Inc. (“PHLX”) (hereinafter referred to as “Participants”), as members of the operating committee (“Operating Committee” or “Committee”)
                    <SU>4</SU>
                    <FTREF/>
                     of the Plan submitted to the Securities and Exchange Commission (“SEC” or “Commission”) a proposal to amend the Plan (“Amendment 13C”). The proposal
                    <SU>5</SU>
                    <FTREF/>
                     reflects several changes unanimously adopted by the Committee.
                    <SU>6</SU>
                    <FTREF/>
                     The Commission is putting 
                    <PRTPAGE P="28183"/>
                    into effect summarily Amendment 13C and publishing this notice to solicit comments from interested persons on Amendment 13C generally. 
                </P>
                <FTNT>
                    <P>
                        <SU>1</SU>
                         17 CFR 240.11Aa3-2.
                    </P>
                </FTNT>
                <FTNT>
                    <P>
                        <SU>2</SU>
                         17 CFR 240.11Aa3-1.
                    </P>
                </FTNT>
                <FTNT>
                    <P>
                        <SU>3</SU>
                         The Commission notes that the CSE recently changed its name to the National Stock Exchange, Inc. 
                        <E T="03">See</E>
                         Securities Exchange Act Release No. 48774 (November 12, 2003), 68 FR 65332 (November 19, 2003) (File No. SR-CSE-2003-12).
                    </P>
                </FTNT>
                <FTNT>
                    <P>
                        <SU>4</SU>
                         The Committee is made up of all the Participants.
                    </P>
                </FTNT>
                <FTNT>
                    <P>
                        <SU>5</SU>
                         At the time Amendment 13C was approved by the Committee, Amendment 13A had been published in the 
                        <E T="04">Federal Register</E>
                        . 
                        <E T="03">See</E>
                         Securities Exchange Act Release No. 49137 (January 28, 2004), 69 FR 5217 (February 3, 2004). The Operating Committee adopted Amendment 13B, but agreed to hold the amendment pending resolution of the current status of the SIP selection process. The Operating Committee had reserved Amendment 14 for significant future modifications to the Plan that would, among other things, reflect changes in preparation for implementation of the new SIP. Accordingly, this amendment is numbered 13C.
                    </P>
                </FTNT>
                <FTNT>
                    <P>
                        <SU>6</SU>
                         PCX and its subsidiary the Archipelago Exchange were elected co-chairs of the Operating Committee for the Joint Self-Regulatory 
                        <PRTPAGE/>
                        Organization Plan Governing the Collection, Consolidation and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privilege Basis (“Nasdaq UTP Plan” or “Plan”) by the Participants.
                    </P>
                </FTNT>
                <HD SOURCE="HD1">II. Plan Background </HD>
                <P>
                    The Plan governs the collection, consolidation, and dissemination of quotation and transaction information for The Nasdaq Stock Market, Inc. (“Nasdaq”) National Market (“NNM”) and Nasdaq SmallCap securities listed on Nasdaq or traded on an exchange pursuant to unlisted trading privileges (“UTP”).
                    <SU>7</SU>
                    <FTREF/>
                     The Plan provides for the collection from Plan Participants and the consolidation and dissemination to vendors, subscribers, and others of quotation and transaction information in “eligible securities.”
                    <SU>8</SU>
                    <FTREF/>
                </P>
                <FTNT>
                    <P>
                        <SU>7</SU>
                         Section 12 of the Act generally requires an exchange to trade only those securities that the exchange lists, except that section 12(f) of the Act permits UTP under certain circumstances. For example, section 12(f) of the Act, among other things, permits exchanges to trade certain securities that are traded over-the-counter (“OTC/UTP”), but only pursuant to a Commission order or rule. For a more complete discussion of the section 12(f) requirement, 
                        <E T="03">see</E>
                         November 1995 Extension Order, 
                        <E T="03">infra</E>
                         note 10.
                    </P>
                </FTNT>
                <FTNT>
                    <P>
                        <SU>8</SU>
                         The Plan defines “Eligible Securities” as any NNM or Nasdaq SmallCap listed security, as defined in Nasdaq Rule 4200: (i) as to which UTP have been granted to a national securities exchange pursuant to section 12(f) of the Act; or (ii) which also is listed on a national securities exchange other than Nasdaq. Moreover, the definition states that “Eligible Securities” shall not include any security that is defined as an “Eligible Security” within section VII of the Consolidated Tape Association Plan.
                    </P>
                </FTNT>
                <P>
                    The Commission originally approved the Plan on a pilot basis on June 26, 1990.
                    <SU>9</SU>
                    <FTREF/>
                     The parties did not begin trading until July 12, 1993, accordingly, the pilot period commenced on July 12, 1993. The Plan has since been in operation on an extended pilot basis.
                    <SU>10</SU>
                    <FTREF/>
                </P>
                <FTNT>
                    <P>
                        <SU>9</SU>
                         
                        <E T="03">See</E>
                         Securities Exchange Act Release No. 28146, 55 FR 27917 (July 6, 1990) (“1990 Plan Approval Order”).
                    </P>
                </FTNT>
                <FTNT>
                    <P>
                        <SU>10</SU>
                         
                        <E T="03">See</E>
                         Securities Exchange Act Release Nos. 34371 (July 13, 1994), 59 FR 37103 (July 20, 1994); 35221 (January 11, 1995), 60 FR 3886 (January 19, 1995); 36102 (August 14, 1995), 60 FR 43626 (August 22, 1995); 36226 (September 13, 1995), 60 FR 49029 (September 21, 1995); 36368 (October 13, 1995), 60 FR 54091 (October 19, 1995); 36481 (November 13, 1995), 60 FR 58119 (November 24, 1995) (“November 1995 Extension Order”); 36589 (December 13, 1995), 60 FR 65696 (December 20, 1995); 36650 (December 28, 1995), 61 FR 358 (January 4, 1996); 36934 (March 6, 1996), 61 FR 10408 (March 13, 1996); 36985 (March 18, 1996), 61 FR 12122 (March 25, 1996); 37689 (September 16, 1996), 61 FR 50058 (September 24, 1996); 37772 (October 1, 1996), 61 FR 52980 (October 9, 1996); 38457 (March 31, 1997), 62 FR 16880 (April 8, 1997); 38794 (June 30, 1997) 62 FR 36586 (July 8, 1997); 39505 (December 31, 1997) 63 FR 1515 (January 9, 1998); 40151 (July 1, 1998) 63 FR 36979 (July 8, 1998); 40896 (December 31, 1998), 64 FR 1834 (January 12, 1999); 41392 (May 12, 1999), 64 FR 27839 (May 21, 1999) (“May 1999 Approval Order”); 42268 (December 23, 1999), 65 FR 1202 (January 6, 2000); 43005 (June 30, 2000), 65 FR 42411 (July 10, 2000); 44099 (March 23, 2001), 66 FR 17457 (March 30, 2001); 44348 (May 24, 2001), 66 FR 29610 (May 31, 2001); 44552 (July 13, 2001), 66 FR 37712 (July 19, 2001); 44694 (August 14, 2001), 66 FR 43598 (August 20, 2001); 44804 (September 17, 2001), 66 FR 48299 (September 19, 2001); 45081 (November 19, 2001), 66 FR 59273 (November 27, 2001); 44937 (October 15, 2001), 66 FR 53271 (October 19, 2001); 46139 (June 28, 2001), 67 FR 44888 (July 5, 2002); 46381 (August 19, 2002), 67 FR 54687 (August 23, 2002); 46729 (October 25, 2002), 67 FR 66685 (November 1, 2002); 48318 (August 12, 2003), 68 FR 49534 (August 18, 2003); and 48882 (December 4, 2003), 68 FR 69731 (December 15, 2003).
                    </P>
                </FTNT>
                <HD SOURCE="HD1">III. Description and Purpose of the Amendment </HD>
                <P>
                    As a result of aberrant pricing in trading of shares on December 5, 2003, the Division of Market Regulation (“Division”) requested the Participants to provide better coordination among the self-regulatory organization (“SRO”) trading markets concerning SRO trading halts.
                    <SU>11</SU>
                    <FTREF/>
                     The NASD, acting through its subsidiary, Nasdaq, proposed Amendment 13C to address changes to the Plan related to the coordination of instituting and lifting SRO trading halts. Amendment 13C to the Plan reflects changes to the regulatory halt section that were unanimously approved by the Operating Committee. The proposed text of Amendment 13C is attached as Exhibit A. The following is a summary of the changes to the Plan proposed in Amendment 13C. 
                </P>
                <FTNT>
                    <P>
                        <SU>11</SU>
                         
                        <E T="03">See</E>
                         letter from Annette L. Nazareth, Director, Division, Commission, to Bridget Farrell and Michael Roundtree, Co-Chairpersons, Nasdaq UTP Operating Committee, dated December 9, 2003.
                    </P>
                </FTNT>
                <P>
                    1. Section III.T of the Plan provides for the definition of Regulatory Halt.
                    <SU>12</SU>
                    <FTREF/>
                     Proposed Amendment 13C adds to the definition an “Extraordinary Market Regulatory Halt” that is a trading halt due to extraordinary market activity as a result of system misuse or malfunction as further defined in a subsequent section of this Amendment. 
                </P>
                <FTNT>
                    <P>
                        <SU>12</SU>
                         The Plan currently defines “Regulatory Halt” as a trade suspension or halt called for the purpose of dissemination of material news, as described in Section X or that is called for where there are regulatory problems relating to an Eligible Security that should be clarified before trading is permitted to continue.
                    </P>
                </FTNT>
                <P>
                    2. Section X of the Plan provides that the Primary Market
                    <SU>13</SU>
                    <FTREF/>
                     declares Regulatory Halts. Proposed Amendment 13C replaces Primary Market with “Listing Market” which is defined as the Participant's Market on which a security is listed. In the case of dual listings, the Listing Market will be the Listing Market which has the highest number of the average of reported transactions and reported share volume for the preceding 12-month period as determined at the beginning of each calendar quarter. 
                </P>
                <FTNT>
                    <P>
                        <SU>13</SU>
                         The Plan currently defines “Primary Market” as Nasdaq, provided that if for any 12-month period the number of reported transactions and reported share volume in any other Participant's market exceeds 50% of the aggregated reported transactions and share volume, then that Participant's market shall be the Primary Market for such Eligible Security.
                    </P>
                </FTNT>
                <P>3. Proposed Amendment 13C clarifies that “Participant” for purposes of Section X includes the Nasdaq Stock Market despite the fact that Nasdaq is not currently a signatory to the Plan. </P>
                <P>4. Proposed Amendment 13C adds Section X.E, which establishes communication procedures to coordinate communication among Plan Participants in the instance of a trading halt. Specifically, the proposed Plan amendment introduces the use of the “Hoot-n-Holler” for communicating real-time information among Participants. Furthermore, the proposed amendment requires continuous monitoring of the Hoot-n-Holler by all Participants during market hours. The proposed procedures in the instance of a Participant(s) experiencing extraordinary market activity in an Eligible Security include: </P>
                <P>a. Immediate notification over the Hoot-n-Holler; </P>
                <P>b. Best efforts to determine the source of the extraordinary market activity; </P>
                <P>c. An attempt by the Participant(s) to prevent quotes from a direct or indirect market participant from being transmitted to the Processor; </P>
                <P>d. If the problem is not rectified, the Participant(s) will cease transmitting quotes to the Processor in the affected security; and </P>
                <P>e. If within five minutes the problem is not rectified from the initial notification over the Hoot-n-Holler, or if decided earlier through unanimous approval from all Participants actively trading the affected security, the Listing Market based on facts and circumstances may declare over the Hoot-n-Holler an Extraordinary Market Regulatory Halt. </P>
                <P>
                    5. The Plan has been amended to add Section X.F to clarify procedures for the resumption of trading after a Regulatory Halt. This includes a requirement that all Participants will use best efforts to indicate their intentions with respect to canceling or modifying trades within fifteen minutes of the declaration of the halt. Furthermore, the amendment clarifies that Participants will disseminate information regarding canceled or modified trades as soon as possible before the resumption of trading. Lastly, the Listing Market will 
                    <PRTPAGE P="28184"/>
                    notify Participants over the Hoot-n-Holler when trading may resume. 
                </P>
                <HD SOURCE="HD1">IV. Date of Effectiveness of the Proposed Amendment </HD>
                <P>
                    The Commission has determined, pursuant to Rule 11Aa3-2(c)(4) under the Act,
                    <SU>14</SU>
                    <FTREF/>
                     that the amendments detailed above in Amendment 13C will be effective upon publication of this notice of amendment in the 
                    <E T="04">Federal Register</E>
                     on a temporary basis not to exceed 120 days. The Commission finds that this action is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect mechanisms of a national market system in furtherance of the purposes of the Act. The Commission believes that it is necessary and appropriate to put Amendment 13C into effect summarily because it will enhance investor protection by improving the coordination among SROs when instituting and lifting trading halts. The amendment should also further the maintenance of fair and orderly markets. 
                </P>
                <FTNT>
                    <P>
                        <SU>14</SU>
                         17 CFR 240.11Aa3-2(c)(4).
                    </P>
                </FTNT>
                <HD SOURCE="HD1">V. Solicitation of Comments </HD>
                <P>The Commission seeks general comments on Amendment 13C. Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed plan amendment is consistent with the Act. Comments may be submitted by any of the following methods: </P>
                <HD SOURCE="HD2">Electronic Comments </HD>
                <P>
                    • Use the Commission's Internet comment form (
                    <E T="03">http://www.sec.gov/rules/sro.shtml</E>
                    ); or 
                </P>
                <P>
                    • Send an e-mail to 
                    <E T="03">rule-comments@sec.gov. Please include File Number S7-24-89 on the subject line.</E>
                </P>
                <HD SOURCE="HD2">Paper Comments </HD>
                <P>• Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. </P>
                <P>
                    All comment letters should refer to File No. S7-24-89. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (
                    <E T="03">http://www.sec.gov/rules/sro.shtml</E>
                    ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Amendment 13C is being published as Exhibit A to this proposal. Copies of the proposal will also be available for inspection and copying at the office of the Secretary of the Committee, currently located at Pacific Exchange, Inc. and Archipelago Exchange L.L.C. 100 South Wacker Drive, Suite 2000, Chicago, 60606. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. S7-24-89 and should be submitted on or before June 8, 2004. 
                </P>
                <SIG>
                    <P>
                        For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
                        <SU>15</SU>
                        <FTREF/>
                    </P>
                    <FTNT>
                        <P>
                            <SU>15</SU>
                             17 CFR 200.30-3(a)(27).
                        </P>
                    </FTNT>
                    <NAME>Jill M. Peterson, </NAME>
                    <TITLE>Assistant Secretary. </TITLE>
                </SIG>
                <EXTRACT>
                    <HD SOURCE="HD1">Exhibit A </HD>
                    <P>Additions are italicized, and deletions are in [brackets]. </P>
                    <HD SOURCE="HD1">AMENDMENT NO. 13C JOINT SELF-REGULATORY ORGANIZATION PLAN GOVERNING THE COLLECTION, CONSOLIDATION AND DISSEMINATION OF QUOTATION AND TRANSACTION INFORMATION FOR NASDAQ-LISTED SECURITIES TRADED ON EXCHANGES ON AN UNLISTED TRADING PRIVILEGE BASIS </HD>
                    <P>AGREEMENT made as of the 15th day of December, 2003, by the undersigned registered national securities association and national securities exchanges (collectively referred to as the “Participants”), that are parties to the plan (“UTP Plan” or “Plan”) submitted to the Securities and Exchange Commission (“Commission”). </P>
                    <P>The parties agree as follows: </P>
                    <P>1. Section III (Definitions), shall be amended to read as follows (deletions are in brackets and additions are in italics): </P>
                    <HD SOURCE="HD2">III. Definitions </HD>
                    <P>
                        T. “Regulatory Halt” means a trade suspension or halt called for the purpose of dissemination of material news, as described at Section X hereof or that is called for where there are regulatory problems relating to an Eligible Security that should be clarified before trading therein is permitted to continue
                        <E T="03">, including a trading halt for extraordinary market activity due to system misuse or malfunction under Section X.E.1. of the Plan (“Extraordinary Market Regulatory Halt”).</E>
                    </P>
                    <STARS/>
                    <P>2. Section X (Regulatory Halts), shall be amended to read as follows (deletions are in brackets and additions are in italics): </P>
                    <HD SOURCE="HD3">X. Regulatory Halts </HD>
                    <P>
                        <E T="03">A. For purposes of this Section X, “Participant” shall include the Nasdaq Stock Market.</E>
                         Whenever, in the exercise of its regulatory functions, the [Primary] 
                        <E T="03">Listing</E>
                         Market for an Eligible Security determines that a Regulatory Halt is appropriate 
                        <E T="03">pursuant to Section III.T, the Listing Market will notify all other Participants pursuant to Section X.E and</E>
                         all other Participants shall also halt or suspend trading in that security until notification that the halt or suspension is no longer in effect. The [Primary] 
                        <E T="03">Listing</E>
                         Market shall immediately notify the Processor of such Regulatory Halt as well as notice of the lifting of a Regulatory Halt. The Processor, in turn, shall disseminate to Participants notice of the Regulatory Halt (as well as notice of the lifting of a regulatory halt) through the UTP Quote Data Feed. This notice shall serve as official notice of a regulatory halt for purposes of the Plan only, and shall not substitute or otherwise supplant notice that a Participant may recognize or require under its own rules. Nothing in this provision shall be read so as to supplant or be inconsistent with a Participant's own rules on trade halts, which rules apply to the Participant's own members. The Processor will reject any quotation information and monitor for transaction reports received from any Participant on an Eligible Security that has a Regulatory Halt in effect. 
                    </P>
                    <P>
                        B. Whenever the [Primary] 
                        <E T="03">Listing</E>
                         Market determines that an adequate publication or dissemination of information has occurred or the regulatory problem has been addressed so as to permit the termination of the Regulatory Halt then in effect, the [Primary] 
                        <E T="03">Listing</E>
                         Market shall promptly notify the Processor and each of the other Participants that conducts trading in such security 
                        <E T="03">pursuant to Section X.F</E>
                        . Except in extraordinary circumstances, adequate publication or dissemination shall be presumed by the [Primary] 
                        <E T="03">Listing</E>
                         Market to have occurred upon the expiration of one hour after initial publication in a national news dissemination service of the information that gave rise to the Regulatory Halt. 
                    </P>
                    <P>C. Except in the case of a Regulatory Halt, the Processor shall not cease the dissemination of quotation or transaction information regarding any Eligible Security. In particular, it shall not cease dissemination of such information because of a delayed opening, imbalance of orders or other market-related problems involving such security. During a regulatory halt, the Processor shall collect and disseminate Transaction Information but shall cease collection and dissemination of all Quotation Information. </P>
                    <P>
                        D. For purposes of this Section X, [“Primary Market”] 
                        <E T="03">“Listing Market”</E>
                         for an Eligible Security means [Nasdaq; provided, however, that if for any 12-month period the 
                        <PRTPAGE P="28185"/>
                        number of reported transactions and the reported share volume in an Eligible Security in any other Participant's Market exceeds 50% of the aggregate reported transactions and reported share volume of all Participants in such security, then that Participant's Market shall be the Primary Market for such Eligible Security.] 
                        <E T="03">the Participant's Market on which the Eligible Security is listed. If an Eligible Security is dually listed, Listing Market shall mean the Participant's Market on which the Eligible Security is listed that also has the highest number of the average of the reported transactions and reported share volume for the preceding 12-month period. The Listing Market for dually-listed Eligible Securities shall be determined at the beginning of each calendar quarter.</E>
                    </P>
                    <P>
                        <E T="03">E. For purposes of coordinating trading halts in Eligible Securities, all Participants are required to utilize the national market system communication media (“Hoot-n-Holler”) to verbally provide real-time information to all Participants. Each Participant shall be required to continuously monitor the Hoot-n-Holler system during market hours, and the failure of a Participant to do so at any time shall not prevent the Listing Market from initiating a Regulatory Halt in accordance with the procedures specified herein.</E>
                    </P>
                    <P>
                        <E T="03">1. The following procedures shall be followed when one or more Participants experiences extraordinary market activity in an Eligible Security that is believed to be caused by the misuse or malfunction of systems operated by or linked to one or more Participants.</E>
                    </P>
                    <P>
                        <E T="03">a. The Participant(s) experiencing the extraordinary market activity or any Participant that becomes aware of extraordinary market activity will immediately use best efforts to notify all Participants of the extraordinary market activity utilizing the Hoot-n-Holler system.</E>
                    </P>
                    <P>
                        <E T="03">b. The Listing Market will use best efforts to determine whether there is material news regarding the Eligible Security. If the Listing Market determines that there is non-disclosed material news, it will immediately call a Regulatory Halt pursuant to Section X.E.2.</E>
                    </P>
                    <P>
                        <E T="03">c. Each Participant(s) will use best efforts to determine whether one of its systems, or the system of a direct or indirect participant in its market, is responsible for the extraordinary market activity.</E>
                    </P>
                    <P>
                        <E T="03">d. If a Participant determines the potential source of extraordinary market activity pursuant to Section X.1.c., the Participant will use best efforts to determine whether removing the quotations of one or more direct or indirect market participants or barring one or more direct or indirect market participants from entering orders will resolve the extraordinary market activity. Accordingly, the Participant will prevent the quotations from one or more direct or indirect market participants in the affected Eligible Securities from being transmitted to the Processor.</E>
                    </P>
                    <P>
                        <E T="03">e. If the procedures described in Section X.E.1.a.-d. do not rectify the situation, the Participant(s) experiencing extraordinary market activity will cease transmitting all quotations in the affected Eligible Securities to the Processor.</E>
                    </P>
                    <P>
                        <E T="03">f. If the procedures described in Section X.E.1.a-e do not rectify the situation within five minutes of the first notification through the Hoot-n-Holler system, or if Participants agree to call a halt sooner through unanimous approval among those Participants actively trading impacted Eligible Securities, the Listing Market may determine based on the facts and circumstances, including available input from Participants, to declare an Extraordinary Market Regulatory Halt in the affected Eligible Securities. Simultaneously with the notification of the Processor to suspend the dissemination of quotations across all Participants, the Listing Market must verbally notify all Participants of the trading halt utilizing the Hoot-n-Holler system.</E>
                    </P>
                    <P>
                        <E T="03">g. Absent any evidence of system misuse or malfunction, best efforts will be used to ensure that trading is not halted across all Participants.</E>
                    </P>
                    <P>
                        <E T="03">2. If the Listing Market declares a Regulatory Halt in circumstances other than pursuant to Section X.E.1.f., the Listing Market must, simultaneously with the notification of the Processor to suspend the dissemination of quotations across all Participants, verbally notify all Participants of the trading halt utilizing the Hoot-n-Holler system.</E>
                    </P>
                    <P>
                        <E T="03">F. If the Listing Market declares a Regulatory Halt, trading will resume according to the following procedures:</E>
                    </P>
                    <P>
                        <E T="03">1. Within 15 minutes of the declaration of the halt, all Participants will make best efforts to indicate via the Hoot-n-Holler their intentions with respect to canceling or modifying transactions.</E>
                    </P>
                    <P>
                        <E T="03">2. All Participants will disseminate to their members information regarding the canceled or modified transactions as promptly as possible, and in any event prior to the resumption of trading.</E>
                    </P>
                    <P>
                        <E T="03">3. After all Participants have met the requirements of Section X.F.1-2, the Listing Market will notify the Participants utilizing the Hoot-n-Holler and the Processor when trading may resume. Upon receiving this information, Participants may commence trading pursuant to Section X.A.</E>
                    </P>
                    <STARS/>
                    <P>This amendment to the UTP Plan will be effective when approved by the Commission. </P>
                    <P>The parties may execute this Agreement in counterparts, no one of which need contain all signatures of all executing parties. As many of the counterparts as shall together contain all such signatures will constitute one and the same instrument. </P>
                    <P>Except for the amendment contained herein, the UTP Plan is unchanged and remains in full force and effect. </P>
                    <P>IN WITNESS WHEREOF, this Plan has been executed as of the _ day of December, 2003, by each of the Signatories hereto. </P>
                    <FP>AMERICAN STOCK EXCHANGE, LLC</FP>
                    <FP SOURCE="FP-DASH">BY:</FP>
                    <FP>BOSTON STOCK EXCHANGE, INC. </FP>
                    <FP SOURCE="FP-DASH">BY:</FP>
                    <FP>CHICAGO STOCK EXCHANGE, INC.</FP>
                    <FP SOURCE="FP-DASH">BY:</FP>
                    <FP>THE CINCINNATI STOCK EXCHANGE</FP>
                    <FP SOURCE="FP-DASH">BY:</FP>
                    <FP>NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. </FP>
                    <FP SOURCE="FP-DASH">BY:</FP>
                    <FP>PACIFIC EXCHANGE, INC.</FP>
                    <FP SOURCE="FP-DASH">BY:</FP>
                    <FP>PHILADELPHIA STOCK EXCHANGE, INC </FP>
                    <FP SOURCE="FP-DASH">BY:</FP>
                </EXTRACT>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11177 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 8010-01-P </BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF STATE </AGENCY>
                <DEPDOC>[Public Notice 4722] </DEPDOC>
                <SUBJECT>Determination and Certification Under Section 40A of the Arms Export Control Act </SUBJECT>
                <P>Pursuant to section 40A of the Arms Export Control Act (22 U.S.C. 2781), and Executive Order 11958, as amended, I hereby determine and certify to the Congress that the following countries are not cooperating fully with United States antiterrorism efforts:</P>
                <FP SOURCE="FP-1">Cuba; </FP>
                <FP SOURCE="FP-1">Iran; </FP>
                <FP SOURCE="FP-1">North Korea; </FP>
                <FP SOURCE="FP-1">Syria; </FP>
                <FP SOURCE="FP-1">Libya. </FP>
                <P>I hereby notify that the decision to retain Libya on the list of countries not fully cooperating with U.S. antiterrorism efforts comes in the context of an on-going and comprehensive review of Libya's record of support for terrorism. While this process is not complete, Libya has taken significant steps to repudiate its past support for terrorism. When our review of Libya's overall record is complete, we will be pleased to consult with the Congress further. </P>
                <P>
                    This determination and certification shall be transmitted to the Congress and published in the 
                    <E T="04">Federal Register</E>
                    . 
                </P>
                <SIG>
                    <DATED>Dated: May 12, 2004. </DATED>
                    <NAME>Colin L. Powell, </NAME>
                    <TITLE>Secretary of State, Department of State. </TITLE>
                </SIG>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11214 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4710-10-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE </AGENCY>
                <SUBJECT>Generalized System of Preferences (GSP): Termination of Countries Joining the European Union From Eligibility as a GSP Beneficiary Country </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Office of the United States Trade Representative (USTR). </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>
                        As a result of their accessions to the European Union on May 1, 2004, 
                        <PRTPAGE P="28186"/>
                        the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia were terminated as beneficiary developing countries under the U.S. GSP program on that date. 
                    </P>
                </SUM>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>GSP Subcommittee, Office of the United States Trade Representative, USTR Annex, 1724 F Street, NW., Room F220, Washington, DC 20508 (Tel. 202-395-6971). </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>
                    The GSP program is authorized pursuant to Title V of the Trade Act of 1974, as amended (“the Trade Act”) (19 U.S.C. 2461 
                    <E T="03">et seq.</E>
                    ). The GSP program grants duty-free treatment to designated eligible articles that are imported from designated beneficiary developing countries. Countries that cannot be designated as GSP-eligible include, among others, member states of the European Union (19 U.S.C. 2462). In Proclamation 7758 (March 1, 2004, the President, pursuant to section 502(b)(1)(C) of the Trade Act of 1974, as amended (19 U.S.C. 2462(b)(1)(C)), announced that “the designation of the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia as beneficiary developing countries for purposes of the GSP is terminated for each country on the date when it becomes a European Union member state. The United States Trade Representative shall announce each such date in a notice published in the 
                    <E T="04">Federal Register</E>
                    .” 
                </P>
                <P>The United States Trade Representative hereby announces that May 1, 2004, was the date on which the Czech Republic, Estonia, Hungary Latvia, Lithuania, Poland and Slovakia became European Union member states. </P>
                <SIG>
                    <NAME>Peter F. Allgeier,</NAME>
                    <TITLE>Acting United States Trade Representative. </TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11181 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 3190-W4-P </BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF TRANSPORTATION </AGENCY>
                <SUBAGY>Office of the Secretary </SUBAGY>
                <SUBJECT>Aviation Proceedings, Agreements Filed the Week Ending May 7, 2004 </SUBJECT>
                <P>The following Agreements were filed with the Department of Transportation under the provisions of 49 U.S.C. 412 and 414. Answers may be filed within 21 days after the filing of the application. </P>
                <P>
                    <E T="03">Docket Number:</E>
                     OST-2004-17744. 
                </P>
                <P>
                    <E T="03">Date Filed:</E>
                     May 7, 2004. 
                </P>
                <P>
                    <E T="03">Parties:</E>
                     Members of the International Air Transport Association. 
                </P>
                <P>
                    <E T="03">Subject:</E>
                     PTC2 EUR 0556 dated 11 May 2004, Within Europe Expedited Resolutions r1-r19, Intended effective date: 15 June 2004. 
                </P>
                <SIG>
                    <NAME>Andrea M. Jenkins, </NAME>
                    <TITLE>Program Manager, Docket Operations, Federal Register Liaison. </TITLE>
                </SIG>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11201 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4910-62-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF TRANSPORTATION</AGENCY>
                <SUBAGY>Federal Railroad Administration</SUBAGY>
                <DEPDOC>[FRA Emergency Order No. 23, Notice No. 2]</DEPDOC>
                <SUBJECT>Clarifying Amendment to the Emergency Order To Prohibit the Continued Use of Certain Railroad Tank Cars Equipped With a Truck Bolster Bearing Either (1) Association of American Railroads (AAR) Identification Number B-2410 and National Castings of Mexico (NCM) Pattern Number 52122 or (2) AAR Identification Number B-2409 and NCM Pattern Number 52202</SUBJECT>
                <P>
                    On April 30, 2004, FRA published Emergency Order No. 23, Notice No. 1, directing all persons, including, but not limited to owners, shippers, consignees, and railroads, to discontinue the loading and transportation of certain railroad tank cars equipped with a truck bolster bearing either (1) AAR identification Number B-2410 and NCM Pattern Number 52122 or (2) AAR Identification Number B-2409 and NCM Pattern Number 52202, until each of the described bolsters is removed from the car and replaced with a bolster of suitable design and manufacture. 
                    <E T="03">See</E>
                     69 FR 23850. Information received by FRA subsequent to the issuance of the Emergency order compels FRA to issue this amendment to the Order (Notice No. 2) to clarify the identification of the tank cars covered by Emergency Order No. 23.
                </P>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Ronald Newman, Staff Director, Motive Power &amp; Equipment Division, FRA, 1120 Vermont Ave, NW., stop 25, Washington, DC 20590, (202) 493-6241, or Thomas Herrmann, Trial Attorney, Office of Chief Counsel, FRA, 1120 Vermont Ave., NW., stop 10, Washington, DC 20590, (202) 493-6036.</P>
                    <HD SOURCE="HD1">Authority</HD>
                    <P>
                        The authority for issuance of this amendment to Emergency Order No. 23 is the same as that cited for the issuance of the original Emergency Order. 
                        <E T="03">See</E>
                         69 FR23850.
                    </P>
                    <HD SOURCE="HD1">Background</HD>
                    <P>
                        FRA outlined the scope and severity of the problems associated with two above-noted bolster patterns in Notice No. 1 to Emergency Order No. 23. 
                        <E T="03">See</E>
                         69 FR 23850-51. FRA is working with the AAR, tank car builders and users, and the nation's railroads to resolve the problem. Previous efforts are memorialized in FRA Safety Advisory 2002-03 (69 FR 79686, December 30, 2002); FRA Safety Advisory 2003-03 (68 FR 65982, November 24, 2003); AAR Maintenance Advisory MA-81; and a series of AAR Early Warning letters including EW-5191, EW-5194, EW-5195, EW-5196, and EW-5197, and supplements to them.
                    </P>
                    <P>
                        Although all parties to this effort agree that the involved bolsters must be replaced, the castings industry simply cannot produce a sufficient number of replacement truck bolsters fast enough. Therefore, priorities had to be established to schedule the necessary change-outs in a timely fashion. As discussed in Notice No. 1 to this Emergency Order, the AAR developed a unique risk assessment matrix to establish these priorities. The risk matrix included, among other things, factors for the manner in which the cars were loaded and, for tank cars, the relative danger of the hazardous material being transported. The results of the risk matrix divided the freight cars with defective bolsters into three specific groups: Group I included hazardous material tank cars, Group II included coal cars and mill gondola cars, and Group III included all other cars. 
                        <E T="03">See</E>
                         69 FR 23851. For purposes of priority, hazardous material tank cars were further divided into three hazard-based categories: Category I included pressurized shipments (liquefied compressed gases) such as propane, anhydrous ammonia, and chlorine, Category II included flammable liquids, corrosives, and liquids with a poisonous hazard; and Category III included molten sulfur, elevated temperature materials, and the low-hazard Class 9 “other regulated materials.” Appendix A to this Notice displays the results of the risk matrix applied to hazardous materials transported in railroad tank cars and shows which commodities are included in each of the tree Categories. Based on the lower degree of hazard involved, hazardous material tank cars (Group I cars) used to transport Category III hazardous materials, were prioritized with the Group III (all other) cars.
                    </P>
                    <P>
                        Information received by FRA since its issuance of Emergency Order No. 23, Notice No. 1, indicates that the identification of the affected tank cars needs to be clarified. In order to make clear the applicability of Emergency Order No. 23, FRA believes it is necessary to issue this amendment. FRA 
                        <PRTPAGE P="28187"/>
                        intends that Emergency Order No. 23 apply to all tank cars used to transport hazardous materials risk-rated in Categories I and II by AAR's matrix, and equipped with bolsters cast in 1995, 1996, 1997, 1998 or 1999, and bearing either (1) AAR Identification Number B-2410 and NCM Pattern Number 52122 or (2) AAR Identification Number B-2409 and NCM Pattern Number 52202. “Tank cars” includes DOT-, TC- (Tansport Canada), and AAR-Specification tank cars. Tank cars transporting Category III hazardous materials, tank cars transporting non-regulated materials, and tank cars cleaned and purged of all hazardous materials were not intended to be covered by Emergency Order No. 23.
                    </P>
                    <HD SOURCE="HD1">Amended Finding and Order</HD>
                    <P>Based on the information contained in Emergency Order No. 23, Notice No. 1 (69 FR 23850), and on the information received subsequent to the issuance of that notice described in detail above, I continue to find that an emergency situation involving a hazard of death or personal injury exists. Consequently, I hereby direct and order that, except as necessary to carry out this order, no person may transport, offer for transportation, load, or continue in service any tank car used to transport hazardous materials risk-rated in Categories I and II by AAR's matrix and equipped with bolsters cast in 1995, 1996, 1997, 1998, or 1999, and bearing either (1) AAR Identification Number B-2410 and NCM Pattern Number 52122 or (2) AAR Identification Number B-2409 and NCM Pattern Number 52202, until each of the described bolsters is removed from the car and replaced with a bolster of suitable design and manufacture. Railroads are permitted to haul such a car if necessary to effectuate such removal and replacement, but only to the nearest available location where the removal and replacement of the subject bolster can be made.</P>
                    <HD SOURCE="HD1">Relief</HD>
                    <P>
                        This Notice No. 2 does not amend the Relief provisions contained in Emergency Order No. 23, Notice No. 1. 
                        <E T="03">See</E>
                         69 FR 23851.
                    </P>
                    <HD SOURCE="HD1">Penalties</HD>
                    <P>Any violation of Emergency Order No. 23 shall subject the person committing the violation to a civil penalty in the maximum amount set forth in 49 CFR part 209, Appendix A. FRA may, through the Attorney General, also seek injunctive relief to enforce this order as established by 49 U.S.C. 20112.</P>
                    <HD SOURCE="HD1">Effective Date and Notice to Affected Persons</HD>
                    <P>
                        This Emergency Order No. 23 became effective on April 30, 2004 and applies according to its terms except as expressly amended by this notice. Emergency Order No. 23, Notice No. 2, will be published in the 
                        <E T="04">Federal Register</E>
                         and will take effect upon its issuance. A copy of Emergency Order No. 23, Notice No. 2, will also be sent by e-mail or facsimile to the AAR for distribution to its members.
                    </P>
                    <HD SOURCE="HD1">Review</HD>
                    <P>Opportunity for formal review of Emergency Order No. 23 will be provided in accordance with 49 U.S.C. 20104(b) and 5 U.S.C. 554. Administrative procedures governing such review are found at 49 CFR 211.47, 211.71, 211.73, 211.75, and 211.77.</P>
                    <SIG>
                        <DATED>Issued in Washington, DC on May 11, 2004.</DATED>
                        <NAME>Allan  Rutter,</NAME>
                        <TITLE>Federal Railroad Administrator.</TITLE>
                    </SIG>
                    <BILCOD>BILLING CODE 4910-06-M</BILCOD>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28188"/>
                        <GID>EN18MY04.425</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28189"/>
                        <GID>EN18MY04.426</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28190"/>
                        <GID>EN18MY04.427</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="206">
                        <PRTPAGE P="28191"/>
                        <GID>EN18MY04.428</GID>
                    </GPH>
                </FURINF>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11143  Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4910-06-C</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF TRANSPORTATION </AGENCY>
                <SUBAGY>Research and Special Programs Administration </SUBAGY>
                <DEPDOC>[Docket No. RSPA-2004-16964 (Notice No. 04-4)] </DEPDOC>
                <SUBJECT>Information Collection Activity Under OMB Review </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Research and Special Programs Administration (RSPA), DOT. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice and request for comments. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>
                        In compliance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 
                        <E T="03">et seq.</E>
                        ), this notice announces that the Information Collection Requests (ICRs) abstracted below have been forwarded to the Office of Management and Budget (OMB) for review and comments. The ICRs describe the nature of the information collections and their expected burden. The 
                        <E T="04">Federal Register</E>
                         notice with a 60-day comment period soliciting comments on the following collections of information was published on March 8, 2004, 69 FR 10808-10811. 
                    </P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Comments must be submitted on or before June 17, 2004. </P>
                </DATES>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Deborah Boothe or T. Glenn Foster, Office of Hazardous Materials Standards (DHM-10), Research and Special Programs Administration, Room 8430, 400 Seventh Street, SW., Washington, DC 20590-0001, telephone (202) 366-8553. </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P SOURCE="NPAR">
                    <E T="03">Title:</E>
                     Requirements for Cargo Tanks. 
                </P>
                <P>
                    <E T="03">OMB Control Number:</E>
                     2137-0014. 
                </P>
                <P>
                    <E T="03">Type of Request:</E>
                     Extension of a currently approved collection. 
                </P>
                <P>
                    <E T="03">Abstract:</E>
                     This information collection consolidates and describes the information collection provisions in parts 178 and 180 of the HMR involving the manufacture, qualification, maintenance and use of all specification cargo tank motor vehicles. It also includes the information collection and recordkeeping requirements for persons who are engaged in the manufacture, assembly, requalification and maintenance of DOT specification cargo tank motor vehicles. The types of information collected include: 
                </P>
                <P>(1) Registration Statements: Cargo tank manufacturers and repairers, and cargo tank motor vehicle assemblers are required to register with DOT by furnishing information relative to their qualifications to perform the functions in accordance with the HMR. The registration statements are used by DOT to ensure that these persons possess the knowledge and skills necessary to perform the required functions and that they are performing the specified functions in accordance with the applicable regulations. </P>
                <P>(2) Requalification and maintenance reports: These reports are prepared by persons who requalify or maintain cargo tanks. This information is used by cargo tank owners, operators and users, and DOT compliance personnel to verify that the cargo tanks are requalified, maintained and are in proper condition for the transportation of hazardous materials in accordance with the HMR. </P>
                <P>(3) Manufacturers' data reports, certificates and related papers: These reports are prepared by cargo tank manufacturers and certifiers, and are used by cargo tank owners, operators, users and DOT compliance personnel to verify that a cargo tank motor vehicle was designed and constructed to meet all requirements of the applicable specification. </P>
                <P>
                    <E T="03">Affected Public:</E>
                     Manufacturers, assemblers, repairers, requalifiers, certifiers and owners of cargo tanks. 
                </P>
                <P>
                    <E T="03">Estimated Number of Respondents:</E>
                     41,366. 
                </P>
                <P>
                    <E T="03">Estimated Number of Responses:</E>
                     132,600. 
                </P>
                <P>
                    <E T="03">Annual Estimated Burden Hours:</E>
                     102,021. 
                </P>
                <P>
                    <E T="03">Frequency of Collection:</E>
                     On occasion. 
                </P>
                <P>
                    <E T="03">Title:</E>
                     Inspection and Testing of Portable Tanks and Intermediate Bulk Containers. 
                </P>
                <P>
                    <E T="03">OMB Control Number:</E>
                     2137-0018. 
                </P>
                <P>
                    <E T="03">Type of Request:</E>
                     Extension of a currently approved collection. 
                </P>
                <P>
                    <E T="03">Abstract:</E>
                     This information collection consolidates provisions for documenting qualifications, inspections, tests and approvals pertaining to the manufacture and use of portable tanks and intermediate bulk containers under various provisions of the HMR. It is necessary to ascertain whether portable tanks and intermediate bulk containers have been qualified, inspected and retested in accordance with the HMR. The information is used to verify that certain portable tanks and intermediate bulk containers meet required performance standards prior to their being authorized for use, and to document periodic requalification and testing to ensure the packagings have not deteriorated due to age or physical abuse to a degree that would render them unsafe for the transportation of hazardous materials. Applicable sections are as follows: § 173.32—requirements for the use of portable tanks; § 173.35—hazardous materials in 
                    <PRTPAGE P="28192"/>
                    intermediate bulk containers; § 178.245-6—certification markings for DOT-51 portable tanks; § 178.245-7—manufacturer's data report for DOT-51 portable tanks: § 178.255-14—certification markings for DOT-60 portable tanks; § 178.255-15—manufacturer's data report for DOT-60 portable tanks; § 178.270-14—certification marking of IM portable tanks; § 178.801—testing, retesting and recordkeeping for intermediate bulk containers; and § 180.352—periodic retests and inspections for intermediate bulk containers. 
                </P>
                <P>
                    <E T="03">Affected Public:</E>
                     Manufacturers and owners of portable tanks and intermediate bulk containers. 
                </P>
                <P>
                    <E T="03">Recordkeeping:</E>
                </P>
                <P>
                    <E T="03">Number of Respondents:</E>
                     8,770. 
                </P>
                <P>
                    <E T="03">Total Annual Responses:</E>
                     86,100. 
                </P>
                <P>
                    <E T="03">Total Annual Burden Hours:</E>
                     66,390. 
                </P>
                <P>
                    <E T="03">Frequency of collection:</E>
                     On occasion. 
                </P>
                <P>
                    <E T="03">Title:</E>
                     Hazardous Materials Incident Reports. 
                </P>
                <P>
                    <E T="03">OMB Control Number:</E>
                     2137-0039. 
                </P>
                <P>
                    <E T="03">Type of Request:</E>
                     Extension of a currently approved collection. 
                </P>
                <P>Abstract: This collection is applicable when an incident occurs in transportation as prescribed in §§ 171.15 and 171.16 of the HMR. A Hazardous Materials Incident Report, DOT Form F 5800.1, must be completed by the person in physical possession of the hazardous material at the time a hazardous material incident occurs in transportation, such as a release of materials, serious accident, evacuation, or closure of a major transportation artery. Incidents meeting criteria in § 171.15 also require a telephonic report. This information collection enhances the Department's ability to evaluate the effectiveness of its regulatory program, determine the need for regulatory changes, and address emerging hazardous materials transportation safety issues. The requirements apply to all interstate and intrastate carriers engaged in the transportation of hazardous materials by rail, air, water, and highway. </P>
                <P>
                    <E T="03">Affected Public:</E>
                     Person in physical possession of a hazardous material at the time an incident occurs in transportation. 
                </P>
                <P>
                    <E T="03">Estimated Number of Respondents:</E>
                     1,781. 
                </P>
                <P>
                    <E T="03">Estimated Number of Responses:</E>
                     17,810. 
                </P>
                <P>
                    <E T="03">Annual Estimated Burden Hours:</E>
                     23,746. 
                </P>
                <P>
                    <E T="03">Frequency of Collection:</E>
                     On occasion. 
                </P>
                <P>
                    <E T="03">Title:</E>
                     Flammable Cryogenic Liquids. 
                </P>
                <P>
                    <E T="03">OMB Control Number:</E>
                     2137-0542. 
                </P>
                <P>
                    <E T="03">Type of Request:</E>
                     Extension of a currently approved collection. 
                </P>
                <P>
                    <E T="03">Abstract:</E>
                     Paragraph (h) of § 177.840 specifies certain safety procedures and documentation requirements for drivers of these motor vehicles. Provisions in § 177.840(l) of the HMR require the carriage on a motor vehicle of written procedures for venting flammable cryogenic liquids and for emergency response. These requirements are intended to ensure a high level of safety when transporting flammable cryogenics, which are characterized by extreme flammability and high compression ratio when in a liquid state. 
                </P>
                <P>
                    <E T="03">Affected Public:</E>
                     Carriers of cryogenic materials. 
                </P>
                <P>
                    <E T="03">Estimated Number of Respondents:</E>
                     65. 
                </P>
                <P>
                    <E T="03">Estimated Number of Responses:</E>
                     18,200. 
                </P>
                <P>
                    <E T="03">Annual Estimated Burden Hours:</E>
                     1,213. 
                </P>
                <P>
                    <E T="03">Frequency of Collection:</E>
                     On occasion. 
                </P>
                <P>
                    <E T="03">Title:</E>
                     Testing Requirements for Non-bulk Packaging. 
                </P>
                <P>
                    <E T="03">OMB Control Number:</E>
                     2137-0572. 
                </P>
                <P>
                    <E T="03">Type of Request:</E>
                     Extension of a currently approved collection. 
                </P>
                <P>
                    <E T="03">Abstract:</E>
                     Detailed packaging manufacturing specifications have been replaced by a series of performance tests that a non-bulk packaging must be capable of passing before it is authorized to be used for transporting hazardous materials. The HMR require proof that packagings meet these testing requirements. Manufacturers must retain records of design qualification tests and periodic retests. Manufacturers must notify, in writing, persons to whom packagings are transferred of any specification requirements that have not been met at the time of transfer; and the type and dimensions of any closures, including gaskets, needed to satisfy performance test requirements. Subsequent distributors must also provide written notification. Performance-oriented packaging standards allow manufacturers and shippers much greater flexibility in selecting more economical packagings. 
                </P>
                <P>
                    <E T="03">Affected Public:</E>
                     Each non-bulk packaging manufacturer that tests packagings to ensure compliance with the HMR. 
                </P>
                <P>
                    <E T="03">Estimated Number of Respondents:</E>
                     5,000. 
                </P>
                <P>
                    <E T="03">Estimated Number of Responses:</E>
                     15,000. 
                </P>
                <P>
                    <E T="03">Annual Estimated Burden Hours:</E>
                     30,000. 
                </P>
                <P>
                    <E T="03">Frequency of Collection:</E>
                     On occasion. 
                </P>
                <P>
                    <E T="03">Title:</E>
                     Container Certification Statement. 
                </P>
                <P>
                    <E T="03">OMB Control Number:</E>
                     2137-0582. 
                </P>
                <P>
                    <E T="03">Type of Request:</E>
                     Extension of a currently approved collection. 
                </P>
                <P>
                    <E T="03">Abstract:</E>
                     Shippers of explosives, in freight containers or transport vehicles by vessel, are required to certify on shipping documentation that the freight container or transport vehicle meets minimal structural serviceability requirements. This requirement is intended to ensure an adequate level of safety for transport of explosives aboard vessel and ensure consistency with similar requirements in international standards. 
                </P>
                <P>
                    <E T="03">Affected Public:</E>
                     Shippers of explosives in freight containers or transport vehicles by vessel. 
                </P>
                <P>
                    <E T="03">Estimated Number of Respondents:</E>
                     650. 
                </P>
                <P>
                    <E T="03">Estimated Number of Responses:</E>
                     890,000 HM Containers &amp; 4400 Explosive Containers. 
                </P>
                <P>
                    <E T="03">Annual Estimated Burden Hours:</E>
                     14,908. 
                </P>
                <P>
                    <E T="03">Frequency of Collection:</E>
                     On occasion. 
                </P>
                <P>
                    <E T="03">Title:</E>
                     Hazardous Materials Public Sector Training and Planning Grants. 
                </P>
                <P>
                    <E T="03">OMB Control Number:</E>
                     2137-0586. 
                </P>
                <P>
                    <E T="03">Type of Request:</E>
                     Extension of a currently approved collection. 
                </P>
                <P>
                    <E T="03">Abstract:</E>
                     Part 110 of 49 CFR sets forth the procedures for reimbursable grants for public sector planning and training in support of the emergency planning and training efforts of States, Indian tribes and local communities to manage hazardous materials emergencies, particularly those involving transportation. Sections in this part address information collection and recordkeeping with regard to applying for grants, monitoring expenditures, and reporting and requesting modifications. 
                </P>
                <P>
                    <E T="03">Affected Public:</E>
                     State and local governments, Indian tribes. 
                </P>
                <P>
                    <E T="03">Estimated Number of Respondents:</E>
                     66. 
                </P>
                <P>
                    <E T="03">Estimated Number of Responses:</E>
                     66. 
                </P>
                <P>
                    <E T="03">Annual Estimated Burden Hours:</E>
                     4,082. 
                </P>
                <P>
                    <E T="03">Frequency of Collection:</E>
                     On occasion. 
                </P>
                <P>
                    <E T="03">Title:</E>
                     Response Plans for Shipments of Oil. 
                </P>
                <P>
                    <E T="03">OMB Control Number:</E>
                     2137-0591. 
                </P>
                <P>
                    <E T="03">Type of Request:</E>
                     Extension of a currently approved collection. 
                </P>
                <P>
                    <E T="03">Abstract:</E>
                     In recent years, several major oil discharges have damaged the marine environment of the United States. Under the authority of the Federal Water Pollution Control Act, as amended by the Oil Pollution Act of 1990, RSPA issued regulations in 49 CFR Part 130 that require preparation of written spill response plans. 
                </P>
                <P>
                    <E T="03">Affected Public:</E>
                     Carriers that transport oil in bulk, by motor vehicle or rail. 
                </P>
                <P>
                    <E T="03">Estimated Number of Respondents:</E>
                     8,000. 
                    <PRTPAGE P="28193"/>
                </P>
                <P>
                    <E T="03">Estimated Number of Responses:</E>
                     8,000. 
                </P>
                <P>
                    <E T="03">Annual Estimated Burden Hours:</E>
                     10,560. 
                </P>
                <P>
                    <E T="03">Frequency of Collection:</E>
                     On occasion. 
                </P>
                <P>
                    <E T="03">Title:</E>
                     Cargo Tank Motor Vehicles in Liquefied Compressed Gas Service. 
                </P>
                <P>
                    <E T="03">OMB Control Number:</E>
                     2137-0595. 
                </P>
                <P>
                    <E T="03">Type of Request:</E>
                     Extension of a currently approved collection. 
                </P>
                <P>
                    <E T="03">Abstract:</E>
                     These information collection and recordkeeping requirements pertain to the manufacture, certification, inspection, repair, maintenance, and operation of DOT specification MC 330, MC 331, and certain nonspecification cargo tank motor vehicles used to transport liquefied compressed gases. These information collection and recordkeeping requirements are intended to ensure certain cargo tank motor vehicles used to transport liquefied compressed gases are operated safely, and to minimize the potential for catastrophic releases during unloading and loading operations. They include: (1) Requirements for operators of cargo tank motor vehicles in liquefied compressed gas service to develop operating procedures applicable to unloading operations and carry the operating procedures on each vehicle; (2) inspection, maintenance, marking and testing requirements for the cargo tank discharge system, including delivery hose assemblies; and (3) requirements for emergency discharge control equipment on certain cargo tank motor vehicles transporting liquefied compressed gases that must be installed and certified by a Registered Inspector. (See sections 180.416(b)(d)(f); 180.405;180.407(h); 177.840(l); and 173.315(n)). 
                </P>
                <P>
                    <E T="03">Affected Public:</E>
                     Carriers in liquefied compressed gas service, manufacturers and repairers. 
                </P>
                <P>
                    <E T="03">Estimated Number of Respondents:</E>
                     6,958. 
                </P>
                <P>
                    <E T="03">Estimated Number of Responses:</E>
                     965,596. 
                </P>
                <P>
                    <E T="03">Annual Estimated Burden Hours:</E>
                     200,615. 
                </P>
                <P>
                    <E T="03">Frequency of Collection:</E>
                     On occasion. 
                </P>
                <SUPLHD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>Send comments regarding the burden estimate, including suggestions for reducing the burden, to Office of Management and Budget, Attention: Desk Officer for RSPA, 725 17th Street, NW., Washington, DC 20503. Comments are invited on: Whether the proposed collection of information is necessary for the proper performance of the functions of the Department, including whether the information will have practical utility; the accuracy of the Department's estimate of the burden of the proposed information collection; ways to enhance the quality, utility and clarity of the information to be collected; and ways to minimize the burden of the collection of information on respondents, including the use of automated collection techniques or other forms of information technology. A comment to OMB is most effective if OMB receives it within 30 days of publication. </P>
                </SUPLHD>
                <SIG>
                    <DATED>Issued in Washington, DC, on May 12, 2004. </DATED>
                    <NAME>Edward T. Mazzullo, </NAME>
                    <TITLE>Director, Office of Hazardous Materials Standards. </TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11202 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4910-60-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF TRANSPORTATION </AGENCY>
                <SUBAGY>Surface Transportation Board </SUBAGY>
                <DEPDOC>[STB Docket No. AB-290 (Sub-No. 253X)] </DEPDOC>
                <SUBJECT>Norfolk Southern Railway Company—Abandonment Exemption in Edgefield County, SC </SUBJECT>
                <P>
                    Norfolk Southern Railway Company (NSR) has filed a notice of exemption under 49 CFR 1152 Subpart F—
                    <E T="03">Exempt Abandonments</E>
                     to abandon and discontinue service over a 4.5-mile line of railroad between milepost AB-1.5 at Escambia Junction and milepost AB-6.0 at Trenton, in Edgefield County, SC. The line traverses United States Postal Service Zip Code 29847. 
                </P>
                <P>NSR has certified that: (1) No local traffic has moved over the line for at least 2 years; (2) no overhead traffic has moved over the line for at least 2 years and overhead traffic, if there were any, could be rerouted over other lines; (3) no formal complaint filed by a user of rail service on the line (or by a state or local government entity acting on behalf of such user) regarding cessation of service over the line either is pending with the Surface Transportation Board (Board) or with any U.S. District Court or has been decided in favor of complainant within the 2-year period; and (4) the requirements at 49 CFR 1105.7 (environmental reports), 49 CFR 1105.8 (historic reports), 49 CFR 1105.11 (transmittal letter), 49 CFR 1105.12 (newspaper publication) and 49 CFR 1105.50(d)(1) (notice to governmental agencies) have been met. </P>
                <P>
                    As a condition to this exemption, any employee adversely affected by the abandonment shall be protected under 
                    <E T="03">Oregon Short Line R. Co.—Abandonment—Goshen</E>
                    , 360 I.C.C. 91 (1979). To address whether this condition adequately protects affected employees, a petition for partial revocation under 49 U.S.C. 10502(d) must be filed. Provided no formal expression of intent to file an offer of financial assistance (OFA) has been received, this exemption will be effective on June 17, 2004, unless stayed pending reconsideration. Petitions to stay that do not involve environmental issues,
                    <SU>1</SU>
                    <FTREF/>
                     formal expressions of intent to file an OFA under 49 CFR 1152.27(c)(2),
                    <SU>2</SU>
                    <FTREF/>
                     and trail use/rail banking requests under 49 CFR 1152.29 
                    <SU>3</SU>
                    <FTREF/>
                     must be filed by May 28, 2004. Petitions to reopen or requests for public use conditions under 49 CFR 1152.28 must be filed by June 7, 2004, with: Surface Transportation Board, 1925 K Street, NW., Washington, DC 20423-0001. 
                </P>
                <FTNT>
                    <P>
                        <SU>1</SU>
                         The Board will grant a stay if an informed decision on environmental issues (whether raised by a party or by the Board's Section of Environmental Analysis (SEA) in its independent investigation) cannot be made before the exemption's effective date. 
                        <E T="03">See Exemption of Out-of-Service Rail Lines</E>
                        , 5 I.C.C.2d 377 (1989). Any request for a stay should be filed as soon as possible so that the Board may take appropriate action before the exemption's effective date.
                    </P>
                </FTNT>
                <FTNT>
                    <P>
                        <SU>2</SU>
                         Each OFA must be accompanied by the filing fee, which currently is set at $1,100. 
                        <E T="03">See</E>
                         49 CFR 1102.2(f)(25).
                    </P>
                </FTNT>
                <FTNT>
                    <P>
                        <SU>3</SU>
                         Each trail use request must be accompanied by the filing fee, which is set at $200.00. 
                        <E T="03">See</E>
                         49 CFR 1002.2(f)(27).
                    </P>
                </FTNT>
                <P>A copy of any petition filed with the Board should be sent to the applicant's representative: James R. Paschall, Norfolk Southern Corporation, Three Commercial Place, Norfolk, VA 23510-9241. </P>
                <P>
                    If the verified notice contains false or misleading information, the exemption is void 
                    <E T="03">ab initio</E>
                    . 
                </P>
                <P>NSR has filed an environmental report which addresses the abandonment's effects, if any, on the environment and historic resources. SEA will issue an environmental assessment (EA) by May 21, 2004. Interested persons may obtain a copy of the EA by writing to SEA (Room 500, Surface Transportation Board, Washington, DC 20423-0001) or by calling SEA, at (202) 565-1539. (Assistance for the hearing impaired is available through the Federal Information Relay Service (FIRS) at 1-800-877-8339.) Comments on environmental and historic preservation matters must be filed within 15 days after the EA becomes available to the public. </P>
                <P>Environmental, historic preservation, public use, or trail use/rail banking conditions will be imposed, where appropriate, in a subsequent decision. </P>
                <P>
                    Pursuant to the provisions of 49 CFR 1152.29(e)(2), NSR shall file a notice of consummation with the Board to signify that it has exercised the authority granted and fully abandoned the line. If 
                    <PRTPAGE P="28194"/>
                    consummation has not been effected by NSR's filing of a notice of consummation by May 18, 2005, and there are no legal or regulatory barriers to consummation, the authority to abandon will automatically expire. 
                </P>
                <P>
                    Board decisions and notices are available on our Web site at 
                    <E T="03">http://www.stb.dot.gov</E>
                    . 
                </P>
                <SIG>
                    <DATED>Decided: May 11, 2004. </DATED>
                    <P>By the Board, David M. Konschnik, Director, Office of Proceedings. </P>
                    <NAME>Vernon A. Williams, </NAME>
                    <TITLE>Secretary. </TITLE>
                </SIG>
            </PREAMB>
            <FRDOC>[FR Doc. 04-11087 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4915-01-P </BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="N">DEPARTMENT OF THE TREASURY</AGENCY>
                <SUBJECT>Departmental Offices; Notice of Availability of the Treasury Department's Annual Report on Alternative Fuel Vehicle Acquisitions</SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Departmental Offices, Treasury.</P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice.</P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>This notice advises the public how it may access the Treasury Department's annual report on alternative fuel vehicle acquisitions for FY 2003.</P>
                </SUM>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>Carolyn Austin-Diggs, Director, Office of Asset Management, 202-622-0500 (not a toll-free call).</P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P>
                    In accordance with section 8 of the Energy Policy Act, Public Law 105-38, as amended (42 U.S.C. 13218), the Department of the Treasury gives notice that the Department's annual report on alternative fuel vehicle acquisitions for FY 2003 is available at the following Web site: 
                    <E T="03">http://www.treas.gov/offices/management/asset-management/personal-property/fleet-and-aviation.</E>
                </P>
                <SIG>
                    <DATED>Dated: May 7, 2004.</DATED>
                    <NAME>Barry K. Hudson,</NAME>
                    <TITLE>Acting Chief Financial Officer.</TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11161 Filed 5-17-04; 8:45 am]</FRDOC>
            <BILCOD>BILLING CODE 4810-25-P</BILCOD>
        </NOTICE>
        <NOTICE>
            <PREAMB>
                <AGENCY TYPE="S">DEPARTMENT OF THE TREASURY </AGENCY>
                <SUBAGY>Internal Revenue Service </SUBAGY>
                <SUBJECT>Proposed Collection; Comment Request for Form 8453 </SUBJECT>
                <AGY>
                    <HD SOURCE="HED">AGENCY:</HD>
                    <P>Internal Revenue Service (IRS), Treasury. </P>
                </AGY>
                <ACT>
                    <HD SOURCE="HED">ACTION:</HD>
                    <P>Notice and request for comments. </P>
                </ACT>
                <SUM>
                    <HD SOURCE="HED">SUMMARY:</HD>
                    <P>The Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995, Public Law 104-13 (44 U.S.C. 3506(c)(2)(A)). Currently, the IRS is soliciting comments concerning Form 8453, U.S. Individual Income Tax Declaration for an IRS e-file Return. </P>
                </SUM>
                <DATES>
                    <HD SOURCE="HED">DATES:</HD>
                    <P>Written comments should be received on or before July 19, 2004, to be assured of consideration. </P>
                </DATES>
                <ADD>
                    <HD SOURCE="HED">ADDRESSES:</HD>
                    <P>Direct all written comments to Glenn Kirkland, Internal Revenue Service, room 6411, 1111 Constitution Avenue, NW., Washington, DC 20224. </P>
                </ADD>
                <FURINF>
                    <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                    <P>
                        Requests for additional information or copies of the form and instructions should be directed to Larnice Mack at Internal Revenue Service, room 6407, 1111 Constitution Avenue, NW., Washington, DC 20224, or at (202) 622-3179, or through the Internet at (
                        <E T="03">Larnice.Mack@irs.gov</E>
                        ). 
                    </P>
                </FURINF>
            </PREAMB>
            <SUPLINF>
                <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                <P SOURCE="NPAR">
                    <E T="03">Title:</E>
                     U.S. Individual Income Tax Declaration for an IRS e-file Return. 
                </P>
                <P>
                    <E T="03">OMB Number:</E>
                     1545-0936. 
                </P>
                <P>
                    <E T="03">Form Number:</E>
                     Form 8453. 
                </P>
                <P>
                    <E T="03">Abstract:</E>
                     Form 4835 is used to secure the taxpayer's signature and declarations in conjunction with the Electronic Filing program. This form, together with the electronic transmission, will comprise the taxpayer's income tax return. The information on Form 8453 will be used by the IRS to verify the electronic return, allow for direct deposit of any refund, provide consent for the IRS to disclose the status of the return to the Electronic Return Originator and/or transmitter, and obtain the required signatures. 
                </P>
                <P>
                    <E T="03">Current Actions:</E>
                     There are no changes being made to the form at this time. 
                </P>
                <P>
                    <E T="03">Type of Review:</E>
                     Extension of a currently approved collection. 
                </P>
                <P>
                    <E T="03">Affected Public:</E>
                     Individuals or households. 
                </P>
                <P>
                    <E T="03">Estimated Number of Respondents:</E>
                     12,300,000. 
                </P>
                <P>
                    <E T="03">Estimated Time Per Respondent:</E>
                     15 minutes. 
                </P>
                <P>
                    <E T="03">Estimated Total Annual Burden Hours:</E>
                     3,075,000. 
                </P>
                <P>The following paragraph applies to all of the collections of information covered by this notice: </P>
                <P>An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. </P>
                <P>
                    <E T="03">Request for Comments:</E>
                     Comments submitted in response to this notice will be summarized and/or included in the request for OMB approval. All comments will become a matter of public record. Comments are invited on: (a) Whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency's estimate of the burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology; and (e) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information. 
                </P>
                <SIG>
                    <APPR>Approved: May 11, 2004. </APPR>
                    <NAME>Glenn Kirkland, </NAME>
                    <TITLE>IRS Reports Clearance Officer. </TITLE>
                </SIG>
            </SUPLINF>
            <FRDOC>[FR Doc. 04-11224 Filed 5-17-04; 8:45 am] </FRDOC>
            <BILCOD>BILLING CODE 4830-01-P</BILCOD>
        </NOTICE>
    </NOTICES>
    <VOL>69</VOL>
    <NO>96</NO>
    <DATE>Tuesday, May 18, 2004</DATE>
    <UNITNAME>Proposed Rules</UNITNAME>
    <NEWPART>
        <PTITLE>
            <PRTPAGE P="28195"/>
            <PARTNO>Part II</PARTNO>
            <AGENCY TYPE="P">Department of Health and Human Services</AGENCY>
            <SUBAGY>Centers for Medicare &amp; Medicaid Services </SUBAGY>
            <HRULE/>
            <CFR>42 CFR Part 403, et al.</CFR>
            <TITLE>Medicare Program; Proposed Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2005 Rates; Proposed Rule</TITLE>
        </PTITLE>
        <PRORULES>
            <PRORULE>
                <PREAMB>
                    <PRTPAGE P="28196"/>
                    <AGENCY TYPE="S">DEPARTMENT OF HEALTH AND HUMAN SERVICES </AGENCY>
                    <SUBAGY>Centers for Medicare &amp; Medicaid Services </SUBAGY>
                    <CFR>42 CFR Parts 403, 412, 413, 418, 460, 480, 482, 483, 485, and 489 </CFR>
                    <DEPDOC>[CMS-1428-P] </DEPDOC>
                    <RIN>RIN 0938-AM80 </RIN>
                    <SUBJECT>Medicare Program; Proposed Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2005 Rates </SUBJECT>
                    <AGY>
                        <HD SOURCE="HED">AGENCY:</HD>
                        <P>Centers for Medicare and Medicaid Services (CMS), HHS. </P>
                    </AGY>
                    <ACT>
                        <HD SOURCE="HED">ACTION:</HD>
                        <P>Proposed rule. </P>
                    </ACT>
                    <SUM>
                        <HD SOURCE="HED">SUMMARY:</HD>
                        <P>We are proposing to revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs to implement changes arising from our continuing experience with these systems; and to implement a number of changes made by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173), enacted on December 8, 2003. In addition, in the Addendum to this proposed rule, we describe the proposed changes to the amounts and factors used to determine the rates for Medicare hospital inpatient services for operating costs and capital-related costs. These proposed changes would be applicable to discharges occurring on or after October 1, 2004. We also are setting forth proposed rate-of-increase limits as well as proposed policy changes for hospitals and hospital units excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. </P>
                        <P>Among the policy changes that we are proposing to make are: Changes to the classification of cases to the diagnosis-related groups (DRGs); changes to the long-term care (LTC)-DRGs and relative weights; changes in the wage data, labor-related share of the wage index, and the geographic area designations used to compute the wage index; changes in the qualifying threshold criteria for and the proposed approval of new technologies and medical services for add-on payments; changes to the policies governing postacute care transfers; changes to payments to hospitals for the direct and indirect costs of graduate medical education; changes to the payment adjustment for disproportionate share rural hospitals; changes in requirements and payments to critical access hospitals (CAHs); changes to the disclosure of information requirements for Quality Improvement Organization (QIOs); and changes in the hospital conditions of participation for discharge planning and fire safety requirements for certain health care facilities. </P>
                    </SUM>
                    <DATES>
                        <HD SOURCE="HED">DATES:</HD>
                        <P>Comments will be considered if received at the appropriate address, as provided below, no later than 5 p.m. on July 12, 2004. </P>
                    </DATES>
                    <ADD>
                        <HD SOURCE="HED">ADDRESSES:</HD>
                        <P SOURCE="NPAR">
                            <E T="03">Submitting Comments:</E>
                             We welcome comments from the public on all issues set forth in this proposed rule to assist in fully considering issues and developing policies. You can assist us by referencing the file code CMS-1428-P and the specific “issue identifier” that precedes the section on which you choose to comment. 
                        </P>
                        <P>
                            Submit electronic comments to:
                            <E T="03">http://www.accessdata.fda.gov/scripts/oc/dockets/commentdocket.cfm?AGENCY=CMS</E>
                             or 
                            <E T="03">www.regulations.gov.</E>
                        </P>
                        <P>Mail written comments (an original and three copies) to the following address only: </P>
                        <P>Centers for Medicare &amp; Medicaid Services, Department of Health and Human Services, Attention: CMS-1428-P, P.O. Box 8010, Baltimore, MD 21244-1850. </P>
                        <P>If you prefer, you may deliver, by hand or courier, your written comments (an original and three copies) to one of the following addresses: </P>
                        <P>Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201, or Room C5-14-03, Central Building, 7500 Security Boulevard, Baltimore, MD 21244-1850. </P>
                        <P>(Because access to the interior of the Humphrey Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for commenters who wish to retain proof of filing by stamping in and keeping an extra copy of the comments being filed.) </P>
                        <P>Comments mailed to those addresses specified as appropriate for courier delivery may be delayed and could be considered late. </P>
                        <P>Because of staffing and resource limitations, we cannot accept comments by facsimile (FAX) transmission. </P>
                        <P>
                            <E T="03">Inspection of Public Comments:</E>
                             All comments received before the close of the comment period will be available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. After the close of the comment period, CMS will post all electronic comments received before the close of the period on its public Web sites. Written comments received timely will be available for public inspection as they are received, generally beginning approximately 4 weeks after publication of a document, in room C5-12-08 of the Centers for Medicare &amp; Medicaid Services, 7500 Security Blvd., Baltimore, MD, on Monday through Friday of each week from 8:30 a.m. to 5 p.m. Please call (410) 786-7197 to schedule an appointment to view public comments. 
                        </P>
                        <P>For comments that relate to information collection requirements, mail a copy of comments to the following addresses: </P>
                        <P>Centers for Medicare &amp; Medicaid Services, Office of Strategic Operations and Regulatory Affairs, Security and Standards Group, Office of Regulations Development and Issuances, Room C4-24-02, 7500 Security Boulevard, Baltimore, Maryland 21244-1850. Attn: Dawn Willinghan, CMS-1428-P; and</P>
                        <P>Office of Information and Regulatory Affairs, Office of Management and Budget, Room 3001, New Executive Office Building, Washington, DC 20503, Attn: Brenda Aguilar, CMS Desk Officer. </P>
                    </ADD>
                    <FURINF>
                        <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD>
                        <P>Jim Hart, (410) 786-9520, Operating Prospective Payment, Diagnosis-Related Groups (DRGs), Wage Index, New Medical Services and Technology, Standardized Amounts, Hospital Geographic Reclassifications, Postacute Care Transfers, and Disproportionate Share Hospital Issues. </P>
                        <P>Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded Hospitals, Graduate Medical Education, Critical Access Hospitals, and Long-Term Care (LTC)—DRGs Issues. </P>
                        <P>Mary Collins, (410) 786-3189, CAH Bed Limits and Distinct Part Unit Issues. </P>
                        <P>John Eppinger, (410) 786-4518, CAH Periodic Interim Payment Issues. </P>
                        <P>Maria Hammel, (410) 786-1775, Quality Improvement Organization Issues. </P>
                        <P>Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital Demonstration Project Issues. </P>
                        <P>Jeannie Miller, (410) 786-3164, Bloodborne Pathogens Standards, Hospital Conditions of Participation for Discharge Planning, and Fire Safety Requirements Issues. </P>
                        <P>Dr. Mark Krushat, (410) 786-6809, and Dr. Anita Bhatia, (410) 786-7236 Quality Data for Annual Payment Update Issues. </P>
                    </FURINF>
                </PREAMB>
                <SUPLINF>
                    <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD>
                    <P>
                        <PRTPAGE P="28197"/>
                    </P>
                    <HD SOURCE="HD1">Availability of Copies and Electronic Access </HD>
                    <P>
                        <E T="03">Copies:</E>
                         To order copies of the 
                        <E T="04">Federal Register</E>
                         containing this document, send your request to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date of the issue requested and enclose a check or money order payable to the Superintendent of Documents, or enclose your Visa or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 512-1800 or by faxing to (202) 512-2250. The cost for each copy is $10.00. As an alternative, you can view and photocopy the 
                        <E T="04">Federal Register</E>
                         document at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive the 
                        <E T="04">Federal Register</E>
                        . 
                    </P>
                    <P>
                        This 
                        <E T="04">Federal Register</E>
                         document is also available from the 
                        <E T="04">Federal Register</E>
                         online database through GPO Access, a service of the U.S. Government Printing Office. Free public access is available on a Wide Area Information Server (WAIS) through the Internet and via asynchronous dial-in. Internet users can access the database by using the World Wide Web; the Superintendent of Documents home page address is
                        <E T="03">http://www.access.gpo.gov/nara&amp;_docs/</E>
                        , by using local WAIS client software, or by telnet to 
                        <E T="03">swais.access.gpo.gov</E>
                        , then login as guest (no password required). Dial-in users should use communications software and modem to call (202) 512-1661; type swais, then login as guest (no password required). 
                    </P>
                    <EXTRACT>
                        <HD SOURCE="HD1">Acronyms </HD>
                        <FP SOURCE="FP-2">ACGME—Accreditation Council on Graduate Medical Education </FP>
                        <FP SOURCE="FP-2">AHIMA—American Health Information Management Association </FP>
                        <FP SOURCE="FP-2">AHA—American Hospital Association </FP>
                        <FP SOURCE="FP-2">AOA—American Osteopathic Association </FP>
                        <FP SOURCE="FP-2">ASC—Ambulatory Surgical Center </FP>
                        <FP SOURCE="FP-2">BBA—Balanced Budget Act of 1997, Public Law 105-33 </FP>
                        <FP SOURCE="FP-2">BIPA—Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Benefits Improvement and Protection Act of 2000, Public Law 106-554 </FP>
                        <FP SOURCE="FP-2">BLS—Bureau of Labor Statistics </FP>
                        <FP SOURCE="FP-2">CAH—Critical access hospital </FP>
                        <FP SOURCE="FP-2">CART—CMS Abstraction &amp; Reporting Tool </FP>
                        <FP SOURCE="FP-2">CBSAs—Core-Based Statistical Areas </FP>
                        <FP SOURCE="FP-2">CC—Complication or comorbidity </FP>
                        <FP SOURCE="FP-2">CMS—Centers for Medicare &amp; Medicaid Services </FP>
                        <FP SOURCE="FP-2">CMSA—Consolidated Metropolitan Statistical Area </FP>
                        <FP SOURCE="FP-2">COBRA—Consolidated Omnibus Reconciliation Act of 1985, Public Law 99-272 </FP>
                        <FP SOURCE="FP-2">CoP—Condition of Participation </FP>
                        <FP SOURCE="FP-2">CPI—Consumer Price Index </FP>
                        <FP SOURCE="FP-2">CRNA—Certified registered nurse anesthetist </FP>
                        <FP SOURCE="FP-2">DRG—Diagnosis-related group </FP>
                        <FP SOURCE="FP-2">DSH—Disproportionate share hospital </FP>
                        <FP SOURCE="FP-2">ESRD—End-stage renal disease </FP>
                        <FP SOURCE="FP-2">FDA—Food and Drug Administration </FP>
                        <FP SOURCE="FP-2">FQHC—Federally qualified health center </FP>
                        <FP SOURCE="FP-2">FSES—Fire Safety Evaluation System </FP>
                        <FP SOURCE="FP-2">FTE—Full-time equivalent </FP>
                        <FP SOURCE="FP-2">FY—Federal fiscal year </FP>
                        <FP SOURCE="FP-2">GME—Graduate medical education </FP>
                        <FP SOURCE="FP-2">HCRIS—Hospital Cost Report Information System </FP>
                        <FP SOURCE="FP-2">HIPC—Health Information Policy Council </FP>
                        <FP SOURCE="FP-2">HIPAA—Health Insurance Portability and Accountability Act of 1996, Public Law 104-191 </FP>
                        <FP SOURCE="FP-2">HHA—Home health agency </FP>
                        <FP SOURCE="FP-2">HPSA—Health Professions Shortage Area </FP>
                        <FP SOURCE="FP-2">ICD-9-CM—International Classification of Diseases, Ninth Revision, Clinical Modification </FP>
                        <FP SOURCE="FP-2">ICD-10-PCS—International Classification of Diseases, Tenth Edition, Procedure Coding System </FP>
                        <FP SOURCE="FP-2">ICF/MRs—Intermediate care facilities for the mentally retarded </FP>
                        <FP SOURCE="FP-2">IME—Indirect medical education </FP>
                        <FP SOURCE="FP-2">IPPS—Acute care hospital inpatient prospective payment system </FP>
                        <FP SOURCE="FP-2">IPF—Inpatient psychiatric facility </FP>
                        <FP SOURCE="FP-2">IRF—Inpatient rehabilitation facility </FP>
                        <FP SOURCE="FP-2">JCAHO—Joint Commission on the Accreditation of Healthcare Organizations </FP>
                        <FP SOURCE="FP-2">LAMA—Left Against Medical Advice </FP>
                        <FP SOURCE="FP-2">LTC-DRG—Long-term care diagnosis-related group </FP>
                        <FP SOURCE="FP-2">LTCH—Long-term care hospital </FP>
                        <FP SOURCE="FP-2">LSC—Life Safety Code </FP>
                        <FP SOURCE="FP-2">MCE—Medicare Code Editor </FP>
                        <FP SOURCE="FP-2">MCO—Managed care organization </FP>
                        <FP SOURCE="FP-2">MDC—Major diagnostic category </FP>
                        <FP SOURCE="FP-2">MDH—Medicare-dependent small rural hospital </FP>
                        <FP SOURCE="FP-2">MedPAC—Medicare Payment Advisory Commission </FP>
                        <FP SOURCE="FP-2">MedPAR—Medicare Provider Analysis and Review File </FP>
                        <FP SOURCE="FP-2">MEI—Medicare Economic Index </FP>
                        <FP SOURCE="FP-2">MGCRB—Medicare Geographic Classification Review Board </FP>
                        <FP SOURCE="FP-2">MMA—Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173 </FP>
                        <FP SOURCE="FP-2">MPFS—Medicare Physician Fee Schedule </FP>
                        <FP SOURCE="FP-2">MSA—Metropolitan Statistical Area </FP>
                        <FP SOURCE="FP-2">NECMA—New England County Metropolitan Areas </FP>
                        <FP SOURCE="FP-2">NCHS—National Center for Health Statistics </FP>
                        <FP SOURCE="FP-2">NCVHS—National Committee on Vital and Health Statistics </FP>
                        <FP SOURCE="FP-2">NFPA—National Fire Protection Association </FP>
                        <FP SOURCE="FP-2">NPR—Notice of Program Reimbursement </FP>
                        <FP SOURCE="FP-2">NQF—National Quality Forum </FP>
                        <FP SOURCE="FP-2">NVHRI—National Voluntary Hospital Reporting Initiative </FP>
                        <FP SOURCE="FP-2">OES—Occupational Employment Statistics </FP>
                        <FP SOURCE="FP-2">OIG—Office of the Inspector General </FP>
                        <FP SOURCE="FP-2">OMB—Executive Office of Management and Budget </FP>
                        <FP SOURCE="FP-2">O.R.—Operating room </FP>
                        <FP SOURCE="FP-2">OSCAR—Online Survey Certification and Reporting (System) </FP>
                        <FP SOURCE="FP-2">OSHA—Occupational Safety and Health Act </FP>
                        <FP SOURCE="FP-2">PACE—Programs of All-Inclusive Care for the Elderly </FP>
                        <FP SOURCE="FP-2">PIP—Periodic interim payment </FP>
                        <FP SOURCE="FP-2">PMS—Performance Measurement System </FP>
                        <FP SOURCE="FP-2">PMSAs—Primary Metropolitan Statistical Areas </FP>
                        <FP SOURCE="FP-2">PPS—Prospective payment system </FP>
                        <FP SOURCE="FP-2">PRA—Per resident amount </FP>
                        <FP SOURCE="FP-2">ProPAC—Prospective Payment Assessment Commission </FP>
                        <FP SOURCE="FP-2">PRRB—Provider Reimbursement Review Board </FP>
                        <FP SOURCE="FP-2">PS&amp;R—Provider Statistical and Reimbursement System </FP>
                        <FP SOURCE="FP-2">QIO—Utilization and Quality Control Quality Improvement Organization </FP>
                        <FP SOURCE="FP-2">RHC—Rural health clinic </FP>
                        <FP SOURCE="FP-2">RHQDAPU—Reporting Hospital Quality Data for Annual Payment Update </FP>
                        <FP SOURCE="FP-2">RRC—Rural referral center </FP>
                        <FP SOURCE="FP-2">SCH—Sole community hospital </FP>
                        <FP SOURCE="FP-2">SNF—Skilled nursing facility </FP>
                        <FP SOURCE="FP-2">SOCs—Standard occupational classifications </FP>
                        <FP SOURCE="FP-2">SOM—State Operations Manual </FP>
                        <FP SOURCE="FP-2">SSA—Social Security Administration </FP>
                        <FP SOURCE="FP-2">SSI—Supplemental Security Income </FP>
                        <FP SOURCE="FP-2">TEFRA—Tax Equity and Fiscal Responsibility Act of 1982, Public Law 97-248 </FP>
                        <FP SOURCE="FP-2">UHDDS—Uniform Hospital Discharge Data Set </FP>
                        <HD SOURCE="HD1">Table of Contents</HD>
                        <FP SOURCE="FP-2">I. Background</FP>
                        <FP SOURCE="FP1-2">A. Summary </FP>
                        <FP SOURCE="FP1-2">1. Acute Care Hospital Inpatient Prospective Payment System (IPPS) </FP>
                        <FP SOURCE="FP1-2">2. Hospitals and Hospital Units Excluded from the IPPS </FP>
                        <FP SOURCE="FP1-2">a. IRFs </FP>
                        <FP SOURCE="FP1-2">b. LTCH </FP>
                        <FP SOURCE="FP1-2">c. IPFs </FP>
                        <FP SOURCE="FP1-2">3. Critical Access Hospitals (CAHs) </FP>
                        <FP SOURCE="FP1-2">4. Payments for Graduate Medical Education (GME) </FP>
                        <FP SOURCE="FP1-2">B. Provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 </FP>
                        <FP SOURCE="FP1-2">C. Major Contents of this Proposed Rule </FP>
                        <FP SOURCE="FP1-2">1. Proposed Changes to the DRG Reclassifications and Recalibrations of Relative Weights </FP>
                        <FP SOURCE="FP1-2">2. Proposed Changes to the Hospital Wage Index </FP>
                        <FP SOURCE="FP1-2">3. Other Decisions and Proposed Changes to the PPS for Inpatient Operating and GME Costs </FP>
                        <FP SOURCE="FP1-2">4. Proposed Changes to the PPS for Capital-Related Costs </FP>
                        <FP SOURCE="FP1-2">5. Proposed Changes for Hospitals and Hospital Units Excluded from the IPPS </FP>
                        <FP SOURCE="FP1-2">6. Proposed Changes to QIO Disclosure of Information Requirements </FP>
                        <FP SOURCE="FP1-2">7. Proposed Changes Relating to Medicare Provider Agreements: Bloodborne Pathogens Standards, Hospital Conditions of Participation for Discharge Planning, and Fire Safety Requirements for Certain Health Care Facilities </FP>
                        <FP SOURCE="FP1-2">8. Determining Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits </FP>
                        <FP SOURCE="FP1-2">9. Impact Analysis </FP>
                        <FP SOURCE="FP1-2">10. Recommendation of Update Factor for Hospital Inpatient Operating Costs </FP>
                        <FP SOURCE="FP1-2">11. Discussion of Medicare Payment Advisory Commission Recommendations </FP>
                        <FP SOURCE="FP-2">
                            II. Proposed Changes to DRG Classifications and Relative Weights 
                            <PRTPAGE P="28198"/>
                        </FP>
                        <FP SOURCE="FP1-2">A. Background </FP>
                        <FP SOURCE="FP1-2">B. DRG Reclassification </FP>
                        <FP SOURCE="FP1-2">1. General </FP>
                        <FP SOURCE="FP1-2">2. MDC 1 (Diseases and Disorders of the Nervous System): Intracranial Hemorrhage and Stroke with Infarction </FP>
                        <FP SOURCE="FP1-2">3. MDC 5 (Diseases and Disorders of the Circulatory System) </FP>
                        <FP SOURCE="FP1-2">a. Heart Assist System Transplant </FP>
                        <FP SOURCE="FP1-2">b. Cardiac Resynchronization Therapy and Heart Failure </FP>
                        <FP SOURCE="FP1-2">c. Combination Cardiac Pacemaker Devices and Lead Codes </FP>
                        <FP SOURCE="FP1-2">4. MDC 6 (Diseases and Disorders of the Digestive System): Artificial Anal Sphincter </FP>
                        <FP SOURCE="FP1-2">5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue) </FP>
                        <FP SOURCE="FP1-2">a. 360 Spinal Fusion </FP>
                        <FP SOURCE="FP1-2">b. Multiple Level Spinal Fusion </FP>
                        <FP SOURCE="FP1-2">6. MDC 15 (Newborns and Other Neonates with Conditions Originating in the Perinatal Period) </FP>
                        <FP SOURCE="FP1-2">7. MDC 20 (Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders): Drug-Induced Dementia </FP>
                        <FP SOURCE="FP1-2">8. MDC 22 (Burns): Burn Patients on Mechanical Ventilation </FP>
                        <FP SOURCE="FP1-2">9. Pre-MDC: Tracheostomy </FP>
                        <FP SOURCE="FP1-2">10. Medicare Code Editor (MCE) Changes </FP>
                        <FP SOURCE="FP1-2">11. Surgical Hierarchies </FP>
                        <FP SOURCE="FP1-2">12. Refinement of Complications and Comorbidities (CC) List </FP>
                        <FP SOURCE="FP1-2">13. Review of Procedure Codes in DRGs 468, 476, and 477 </FP>
                        <FP SOURCE="FP1-2">a. Moving Procedure Codes from DRG 468 or DRG 477 to MDCs </FP>
                        <FP SOURCE="FP1-2">b. Reassignment of Procedures among DRGs 468, 476, and 477 </FP>
                        <FP SOURCE="FP1-2">c. Adding Diagnosis or Procedure Codes to MDCs </FP>
                        <FP SOURCE="FP1-2">14. Pancreatic Islet Cell Transplantation in Clinical Trials </FP>
                        <FP SOURCE="FP1-2">15. Changes to the ICD-9-CM Coding System </FP>
                        <FP SOURCE="FP1-2">16. Other Issues </FP>
                        <FP SOURCE="FP1-2">a. Craniotomy Procedures </FP>
                        <FP SOURCE="FP1-2">(1) Unruptured Cerebral Aneurysms </FP>
                        <FP SOURCE="FP1-2">(2) GLIADEL® Chemotherapy Wafers </FP>
                        <FP SOURCE="FP1-2">(3) DRG 3 (Craniotomy Age 0-17) </FP>
                        <FP SOURCE="FP1-2">b. Coronary Stent Procedures </FP>
                        <FP SOURCE="FP1-2">c. Severe Sepsis </FP>
                        <FP SOURCE="FP1-2">d. Implantable Cardiac Defibrillators </FP>
                        <FP SOURCE="FP1-2">C. Recalibration of DRG Weights </FP>
                        <FP SOURCE="FP1-2">D. Proposed LTC-DRG Reclassifications and Relative Weights for LTCHs for FY 2005 </FP>
                        <FP SOURCE="FP1-2">1. Background </FP>
                        <FP SOURCE="FP1-2">2. Proposed Changes in the LTC-DRG Classifications </FP>
                        <FP SOURCE="FP1-2">a. Background </FP>
                        <FP SOURCE="FP1-2">b. Patient Classifications into DRGs </FP>
                        <FP SOURCE="FP1-2">3. Development of the Proposed FY 2005 LTC-DRG Relative Weights </FP>
                        <FP SOURCE="FP1-2">a. General Overview of Development of the LTC-DRG Relative Weights </FP>
                        <FP SOURCE="FP1-2">b. Data </FP>
                        <FP SOURCE="FP1-2">c. Hospital-Specific Relative Value Methodology </FP>
                        <FP SOURCE="FP1-2">d. Low-Volume LTC-DRGs </FP>
                        <FP SOURCE="FP1-2">4. Steps for Determining the Proposed FY 2005 LTC-DRG Relative Weights </FP>
                        <FP SOURCE="FP1-2">E. Proposed Add-On Payments for New Services and Technologies </FP>
                        <FP SOURCE="FP1-2">1. Background </FP>
                        <FP SOURCE="FP1-2">2. Other Provisions of Section 503 of Public Law 108-173 </FP>
                        <FP SOURCE="FP1-2">3. FY 2005 Status of Technology Approved for FY 2004 Add-On Payments </FP>
                        <FP SOURCE="FP1-2">a. Drotrecogin Alfa (Activated)—Xigris® </FP>
                        <FP SOURCE="FP1-2">
                            b. InFUSE
                            <E T="51">TM</E>
                             (Bone Morphogenetic Proteins (BMPs) for Spinal Fusions) 
                        </FP>
                        <FP SOURCE="FP1-2">4. Reevaluation of FY 2004 Applications That Were Not Approved </FP>
                        <FP SOURCE="FP1-2">5. FY 2005 Applicants for New Technology Add-On Payments </FP>
                        <FP SOURCE="FP1-2">
                            a. InFUSE
                            <E T="51">TM</E>
                             Bone Graft (Bone Morphogenetic Proteins (BMPs) for Tibia Fractures) 
                        </FP>
                        <FP SOURCE="FP1-2">b. Norian Skeletal Repair System(SRS)® Bone Void Filler </FP>
                        <FP SOURCE="FP1-2">c. InSync® Defibrillator System (Cardiac Resynchronization Therapy with Defibrillation (CRT-D)) </FP>
                        <FP SOURCE="FP1-2">d. GliaSite® Radiation Therapy System (RTS) </FP>
                        <FP SOURCE="FP1-2">e. Natrecor®—Human B-Type Natriuretic Peptide (hBNP) </FP>
                        <FP SOURCE="FP1-2">f. Kinetra® Implantable Neurostimulator for Deep Brain Stimulation </FP>
                        <FP SOURCE="FP1-2">g. Intramedullary Skeletal Kinetic Distractor (ISKD) </FP>
                        <FP SOURCE="FP1-2">
                            h. Acticon
                            <E T="51">TM</E>
                             Neosphincter 
                        </FP>
                        <FP SOURCE="FP1-2">
                            i. TandemHeart
                            <E T="51">TM</E>
                             Percutaneous Left Ventricular Assist System 
                        </FP>
                        <FP SOURCE="FP1-2">
                            j. Aquadex
                            <E T="51">TM</E>
                             System 100 Fluid Removal System (System 100) 
                        </FP>
                        <FP SOURCE="FP-2">III. Proposed Changes to the Hospital Wage Index </FP>
                        <FP SOURCE="FP1-2">A. Background </FP>
                        <FP SOURCE="FP1-2">B. Revised OMB Definitions for Geographical Statistical Areas </FP>
                        <FP SOURCE="FP1-2">1. Current Labor Market Areas Based on MSAs </FP>
                        <FP SOURCE="FP1-2">2. Core-Based Statistical Areas </FP>
                        <FP SOURCE="FP1-2">3. Revised Labor Market Areas </FP>
                        <FP SOURCE="FP1-2">a. New England MSAs </FP>
                        <FP SOURCE="FP1-2">b. Metropolitan Divisions </FP>
                        <FP SOURCE="FP1-2">c. Micropolitan Areas </FP>
                        <FP SOURCE="FP1-2">d. Transition Period </FP>
                        <FP SOURCE="FP1-2">C. Proposed Occupational Mix Adjustment to Proposed FY 2005 Index </FP>
                        <FP SOURCE="FP1-2">1. Development of Data for the Occupational Mix Adjustment </FP>
                        <FP SOURCE="FP1-2">2. Proposed Calculation of the Occupational Mix Adjustment Factor and the Proposed Occupational Mix Adjusted Wage Index </FP>
                        <FP SOURCE="FP1-2">D. Worksheet S-3 Wage Data for the Proposed FY 2005 Wage Index Update </FP>
                        <FP SOURCE="FP1-2">E. Verification of Worksheet S-3 Wage Data </FP>
                        <FP SOURCE="FP1-2">F. Computation of the Unadjusted Wage Index </FP>
                        <FP SOURCE="FP1-2">G. Computation of the Proposed FY 2005 Blended Wage Index </FP>
                        <FP SOURCE="FP1-2">H. Proposed Revisions to the Wage Index Based on Hospital Redesignation </FP>
                        <FP SOURCE="FP1-2">1. General </FP>
                        <FP SOURCE="FP1-2">2. Effects of Reclassification </FP>
                        <FP SOURCE="FP1-2">3. FY 2005 Issues </FP>
                        <FP SOURCE="FP1-2">a. FY 2005 MGCRB Reclassifications </FP>
                        <FP SOURCE="FP1-2">b. Implementation of New MSAs </FP>
                        <FP SOURCE="FP1-2">c. Redesignations under Section 1886(d)(8)(B) of the Act </FP>
                        <FP SOURCE="FP1-2">d. Reclassifications Under Section 508 of Public Law 108-173 </FP>
                        <FP SOURCE="FP1-2">e. Proposed Wage Index Adjustment Based on Commuting Patterns of Hospital Employees </FP>
                        <FP SOURCE="FP1-2">(1) Data </FP>
                        <FP SOURCE="FP1-2">(2) Qualifying Counties </FP>
                        <FP SOURCE="FP1-2">(3) The Adjustment </FP>
                        <FP SOURCE="FP1-2">(4) Automatic Adjustments </FP>
                        <FP SOURCE="FP1-2">4. Proposed FY 2005 Reclassifications </FP>
                        <FP SOURCE="FP1-2">I. Process for Requests for Wage Index Data Corrections </FP>
                        <FP SOURCE="FP1-2">1. Worksheet S-3 Wage Data </FP>
                        <FP SOURCE="FP1-2">2. Occupational Mix Data </FP>
                        <FP SOURCE="FP1-2">3. All FY 2005 Wage Index Data </FP>
                        <FP SOURCE="FP1-2">J. Proposed Revision of the Labor-Related Share of the Wage Index </FP>
                        <FP SOURCE="FP-2">IV. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs </FP>
                        <FP SOURCE="FP1-2">A. Postacute Care Transfer Payment Policy </FP>
                        <FP SOURCE="FP1-2">1. Background </FP>
                        <FP SOURCE="FP1-2">2. Proposed Changes to DRGs Subject to the Postacute Care Transfer Policy </FP>
                        <FP SOURCE="FP1-2">B. Payments for Inpatient Care in Providers That Change Classification Status During a Patient Stay </FP>
                        <FP SOURCE="FP1-2">C. Geographic Reclassifications—Definitions of Urban and Rural Areas </FP>
                        <FP SOURCE="FP1-2">D. Equalization of Urban and Rural Standardized Amounts </FP>
                        <FP SOURCE="FP1-2">E. Reporting of Hospital Quality Data for Annual Hospital Payment Update </FP>
                        <FP SOURCE="FP1-2">1. Background </FP>
                        <FP SOURCE="FP1-2">2. Requirements for Hospital Reporting of Quality Data </FP>
                        <FP SOURCE="FP1-2">3. Submission of Hospital Data for FYs 2006 and 2007 </FP>
                        <FP SOURCE="FP1-2">4. Proposed Regulation Change </FP>
                        <FP SOURCE="FP1-2">F. Proposed Revision of the Labor-Related Share of the Hospital Wage Index </FP>
                        <FP SOURCE="FP1-2">G. Wage Index Adjustment for Commuting Patterns of Hospital Employees </FP>
                        <FP SOURCE="FP1-2">H. Additional Payments for New Medical Services and Technology: Proposed Policy Changes </FP>
                        <FP SOURCE="FP1-2">I. Rural Referral Centers </FP>
                        <FP SOURCE="FP1-2">1. Case-Mix Index </FP>
                        <FP SOURCE="FP1-2">2. Discharges </FP>
                        <FP SOURCE="FP1-2">J. Additional Payments to Hospitals with High Percentage of End-Stage Renal Disease (ESRD) Discharges </FP>
                        <FP SOURCE="FP1-2">K. Indirect Medical Education (IME) Adjustment </FP>
                        <FP SOURCE="FP1-2">1. IME Adjustment Factor Formula Multipliers </FP>
                        <FP SOURCE="FP1-2">2. IME Adjustment Formula Multiplier for Redistributed FTE Resident Slots </FP>
                        <FP SOURCE="FP1-2">3. Technical Changes </FP>
                        <FP SOURCE="FP1-2">L. Payment to Disproportionate Share Hospitals </FP>
                        <FP SOURCE="FP1-2">1. Enhanced DSH Adjustment for Rural Hospitals and Urban Hospitals with Fewer Than 100 Beds </FP>
                        <FP SOURCE="FP1-2">2. Proposals Relating to Available Beds and Patient Days for the DSH Adjustment </FP>
                        <FP SOURCE="FP1-2">M. Payment Adjustments for Low-Volume Hospitals </FP>
                        <FP SOURCE="FP1-2">N. Medicare Geographic Classification Review Board (MGCRB) Reclassifications </FP>
                        <FP SOURCE="FP1-2">1. Background </FP>
                        <FP SOURCE="FP1-2">2. Standardized Amount Reclassification Provisions </FP>
                        <FP SOURCE="FP1-2">3. Reclassification of Urban Rural Referral Centers </FP>
                        <FP SOURCE="FP1-2">4. Special Circumstances of Sole Community Hospitals (SCHs) in Low Population Density States </FP>
                        <FP SOURCE="FP1-2">5. Possible Reclassifications for Dominant Hospitals and Hospitals in Single-Hospital MSAs </FP>
                        <FP SOURCE="FP1-2">
                            6. Special Circumstances of Hospitals in All-Urban States 
                            <PRTPAGE P="28199"/>
                        </FP>
                        <FP SOURCE="FP1-2">O. Payment for Direct Graduate Medical Education </FP>
                        <FP SOURCE="FP1-2">1. Background </FP>
                        <FP SOURCE="FP1-2">2. Reductions of and Increases in Hospitals' FTE Resident Caps for GME Payment Purposes under Section 422 of Public Law 108-173 </FP>
                        <FP SOURCE="FP1-2">a. General Background on Methodology for Determining the FTE Resident Count </FP>
                        <FP SOURCE="FP1-2">b. Reduction of Hospitals' FTE Resident Caps under the Provisions of Section 422 of Public Law 108-173 </FP>
                        <FP SOURCE="FP1-2">c. Hospitals Subject to the FTE Resident Cap Reduction </FP>
                        <FP SOURCE="FP1-2">d. Exemption from FTE Resident Cap Reduction for Certain Rural Hospitals </FP>
                        <FP SOURCE="FP1-2">e. Determining the Estimated Number of FTE Resident Slots Available for Redistribution </FP>
                        <FP SOURCE="FP1-2">f. Determining the Possible Reduction to a Hospital's FTE Resident Cap </FP>
                        <FP SOURCE="FP1-2">(1) Reference Resident Level—General </FP>
                        <FP SOURCE="FP1-2">(2) Expansion of an Existing Program </FP>
                        <FP SOURCE="FP1-2">(3) Audits of the Reference Cost Reporting Periods </FP>
                        <FP SOURCE="FP1-2">(4) Expansions Under Newly Approved Programs </FP>
                        <FP SOURCE="FP1-2">(5) Affiliations </FP>
                        <FP SOURCE="FP1-2">g. Criteria for Determining Hospitals That Will Receive Increases in Their FTE Resident Caps </FP>
                        <FP SOURCE="FP1-2">h. Application Process for the Increases in Hospitals' FTE Resident Caps </FP>
                        <FP SOURCE="FP1-2">i. CMS Evaluation of Applications for Increases in FTE Resident Caps </FP>
                        <FP SOURCE="FP1-2">j. Application of Locality-Adjusted National Average Per Resident Amount (PRA) </FP>
                        <FP SOURCE="FP1-2">k. Application of Section 422 to Hospitals That Participate in Demonstration Projects or Voluntary Reduction Programs </FP>
                        <FP SOURCE="FP1-2">l. Application of Section 422 to Hospitals That File Low Utilization Medicare Cost Reports </FP>
                        <FP SOURCE="FP1-2">m. Specific Solicitation for Public Comment on the Proposals </FP>
                        <FP SOURCE="FP1-2">n. CMS Evaluation Form </FP>
                        <FP SOURCE="FP1-2">o. CMS Central and CMS Regional Office Mailing Addresses for Applications for Increases in FTE Resident Caps </FP>
                        <FP SOURCE="FP1-2">3. Direct GME Initial Residency Period </FP>
                        <FP SOURCE="FP1-2">a. Background </FP>
                        <FP SOURCE="FP1-2">b. Direct GME Initial Residency Period Limitation: Simultaneous Match Issue </FP>
                        <FP SOURCE="FP1-2">c. Exception to Initial Residency Period for Geriatric Residency or Fellowship Programs </FP>
                        <FP SOURCE="FP1-2">4. Per Resident Amount: Extension of Update Limitation on High-Cost Programs </FP>
                        <FP SOURCE="FP1-2">5. Residents Training in Nonhospital Settings </FP>
                        <FP SOURCE="FP1-2">a. Background </FP>
                        <FP SOURCE="FP1-2">b. Moratorium on Disallowances of Allopathic or Osteopathic Family Practice Residents Training Time in Nonhospital Settings </FP>
                        <FP SOURCE="FP1-2">(1) Cost Reports That Are Settled Between January 1, 2004 and December 31, 2004 </FP>
                        <FP SOURCE="FP1-2">(2) Family Practice Residents That Are Training in Nonhospital Settings Between January 1, 2004 and December 31, 2004 </FP>
                        <FP SOURCE="FP1-2">c. Requirements for Written Agreements for Residency Training in Nonhospital Settings </FP>
                        <FP SOURCE="FP1-2">P. Rural Community Hospital Demonstration Program </FP>
                        <FP SOURCE="FP1-2">Q. Special Circumstances of Hospitals Facing High Malpractice Insurance Rate Increases </FP>
                        <FP SOURCE="FP-2">V. Proposed Changes to the PPS for Capital-Related Costs </FP>
                        <FP SOURCE="FP1-2">A. Background </FP>
                        <FP SOURCE="FP1-2">B. Payments to Hospitals Located in Puerto Rico </FP>
                        <FP SOURCE="FP1-2">C. Exception Payment for Extraordinary Circumstances </FP>
                        <FP SOURCE="FP1-2">A. Treatment of Hospitals Previously Reclassified for the Operating PPS </FP>
                        <FP SOURCE="FP1-2">E. Definition of Large Urban Area Standardized Amounts </FP>
                        <FP SOURCE="FP-2">VI. Proposed Changes for Hospitals and Hospital Units Excluded from the IPPS </FP>
                        <FP SOURCE="FP1-2">A. Payments to Excluded Hospitals and Hospital Units </FP>
                        <FP SOURCE="FP1-2">1. Payments to Existing Excluded Hospitals and Hospital Units </FP>
                        <FP SOURCE="FP1-2">2. Updated Caps for New Excluded Hospitals and Units </FP>
                        <FP SOURCE="FP1-2">3. Implementation of a PPS for IRFs </FP>
                        <FP SOURCE="FP1-2">4. Implementation of a PPS for LTCHs </FP>
                        <FP SOURCE="FP1-2">5. Development of a PPS for IPFs </FP>
                        <FP SOURCE="FP1-2">6. Technical Changes Related to Establishment of Payments for Excluded Hospitals </FP>
                        <FP SOURCE="FP1-2">B. Criteria for Classification of Hospitals-Within-Hospitals </FP>
                        <FP SOURCE="FP1-2">C. Critical Access Hospitals (CAHs) </FP>
                        <FP SOURCE="FP1-2">1. Background </FP>
                        <FP SOURCE="FP1-2">2. Payment Amounts for Inpatient CAH Services </FP>
                        <FP SOURCE="FP1-2">3. Condition for Application of Special Professional Service Payment Adjustment </FP>
                        <FP SOURCE="FP1-2">4. Coverage of Costs for Certain Emergency Room On-Call Providers </FP>
                        <FP SOURCE="FP1-2">5. Authorization of Periodic Interim Payments for CAHs </FP>
                        <FP SOURCE="FP1-2">6. Revision of the Bed Limit for CAHs </FP>
                        <FP SOURCE="FP1-2">7. Authority to Establish Psychiatric and Rehabilitation Distinct Part Units of CAHs </FP>
                        <FP SOURCE="FP1-2">8. Waiver Authority for Designation of a CAH as a Necessary Provider </FP>
                        <FP SOURCE="FP1-2">9. Payment for Clinical Diagnostic Laboratory Tests </FP>
                        <FP SOURCE="FP1-2">10. Proposed Technical Changes in Part 489 </FP>
                        <FP SOURCE="FP-2">VII. Proposed Changes to the Disclosure of Information Requirements for Quality Improvement Organizations (QIOs) </FP>
                        <FP SOURCE="FP1-2">A. Background </FP>
                        <FP SOURCE="FP1-2">B. Provisions of the Proposed Regulations </FP>
                        <FP SOURCE="FP1-2">C. Technical Changes </FP>
                        <FP SOURCE="FP-2">VIII. Proposed Policy Changes Relating to Medicare Provider Agreements for Compliance with Bloodborne Pathogens Standards, Hospital Conditions of Participation for Discharge Planning, and Fire Safety Requirements for Certain Health Care Facilities </FP>
                        <FP SOURCE="FP1-2">A. Conditions of Participation for Discharge Planning </FP>
                        <FP SOURCE="FP1-2">1. Background </FP>
                        <FP SOURCE="FP1-2">2. Implementation </FP>
                        <FP SOURCE="FP1-2">B. Compliance with Bloodborne Pathogens Standards </FP>
                        <FP SOURCE="FP1-2">C. Fire Safety Requirements for Certain Health Care Facilities </FP>
                        <FP SOURCE="FP1-2">1. Background </FP>
                        <FP SOURCE="FP1-2">2. Proposed Changes to the Regulations </FP>
                        <FP SOURCE="FP-2">IX. MedPAC Recommendations </FP>
                        <FP SOURCE="FP-2">X. Other Required Information </FP>
                        <FP SOURCE="FP1-2">A. Requests for Data from the Public </FP>
                        <FP SOURCE="FP1-2">1. CMS Wage Data </FP>
                        <FP SOURCE="FP1-2">2. CMS Hospital Wage Indices (Formerly: Urban and Rural Wage Index Values Only) </FP>
                        <FP SOURCE="FP1-2">3. PPS SSA/FIPS MSA State and County Crosswalk </FP>
                        <FP SOURCE="FP1-2">4. Reclassified Hospitals New Wage Index (Formerly: Reclassified Hospitals by Provider Only) </FP>
                        <FP SOURCE="FP1-2">5. PPS-IV to PPS-XII Minimum Data Set </FP>
                        <FP SOURCE="FP1-2">6. PPS-IX to PPS-XII Capital Data Set </FP>
                        <FP SOURCE="FP1-2">7. PPS-XIII to PPS-XIX Hospital Data Set </FP>
                        <FP SOURCE="FP1-2">8. Provider-Specific File </FP>
                        <FP SOURCE="FP1-2">9. CMS Medicare Case-Mix Index File </FP>
                        <FP SOURCE="FP1-2">10. DRG Relative Weights (Formerly Table 5 DRG) </FP>
                        <FP SOURCE="FP1-2">11. PPS Payment Impact File </FP>
                        <FP SOURCE="FP1-2">12. AOR/BOR Tables </FP>
                        <FP SOURCE="FP1-2">13. Prospective Payment System (PPS) Standardizing File </FP>
                        <FP SOURCE="FP1-2">B. Collection of Information Requirements </FP>
                        <FP SOURCE="FP1-2">C. Public Comments </FP>
                        <HD SOURCE="HD1">Regulation Text </HD>
                        <FP SOURCE="FP-1">
                            <E T="03">Addendum</E>
                            —Proposed Schedule of Standardized Amounts Effective with Discharges Occurring On or After October 1, 2004 and Update Factors and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning On or After October 1, 2004 
                        </FP>
                        <HD SOURCE="HD1">Tables </HD>
                        <FP SOURCE="FP-2">Table 1A—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (71.1 Percent Labor Share/28.9 Percent Nonlabor Share If Wage Index Is Greater Than 1) </FP>
                        <FP SOURCE="FP-2">Table 1B—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If Wage Index Is Less Than or Equal to 1) </FP>
                        <FP SOURCE="FP-2">Table 1C—Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor </FP>
                        <FP SOURCE="FP-2">Table 1D—Capital Standard Federal Payment Rate </FP>
                        <FP SOURCE="FP-2">Table 2—Hospital Case-Mix Indexes for Discharges Occurring in Federal Fiscal Year 2003; Hospital Average Hourly Wage for Federal Fiscal Years 2003 (1999 Wage Data), 2004 (2000 Wage Data), and 2005 (2001 Wage Data) Wage Indexes and 3-Year Average of Hospital Average Hourly Wages </FP>
                        <FP SOURCE="FP-2">Table 3A—3-Year Average Hourly Wage for Urban Areas </FP>
                        <FP SOURCE="FP-2">Table 3B—3-Year Average Hourly Wage for Rural Areas </FP>
                        <FP SOURCE="FP-2">Table 4A—Wage Index and Capital Geographic Adjustment Factor for Urban Areas </FP>
                        <FP SOURCE="FP-2">Table 4B—Wage Index and Capital Geographic Adjustment Factor for Rural Areas </FP>
                        <FP SOURCE="FP-2">Table 4C—Wage Index and Capital Geographic Adjustment Factor for Hospitals That Are Reclassified </FP>
                        <FP SOURCE="FP-2">Table 4F—Puerto Rico Wage Index and Capital Geographic Adjustment Factor </FP>
                        <FP SOURCE="FP-2">
                            Table 4G—Pre-Reclassified Wage Index for Urban Areas 
                            <PRTPAGE P="28200"/>
                        </FP>
                        <FP SOURCE="FP-2">Table 4H—Pre-Reclassified Wage Index for Rural Areas </FP>
                        <FP SOURCE="FP-2">Table 4J—Wage Index Adjustment for Commuting Hospital Employees (Out-Migration) In Qualifying Counties—FY 2005 </FP>
                        <FP SOURCE="FP-2">Table 5—List of Diagnosis-Related Groups (DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay (LOS) </FP>
                        <FP SOURCE="FP-2">Table 6A—New Diagnosis Codes </FP>
                        <FP SOURCE="FP-2">Table 6B—New Procedure Codes </FP>
                        <FP SOURCE="FP-2">Table 6C—Invalid Diagnosis Codes </FP>
                        <FP SOURCE="FP-2">Table 6D—Invalid Procedure Codes </FP>
                        <FP SOURCE="FP-2">Table 6E—Revised Diagnosis Code Titles </FP>
                        <FP SOURCE="FP-2">Table 6F—Revised Procedure Code Titles </FP>
                        <FP SOURCE="FP-2">Table 6G—Additions to the CC Exclusions List </FP>
                        <FP SOURCE="FP-2">Table 6H—Deletions from the CC Exclusions List </FP>
                        <FP SOURCE="FP-2">Table 7A—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2003 MedPAR Update December 2003 GROUPER V21.0 </FP>
                        <FP SOURCE="FP-2">Table 7B—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2003 MedPAR Update December 2003 GROUPER V22.0 </FP>
                        <FP SOURCE="FP-2">Table 8A—Statewide Average Operating Cost-to-Charge Ratios for Urban and Rural Hospitals (Case-Weighted) </FP>
                        <FP SOURCE="FP-2">Table 8B—Statewide Average Capital Cost-to-Charge Ratios (Case-Weighted) </FP>
                        <FP SOURCE="FP-2">Table 9A—Hospital Reclassifications and Redesignations by Individual Hospital—FY 2004 </FP>
                        <FP SOURCE="FP-2">Table 9B—Hospital Reclassifications and Redesignation by Individual Hospital Under Section 508 of Public Law 108-173—FY 2004 </FP>
                        <FP SOURCE="FP-2">Table 10—Geometric Mean Plus the Lesser of .75 of the National Adjusted Operating Standardized Payment Amount (Increased to Reflect the Difference Between Costs and Charges) or .75 of One Standard Deviation of Mean Charges by Diagnosis-Related Groups (DRGs)—March 2004 </FP>
                        <FP SOURCE="FP-2">Table 11—Proposed FY 2005 LTC-DRGs, Relative Weights, Geometric Average Length of Stay, and 5/6ths of the Geometric Average Length of Stay </FP>
                        <FP SOURCE="FP-2">Appendix A—Regulatory Impact Analysis </FP>
                        <FP SOURCE="FP-2">Appendix B—Recommendation of Update Factors for Operating Cost Rates of Payment for Inpatient Hospital Services</FP>
                    </EXTRACT>
                    <HD SOURCE="HD1">I. Background </HD>
                    <HD SOURCE="HD2">A. Summary </HD>
                    <HD SOURCE="HD3">1. Acute Care Hospital Inpatient Prospective Payment System (IPPS) </HD>
                    <P>Section 1886(d) of the Social Security Act (the Act) sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of hospital inpatient stays under a prospective payment system (PPS). Under these PPSs, Medicare payment for hospital inpatient operating and capital-related costs is made at predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis-related groups (DRGs). </P>
                    <P>The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located; and if the hospital is located in Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-living adjustment factor. This base payment rate is multiplied by the DRG relative weight. </P>
                    <P>If the hospital treats a high percentage of low-income patients, it receives a percentage add-on payment applied to the DRG-adjusted base payment rate. This add-on payment, known as the disproportionate share hospital (DSH) adjustment, provides for a percentage increase in Medicare payments to hospitals that qualify under either of two statutory formulas designed to identify hospitals that serve a disproportionate share of low-income patients. For qualifying hospitals, the amount of this adjustment may vary based on the outcome of the statutory calculations. </P>
                    <P>If the hospital is an approved teaching hospital, it receives a percentage add-on payment for each case paid under the IPPS (known as the indirect medical education (IME) adjustment). This percentage varies, depending on the ratio of residents to beds. </P>
                    <P>Additional payments may be made for cases that involve new technologies or medical services that have been approved for special add-on payments. To qualify, a new technology or medical service must demonstrate that it is a substantial clinical improvement over technologies or services otherwise available, and that, absent an add-on payment, it would be inadequately paid under the regular DRG payment. </P>
                    <P>The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any outlier payment due is added to the DRG-adjusted base payment rate, plus any DSH, IME, and new technology or medical service add-on adjustments. </P>
                    <P>Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid the higher of a hospital-specific rate based on their costs in a base year (the higher of FY 1982, FY 1987, or FY 1996) or the IPPS rate based on the standardized amount. For example, sole community hospitals (SCHs) are the sole source of care in their areas, and Medicare-dependent, small rural hospitals (MDHs) are a major source of care for Medicare beneficiaries in their areas. Both of these categories of hospitals are afforded this special payment protection in order to maintain access to services for beneficiaries (although MDHs receive only 50 percent of the difference between the IPPS rate and their hospital-specific rates if the hospital-specific rate is higher than the IPPS rate). </P>
                    <P>Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services “in accordance with a prospective payment system established by the Secretary.” The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital PPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Similar adjustments are also made for IME and DSH as under the operating IPPS. In addition, hospitals may receive an outlier payment for those cases that have unusually high costs. </P>
                    <P>The existing regulations governing payments to hospitals under the IPPS are located in 42 CFR Part 412, Subparts A through M. </P>
                    <HD SOURCE="HD3">2. Hospitals and Hospital Units Excluded From the IPPS </HD>
                    <P>Under section 1886(d)(1)(B) of the Act, as amended, certain specialty hospitals and hospital units are excluded from the IPPS. These hospitals and units are: psychiatric hospitals and units; rehabilitation hospitals and units; long-term care hospitals (LTCHs); children's hospitals; and cancer hospitals. Various sections of the Balanced Budget Act of 1997 (Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (Pub. L. 106-554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation facilities (IRFs)), psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)), and LTCHs, as discussed below. Children's hospitals and cancer hospitals continue to be paid under reasonable cost-based reimbursement. </P>
                    <P>
                        The existing regulations governing payments to excluded hospitals and 
                        <PRTPAGE P="28201"/>
                        hospital units are located in 42 CFR Parts 412 and 413. 
                    </P>
                    <HD SOURCE="HD3">a. IRFs </HD>
                    <P>Under section 1886(j) of the Act, as amended, rehabilitation hospitals and units (IRFs) have been transitioned from payment based on a blend of reasonable cost reimbursement subject to a hospital-specific annual limit under section 1886(b) of the Act and prospective payments for cost reporting periods beginning January 1, 2002 through September 30, 2002, to payment on a full prospective payment system basis effective for cost reporting periods beginning on or after October 1, 2002 (66 FR 41316, August 7, 2001; 67 FR 49982, August 1, 2002; and 68 FR 45674, August 1, 2003). The existing regulations governing payments under the IRF PPS are located in 42 CFR Part 412, Subpart P.</P>
                    <HD SOURCE="HD3">b. LTCHs </HD>
                    <P>Under the authority of sections 123(a) and (c) of Public Law 106-113 and section 307(b)(1) of Public Law 106-554, LTCHs are being transitioned from being paid for inpatient hospital services based on a blend of reasonable cost-based reimbursement under section 1886(b) of the Act to fully Federal prospective rates during a 5-year period, beginning with cost reporting periods that start on or after October 1, 2002. For cost reporting periods beginning on or after October 1, 2006, LTCHs will be paid under the fully Federal prospective payment rate (the June 6, 2003 LTCH PPS final rule (68 FR 34122)). LTCHs may elect to be paid based on full PPS payments instead of a blended payment in any year during the 5-year transition period. The existing regulations governing payment under the LTCH PPS are located in 42 CFR part 412, Subpart O.</P>
                    <HD SOURCE="HD3">c. IPFs </HD>
                    <P>Sections 124(a) and (c) of Public Law 106-113 provide for the development of a per diem PPS for payment for inpatient hospital services furnished in IPFs under the Medicare program, effective for cost reporting periods beginning on or after October 1, 2002. This system must include an adequate patient classification system that reflects the differences in patient resource use and costs among these hospitals and maintains budget neutrality. We published a proposed rule to implement the PPS for IPFs on November 28, 2003 (68 FR 66920). The November 28, 2003 proposed rule proposed an April 1, 2004 effective date for purposes of ratesetting and calculating impacts. However, the proposed rule was unusually complex because it proposed a completely new payment system for inpatient hospital services furnished by psychiatric hospitals and units and the public requested additional time to comment. As a result, we extended the comment period for the proposed rule. Thus, we are still in the process of analyzing public comments and developing a final rule for publication. Consequently, an April 1, 2004 effective date for the IPF PPS is no longer possible. </P>
                    <HD SOURCE="HD3">3. Critical Access Hospitals (CAHs) </HD>
                    <P>Under sections 1814, 1820, and 1834(g) of the Act, payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services on a reasonable cost basis. Reasonable cost is determined under the provisions of section 1861(v)(1)(A) of the Act and existing regulations under 42 CFR Parts 413 and 415. </P>
                    <HD SOURCE="HD3">4. Payments for Graduate Medical Education (GME) </HD>
                    <P>Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act; the amount of payment for direct GME costs for a cost reporting period is based on the hospital's number of residents in that period and the hospital's costs per resident in a base year. The existing regulations governing payments to the various types of hospitals are located in 42 CFR part 413. </P>
                    <P>
                        On August 1, 2003, we published a final rule in the 
                        <E T="04">Federal Register</E>
                         (68 FR 45346) that implemented changes to the Medicare hospital inpatient prospective payment systems for both operating cost and capital-related costs, as well as changes addressing payments for excluded hospitals and payments for GME costs. Generally these changes were effective for discharges occurring on or after October 1, 2003. On October 6, 2003, we published a document in the 
                        <E T="04">Federal Register</E>
                         (68 FR 57731) that corrected technical errors made in the August 1, 2003 final rule. 
                    </P>
                    <HD SOURCE="HD2">B. Provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 </HD>
                    <P>On December 8, 2003, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Public Law 108-173, was enacted. Public Law 108-173 made a number of changes to the Act relating to prospective payments to hospitals for inpatient services, payments to excluded hospitals and units, and payments to CAHs. This proposed rule would implement amendments made by the following sections of Public Law 108-173: </P>
                    <P>Section 401, which provides that, for discharges occurring in a fiscal year beginning with FY 2004 under the IPPS, Medicare will pay hospitals in rural and small urban areas in the 50 States using the standardized amount (computed for the previous fiscal year) that would be used to pay hospitals in large urban areas (or beginning with FY 2005, for all hospitals in the previous fiscal year), increased by the appropriate market basket percentage increase. One standardized amount for hospitals in Puerto Rico would be established that would equal the amount for hospitals in large urban areas in Puerto Rico. </P>
                    <P>Section 402, which provides that for discharges occurring on or after April 1, 2004, the DSH payment adjustment for a hospital that is not a large urban or large rural hospital will be calculated using the current DSH adjustment formula for large urban hospitals, subject to a limit of 12 percent for any of these hospitals that are not rural referral centers. (There is no limit on the DSH payment percentage for rural referral centers.) </P>
                    <P>Section 403, which provides that, for discharges occurring on or after October 1, 2004, a hospital's labor-related share to which the wage index is applied will be decreased to 62 percent of the standardized amount when such a change will result in higher total payments to the hospital. This provision also applies to the labor-related share of the standardized amount for hospitals in Puerto Rico. </P>
                    <P>Section 405(a), which provides that inpatient, outpatient, and covered SNF services provided by a CAH will be reimbursed at 101 percent of reasonable costs for services furnished to Medicare beneficiaries. This provision is applicable to payments for services furnished during cost reporting periods beginning on or after January 1, 2004. </P>
                    <P>Section 405(b), which expands coverage of the costs associated with covered Medicare services furnished by on-call emergency room providers in CAHs to include services furnished by physician assistants, nurse practitioners, and clinical nurse specialists, effective for costs incurred for services furnished on or after January 1, 2005. </P>
                    <P>
                        Section 405(c), which provides that eligible CAHs may receive payments for their inpatient services on a periodic interim payment (PIP) basis, effective 
                        <PRTPAGE P="28202"/>
                        with payments made on or after July 1, 2004. 
                    </P>
                    <P>Section 405(d), which allows CAHs to elect to receive payments under the optional payment method (a payment encompassing both inpatient CAH services and physician and practitioner services to outpatients) even if some practitioners do not reassign to the CAH their rights to bill for professional services to CAH outpatients. This provision applies to cost reporting periods occurring on or after July 1, 2004, except that in the case of a CAH that made an election of the optional payment method before November 1, 2003, the provision applies to cost reporting periods beginning on or after July 1, 2001. </P>
                    <P>Section 405(e), which increases the limit on the number of beds that a CAH may have for acute care from 15 to 25 beds. This provision applies to CAH designations made before, on, or after January 1, 2004. Any election made in accordance to the regulations promulgated to implement this provision will only apply prospectively. </P>
                    <P>Section 405(g), which provides that a CAH may establish psychiatric and rehabilitation distinct part units and limits the number of beds in each unit to no more than 10. Services in these distinct part units will be paid under the reasonable cost-based methodology. This provision applies to cost reporting periods beginning on or after October 1, 2004. </P>
                    <P>Section 405(h), which terminates a State's authority to waive the location requirement for a CAH by designating the CAH as the necessary provider, effective January 1, 2006. A grandfathering provision is included for CAHs that are certified as necessary providers prior to January 1, 2006, which allows any CAH that is designated as a necessary provider in its State's rural health plan prior to January 1, 2006, to maintain its necessary provider designation. </P>
                    <P>Section 406, which provides for a graduated adjustment to the inpatient prospective payment rates to account for the higher costs associated with hospitals described under section 1886(d) of the Act that are located more than 25 road miles from another subsection (d) hospital and that have less than 800 discharges during a fiscal year, effective for discharges occurring on or after October 1, 2004. The increase in these payments may not be greater than 25 percent and the determination of the percentage payment increase is not subject to administrative or judicial review. </P>
                    <P>Section 410A, which authorizes the Secretary to establish a demonstration program to test the feasibility and advisability of the establishment of rural community hospitals to furnish covered inpatient hospital services to Medicare beneficiaries. The Secretary must select up to 15 rural community hospitals to participate in the demonstration. The Secretary must implement the demonstration program not later than January 1, 2005, but may not implement the program before October 1, 2004. </P>
                    <P>Section 422(a), which provides that a hospital's GME FTE resident cap will be reduced, and the reduction will be redistributed among other hospitals if the hospital's resident count is less than its resident cap (rural hospitals with less than 250 acute care inpatient beds will be exempt) in a particular reference period. This provision is effective for cost reporting periods occurring on or after July 1, 2005. </P>
                    <P>Section 422(b), which specifies that the formula multiplier for the IME adjustment is 0.66 for FTE residents attributable to redistributed resident positions, effective for discharges occurring on or after July 1, 2005. </P>
                    <P>Section 501, which provides the update factor for payments for the hospital inpatient operating costs for FY 2005 and subsequent fiscal years is the market basket percentage increase. For FYs 2005 through 2007, the update factor will be the market basket percentage increase minus 0.4 percentage points for any “subsection (d) hospital” that does not submit hospital quality data on 10 measures as specified by the Secretary. </P>
                    <P>Section 502, which modifies the IME formula multiplier to be used in the calculation of the IME adjustment for midway through FY 2004 and provides a new schedule of formula multipliers for FYs 2005 and thereafter. </P>
                    <P>Section 503(a), which includes a requirement for updating the ICD-9-CM diagnosis and procedure codes in April 1 of each year, in addition to the current process of annual updates on October 1 of each year. This change will not affect Medicare payments or DRG classifications until the fiscal year that begins after that date. </P>
                    <P>Section 503(b), which provides for changes to the threshold amount for determining eligibility of new technologies or medical services for add-on payments; provides for public input on applications for new technology or medical service add-on payments prior to the publication of a proposed rule; provides for reconsideration of applications received for FY 2004 that were denied; provides for preference in the use of DRG adjustments; and provides that new technology or medical service payments shall not be budget neutral. This provision is effective for fiscal years beginning in FY 2005. </P>
                    <P>Section 504, which increases the national portion of the operating PPS payment rate for hospitals in Puerto Rico from 50 percent of the Federal rate to 75 percent of the Federal rate and decreases the Puerto Rico portion of the operating PPS payment from 50 percent to 25 percent, effective for discharges occurring on or after October 1, 2004. For the period of April 1, 2004 through September 30, 2004, payments for hospitals in Puerto Rico will be based on 62.5 percent Federal rate and 37.5 percent of the Puerto Rico rate. </P>
                    <P>Section 505, which provides for an increase in a hospital's wage index value to take into consideration a commuter wage adjustment for hospital employees who reside in a county and work in a different area with a higher wage index. </P>
                    <P>Section 508, which provides for the establishment of a one-time process for a hospital to appeal its geographic classification for wage index purposes. By law, any reclassification resulting from this one-time appeal applies for a 3-year period to discharges occurring on or after April 1, 2004. </P>
                    <P>Section 711, which freezes the annual CPI-U updates to hospital-specific per resident amount (PRAs) for GME payments for those PRAs that exceed the ceiling, effective for cost reporting periods beginning FY 2004 through FY 2013. </P>
                    <P>Section 712, which provides for an exception to the initial residency period for purposes of direct GME payments for geriatric residency or fellowship programs that allows the 2 years spent in an approved geriatric program to be counted as part of the resident's initial training period, but not to count against any limitation on the initial residency period. This provision is effective for cost reporting periods beginning on or after October 1, 2003. </P>
                    <P>Section 713, which, during a 1-year moratorium period of January 1, 2004 through December 31, 2004, allows hospitals to count allopathic or osteopathic family practice residents training in nonhospital settings for IME and direct GME purposes, without regard to the financial arrangement between the hospital and the teaching physician practicing in the nonhospital setting to which the resident is assigned. </P>
                    <P>
                        Section 733, which provides for the Medicare payment of routine costs, as well as costs relating to the transplantation and appropriate related items and services, for Medicare beneficiaries participating in a clinical trial involving pancreatic islet cell 
                        <PRTPAGE P="28203"/>
                        transplantation, beginning no earlier than October 1, 2004. 
                    </P>
                    <P>Section 926, which requires the Secretary to make information publicly available that enables hospital discharge planners, Medicare beneficiaries, and the public to identify skilled nursing facilities (SNFs) that are participating in the Medicare program, and requires a hospital, as part of its discharge planning, to evaluate a patient's need for SNF care. </P>
                    <P>Section 947, which requires that, by July 1, 2004, hospitals not otherwise subject to the Occupational Safety and Health Act (OSHA) (or a State occupational safety and health plan that is approved under section 18(b) of that Act) must comply with the OSHA bloodborne pathogens (BBP) standard as part of their Medicare provider agreements. </P>
                    <HD SOURCE="HD2">C. Major Contents of This Proposed Rule </HD>
                    <P>In this proposed rule, we are setting forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs under the IPPS for FY 2005. We also are setting forth proposed changes relating to payments for GME costs, payments to certain hospitals and units that continue to be excluded from the IPPS and paid on a reasonable cost basis, payments for DSH, requirements and payments for CAHs, conditions of participation for hospitals relating to discharge planning and fire safety requirements, requirements for Medicare provider agreements relating to bloodborne pathogen standards, and QIO disclosure of information requirements. The changes being proposed would be effective for discharges occurring on or after October 1, 2004, unless otherwise noted. </P>
                    <P>The following is a summary of the major changes that we are proposing to make: </P>
                    <HD SOURCE="HD3">1. Proposed Changes to the DRG Reclassifications and Recalibrations of Relative Weights </HD>
                    <P>As required by section 1886(d)(4)(C) of the Act, we are proposing annual adjustments to the DRG classifications and relative weights. Based on analyses of Medicare claims data, in section II. of this preamble, we are proposing to establish a number of new DRGs and make changes to the designation of diagnosis and procedure codes under other existing DRGs. Our proposed changes for FY 2005 are set forth in section II. of this preamble. </P>
                    <P>Among the proposed changes discussed are: </P>
                    <P>• Restructuring and retitling of several DRGs to reflect expanded coverage of heart assist systems such as ventricular assist devices (VAD) or left ventricular assist devices (LVAD) as destination (or permanent) therapy for end-stage heart failure patients who are not candidates for heart transplantation: DRG 103 (Heart Transplant or Implant of Heart Assist System) (proposed title change), DRG 104 (Cardiac Valve and Other Major Cardiothoracic Procedures with Cardiac Catheterization) and DRG 105 (Cardiac Valve and Other Major Cardiothoracic Procedures Without Cardiac Catheterization), and DRG 525 (Other Heart Assist System Implant) (proposed title change). </P>
                    <P>• Addition of pacemaker device and lead procedure code combinations that could lead to the assignment of DRG 115 (Permanent Cardiac Pacemaker Implant with Acute Myocardial Infarction, Heart Failure, or Shock or ACID Lead or Generator Procedures) and DRG 116 (Other Permanent Cardiac Pacemaker Implant). </P>
                    <P>• Movement of the procedure code for 360 spinal fusion from DRG 496 (Combined Anterior/Posterior Spinal Fusion) to DRG 497 (Spinal Fusion Except Cervical With CC) and DRG 498 (Spinal Fusion Except Cervical Without CC). </P>
                    <P>• Addition of combination codes, which also include heart failure, to the list of major problems under DRG 387 (Prematurity With Major Problems) and DRG 389 (Full-Term Neonate With Major Problems). </P>
                    <P>• Modification of DRGs 504 through 509 under MDC 22 (Burns) to recognize the impact of long-term mechanical ventilation on burn cases and renaming DRG 504 as proposed title “Extensive Burns or Full Thickness Burns With Mechanical Ventilation 96+ Hours With Skin Graft” and DRG 505 as proposed title “Extensive Burns or Full Thickness Burns With Mechanical Ventilation 96+ Hours Without Skin Graft.” </P>
                    <P>• Deletion of DRG 483 (Tracheostomy for Face, Mouth, and Neck Diagnoses) and splitting the assignment of cases to two proposed new DRGs on the basis of the performance of a major operating room procedure: proposed new DRGs 541 and 542 (Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck Diagnosis With and Without Major Operating Room Procedure, respectively). </P>
                    <P>We also are presenting our reevaluation of FY 2004 applicants for add-on payments for high-cost new medical services and technologies, and our analysis of FY 2005 applicants (including public input, as directed by Public Law 108-173, obtained in a town meeting). </P>
                    <P>We are proposing the annual update of the long-term care diagnosis-related group (LTC-DRG) classifications and relative weights for use under the LTCH PPS for FY 2005. </P>
                    <HD SOURCE="HD3">2. Proposed Changes to the Hospital Wage Index </HD>
                    <P>In section III. of this preamble, we are proposing revisions to the wage index and the annual update of the wage data. Specific issues addressed in this section included the following: </P>
                    <P>• The proposed FY 2005 wage index update, using wage data from cost reporting periods that began during FY 2001. </P>
                    <P>• Proposed revised labor market areas as a result of OMB revised definitions of geographical statistical areas. </P>
                    <P>• A discussion of the collection of occupational mix data and the proposed occupational mix adjustment to the wage index that we are proposing to apply beginning October 1, 2004. </P>
                    <P>• The proposed revisions to the wage index based on hospital redesignations and reclassifications, including changes that reflect the new OMB standards for assignment of hospitals to geographic areas. </P>
                    <P>• The proposed adjustment to the wage index based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index, to implement section 505 of Public Law 108-173.</P>
                    <P>• A discussion of eligible hospitals reclassified under the one-time appeals process under section 508 of Public Law 108-173. </P>
                    <P>• Proposed changes to the labor-related share to which the wage index is applied in determining the PPS rate for hospitals located in specific geographic areas, to implement section 403 of Public Law 108-173. </P>
                    <P>• The revised timetable for reviewing and verifying the wage data that is in effect for the proposed FY 2005 wage index. </P>
                    <HD SOURCE="HD3">3. Other Decisions and Proposed Changes to the PPS for Inpatient Operating and GME Costs </HD>
                    <P>In section IV. of this preamble, we discuss a number of provisions of the regulations in 42 CFR Parts 412 and 413 and set forth proposed changes concerning the following: </P>
                    <P>• Proposed expansion of the current postacute care transfer policy. </P>
                    <P>• Payments for inpatient care in providers that change classification status during a patient stay. </P>
                    <P>
                        • Proposed changes in the definitions of urban and rural areas for geographic reclassifications purposes. 
                        <PRTPAGE P="28204"/>
                    </P>
                    <P>• Equalization of the standardized amount for urban and rural hospitals. </P>
                    <P>• The reporting of hospital quality data as a condition for receiving the full annual payment update increase. </P>
                    <P>• Proposed revision of the regulations to reflect the revision of the labor share of the wage index. </P>
                    <P>• Proposed revision of the regulations to reflect the wage index adjustment for commuting patterns of hospital employees who live in one county and commute to work in other areas with higher level wages. </P>
                    <P>• Proposed changes in the threshold amount for eligibility for new medical services and technology add-on payments. </P>
                    <P>• Proposed revision to our policy on additional payments to hospitals with high percentages of ESRD discharges. </P>
                    <P>• Proposed changes to the IME adjustment formula multipliers, and the formula multiplier applicable to redistribution of unused numbers of FTE residents slots. </P>
                    <P>• Proposed changes in DSH adjustment payments to rural and small urban hospitals. </P>
                    <P>• Proposed payment adjustments for low-volume hospitals. </P>
                    <P>• Proposed changes in policy affecting hospitals that apply as a group for reclassification and a discussion of possible reclassifications for dominant hospitals and hospitals in single-hospital MSAs. </P>
                    <P>• Proposed changes in policies governing payments for direct GME, including the redistribution of unused FTE resident slots; changes in the GME initial residency period; extension of the update limitation on hospital-specific per resident amounts; and changes in the policies on residents training in nonhospital settings, including written agreements for teaching physician compensation. </P>
                    <P>• An announcement of the rural community hospital demonstration to be established under section 410A of Public Law 108-173 and the opportunity for eligible hospitals to apply for participation in the demonstration program. </P>
                    <P>• A solicitation of public comments on the effect of increases in malpractice insurance premiums on hospitals participating in the Medicare program and beneficiary access of services. </P>
                    <HD SOURCE="HD3">4. Proposed Changes to the PPS for Capital-Related Costs </HD>
                    <P>In section V. of this preamble, we discuss the payment requirements for capital-related costs and propose changes relating to capital payments to hospitals located in Puerto Rico, changes in the policies on exception payments for extraordinary circumstances, treatment of hospitals previously reclassified for the operating standardized amounts, and capital payment adjustments based on the proposed changes in geographic classifications. </P>
                    <HD SOURCE="HD3">5. Proposed Changes for Hospitals and Hospital Units Excluded From the IPPS </HD>
                    <P>In section VI. of this preamble, we discuss the following proposed revisions and clarifications concerning excluded hospitals and hospital units and CAHs: </P>
                    <P>• Proposed changes in the payment rate for new excluded hospitals. </P>
                    <P>• Proposed changes to the criteria for determining payments to hospitals-within-hospitals. </P>
                    <P>• Proposed changes to the policies governing payment to CAHs, including a change in the payment percentage for services furnished by CAHs; changes in the rules governing the election by a CAH of the optional method of payment; expansion of the payment to emergency room on-call providers to include physician assistants, nurse practitioners, and clinical nurse specialists; authorization for the making of periodic interim payments (PIPs) for CAHs for inpatient services furnished; revision of the bed count limit for CAHs from 15 to 25 acute care beds; proposed requirements for establishing psychiatric and rehabilitation distinct part units in CAHs; and termination of the location requirement for a CAH by designating the CAH as a necessary provider. </P>
                    <HD SOURCE="HD3">6. Proposed Changes to QIO Disclosure of Information Requirements </HD>
                    <P>In section VII. of this preamble, we discuss our proposed clarification of the requirements for disclosure by QIOs of information on institutions and practitioners collected in the course of the QIO's quality improvement activities. </P>
                    <HD SOURCE="HD3">7. Proposed Changes Relating to Medicare Provider Agreements, Hospital Conditions of Participation, and Fire Safety Requirements for Certain Health Care Facilities </HD>
                    <P>In section VIII. of this preamble, we are proposing to— </P>
                    <P>• Require hospitals, as part of the discharge planning standard under the Medicare hospital conditions of participation, to furnish a list of Medicare-participating home health agencies to patients who receive home health services after discharge and to provide information on Medicare-certified SNFs to patients who are likely to need posthospital extended care services. </P>
                    <P>• Require that Medicare provider agreements include provisions that would ensure that all hospital employees who may come into contact with human blood in the course of their duties are provided proper protection from bloodborne pathogens. </P>
                    <P>• Correct a technical error relating to the application of the 2000 edition of the Life Safety Code as the fire safety requirements for certain health care facilities; and clarify the effective date for the prohibition on the use of roller latches in these facilities. </P>
                    <HD SOURCE="HD3">8. Determining Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits </HD>
                    <P>In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the FY 2005 prospective payment rates for operating costs and capital-related costs. We also establish the proposed threshold amounts for outlier cases. In addition, we address proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2005 for hospitals and hospital units excluded from the PPS. </P>
                    <HD SOURCE="HD3">9. Impact Analysis </HD>
                    <P>In Appendix A of the proposed rule, we set forth an analysis of the impact that the proposed changes would have on affected hospitals. </P>
                    <HD SOURCE="HD3">10. Recommendation of Update Factor for Hospital Inpatient Operating Costs </HD>
                    <P>In Appendix B of this proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the appropriate percentage changes for FY 2005 for the following: </P>
                    <P>• A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs (and hospital-specific rates applicable to SCHs and MDHs). </P>
                    <P>• Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by hospitals and hospital units excluded from the IPPS. </P>
                    <HD SOURCE="HD3">11. Discussion of Medicare Payment Advisory Commission Recommendations </HD>
                    <P>
                        Under section 1805(b) of the Act, the Medicare Payment Advisory Commission (MedPAC) is required to submit a report to Congress, no later than March 1 of each year, that reviews and makes recommendations on Medicare payment policies. MedPAC's March 2004 recommendation 
                        <PRTPAGE P="28205"/>
                        concerning hospital inpatient payment policies addressed only the update factor for inpatient hospital operating costs and capital-related costs under the IPPS and for hospitals and distinct part hospital units excluded from the IPPS. This recommendation is addressed in Appendix B. For further information relating specifically to the MedPAC March 1 report or to obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit MedPAC's Web site at: 
                        <E T="03">www.medpac.gov.</E>
                    </P>
                    <HD SOURCE="HD1">II. Proposed Changes to DRG Classifications and Relative Weights </HD>
                    <HD SOURCE="HD2">A. Background </HD>
                    <P>Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as DRGs) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, we pay for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGS. </P>
                    <P>Congress recognized that it would be necessary to recalculate the DRG relative weights periodically to account for changes in resource consumption. Accordingly, section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources. The proposed changes to the DRG classification system and the proposed recalibration of the DRG weights for discharges occurring on or after October 1, 2004, are discussed below. </P>
                    <HD SOURCE="HD2">B. DRG Reclassifications </HD>
                    <P>[If you choose to comment on issues in this section, please include the caption “DRG Reclassifications” at the beginning of your comment.] </P>
                    <HD SOURCE="HD3">1. General </HD>
                    <P>Cases are classified into DRGs for payment under the IPPS based on the principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay. In a small number of DRGs, classification is also based on the age, sex, and discharge status of the patient. The diagnosis and procedure information is reported by the hospital using codes from the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM). </P>
                    <P>For FY 2004, cases are assigned to one of 522 DRGs in 25 major diagnostic categories (MDCs). Most MDCs are based on a particular organ system of the body. For example, MDC 6 is Diseases and Disorders of the Digestive System. This approach is used because clinical care is generally organized in accordance with the organ system affected. However, some MDCs are not constructed on this basis because they involve multiple organ systems (for example, MDC 22 (Burns)). The table below lists the 25 MDCs. </P>
                    <GPOTABLE COLS="1" OPTS="L2,tp0,i1" CDEF="s200">
                        <TTITLE>  </TTITLE>
                        <BOXHD>
                            <CHED H="1">Major diagnostic categories (MDCs).</CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">1—Diseases and Disorders of the Nervous System.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">2—Diseases and Disorders of the Eye.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">3—Diseases and Disorders of the Ear, Nose, Mouth, and Throat.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">4—Diseases and Disorders of the Respiratory System.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">5—Diseases and Disorders of the Circulatory System.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">6—Diseases and Disorders of the Digestive System.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">7—Diseases and Disorders of the Hepatobiliary System and Pancreas.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">8—Diseases and Disorders of the Musculoskeletal System and Connective Tissue.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">9—Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">10—Endocrine, Nutritional and Metabolic Diseases and Disorders.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">11—Diseases and Disorders of the Kidney and Urinary Tract.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">12—Diseases and Disorders of the Male Reproductive System.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">13—Diseases and Disorders of the Female Reproductive System.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">14—Pregnancy, Childbirth, and the Puerperium.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">15—Newborns and Other Neonates with Conditions Originating in the Perinatal Period.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">16—Diseases and Disorders of the Blood and Blood Forming Organs and Immunological Disorders.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">17—Myeloproliferative Diseases and Disorders and Poorly Differentiated Neoplasms.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">18—Infectious and Parasitic Diseases (Systemic or Unspecified Sites).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">19—Mental Diseases and Disorders.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">20—Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">21—Injuries, Poisonings, and Toxic Effects of Drugs.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">22—Burns.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">23—Factors Influencing Health Status and Other Contacts with Health Services.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">24—Multiple Significant Trauma.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">25—Human Immunodeficiency Virus Infections</ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>In general, cases are assigned to an MDC based on the patient's principal diagnosis before assignment to a DRG. However, for FY 2004, there are eight DRGs to which cases are directly assigned on the basis of ICD-9-CM procedure codes. These DRGs are for heart, liver, bone marrow, lung, simultaneous pancreas/kidney, and pancreas transplants and for tracheostomies. Cases are assigned to these DRGs before they are classified to an MDC. The table below lists the current eight pre-MDCs. </P>
                    <GPOTABLE COLS="1" OPTS="L2,tp0,i1" CDEF="s200">
                        <TTITLE>  </TTITLE>
                        <BOXHD>
                            <CHED H="1">Pre-Major Diagnostic Categories (Pre-MDCs) </CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">DRG 103—Heart Transplant.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">DRG 480—Liver Transplant.</ENT>
                        </ROW>
                        <ROW>
                            <PRTPAGE P="28206"/>
                            <ENT I="01">DRG 481—Bone Marrow Transplant.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">DRG 482—Tracheostomy for Face, Mouth, and Neck Diagnoses.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">DRG 483—Tracheostomy with Mechanical Ventiliation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnoses.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">DRG 495—Lung Transplant.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">DRG 512—Simultaneous Pancreas/Kidney Transplant.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">DRG 513—Pancreas Transplant </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>Within most MDCs, cases are then divided into surgical DRGs and medical DRGs. Surgical DRGs are based on a hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. Medical DRGs generally are differentiated on the basis of diagnosis and age (less than or greater than 17 years of age). Some surgical and medical DRGs are further differentiated based on the presence or absence of a complication or a comorbidity (CC). </P>
                    <P>Generally, nonsurgical procedures and minor surgical procedures that are not usually performed in an operating room are not treated as O.R. procedures. However, there are a few non-O.R. procedures that do affect DRG assignment for certain principal diagnoses, for example, extracorporeal shock wave lithotripsy for patients with a principal diagnosis of urinary stones. </P>
                    <P>Patient's diagnosis, procedure, discharge status, and demographic information is fed into the Medicare claims processing systems and subjected to a series of automated screens called the Medicare Code Editor (MCE). The MCE screens are designed to identify cases that require further review before classification into a DRG. </P>
                    <P>After patient information is screened through the MCE and any further development of the claim is conducted, the cases are classified into the appropriate DRG by the Medicare GROUPER software program. The GROUPER program was developed as a means of classifying each case into a DRG on the basis of the diagnosis and procedure codes and, for a limited number of DRGs, demographic information (that is, sex, age, and discharge status). </P>
                    <P>After cases are screened through the MCE and assigned to a DRG by the GROUPER, a base DRG payment is calculated by the PRICER software. The PRICER calculates the payments for each case covered by the IPPS based on the DRG relative weight and additional factors associated with each hospital, such as IME and DSH adjustments. These additional factors increase the payment amount to hospitals above the base DRG payment. </P>
                    <P>The records for all Medicare hospital inpatient discharges are maintained in the Medicare Provider Analysis and Review (MedPAR) file. The data in this file are used to evaluate possible DRG classification changes and to recalibrate the DRG weights. However, in the July 30, 1999 IPPS final rule (64 FR 41500), we discussed a process for considering non-MedPAR data in the recalibration process. In order for us to consider using particular non-MedPAR data, we must have sufficient time to evaluate and test the data. The time necessary to do so depends upon the nature and quality of the non-MedPAR data submitted. Generally, however, a significant sample of the non-MedPAR data should be submitted by mid-October for consideration in conjunction with the next year's proposed rule. This allows us time to test the data and make a preliminary assessment as to the feasibility of using the data. Subsequently, a complete database should be submitted by early December for consideration in conjunction with the next year's proposed rule. </P>
                    <P>Many of the changes to the DRG classifications are the result of specific issues brought to our attention by interested parties. We encourage individuals with concerns about DRG classifications to bring those concerns to our attention in a timely manner so they can be carefully considered for possible inclusion in the next proposed rule and so any proposed changes may be subjected to public review and comment. Therefore, similar to the timetable for interested parties to submit non-MedPAR data for consideration in the DRG recalibration process, concerns about DRG classification issues should be brought to our attention no later than early December in order to be considered and possibly included in the next annual proposed rule updating the IPPS. </P>
                    <P>The changes we are proposing to the DRG classification system for the FY 2005 GROUPER version 22.0 and to the methodology used to recalibrate the DRG weights are set forth below. Unless otherwise noted in this proposed rule, our DRG analysis is based on data from the December 2003 update of the FY 2003 MedPAR file, which contains hospital bills received through December 31, 2003 for discharges in FY 2003. </P>
                    <HD SOURCE="HD3">2. MDC 1 (Diseases and Disorders of the Nervous System): Intracranial Hemorrhage and Stroke With Infarction </HD>
                    <P>It has come to our attention that the title of DRG 14 (Intracranial Hemorrhage and Stroke With Infarction) may be misleading because it implies that a combination of conditions exists when the DRG is assigned. When we developed this title, we did not intend to imply that a combination of conditions exists. Therefore, we are proposing to change the title of DRG 14 to read “Intracranial Hemorrhage or Cerebral Infarction”. </P>
                    <HD SOURCE="HD3">3. MDC 5 (Diseases and Disorders of the Circulatory System) </HD>
                    <HD SOURCE="HD3">a. Heart Assist System Implant </HD>
                    <P>Circulatory support devices, also known as heart assist systems, ventricular assist devices (VADs) or left ventricular assist devices (LVADs), offer a surgical alternative for end-stage heart failure patients. This type of device is often implanted near a patient's native heart and assumes the pumping function of the weakened heart's left ventricle. In many cases, heart transplantation would be the treatment of choice for this type of patient. However, the low number of donor hearts limits this treatment option. </P>
                    <P>We have reviewed the payment and DRG assignment for this type of device many times in the past. The reader is referred to the August 1, 2002 IPPS final rule (67 FR 49989) for a complete listing of those discussions. </P>
                    <P>In the August 1, 2002 final rule (67 FR 49990), we attempted to clinically and financially align VAD procedures by creating new DRG 525 (Heart Assist System Implant). We also noted that cases in which a heart transplant also occurred during the same hospitalization episode would continue to be assigned to DRG 103 (Heart Transplant). At that time, we announced that DRG 525 would consist of any principal diagnosis in MDC 5, plus one of the following surgical procedure codes:</P>
                    <FP SOURCE="FP-1">• 37.62, Insertion of nonimplantable heart assist system</FP>
                    <FP SOURCE="FP-1">
                        • 37.63, Repair of heart assist system
                        <PRTPAGE P="28207"/>
                    </FP>
                    <FP SOURCE="FP-1">• 37.65, Implant of external heart assist system</FP>
                    <FP SOURCE="FP-1">• 37.66, Insertion of implantable heart assist system </FP>
                    <P>(To avoid confusion, we note that the titles of codes 37.62, 37.63, 37.65, and 37.66 have been revised for FY 2005 through the ICD-9-CM Coordination and Maintenance Committee process as reflected in Table 6F, Revised Procedure Code Titles in the Addendum to this proposed rule.) </P>
                    <P>Commenters on the May 19, 2003 proposed rule that preceded the August 1, 2003 IPPS (FY 2004) final rule notified us that procedure code 37.66 was neither a clinical nor a financial match to the rest of the procedure codes now assigned to DRG 525. We did not modify DRG 525 for FY 2004. We agreed that we would continue to evaluate whether to make further changes to DRG 525. After publication of the August 1, 2003 final rule, we again reviewed the MedPAR data concerning DRG 525, and came to the conclusion that procedure code 37.62 is different in terms of clinical procedures and resource utilization from the other procedure codes assigned to DRG 525. Therefore, in a correction to the August 1, 2003 IPPS (FY 2004) final rule, published on October 6, 2003 (68 FR 57733), we revised the composition of DRG 525 by correcting the assignment of procedures to DRG 525 in light of the lower charges associated with procedure code 37.62. We moved code 37.62 into DRG 104 (Cardiac Valve and Other Major Cardiothoracic Procedures With Cardiac Catheterization) and DRG 105 (Cardiac Valve and Other Major Cardiothoracic Procedures Without Cardiac Catheterization), and left procedure codes 37.63, 37.65, and 37.66 in DRG 525. </P>
                    <P>
                        In addition, we have evaluated a request for expanded coverage for VADs and LVADs as destination (or permanent) therapy for end-stage heart failure patients who are not candidates for heart transplantation. VADs and LVADs had been approved for support of blood circulation post-cardiotomy (effective for services performed on or after October 18, 1993) and as a bridge to heart transplant (effective for services performed on or after January 22, 1996) to assist a damaged or weakened heart in pumping blood. The criteria that must be fulfilled in order for Medicare coverage to be provided for these purposes have been previously discussed in the August 1, 2000 final rule (65 FR 47058), and can also be accessed online at: 
                        <E T="03">www.cms.gov/manuals/pm_trans/r2ncd1.pdf.</E>
                    </P>
                    <P>As a result of that review, effective for services performed on or after October 1, 2003, VADs have been approved as destination therapy for patients requiring permanent mechanical cardiac support. Briefly, VADs used for destination therapy are covered only if they have received approval from the FDA for that purpose, and the device is used according to the FDA-approved labeling instructions. VADs are covered for patients who have chronic end-stage heart failure (New York Heart Association Class IV end-stage left ventricular failure for at least 90 days with a life expectancy of less than 2 years). Implanting facilities as well as patients must also meet all of the additional conditions that are listed in the national coverage determination for artificial hearts and related devices, which is posted on the above CMS Web site. </P>
                    <P>In light of the new indication of destination therapy, we again reviewed the FY 2003 MedPAR data for all cases in which a VAD had been implanted, using the criterion of any case containing a procedure code of 37.66. We found a total of 65 cases in 3 DRGs: DRG 103 (Heart Transplant); DRG 483 (Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck Diagnoses); and DRG 525 (Heart Assist System Implant). The following table displays our findings:</P>
                    <GPOTABLE COLS="4" OPTS="L2,tp0,i1" CDEF="s100,12,12,12">
                        <TTITLE>— </TTITLE>
                        <BOXHD>
                            <CHED H="1">DRG with code 37.66 reported </CHED>
                            <CHED H="1">Count </CHED>
                            <CHED H="1">Average length of stay </CHED>
                            <CHED H="1">Average charges</CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">103 </ENT>
                            <ENT>14</ENT>
                            <ENT>77.36</ENT>
                            <ENT>$836,011</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">483 </ENT>
                            <ENT>6</ENT>
                            <ENT>100.50</ENT>
                            <ENT>1,400,706</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">525</ENT>
                            <ENT>45</ENT>
                            <ENT>38.93</ENT>
                            <ENT>308,725</ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>The remaining 354 cases in DRG 103 that did not report code 37.66 had average charges of $282,578. The remaining 171 cases in DRG 525 that did not contain code 37.66 had an average length of stay of 12.39 days and average charges of $168,388. The 45 cases in DRG 525 with code 37.66 accounted for 26 percent of the cases. However, the average charges for these cases are approximately $140,340 higher than the average charges for cases in DRG 525 that did not report code 37.66. </P>
                    <P>Commenters on the FY 2004 final rule suggested adding code 37.66 to DRG 103. We were concerned with the timing of that comment, as it was received after publication of the proposed rule. We noted that the commenter's suggestions on the structure of the DRGs involved were significant, and that change of that magnitude should be subject to public review and comment. We also noted that we would evaluate the suggestion further. (68 FR 45370) However, as one of the indications for this device has become destination therapy, and as this new indication is more clinically aligned with DRG 103, we are proposing to remove procedure code 37.66 from DRG 525 and assign it to DRG 103. We also are proposing to change the title of DRG 103 to “Heart Transplant or Implant of Heart Assist System”. The proposed restructured DRG 103 would include any principal diagnosis in MDC 5, plus one of the following surgical procedure codes:</P>
                    <FP SOURCE="FP-1">• 33.6, Combined heart-lung transplantation</FP>
                    <FP SOURCE="FP-1">• 37.51, Heart transplantation</FP>
                    <FP SOURCE="FP-1">• 37.66, Insertion of implantable heart assist system </FP>
                    <P>In addition to the proposed changes to DRG 103, we are proposing to change the title of DRG 525 to “Other Heart Assist System Implant”. </P>
                    <P>In conjunction with the above data review, we also looked at DRGs 104 and 105. </P>
                    <P>
                        DRGs 104 and 105 had been restructured in FY 2003 by assigning code 37.62 to them. (
                        <E T="04">Note:</E>
                         The code title for 37.62 has been revised, effective FY 2005, as reflected in Table 6F of the Addendum to this proposed rule). We examined the MedPAR data and found that the average charges were $113,667 and $82,899, respectively, for DRGs 104 and 105 for cases not reporting code 37.62, while cases containing code 37.62 had average charges of $124,559 and $166,129, respectively. 
                    </P>
                    <P>
                        The removal of code 37.66 from DRG 525 would have the effect of clinically realigning that DRG to be more coherent. As a result of the proposal to remove code 37.66 from DRG 525 and assign it to DRG 103, we also are proposing to remove code 37.62 from DRGs 104 and 105 and assign it back into DRG 525. In addition, the average 
                        <PRTPAGE P="28208"/>
                        charges for code 37.62 shown above in DRGs 104 and 105 ($124,559 and $166,129) more closely match the average charges reported for the 171 cases in DRG 525, absent code 37.66 ($168,388). 
                    </P>
                    <P>The proposed restructured DRG 525 would include any principal diagnosis in MDC 5, plus the following surgical procedure codes:</P>
                    <FP SOURCE="FP-1">• 37.52, Implantation of total replacement heart system* </FP>
                    <FP SOURCE="FP-1">• 37.53, Replacement or repair of thoracic unit of total replacement heart system* </FP>
                    <FP SOURCE="FP-1">• 37.54, Replacement or repair of other implantable component of total replacement heart system* </FP>
                    <FP SOURCE="FP-1">• 37.62, Insertion of nonimplantable heart assist system</FP>
                    <FP SOURCE="FP-1">• 37.63, Repair of heart assist system</FP>
                    <FP SOURCE="FP-1">• 37.65, Implant of external heart assist system </FP>
                    <FP>*These codes represent noncovered services for Medicare beneficiaries. However, it is our longstanding practice to assign every code in the ICD-9-CM classification to a DRG. Therefore, they have been assigned to DRG 525.</FP>
                    <HD SOURCE="HD3">b. Cardiac Resychronization Therapy and Heart Failure </HD>
                    <P>We received a request from a manufacturer of a Cardiac Resynchronization Therapy Defibrillator (CRT-D) device for a modification to DRG 535 (Cardiac Defibrillator Implant With Cardiac Catheterization With Acute Myocardial Infarction/Heart Failure/Shock) and DRG 536 (Cardiac Defibrillator Implant With Cardiac Catheterization Without Acute Myocardial Infarction/Heart Failure/Shock). The commenter pointed out that defibrillator device implantations, including the CRT-D type of defibrillator, are assigned to DRG 535 when the patient also has a cardiac catheterization and has either an acute myocardial infarction, heart failure, or shock as a principal diagnosis. If the patient receiving the defibrillator implant and cardiac catheterization does not have a principal diagnosis of acute myocardial infarction, heart failure, or shock, the cases are assigned to DRG 536. </P>
                    <P>The commenter requested that cases be assigned to DRG 535 when the patient has heart failure as either a principal diagnosis or a secondary diagnosis. The commenter stated that patients receive a CRT-D (as opposed to other types of defibrillators) when they have both heart failure and arrhythmia. The commenter was concerned that some coders may sequence the heart failure as a secondary diagnosis, which would result in the patient being assigned to DRG 536. </P>
                    <P>As stated earlier, DRGs 535 and 536 are split based on the principal diagnosis of acute myocardial infarction, heart failure, or shock. Cases are not assigned to DRG 535 when heart failure is a secondary diagnosis. </P>
                    <P>The commenter described a scenario where a patient was admitted with heart failure for an evaluation of the need for a CRT-D implantation. The hospitalization studies indicated that the patient had a ventricular tachycardia. The commenter indicated that coders would be confused as to which code should be listed as the principal diagnosis. </P>
                    <P>CMS' review of this scenario as described would be that the heart failure led to the admission and would be the principal diagnosis. This case would properly be assigned to DRG 535. Furthermore, when two conditions are considered to be equally responsible for the admission, either one of the two conditions may be selected as the principal diagnosis. </P>
                    <P>The commenter also stated that its own study shows CRT-D patients have significantly higher charges than do other patients in DRGs 535 and 536 who receive an implantable defibrillator. This was the case whether heart failure was used as a principal or secondary diagnosis. </P>
                    <P>A cardiac catheterization is a diagnostic procedure generally performed to establish the nature of the patient's cardiac problem and determine if implantation of a cardiac defibrillator is appropriate. Generally, the cardiac catheterization can be done on an outpatient basis. Patients who are admitted with acute myocardial infarction, heart failure, or shock and have a cardiac catheterization are generally acute patients who require emergency implantation of the defibrillator. Thus, there are very high costs associated with these patients. </P>
                    <P>We examined the MedPAR file for all cases in DRGs 535 and 536 and only cases in DRG 536 in which acute myocardial infarction or heart failure was listed as a secondary diagnosis. The following chart illustrates the results of our findings:</P>
                    <GPOTABLE COLS="4" OPTS="L2,tp0,i1" CDEF="s100,15,15,15">
                        <TTITLE>  </TTITLE>
                        <BOXHD>
                            <CHED H="1">DRGs </CHED>
                            <CHED H="1">Count </CHED>
                            <CHED H="1">Average length of stay </CHED>
                            <CHED H="1">
                                Average
                                <LI>charges</LI>
                            </CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">535</ENT>
                            <ENT>6,801</ENT>
                            <ENT>9.50</ENT>
                            <ENT>$110,663.57 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">536—All cases</ENT>
                            <ENT>17,454</ENT>
                            <ENT>5.47</ENT>
                            <ENT>89,493.85 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">536—Cases With Secondary Diagnosis of Cardiac Defibrillator Implant With Cardiac Catheterization Without Acute Myocardial Infarction/Heart Failure/Shock</ENT>
                            <ENT>8,562</ENT>
                            <ENT>6.5</ENT>
                            <ENT>94,832.14 </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>The data show that cases with a secondary diagnosis of acute myocardial infarction or heart failure have average charges ($94,832.14) closer to the overall average charges for DRG 536 ($89,493.85) where they are currently assigned. Overall charges for DRG 535 were $110,663.57. We do not believe these data support modifying DRG 535 and DRG 536 as requested. Many of the CRT-D patients who are admitted for heart failure would be assigned into DRG 535. Furthermore, modifying the DRG logic for one specific type of defibrillator (CRT-D) is not consistent with our overall policy of grouping similar types of patients together in the same DRG. In addition, to modify the DRG logic for the small percentage of cases where there might be confusion concerning the selection of the principal diagnosis does not seem prudent. Therefore, we are not proposing a modification to DRG 535 or 536 for CRT-Ds.</P>
                    <HD SOURCE="HD3">c. Combination Cardiac Pacemaker Devices and Lead Codes</HD>
                    <P>We received a comment that recommended that we include additional combination procedure codes representing cardiac pacemaker device and lead codes under DRG 115 (Permanent Cardiac Pacemaker Implant With Acute Myocardial Infarction, Heart Failure, or Shock or ACID Lead or Generator Procedures) and DRG 116 (Other Permanent Cardiac Pacemaker Implant). DRGs 115 and 116 are assigned when a complete pacemaker unit with leads is implanted. Combinations of pacemaker devices and lead codes that would lead to the DRG assignment are listed under DRGs 115 and 116. The commenter recommended that the following pacemaker device and lead procedure code combinations be added to these two DRGs:</P>
                    <FP SOURCE="FP-1">
                        • 00.53 &amp; 37.70
                        <PRTPAGE P="28209"/>
                    </FP>
                    <FP SOURCE="FP-1">• 00.53 &amp; 37.71</FP>
                    <FP SOURCE="FP-1">• 00.53 &amp; 37.72</FP>
                    <FP SOURCE="FP-1">• 00.53 &amp; 37.73</FP>
                    <FP SOURCE="FP-1">• 00.53 &amp; 37.74</FP>
                    <FP SOURCE="FP-1">• 00.53 &amp; 37.76</FP>
                    <P>These codes are defined as follows:</P>
                    <FP SOURCE="FP-1">• 00.53, Implantation or replacement of cardiac resynchronization pacemaker, pulse generator only [CRT-P]</FP>
                    <FP SOURCE="FP-1">• 37.70, Initial insertion of pacemaker lead [electrode], not otherwise specified</FP>
                    <FP SOURCE="FP-1">• 37.71, Initial insertion of transvenous lead [electrode] into ventricle</FP>
                    <FP SOURCE="FP-1">• 37.72, Initial insertion of transvenous lead [electrode] into atrium and ventricle</FP>
                    <FP SOURCE="FP-1">• 37.73, Initial insertion of transvenous lead [electrode] into atrium</FP>
                    <FP SOURCE="FP-1">• 37.74, Initial insertion or replacement of epicardial lead [electrode] into epicadium</FP>
                    <FP SOURCE="FP-1">• 37.76, Replacement of transvenous atrial and/or ventricular lead(s) [electrode]</FP>
                    <P>We have consulted our medical advisors and they agree that these recommended procedure code combinations also describe pacemaker device and lead implantations and should be included under DRGs 115 and 116. Therefore, we are proposing to add the recommended procedure code combinations to the list of procedure code combinations under DRGs 115 and 116.</P>
                    <HD SOURCE="HD3">4. MDC 6 (Diseases and Disorders of the Digestive System): Artificial Anal Sphincter</HD>
                    <P>In the FY 2003 IPPS final rule (67 FR 50242), we created two new codes for procedures involving an artificial anal sphincter, effective for discharges occurring on or after October 1, 2002: code 49.75 (Implantation or revision of artificial anal sphincter) that is used to identify cases involving implantation or revision of an artificial anal sphincter and code 49.76 (Removal of artificial anal sphincter) that is used to identify cases involving the removal of the device. In Table 6B of that final rule, we assigned both codes to one of four MDCs, based on principal diagnosis, and one of six DRGs within those MDCs. In the August 1, 2003 IPPS final rule (68 FR 45372), we discussed the assignment of these codes in response to a request we had received to consider reassignment of these two codes to different MDCs and DRGs. The requester believed that the average charges ($44,000) for these codes warranted reassignment. In the August 1, 2003 IPPS final rule, we stated that we did not have sufficient MedPAR data available on the reporting of codes 49.75 and 49.76 to make a determination on DRG reassignment of these codes. We agreed that, if warranted, we would give further consideration to the DRG assignments of these codes because it is our customary practice to review DRG assignment(s) for newly created codes to determine clinical coherence and similar resource consumption after we have had the opportunity to collect MedPAR data on utilization, average length of stay charges, and distribution throughout the system.</P>
                    <P>Therefore, we reviewed the FY 2003 MedPAR data for the presence of codes 49.75 and 49.76. We then arrayed the results by DRG, count, average length of stay, charges, and the presence or absence of a secondary diagnosis that could be classified as a CC. We found that there were a total of 13 cases in 5 total DRGs with CCs, and 9 cases in 4 total DRGs without CCs, for a total of 22 cases that reported these procedure codes. We had anticipated that the majority of cases would have been found in DRGs 157 (Anal and Stomal Procedures With CC) and 158 (Anal and Stomal Procedures Without CC), but found only 2 cases grouped to DRG 157 and 4 cases grouped to DRG 158. Our data showed average charges of $22,374 for the cases with CC, and average charges of $20,831 for the cases without CC. Average charges for DRG 157 were $18,196, while average charges for DRG 158 were $9,348.</P>
                    <P>Our medical advisors also reviewed the contents of DRGs 157 and 158. The consensus was that codes 49.75 and 49.76 are not a clinical match to the other procedure codes found in these two DRGs. The other procedure codes in DRGs 157 and 158 are for simpler and less invasive procedures. In some circumstances, these procedures could potentially be performed in an outpatient setting or in a physician's office. Our medical advisors determined that clinical coherence was not demonstrated and recommended that we move these codes to DRGs 146 (Rectal Resection With CC) and 147 (Rectal Resection Without CC), as these anal sphincter procedures more closely resemble the procedures in these DRGs. In addition, the average charges for paired DRG 146 ($33,853) and DRG 147 ($21,747) more closely resemble the actual average charges found in the MedPAR data for these cases.</P>
                    <P>Even though there are few reports of codes 49.75 and 49.76 in the MedPAR data and we do not anticipate a significant increase in utilization of these procedures, we are proposing that these two codes would only be removed from paired DRG 157 and 158 and reassigned to paired DRG 146 and 147 under MDC 6 (Diseases and Disorders of the Digestive System). All other MDC and DRG assignments for codes 49.75 and 49.76 would remain the same.</P>
                    <HD SOURCE="HD3">5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue)</HD>
                    <HD SOURCE="HD3">a. 360 Spinal Fusions</HD>
                    <P>We received a comment that suggested procedure code 81.61 (360 Spinal fusion) should not be included in DRG 496 (Combined Anterior/Posterior Spinal Fusion). The commenter stated that code 81.61 does not represent the same types of cases as other codes included in DRG 496. The commenter indicated that cases reported with code 81.61 involve making only one incision, and then fusing both the anterior and posterior portion of the spine. All other cases in DRG 496 involve two separate surgical approaches used to reach the site of the spinal fusion. For these other patients, an incision is made into the patient, and a fusion is made in part of the spine. The patient is then turned over and a separate incision is made so that a fusion can be made in another part of the spine. The commenter added that these two separate incisions and fusions are more time consuming than the single incision used for code 81.61. The commenter also stated that patients receiving the two surgical approaches have a longer recovery period and use more hospital resources.</P>
                    <P>We examined data in the MedPAR file for cases assigned to DRG 496 and found the following:</P>
                    <GPOTABLE COLS="4" OPTS="L2,tp0,i1" CDEF="s50,12,12,12">
                        <TTITLE>  </TTITLE>
                        <BOXHD>
                            <CHED H="1">DRG </CHED>
                            <CHED H="1">Count </CHED>
                            <CHED H="1">Average length of stay </CHED>
                            <CHED H="1">Average charges </CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">496—All Cases</ENT>
                            <ENT>2,706</ENT>
                            <ENT>8.0</ENT>
                            <ENT>$74,967.33</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">496—Cases with code 81.61</ENT>
                            <ENT>829</ENT>
                            <ENT>4.7</ENT>
                            <ENT>50,659.69</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">496—Cases with code 81.61 with CC</ENT>
                            <ENT>451</ENT>
                            <ENT>5.4</ENT>
                            <ENT>55,639.50</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">496—Cases with code 81.61 without CC</ENT>
                            <ENT>378</ENT>
                            <ENT>3.8</ENT>
                            <ENT>44,718.16</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">496—Cases without 81.61</ENT>
                            <ENT>1877</ENT>
                            <ENT>9.4</ENT>
                            <ENT>85,703.09</ENT>
                        </ROW>
                    </GPOTABLE>
                    <PRTPAGE P="28210"/>
                    <P>We also examined cases in related DRG 497 (Spinal Fusion Except Cervical With CC) and DRG 498 (Spinal Fusion Except Cervical Without CC) in which code 81.61 was not reported. The chart below reflects our findings.</P>
                    <GPOTABLE COLS="4" OPTS="L2,tp0,i1" CDEF="s50,12,12,12">
                        <TTITLE> </TTITLE>
                        <BOXHD>
                            <CHED H="1">DRG</CHED>
                            <CHED H="1">Count</CHED>
                            <CHED H="1">Average length of stay</CHED>
                            <CHED H="1">Average charges </CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">497</ENT>
                            <ENT>16,965</ENT>
                            <ENT>6.19</ENT>
                            <ENT>$49,315.27</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">498</ENT>
                            <ENT>11,598</ENT>
                            <ENT>3.95</ENT>
                            <ENT>37,450.68</ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>These data clearly show that cases with code 81.61 have significantly less average charges than other cases in DRG 496 that have two surgical approaches. Cases with code 81.61 are more closely aligned with cases in DRG 497 and DRG 498. Furthermore, including code 81.61 will have the effect of lowering the relative weights for DRG 496 in future years. Therefore, we are proposing to remove code 81.61 from DRG 496 and reassign it to DRGs 497 and 498.</P>
                    <HD SOURCE="HD3">b. Multiple Level Spinal Fusion</HD>
                    <P>On October 1, 2003 (68 FR 45596), the following new ICD-9-CM procedure codes were created to identify the number of levels of vertebra fused during a spinal fusion procedure:</P>
                    <FP SOURCE="FP-1">• 81.62, Fusion or refusion of 2-3 vertebrae </FP>
                    <FP SOURCE="FP-1">• 81.63, Fusion or refusion of 4-8 vertebrae </FP>
                    <FP SOURCE="FP-1">• 81.64, Fusion or refusion of 9 or more vertebrae</FP>
                    <P>Prior to the creation of these new codes, we received a comment recommending the establishment of new DRGs that would differentiate between the number of levels of vertebrae involved in a spinal fusion procedure. In the August 1, 2003 final rule, we discussed the creation of these new codes and the lack of sufficient MedPAR data with the new multiple level spinal fusion codes (68 FR 45369). The commenter had conducted an analysis and submitted data to support redefining the spinal fusion DRGs. The analysis found that increasing the levels fused from 1 to 2 levels to 3 levels or more levels increased the mean standardized charges by 38 percent for lumbar/thoracic fusions, and by 47 percent for cervical fusions.</P>
                    <P>The following current spinal fusion DRGs separate cases based on whether or not a CC is present: DRG 497 (Spinal Fusion Except Cervical With CC) and DRG 498 (Spinal Fusion Except Cervical Without CC); DRG 519 (Cervical Spinal Fusion With CC) and DRG 520 (Cervical Spinal Fusion Without CC). However, the difference in charges associated with the current CC split was only slightly greater than the difference attributable to the number of levels fused as found by the commenter's analysis. In addition, adopting the commenter's recommendation would have necessitated adjusting the DRG relative weights using non-MedPAR data because Medicare claims data with the new ICD-9-CM codes would not have been available until the FY 2003 MedPAR file. Therefore, at that time, we did not redefine the spinal fusion DRGs to differentiate on the basis of the number of levels of vertebrae involved in a spinal fusion procedure.</P>
                    <P>We did not yet have any reported cases utilizing the new multilevel spinal fusion codes in our data. We stated that we would wait until sufficient data with the new multilevel spinal fusion codes were available before making a final determination on whether multilevel spinal fusions should be incorporated into the spinal fusion DRG structure. The codes went into effect on October 1, 2003 and we have not received any data using these codes. Spinal surgery is an area of rapid changes. In addition, we have created a series of new procedure codes that describe a new type of spinal surgery, spinal disc replacement. (See codes 84.60 through 84.69 in Table 6B in the Addendum to this proposed rule that will go into effect on October 1, 2004.) Our medical advisors describe this new surgical procedure as a more conservative approach for back pain than the spinal fusion surgical procedure. With only limited data concerning multiple level spinal fusion and the rapid changes in spinal surgery, we believe it is more prudent not to propose the establishment of new DRGs based on the number of levels of vertebrae involved in a spinal fusion procedure at this time.</P>
                    <P>In addition, no other surgical DRG is split based on the number of procedures performed. For instance, the same DRG is assigned whether one or more angioplasties are performed on a patient's arteries. The insertion of multiple stents within an artery does not result in a different DRG assignment. Similarly, the excision of neoplasms from multiple sites does not lead to a different DRG assignment. To begin splitting DRGs based on the number of procedures performed or devices inserted could set a new and significant precedent for DRG policy. Therefore, while we will continue to study this area, we are not proposing to redefine the spinal fusion DRGs based on the number of levels of vertebrae fused at this time.</P>
                    <HD SOURCE="HD3">6. MDC 15 (Newborns and Other Neonates With Conditions Originating in the Perinatal Period)</HD>
                    <P>We continue to receive comments that MDC 15 (Newborn and Other Neonates With Conditions Originating in the Perinatal Period) does not adequately capture care provided for newborns and neonates by hospitals. The commenters point out that we have not updated the DRGs within MDC 15 as we have for other parts of the DRG system.</P>
                    <P>Our primary focus of updates to the Medicare DRG classification system is on changes relating to the Medicare patient population, not the pediatric or neonatal patient populations. However, we acknowledge the Medicare DRGs are sometimes used to classify other patient populations. Over the years, we have received comments about aspects of the Medicare newborn DRGs that appear problematic, and we have responded to these on an individual basis. In the May 9, 2002 IPPS proposed rule (67 FR 31413), we proposed extensive changes to multiple DRGs within MDC 15. Because of our limited data and experience with newborn cases under Medicare, we contacted the National Association of Children's Hospitals and Related Institutions (NACHRI) to obtain proposals for possible revisions of the DRG categories within MDC 15. We received extensive comments opposing these revisions. Therefore, we did not implement the proposals.</P>
                    <P>We advise those non-Medicare systems that need a more up-to-date system to choose from other systems that are currently in use in this country, or to develop their own modifications. As previously stated, we do not have the data or the expertise to develop more extensive newborn and pediatric DRGs. Our mission in maintaining the Medicare DRGs is to serve the Medicare population. Therefore, we will make only minor corrections of obvious errors to the DRGs within MDC 15. At this time, we do not plan to conduct a more extensive analysis involving major revisions to these DRGs. </P>
                    <P>
                        In the IPPS final rule for FY 2004 (68 FR 45360), we added heart failure 
                        <PRTPAGE P="28211"/>
                        diagnosis codes 428.20 through 428.43 to the list of secondary diagnosis of major problem under DRG 387 (Prematurity With Major Problems) and DRG 389 (Full-Term Neonate With Major Problems). We received a comment after the August 1, 2003 final rule stating that we should add the following list of combination codes, which also include heart failure, to the list of major problems under DRGs 387 and 389:
                    </P>
                    <FP SOURCE="FP-1">• 398.91, Rheumatic heart failure (congestive) </FP>
                    <FP SOURCE="FP-1">• 402.01, Malignant hypertensive heart disease, with heart failure</FP>
                    <FP SOURCE="FP-1">• 402.11, Benign hypertensive heart disease, with heart failure</FP>
                    <FP SOURCE="FP-1">• 402.91, Unspecified hypertensive heart disease, with heart failure</FP>
                    <FP SOURCE="FP-1">• 404.01, Malignant hypertensive heart and renal disease, with heart failure</FP>
                    <FP SOURCE="FP-1">• 404.03, Malignant hypertensive heart and renal disease, with heart failure and renal failure</FP>
                    <FP SOURCE="FP-1">• 404.11, Benign hypertensive heart and renal disease, with heart failure</FP>
                    <FP SOURCE="FP-1">• 404.13, Benign hypertensive heart and renal disease, with heart failure and renal failure</FP>
                    <FP SOURCE="FP-1">• 404.91, Unspecified hypertensive heart and renal disease, with heart failure</FP>
                    <FP SOURCE="FP-1">• 404.93, Unspecified hypertensive heart and renal disease, with heart failure and renal failure. </FP>
                    <FP SOURCE="FP-1">• 428.9, Heart failure, unspecified </FP>
                    <P>We agree that the codes listed above also include heart failure and should also be added to DRGs 387 and 389 as major problems. Therefore, we are proposing to add the heart failure codes listed above to DRGs 387 and 389 as major problems. </P>
                    <HD SOURCE="HD3">7. MDC 20 (Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders): Drug-Induced Dementia </HD>
                    <P>We received a request from a commenter that we remove the principal diagnosis code 292.82 (Drug-induced dementia) from MDC 20 (Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders) and the following DRGs under MDC 20:</P>
                    <FP SOURCE="FP-1">• DRG 521 (Alcohol/Drug Abuse or Dependence With CC) </FP>
                    <FP SOURCE="FP-1">• DRG 522 (Alcohol/Drug Abuse or Dependence With Rehabilitation Therapy Without CC) </FP>
                    <FP SOURCE="FP-1">• DRG 523 (Alcohol/Drug Abuse or Dependence Without Rehabilitation Therapy Without CC) </FP>
                    <P>The commenter indicated that a patient who has a drug-induced dementia should not be classified to an alcohol/drug DRG. However, the commenter did not propose a new DRG assignment for code 292.82. </P>
                    <P>Our medical advisors have evaluated the request and determined that the most appropriate DRG classification for a patient with drug-induced dementia would be within MDC 20. The medical advisors indicated that because this mental condition is drug induced, it is appropriately classified to DRGs 521 through 523 in MDC 20. Therefore, we are not proposing a new DRG classification for the principal diagnosis code 292.82. </P>
                    <HD SOURCE="HD3">8. MDC 22 (Burns): Burn Patients on Mechanical Ventilation </HD>
                    <P>We have received concerns raised by hospitals treating burn patients that the current DRG payment for burn patients on mechanical ventilation is not adequate. The DRG assignment for these cases depends on whether the hospital performed the tracheostomy or the tracheostomy was performed prior to transfer to the hospital. If the hospital does not actually perform the tracheostomy, the case is assigned to one of the burn DRGs in MDC 22 (Burns). If the hospital performs a tracheostomy, the case is assigned to Pre-MDC DRG 482 (Tracheostomy for Face, Mouth, and Neck Diagnoses) or DRG 483 (Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth and Neck Diagnoses). </P>
                    <P>In the August 1, 2002 final rule, we modified DRGs 482 and 483 to recognize code 96.72 (Continuous mechanical ventilation for 96+ hours) for the first time in the DRG assignment (67 FR 49996). The modification was partially in response to concerns that hospitals could omit diagnosis codes indicating face, mouth, or neck diagnoses in order to have cases assigned to DRG 483 rather than the much lower paying DRG 482 (the payment for DRG 483 is more than four times greater than the DRG 482 payment weight). In addition, we noted that many patients assigned to DRG 483 did not have code 96.72 recorded. We believed this was due, in part, to the limited number of procedure codes (six) that can be submitted on the current billing form and the fact that code 96.72 did not affect the DRG assignment prior to FY 2003. The modification was the first attempt to refine DRGs 482 and 483 so that patients who receive long-term mechanical ventilation for more than 96 hours are differentiated from those who receive mechanical ventilation for less than 96 hours. The modification was intended to ensure that patients who have a tracheostomy and continuous mechanical ventilation greater than 96 hours (code 96.72) would be assigned to DRG 483. By making the GROUPER recognize long-term mechanical ventilation and assigning those patients to the higher weighted DRG 483, we encouraged hospitals to be more aware of the importance of reporting code 96.72 and to increase reporting of code 96.72 when, in fact, patients had been on the mechanical ventilator for greater than 96 hours. We stated in the August 1, 2002 final rule that, once we received more accurate data, we would give consideration to further modifying DRGs 482 and 483 based on the presence of code 96.72. </P>
                    <P>To assess the DRG payments for burn patients on mechanical ventilation, we analyzed FY 2003 MedPAR data for burn cases in the following DRGs to determine the frequency for which these burn cases were treated with continuous mechanical ventilation for 96 or more consecutive hours (code 96.72):</P>
                    <FP SOURCE="FP-1">• DRG 483 (Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck Diagnoses) </FP>
                    <FP SOURCE="FP-1">• DRG 504 (Extensive 3rd Degree Burns With Skin Graft) </FP>
                    <FP SOURCE="FP-1">• DRG 505 (Extensive 3rd Degree Burns Without Skin Graft) </FP>
                    <FP SOURCE="FP-1">• DRG 506 (Full Thickness Burn With Skin Graft or Inhalation Injury With CC or Significant Trauma) </FP>
                    <FP SOURCE="FP-1">• DRG 507 (Full Thickness Burn With Skin Graft or Inhalation Injury Without CC or Significant Trauma) </FP>
                    <FP SOURCE="FP-1">• DRG 508 (Full Thickness Burn Without Skin Graft or Inhalation Injury With CC or Significant Trauma) </FP>
                    <FP SOURCE="FP-1">• DRG 509 (Full Thickness Burn Without Skin Graft or Inhalation Injury Without CC or Significant Trauma) </FP>
                    <FP SOURCE="FP-1">• DRG 510 (Nonextensive Burns With CC or Significant Trauma) </FP>
                    <FP SOURCE="FP-1">• DRG 511 (Nonextensive Burns Without CC or Significant Trauma)</FP>
                    <P>The following chart summarizes those findings: </P>
                    <GPOTABLE COLS="4" OPTS="L2,tp0,i1" CDEF="s150,12,12,12">
                        <TTITLE>  </TTITLE>
                        <BOXHD>
                            <CHED H="1">DRG </CHED>
                            <CHED H="1">Count </CHED>
                            <CHED H="1">Average length of stay </CHED>
                            <CHED H="1">Average charges </CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">483—All cases </ENT>
                            <ENT>31,754 </ENT>
                            <ENT>37.68 </ENT>
                            <ENT>$210,631.94 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">483—Cases with code 96.72 reported </ENT>
                            <ENT>19,669 </ENT>
                            <ENT>36.54 </ENT>
                            <ENT>195,171.66 </ENT>
                        </ROW>
                        <ROW>
                            <PRTPAGE P="28212"/>
                            <ENT I="01">483—Cases without code 96.72 reported </ENT>
                            <ENT>12,085 </ENT>
                            <ENT>39.52 </ENT>
                            <ENT>235,794.39 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">504—All cases </ENT>
                            <ENT>98 </ENT>
                            <ENT>30.54 </ENT>
                            <ENT>191,645.49 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">504—Cases with code 97.62 reported </ENT>
                            <ENT>19 </ENT>
                            <ENT>25.79 </ENT>
                            <ENT>264,095.16 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">504—Cases without code 96.72 reported </ENT>
                            <ENT>79 </ENT>
                            <ENT>31.68 </ENT>
                            <ENT>174,220.89 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">505—All cases </ENT>
                            <ENT>119 </ENT>
                            <ENT>2.96 </ENT>
                            <ENT>18,619.78 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">505—Cases with code 96.72 reported </ENT>
                            <ENT>20 </ENT>
                            <ENT>7.70 </ENT>
                            <ENT>42,613.00 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">505—Cases without code 96.72 reported </ENT>
                            <ENT>99 </ENT>
                            <ENT>2.00 </ENT>
                            <ENT>13,772.67 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">506—All cases </ENT>
                            <ENT>754 </ENT>
                            <ENT>16.15 </ENT>
                            <ENT>61,370.63 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">506—Cases with code 96.72 reported </ENT>
                            <ENT>54 </ENT>
                            <ENT>20.13 </ENT>
                            <ENT>138,272.46 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">506—Cases without code 96.72 reported </ENT>
                            <ENT>700 </ENT>
                            <ENT>15.85 </ENT>
                            <ENT>55,438.20 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">507—All cases </ENT>
                            <ENT>236 </ENT>
                            <ENT>8.78 </ENT>
                            <ENT>25,891.89 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">507—Cases with code 96.72 reported </ENT>
                            <ENT>1 </ENT>
                            <ENT>38.00 </ENT>
                            <ENT>137,132.00 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">507—Cases without code 96.72 reported </ENT>
                            <ENT>235 </ENT>
                            <ENT>8.66 </ENT>
                            <ENT>25,418.53 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">508—All cases </ENT>
                            <ENT>448 </ENT>
                            <ENT>7.02 </ENT>
                            <ENT>18,332.46 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">508—Cases with code 96.72 reported </ENT>
                            <ENT>5 </ENT>
                            <ENT>10.40 </ENT>
                            <ENT>83,171.80 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">508—Cases without code 96.72 reported </ENT>
                            <ENT>443 </ENT>
                            <ENT>6.98 </ENT>
                            <ENT>17,600.64 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">509—All cases </ENT>
                            <ENT>117 </ENT>
                            <ENT>4.32 </ENT>
                            <ENT>8,994.71 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">509—Cases with code 96.72 reported </ENT>
                            <ENT>0 </ENT>
                            <ENT>0 </ENT>
                            <ENT>0 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">509—Cases without code 96.72 reported </ENT>
                            <ENT>117 </ENT>
                            <ENT>4.32 </ENT>
                            <ENT>8,994.71 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">510—All cases </ENT>
                            <ENT>1,209 </ENT>
                            <ENT>6.90 </ENT>
                            <ENT>18,457.21 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">510—Cases with code 96.72 reported </ENT>
                            <ENT>21 </ENT>
                            <ENT>20.52 </ENT>
                            <ENT>93,925.62 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">510—Cases without code 96.72 reported </ENT>
                            <ENT>1,188 </ENT>
                            <ENT>6.66 </ENT>
                            <ENT>17,123.18 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">511—All cases </ENT>
                            <ENT>413 </ENT>
                            <ENT>4.18 </ENT>
                            <ENT>10,046.89 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">511—Cases with code 96.72 reported </ENT>
                            <ENT>0 </ENT>
                            <ENT>0 </ENT>
                            <ENT>0 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">511—Cases without code 96.72 reported </ENT>
                            <ENT>413 </ENT>
                            <ENT>4.18 </ENT>
                            <ENT>10,046.89 </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>We found 120 cases that reported code 96.72 within the 3,394 burn DRG cases (DRGs 504 through 511). Cases reporting code 96.72 have significantly longer average lengths of stay and average charges. The majority (54) of these cases that reported code 96.72 were in DRG 506. The cases with code 96.72 reported had average charges approximately 1.5 times higher than other cases in DRG 506 without code 96.72. </P>
                    <P>We noted that there were 21 cases that reported code 96.72 within DRG 510. Since the 21 patients were on continuous mechanical ventilation for 96 consecutive hours or more, it seems surprising that the principal diagnosis was listed as one of the nonextensive burn codes included in DRG 510. A closer review of these cases shows some questionable coding and reporting of information. It would appear that hospitals did not always correctly select the principal diagnosis (the reason after study that led to the hospital admission). For instance, one admission was for a second-degree burn of the ear. This patient was on a ventilator for over 96 hours. It would appear that the reason for the admission was a diagnosis other than the burn of the ear. Other cases where the patient received long-term mechanical ventilation included those with a principal diagnosis of first degree burn of the face, second degree burn of the nose, second degree burn of the lip, and an unspecified burn of the foot. These four cases reported average charges ranging from $48,551 to $186,824 and had lengths of stay ranging from 8 to 36 days. </P>
                    <P>The impact of long-term mechanical ventilation is quite clear on burn cases as was shown by the data above. Therefore, we are proposing to modify the burn DRGs 504 through 509 under MDC 22 to recognize this impact. We are proposing to modify DRG 504 and DRG 505 so that code 96.72 will be assigned to these DRGs when there is a principal diagnosis of extensive third degree burns or full thickness burns (those cases currently assigned to DRGs 504 through 509). In other words, when cases currently in DRGs 506 through 509 also have code 96.72 reported, they would now be assigned to DRGs 504 or 505. We are proposing to modify the titles of DRGs 504 and 505 to reflect the proposed changes in reporting code 96.72 as follows: </P>
                    <FP SOURCE="FP-1">• Proposed DRG 504 (Extensive Burns or Full Thickness Burns With Mechanical Ventilation 96+ Hours With Skin Graft) </FP>
                    <FP SOURCE="FP-1">• Proposed DRG 505 (Extensive Burns or Full Thickness Burns With Mechanical Ventilation 96+ Hours Without Skin Graft)</FP>
                    <P>Cases currently assigned to DRGs 504 and 505 that do not entail 96+ hours of mechanical ventilation will continue to be assigned to DRGs 504 and 505 because they would have extensive burns, as required by the DRG logic. </P>
                    <P>We are not proposing to include DRG 510 and DRG 511 within this revised DRG logic. Cases currently assigned to DRG 510 or DRG 511 that also report code 96.72 would not be reassigned to DRGs 504 and 505. We recommend that hospitals examine cases that are assigned to DRG 510 or DRG 511 and that have code 96.72 to determine if there are possible coding problems or other issues. As stated earlier, in examining reported cases within DRG 510, we noted several cases with code 96.72 that appear to have an incorrect principal diagnosis. It would appear that the principal diagnosis may more appropriately be related to an inhalation injury, if the injury was present at the time of admission. </P>
                    <P>We are specifically seeking comments on our proposal to move cases reporting code 96.72 from DRGs 506 through 509 and assign them to DRGs 504 and 505. We also are seeking comments on our proposal not to include DRGs 510 and 511 in this proposed revision. </P>
                    <HD SOURCE="HD3">9. Pre-MDC: Tracheostomy </HD>
                    <P>In the August 1, 2002 IPPS final rule (67 FR 49996), for FY 2003, we modified DRG 482 (Tracheostomy for Face, Mouth, and Neck Diagnoses) and DRG 483 (Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck Diagnoses) to recognize procedure code 96.72 (Continuous mechanical ventilation 96+ hours) in the DRG 483 assignment. As discussed earlier, we were concerned about an underreporting of code 96.72 and wanted to encourage increased reporting of this code.</P>
                    <P>
                        We examined cases in the MedPAR file in which code 96.72 was reported 
                        <PRTPAGE P="28213"/>
                        within DRGs 482 and 483. The following chart illustrates the average charges and lengths of stays for cases within DRGs 482 and 483 with and without code 96.72 reported: 
                    </P>
                    <GPOTABLE COLS="4" OPTS="L2,tp0,i1" CDEF="s150,12,12,12">
                        <TTITLE>  </TTITLE>
                        <BOXHD>
                            <CHED H="1">DRG </CHED>
                            <CHED H="1">Count </CHED>
                            <CHED H="1">Average length of stay </CHED>
                            <CHED H="1">Average charges </CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">482—All cases </ENT>
                            <ENT>3,557 </ENT>
                            <ENT>11.77</ENT>
                            <ENT>$45,419.10 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">482—Cases with code 96.72 </ENT>
                            <ENT>22 </ENT>
                            <ENT>31.64</ENT>
                            <ENT>137,880.41 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">482—Cases without code 96.72 </ENT>
                            <ENT>3,535 </ENT>
                            <ENT>11.64</ENT>
                            <ENT>44,843.67 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">483—All cases </ENT>
                            <ENT>31,754 </ENT>
                            <ENT>37.68</ENT>
                            <ENT>210,631.94 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">483—Cases with code 96.72 </ENT>
                            <ENT>19,669 </ENT>
                            <ENT>36.54 </ENT>
                            <ENT>195,171.66 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">483—Cases without code 96.72 </ENT>
                            <ENT>12,085 </ENT>
                            <ENT>39.52</ENT>
                            <ENT>235,794.39 </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>Of the 3,557 cases reported in DRG 482, only 22 cases reported code 96.72. These 22 cases did not have a tracheostomy performed. All 22 cases reported code 30.4 (Laryngectomy), which also leads to an assignment of DRG 482. It would appear that the long-term mechanical ventilation was performed through an endotracheal tube instead of through a tracheostomy. While the average charges for DRG 482 cases with code 96.72 reported were significantly higher than the average charges for other cases in the DRG, we do not believe that the very limited number of cases (22) warrants proposing a DRG modification. Therefore, we are not proposing any modification for DRG 482 at this time. We will continue to monitor cases assigned to this DRG. </P>
                    <P>In DRG 483, 19,669 cases were reported with code 96.72. However, the data were counter-intuitive. While one would expect to find higher average charges for cases reported with code 96.72, the opposite is the case. Cases in DRG 483 reported with code 96.72 had average charges that were $40,623 lower than those not reported with code 96.72. Clearly, the presence or absence of code 96.72 does not explain differences in charges for patients within DRG 483. </P>
                    <P>As stated earlier, we are concerned that hospitals may not always report code 96.72 because of space limitations. The electronic billing system limits the number of procedure codes that can be reported to six codes. We then looked at whether or not another major O.R. procedure is performed in addition to a tracheostomy. The DRG 483 logic requires that all patients assigned to DRG 483 have a tracheostomy. We examined cases in DRG 483 in the MedPAR file and discovered that those patients in DRG 483 who have a major procedure performed in addition to the tracheostomy have higher charges. A major procedure is a procedure whose code is included on the list that would be assigned to DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis), except for tracheostomy codes 31.21 and 31.29. Currently, this additional O.R. procedure does not affect the DRG assignment for cases assigned to DRG 483. The following chart reflects our findings. </P>
                    <GPOTABLE COLS="4" OPTS="L2,tp0,i1" CDEF="s150,12,12,12">
                        <TTITLE>  </TTITLE>
                        <BOXHD>
                            <CHED H="1">DRG </CHED>
                            <CHED H="1">Count </CHED>
                            <CHED H="1">Average length of stay </CHED>
                            <CHED H="1">Average Charges </CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">483—All Cases </ENT>
                            <ENT>31,754 </ENT>
                            <ENT>37.68</ENT>
                            <ENT>$210,631.94 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">483—Cases with major O.R. procedure </ENT>
                            <ENT>15,664 </ENT>
                            <ENT>42.70</ENT>
                            <ENT>255,914.00 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">483—Cases without major O.R. procedure </ENT>
                            <ENT>12,867 </ENT>
                            <ENT>32.7</ENT>
                            <ENT>168,890.20 </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>We found that cases of patients assigned to DRG 483 who had a major procedure (in addition to the required tracheostomy) had average charges that were $87,023 higher than the average charges for cases without a major O.R. procedure and an average length of stay of 5 days more than those without a major O.R. procedure. We found that the performance of an additional major O.R. procedure helps to identify the more expensive patients within DRG 483. </P>
                    <P>Therefore, as a result of our findings, we are proposing to modify DRG 483 by dividing these cases into two new DRGs depending on whether or not there is a major O.R. procedure reported (in addition to the tracheostomy). We are proposing to delete DRG 483 and create two new DRGs as follows: </P>
                    <FP SOURCE="FP-1">• Proposed new DRG 541 (Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck Diagnoses With Major O.R. Procedure) </FP>
                    <FP SOURCE="FP-1">• Proposed new DRG 542 (Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth and Neck Diagnoses Without Major O.R. Procedure)</FP>
                    <P>We are specifically seeking comments on our proposal to delete DRG 483 and replace it with two proposed new DRGs by splitting the assignment of cases on the basis of the performance of a major O.R. procedure (in addition to the tracheostomy). </P>
                    <HD SOURCE="HD3">10. Medicare Code Editor (MCE) Changes </HD>
                    <P>[If you choose to comment on issues in this section, please include the caption “Medicare Code Editor” at the beginning of your comment.] </P>
                    <P>As explained under section II.B.1. of this preamble, the Medicare Code Editor (MCE) is a software program that detects and reports errors in the coding of Medicare claims data. In this proposed rule, we are proposing to make changes to three of the edits in the MCE. </P>
                    <P>
                        a. Edit 11 (Noncovered Procedures) in the MCE contains codes that describe procedures for which Medicare does not provide reimbursement. We received a request to remove procedure codes relating to stem cell transplants from Edit 11 to conform the MCE edit to our published coverage decisions in the Medicare Coverage Issues Manual. In accordance with chapter 13, section 4 of the Program Integrity Manual (PIM), contractor discretion exists to cover diagnoses that are not explicitly stated in a national coverage decision as noncovered. Specifically this section states: that “a local medical review policy (LMRP)” must be clear, concise, properly formatted and not restrict or conflict with NCDs or coverage provision in interpretive manuals. If an NCD or coverage provision in an interpretive manual states that a given 
                        <PRTPAGE P="28214"/>
                        item is “covered for diagnoses/conditions A, B, and C,” contractors may not use that as a basis to develop LMRP to cover only “diagnosis/conditions A, B, C”. When an NCD or coverage provision in an interpretive manual does not exclude coverage for other diagnoses/conditions, contractors must allow for individual consideration unless the LMRP supports automatic denial for some or all of those other diagnoses/conditions.” 
                    </P>
                    <P>The national coverage decision on stem cell transplantation provides for coverage of certain diagnoses and excludes coverage for other diagnoses. However, the vast majority of diagnoses are not mentioned as either covered or noncovered. In accordance with the above-cited provision of the PIM, contractors must allow for individual consideration of these diagnoses. Thus, they are not appropriate for inclusion in the edit for noncovered procedures. </P>
                    <P>We agree that we need to make conforming changes relating to stem cell transplants. Therefore, we are proposing the following restructure of Edit 11: </P>
                    <P>This list contains ICD-9-CM procedure codes identified as “Noncovered Procedures” that are always considered noncovered procedures:</P>
                    <FP SOURCE="FP-1">• 11.71, Keratomileusis </FP>
                    <FP SOURCE="FP-1">• 11.72, Keratophakia </FP>
                    <FP SOURCE="FP-1">• 11.75, Radial keratotomy </FP>
                    <FP SOURCE="FP-1">• 11.76, Epikeratophakia </FP>
                    <FP SOURCE="FP-1">• 36.32, Other transmyocardial revascularization </FP>
                    <FP SOURCE="FP-1">• 37.35, Partial ventriculectomy </FP>
                    <FP SOURCE="FP-1">• 37.52, Implantation of total replacement heart system </FP>
                    <FP SOURCE="FP-1">• 37.53, Replacement or repair of thoracic unit of total replacement heart system </FP>
                    <FP SOURCE="FP-1">• 37.54, Replacement or repair of other implantable component of total replacement heart system </FP>
                    <FP SOURCE="FP-1">• 39.28, Extracranial-intracranial (EC-IC) vascular bypass </FP>
                    <FP SOURCE="FP-1">• 44.93, Insertion of gastric bubble (balloon) </FP>
                    <FP SOURCE="FP-1">• 50.51, Auxiliary liver transplant </FP>
                    <FP SOURCE="FP-1">• 52.83, Heterotransplant of pancreas </FP>
                    <FP SOURCE="FP-1">• 57.96, Implantation of electronic bladder stimulator </FP>
                    <FP SOURCE="FP-1">• 57.97, Replacement of electronic bladder stimulator </FP>
                    <FP SOURCE="FP-1">• 63.70, Male sterilization procedure, not otherwise specified </FP>
                    <FP SOURCE="FP-1">• 63.71, Ligation of vas deferens </FP>
                    <FP SOURCE="FP-1">• 63.72, Ligation of spermatic cord </FP>
                    <FP SOURCE="FP-1">• 63.73, Vasectomy </FP>
                    <FP SOURCE="FP-1">• 64.5, Operations for sex transformation, not elsewhere classified </FP>
                    <FP SOURCE="FP-1">• 66.21, Bilateral endoscopic ligation and crushing of fallopian tubes </FP>
                    <FP SOURCE="FP-1">• 66.22, Bilateral endoscopic ligation and division of fallopian tubes </FP>
                    <FP SOURCE="FP-1">• 66.29, Other bilateral endoscopic destruction or occlusion of fallopian tubes </FP>
                    <FP SOURCE="FP-1">• 66.31, Other bilateral ligation and crushing of fallopian tubes </FP>
                    <FP SOURCE="FP-1">• 66.32, Other bilateral ligation and division of fallopian tubes </FP>
                    <FP SOURCE="FP-1">• 66.39, Other bilateral destruction or occlusion of fallopian tubes </FP>
                    <FP SOURCE="FP-1">• 98.52, Extracorporeal shockwave lithotripsy [ESWL] of the gallbladder and/or bile duct </FP>
                    <FP SOURCE="FP-1">• 98.59, Extracorporeal shockwave lithotripsy of other sites</FP>
                    <P>The following list contains ICD-9-CM procedure codes identified as “Noncovered Procedures” only when any of the following diagnoses are present as either a principal or secondary diagnosis. </P>
                    <HD SOURCE="HD2">Procedure List</HD>
                    <FP SOURCE="FP-1">• 41.01, Autologous bone marrow transplant without purging </FP>
                    <FP SOURCE="FP-1">• 41.04, Autologous hematopoietic stem cell transplant without purging </FP>
                    <FP SOURCE="FP-1">• 41.07, Autologous hematopoietic stem cell transplant with purging </FP>
                    <FP SOURCE="FP-1">• 41.09, Autologous bone marrow transplant with purging </FP>
                    <HD SOURCE="HD2">Principal or Secondary Diagnosis List</HD>
                    <FP SOURCE="FP-1">• 204.00, Acute lymphoid leukemia, without mention of remission </FP>
                    <FP SOURCE="FP-1">• 205.00, Acute myeloid leukemia, without mention of remission </FP>
                    <FP SOURCE="FP-1">• 206.00, Acute monocytic leukemia, without mention of remission </FP>
                    <FP SOURCE="FP-1">• 207.00, Acute erythremia and erythroleukemia, without mention of remission </FP>
                    <FP SOURCE="FP-1">• 208.00, Acute leukemia of unspecified cell type, without mention of remission </FP>
                    <FP SOURCE="FP-1">• 205.10, Acute myeloid leukemia, in remission </FP>
                    <FP SOURCE="FP-1">• 205.11, Chronic myeloid leukemia, in remission</FP>
                    <P>The following list contains ICD-9-CM procedure codes identified as “Noncovered Procedures” only when any of the following diagnoses are present as either a principal or secondary diagnosis. </P>
                    <HD SOURCE="HD2">Procedure List</HD>
                    <FP SOURCE="FP-1">• 41.02, Allogeneic bone marrow transplant with purging </FP>
                    <FP SOURCE="FP-1">• 41.03, Allogeneic bone marrow transplant without purging </FP>
                    <FP SOURCE="FP-1">• 41.05, Allogeneic hematopoietic stem cell transplant without purging </FP>
                    <FP SOURCE="FP-1">• 41.08, Allogeneic hematopoietic stem cell transplant with purging </FP>
                    <HD SOURCE="HD2">Principal or Secondary Diagnosis List </HD>
                    <FP SOURCE="FP-1">• 203.00, Multiple myeloma, without mention of remission</FP>
                    <FP SOURCE="FP-1">• 203.01, Multiple myeloma, in remission</FP>
                    <P>The following list contains ICD-9-CM procedure codes identified as “Non-Covered Procedures” except when there is at least one principal or secondary diagnosis code present from both list 1 and list 2.</P>
                    <HD SOURCE="HD2">Procedure List</HD>
                    <FP SOURCE="FP-1">• 52.80, Pancreatic transplant, not otherwise specified </FP>
                    <FP SOURCE="FP-1">• 52.82, Homotransplant of pancreas </FP>
                    <HD SOURCE="HD2">Procedure List 1</HD>
                    <FP SOURCE="FP-1">• 250.00, Diabetes mellitus without mention of complication, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.01, Diabetes mellitus without mention of complication, type I [insulin dependent type] [IDDM] [juvenile type], not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.02, Diabetes mellitus without mention of complication, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.03, Diabetes mellitus without mention of complication, type I [insulin dependent type] [IDDM type] [juvenile type], uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.10, Diabetes with ketoacidosis, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.11, Diabetes with ketoacidosis, type I [insulin dependent type] [IDDM] [juvenile type], not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.12, Diabetes with ketoacidosis, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.13, Diabetes with ketoacidosis, type I [insulin dependent type] [IDDM type] [juvenile type], uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.20, Diabetes with hyperosmolarity, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.21, Diabetes with hyperosmolarity, type I [insulin dependent type] [IDDM] [juvenile type], not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.22, Diabetes with hyperosmolarity, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.23, Diabetes with hyperosmolarity, type I [insulin dependent type] [IDDM] [juvenile type], uncontrolled </FP>
                    <FP SOURCE="FP-1">
                        • 250.30, Diabetes with other coma, type II [non-insulin dependent type] 
                        <PRTPAGE P="28215"/>
                        [NIDDM type] [adult-onset type] or unspecified type, not stated as uncontrolled 
                    </FP>
                    <FP SOURCE="FP-1">• 250.31, Diabetes with other coma, type I [insulin dependent type] [IDDM] [juvenile type], not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.32, Diabetes with other coma, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.33, Diabetes with other coma, type I [insulin dependent type] [IDDM] [juvenile type], uncontrolled, type I [insulin dependent type] [IDDM type] [juvenile type], uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.40, Diabetes with renal manifestation, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.41, Diabetes with renal manifestation, type I [insulin dependent type] [IDDM] [juvenile type], not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.42, Diabetes with renal manifestation, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.43, Diabetes with renal manifestation, type I [insulin dependent type] [IDDM type] [juvenile type], uncontrolled </FP>
                    <FP SOURCE="FP-1">• 205.50, Diabetes with ophthalmic manifestations, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 205.51, Diabetes with ophthalmic manifestations, type I [insulin dependent type] [IDDM] [juvenile type], not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 205.52, Diabetes with ophthalmic manifestations, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, uncontrolled </FP>
                    <FP SOURCE="FP-1">• 205.53, Diabetes with ophthalmic manifestations, type I [insulin dependent type] [IDDM type] [juvenile type], uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.60, Diabetes with neurological manifestations, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.61, Diabetes with neurological manifestations, type I [insulin dependent type] [IDDM] [juvenile type], not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.62, Diabetes with neurological manifestations, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.63, Diabetes with neurological manifestations, type I [insulin dependent type] [IDDM type] [juvenile type], uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.70, Diabetes with peripheral circulatory disorders, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.71, Diabetes with peripheral circulatory disorders type I [insulin dependent type] [IDDM] [juvenile type], not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.72, Diabetes with peripheral circulatory disorders, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.73, Diabetes with peripheral circulatory disorders, type I [insulin dependent type] [IDDM type] [juvenile type], uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.80, Diabetes with other specified manifestations, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.81, Diabetes with other specified manifestations, type I [insulin dependent type] [IDDM] [juvenile type], not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.82, Diabetes with other specified manifestations, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.83, Diabetes with other specified manifestations, type I [insulin dependent type] [IDDM] [juvenile type], uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.90, Diabetes with unspecified complication, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.91, Diabetes with unspecified complication, type I [insulin dependent type] [IDDM] [juvenile type], not stated as uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.92, Diabetes with unspecified complication, type II [non-insulin dependent type] [NIDDM type] [adult-onset type] or unspecified type, uncontrolled </FP>
                    <FP SOURCE="FP-1">• 250.93, Diabetes with unspecified complication, type I [insulin dependent type] [IDDM] [juvenile type], uncontrolled </FP>
                    <HD SOURCE="HD2">Diagnosis List 2 </HD>
                    <FP SOURCE="FP-1">• 403.01, Malignant hypertensive renal disease, with renal failure </FP>
                    <FP SOURCE="FP-1">• 403.11, Benign hypertensive renal disease, with renal failure </FP>
                    <FP SOURCE="FP-1">• 403.91, Unspecified hypertensive renal disease, with renal failure </FP>
                    <FP SOURCE="FP-1">• 404.02, Malignant hypertensive heart and renal disease, with renal failure </FP>
                    <FP SOURCE="FP-1">• 404.03, Malignant hypertensive heart and renal disease, with heart failure and renal failure </FP>
                    <FP SOURCE="FP-1">• 404.12, Benign hypertensive heart and renal disease, with renal failure </FP>
                    <FP SOURCE="FP-1">• 404.13, Benign hypertensive heart and renal disease, with heart failure and renal failure </FP>
                    <FP SOURCE="FP-1">• 404.92, Unspecified hypertensive heart and renal disease, with renal failure </FP>
                    <FP SOURCE="FP-1">• 404.93, Unspecified hypertensive heart and renal disease, with heart failure and renal failure </FP>
                    <FP SOURCE="FP-1">• 585, Chronic renal failure </FP>
                    <FP SOURCE="FP-1">• V42.0, Organ or tissue replaced by transplant, kidney </FP>
                    <FP SOURCE="FP-1">• V43.89, Organ or tissue replaced by other means, other</FP>
                    <P>b. Edit 6 (Manifestations Not Allowed As Principal Diagnosis) in the MCE contains codes that describe the manifestation of an underlying disease, not the disease itself, and therefore, should not be used as a principal diagnosis. The following codes describe manifestations of an underlying disease; they should not be used as a principal diagnosis according to ICD-9-CM coding convention. Therefore, we are proposing to add the following diagnosis codes to Edit 6: </P>
                    <FP SOURCE="FP-1">• 289.52, Splenic sequestration </FP>
                    <FP SOURCE="FP-1">• 571.3, Acute chest syndrome </FP>
                    <FP SOURCE="FP-1">• 785.52, Septic shock</FP>
                    <P>Coding conventions in the ICD-9-CM Diagnostic Tabular List specify that etiologic conditions be coded first. </P>
                    <P>c. Edit 9 (Unacceptable Principal Diagnoses) contains codes “that describe a circumstance which influences an individual's health status but is not a current illness of injury; therefore, these codes are considered unacceptable as a principal diagnosis.” (This definition can be found on page 1094 of the DRG Definitions Manual, Version 21.0). Therefore, these codes are considered unacceptable as a principal diagnosis. Last year, we became aware that two codes should be removed from this list, as they can be legitimate causes for inpatient admission. However, we were made aware of this too late in the process to make a change to this edit prior to FY 2004. We will now be able to make the necessary system changes before the start of FY 2005. Therefore, in this proposed rule, we are proposing to remove the following codes from Edit 9: </P>
                    <FP SOURCE="FP-1">• V53.01, Adjustment of cerebral ventricular (communicating) shunt </FP>
                    <FP SOURCE="FP-1">• V53.02, Adjustment of neuropacemaker (brain) (peripheral nerve) (spinal cord) </FP>
                    <HD SOURCE="HD3">11. Surgical Hierarchies </HD>
                    <P>
                        [If you choose to comment on the issues in this section, please include the caption “Surgical Hierarchies” at the beginning of your comment.] 
                        <PRTPAGE P="28216"/>
                    </P>
                    <P>Some inpatient stays entail multiple surgical procedures, each one of which, occurring by itself, could result in assignment of the case to a different DRG within the MDC to which the principal diagnosis is assigned. Therefore, it is necessary to have a decision rule within the GROUPER by which these cases are assigned to a single DRG. The surgical hierarchy, an ordering of surgical classes from most resource-intensive to least resource-intensive, performs that function. Application of this hierarchy ensures that cases involving multiple surgical procedures are assigned to the DRG associated with the most resource-intensive surgical class. </P>
                    <P>Because the relative resource intensity of surgical classes can shift as a function of DRG reclassification and recalibrations, we reviewed the surgical hierarchy of each MDC, as we have for previous reclassifications and recalibrations, to determine if the ordering of classes coincides with the intensity of resource utilization. </P>
                    <P>A surgical class can be composed of one or more DRGs. For example, in MDC 11, the surgical class “kidney transplant” consists of a single DRG (DRG 302) and the class “kidney, ureter and major bladder procedures” consists of three DRGs (DRGs 303, 304, and 305). Consequently, in many cases, the surgical hierarchy has an impact on more than one DRG. The methodology for determining the most resource-intensive surgical class involves weighting the average resources for each DRG by frequency to determine the weighted average resources for each surgical class. For example, assume surgical class A includes DRGs 1 and 2 and surgical class B includes DRGs 3, 4, and 5. Assume also that the average charge of DRG 1 is higher than that of DRG 3, but the average charges of DRGs 4 and 5 are higher than the average charge of DRG 2. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weight the average charge of each DRG in the class by frequency (that is, by the number of cases in the DRG) to determine average resource consumption for the surgical class. The surgical classes would then be ordered from the class with the highest average resource utilization to that with the lowest, with the exception of “other O.R. procedures” as discussed below. </P>
                    <P>This methodology may occasionally result in assignment of a case involving multiple procedures to the lower-weighted DRG (in the highest, most resource-intensive surgical class) of the available alternatives. However, given that the logic underlying the surgical hierarchy provides that the GROUPER search for the procedure in the most resource-intensive surgical class, this result is unavoidable. </P>
                    <P>We note that, notwithstanding the foregoing discussion, there are a few instances when a surgical class with a lower average charge is ordered above a surgical class with a higher average charge. For example, the “other O.R. procedures” surgical class is uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, regardless of the fact that the average charge for the DRG or DRGs in that surgical class may be higher than that for other surgical classes in the MDC. The “other O.R. procedures” class is a group of procedures that are only infrequently related to the diagnoses in the MDC but are still occasionally performed on patients in the MDC with these diagnoses. Therefore, assignment to these surgical classes should only occur if no other surgical class more closely related to the diagnoses in the MDC is appropriate. </P>
                    <P>A second example occurs when the difference between the average charges for two surgical classes is very small. We have found that small differences generally do not warrant reordering of the hierarchy because, as a result of reassigning cases on the basis of the hierarchy change, the average charges are likely to shift such that the higher-ordered surgical class has a lower average charge than the class ordered below it. </P>
                    <P>Based on the preliminary recalibration of the DRGs, we are proposing modifications of the surgical hierarchy as set forth below. </P>
                    <P>At this time, we are proposing to revise the surgical hierarchy for the pre-MDC DRGs and MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue). </P>
                    <P>In the pre-MDC DRGs, we are proposing to reorder DRG 541 (Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck Diagnoses With Major O.R. Procedure) and DRG 542 (Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck Diagnoses Without Major O.R. Procedure) above DRG 480 (Liver Transplant). </P>
                    <P>In MDC 8, we are proposing to— </P>
                    <P>• Reorder DRG 496 (Combined Anterior/Posterior Spinal Fusion), DRG 497 (Spinal Fusion Except Cervical With CC), and DRG 498 (Spinal Fusion Except Cervical Without CC) above DRG 471 (Bilateral or Multiple Major Joint Procedures of the Lower Extremity). </P>
                    <P>• Reorder DRG 519 (Cervical Spinal Fusion With CC) and DRG 520 (Cervical Spinal Fusion Without CC) above DRG 216 (Biopsies of the Musculoskeletal System and Connective Tissue). </P>
                    <P>• Reorder DRG 213 (Amputation for the Musculoskeletal System and Connective Tissue Disorders) above DRG 210 (Hip and Femur Procedures Except Major Joint Age &gt; 17 With CC), DRG 211 (Hip and Femur Procedures Except Major Joint Age &gt; 17 Without CC), and DRG 212 (Hip and Femur Procedures Except Major Joint Age 0-17). </P>
                    <P>• Reorder DRG 499 (Back and Neck Procedures Except Spinal Fusion With CC) and DRG 500 (Back and Neck Procedures Except Spinal Fusion Without CC) above DRG 218 (Lower Extremity and Humerus Procedures Except Hip, Foot, and Femur Age &gt; 17 With CC), DRG 219 (Lower Extremity and Humerus Procedures Except Hip, Foot, and Femor Age &gt; 17 Without CC), and DRG 220 (Lower Extremity and Humerus Procedures Except Hip, Foot, and Femur Age 0-17). </P>
                    <HD SOURCE="HD3">12. Refinement of Complications and Comorbidities (CC) List </HD>
                    <P>[If you choose to comment on issues in this section, please include the caption “CC List” at the beginning of your comment.] </P>
                    <P>In the September 1, 1987 final notice (52 FR 33143) concerning changes to the DRG classification system, we modified the GROUPER logic so that certain diagnoses included on the standard list of CCs would not be considered valid CCs in combination with a particular principal diagnosis. We created the CC Exclusions List for the following reasons: (1) To preclude coding of CCs for closely related conditions; (2) to preclude duplicative or inconsistent coding from being treated as CCs; and (3) to ensure that cases are appropriately classified between the complicated and uncomplicated DRGs in a pair. We developed this list of diagnoses, using physician panels, to include those diagnoses that, when present as a secondary condition, would be considered a substantial complication or comorbidity. In previous years, we have made changes to the list of CCs, either by adding new CCs or deleting CCs already on the list. At this time, we are not proposing to delete any of the diagnosis codes on the CC list. </P>
                    <P>
                        In the May 19, 1987 proposed notice (52 FR 18877) and the September 1, 1987 final notice (52 FR 33154), we explained that the excluded secondary diagnoses were established using the following five principles: 
                        <PRTPAGE P="28217"/>
                    </P>
                    <P>• Chronic and acute manifestations of the same condition should not be considered CCs for one another. </P>
                    <P>• Specific and nonspecific (that is, not otherwise specified (NOS)) diagnosis codes for the same condition should not be considered CCs for one another. </P>
                    <P>• Codes for the same condition that cannot coexist, such as partial/total, unilateral/bilateral, obstructed/unobstructed, and benign/malignant, should not be considered CCs for one another. </P>
                    <P>• Codes for the same condition in anatomically proximal sites should not be considered CCs for one another. </P>
                    <P>• Closely related conditions should not be considered CCs for one another. </P>
                    <P>
                        The creation of the CC Exclusions List was a major project involving hundreds of codes. We have continued to review the remaining CCs to identify additional exclusions and to remove diagnoses from the master list that have been shown not to meet the definition of a CC.
                        <SU>1</SU>
                        <FTREF/>
                    </P>
                    <FTNT>
                        <P>
                            <SU>1</SU>
                             See the September 30, 1988 final rule (53 FR 38485) for the revision made for the discharges occurring in FY 1989; the September 1, 1989 final rule (54 FR 36552) for the FY 1990 revision; the September 4, 1990 final rule (55 FR 36126) for the FY 1991 revision; the August 30, 1991 final rule (56 FR 43209) for the FY 1992 revision; the September 1, 1992 final rule (57 FR 39753) for the FY 1993 revision; the September 1, 1993 final rule (58 FR 46278) for the FY 1994 revisions; the September 1, 1994 final rule (59 FR 45334) for the FY 1995 revisions; the September 1, 1995 final rule (60 FR 45782) for the FY 1996 revisions; the August 30, 1996 final rule (61 FR 46171) for the FY 1997 revisions; the August 29, 1997 final rule (62 FR 45966) for the FY 1998 revisions; the July 31, 1998 final rule (63 FR 40954) for the FY 1999 revisions, the August 1, 2000 final rule (65 FR 47064) for the FY 2001 revisions; the August 1, 2001 final rule (66 FR 39851) for the FY 2002 revisions; the August 1, 2002 final rule (67 FR 49998) for the FY 2003 revisions; and the August 1, 2003 final rule (68 FR 45364) for the FY 2004 revisions.) In the July 30, 1999 final rule (64 FR 41490), we did not modify the CC Exclusions List for FY 2000 because we did not make any changes to the ICD-9-CM codes for FY 2000.
                        </P>
                    </FTNT>
                    <P>
                        We are proposing a limited revision of the CC Exclusions List to take into account the proposed changes that will be made in the ICD-9-CM diagnosis coding system effective October 1, 2004. (
                        <E T="03">See</E>
                         section II.B.15. of this preamble for a discussion of ICD-9-CM changes.) We are proposing these changes in accordance with the principles established when we created the CC Exclusions List in 1987. 
                    </P>
                    <P>Tables 6G and 6H in the Addendum to this proposed rule contain the proposed revisions to the CC Exclusions List that would be effective for discharges occurring on or after October 1, 2004. Each table shows the principal diagnoses with changes to the excluded CCs. Each of these principal diagnoses is shown with an asterisk, and the additions or deletions to the CC Exclusions List are provided in an indented column immediately following the affected principal diagnosis. </P>
                    <P>CCs that are added to the list are in Table 6G—Additions to the CC Exclusions List. Beginning with discharges on or after October 1, 2004, the indented diagnoses would not be recognized by the GROUPER as valid CCs for the asterisked principal diagnosis. </P>
                    <P>CCs that are deleted from the list are in Table 6H—Deletions from the CC Exclusions List. Beginning with discharges on or after October 1, 2004, the indented diagnoses would be recognized by the GROUPER as valid CCs for the asterisked principal diagnosis.</P>
                    <P>Copies of the original CC Exclusions List applicable to FY 1988 can be obtained from the National Technical Information Service (NTIS) of the Department of Commerce. It is available in hard copy for $152.50 plus shipping and handling. A request for the FY 1988 CC Exclusions List (which should include the identification accession number (PB) 88-133970) should be made to the following address: National Technical Information Service, United States Department of Commerce, 5285 Port Royal Road, Springfield, VA 22161; or by calling (800) 553-6847.</P>
                    <P>
                        Users should be aware of the fact that all revisions to the CC Exclusions List (FYs 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2001, 2002, 2003, and 2004) and those in Tables 6G and 6H of this proposed rule for FY 2005 must be incorporated into the list purchased from NTIS in order to obtain the CC Exclusions List applicable for discharges occurring on or after October 1, 2004. (
                        <E T="04">Note:</E>
                         There was no CC Exclusions List in FY 2000 because we did not make changes to the ICD-9-CM codes for FY 2000.)
                    </P>
                    <P>Alternatively, the complete documentation of the GROUPER logic, including the current CC Exclusions List, is available from 3M/Health Information Systems (HIS), which, under contract with CMS, is responsible for updating and maintaining the GROUPER program. The current DRG Definitions Manual, Version 21.0, is available for $225.00, which includes $15.00 for shipping and handling. Version 22.0 of this manual, which includes the final FY 2004 DRG changes, is available for $225.00. These manuals may be obtained by writing 3M/HIS at the following address: 100 Barnes Road, Wallingford, CT 06492; or by calling (203) 949-0303. Please specify the revision or revisions requested.</P>
                    <HD SOURCE="HD3">13. Review of Procedure Codes in DRGs 468, 476, and 477</HD>
                    <P>[If you choose to comment on issues in this section, please include the caption “DRGs 468, 476, and 477” at the beginning of your comment.]</P>
                    <P>Each year, we review cases assigned to DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis), DRG 476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis) to determine whether it would be appropriate to change the procedures assigned among these DRGs.</P>
                    <P>DRGs 468, 476, and 477 are reserved for those cases in which none of the O.R. procedures performed are related to the principal diagnosis. These DRGs are intended to capture atypical cases, that is, those cases not occurring with sufficient frequency to represent a distinct, recognizable clinical group. DRG 476 is assigned to those discharges in which one or more of the following prostatic procedures are performed and are unrelated to the principal diagnosis:</P>
                    <FP SOURCE="FP-1">• 60.0, Incision of prostate</FP>
                    <FP SOURCE="FP-1">• 60.12, Open biopsy of prostate</FP>
                    <FP SOURCE="FP-1">• 60.15, Biopsy of periprostatic tissue</FP>
                    <FP SOURCE="FP-1">• 60.18, Other diagnostic procedures on prostate and periprostatic tissue</FP>
                    <FP SOURCE="FP-1">• 60.21, Transurethral prostatectomy</FP>
                    <FP SOURCE="FP-1">• 60.29, Other transurethral prostatectomy</FP>
                    <FP SOURCE="FP-1">• 60.61, Local excision of lesion of prostate</FP>
                    <FP SOURCE="FP-1">• 60.69, Prostatectomy, not elsewhere classified</FP>
                    <FP SOURCE="FP-1">• 60.81, Incision of periprostatic tissue</FP>
                    <FP SOURCE="FP-1">• 60.82, Excision of periprostatic tissue</FP>
                    <FP SOURCE="FP-1">• 60.93, Repair of prostate</FP>
                    <FP SOURCE="FP-1">• 60.94, Control of (postoperative) hemorrhage of prostate </FP>
                    <FP SOURCE="FP-1">• 60.95, Transurethral balloon dilation of the prostatic urethra</FP>
                    <FP SOURCE="FP-1">• 60.96, Transurethral destruction of prostate tissue by microwave thermotherapy</FP>
                    <FP SOURCE="FP-1">• 60.97, Other transurethral destruction of prostate tissue by other thermotherapy</FP>
                    <FP SOURCE="FP-1">• 60.99, Other operations on prostate</FP>
                    <P>
                        All remaining O.R. procedures are assigned to DRGs 468 and 477, with DRG 477 assigned to those discharges in which the only procedures performed are nonextensive procedures that are unrelated to the principal diagnosis.
                        <SU>2</SU>
                        <FTREF/>
                    </P>
                    <FTNT>
                        <P>
                            <SU>2</SU>
                             In the August 1, 2003 final rule (68 FR 45365) we moved several procedures from DRG 468 to DRGs 476 and 477 because the procedures are nonextensive. The original list of the ICD-9-CM 
                            <PRTPAGE/>
                            procedure codes for the procedures we consider nonextensive procedures, if performed with an unrelated principal diagnosis, was published in Table 6C in section IV. of the Addendum to the September 30, 1988 final rule (53 FR 38591). As part of the final rules published on September 4, 1990 (55 FR 36135), August 30, 1991 (56 FR 43212), September 1, 1992 (57 FR 23625), September 1, 1993 (58 FR 46279), September 1, 1994 (59 FR 45336), September 1, 1995 (60 FR 45783), August 30, 1996 (61 FR 46173), and August 29, 1997 (62 FR 45981), we moved several other procedures from DRG 468 to DRG 477, and some procedures from DRG 477 to DRG 468. No procedures were moved in FY 1999, as noted in the July 31, 1998 final rule (63 FR 40962); in FY 2000, as noted in the July 30, 1999 final rule (64 FR 41496); in FY 2001, as noted in the August 1, 2000 final rule (65 FR 47064); or in FY 2002, as noted in the August 1, 2001 final rule (66 FR 39852). In the August 1, 2002 final rule (67 FR 49999), we did not move any procedures from DRG 477. However, we did move procedures codes from DRG 468 and placed them in more clinically coherent DRGs.
                        </P>
                    </FTNT>
                    <PRTPAGE P="28218"/>
                    <HD SOURCE="HD3">a. Moving Procedure Codes From DRG 468 or DRG 477 to MDCs </HD>
                    <P>We annually conduct a review of procedures producing assignment to DRG 468 or DRG 477 on the basis of volume, by procedure, to see if it would be appropriate to move procedure codes out of these DRGs into one of the surgical DRGs for the MDC into which the principal diagnosis falls. The data are arrayed two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each MDC. </P>
                    <P>We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical DRGs for the MDC in which the diagnosis falls. Based on this year's review, we did not identify any procedures in DRG 477 that should be removed. Therefore, we are not proposing to move any procedures from DRG 477 to one of the surgical DRGs. </P>
                    <HD SOURCE="HD3">b. Reassignment of Procedures Among DRGs 468, 476, and 477 </HD>
                    <P>We also annually review the list of ICD-9-CM procedures that, when in combination with their principal diagnosis code, result in assignment to DRGs 468, 476, and 477, to ascertain if any of those procedures should be reassigned from one of these three DRGs to another of the three DRGs based on average charges and the length of stay. We look at the data for trends such as shifts in treatment practice or reporting practice that would make the resulting DRG assignment illogical. If we find these shifts, we would propose to move cases to keep the DRGs clinically similar or to provide payment for the cases in a similar manner. Generally, we move only those procedures for which we have an adequate number of discharges to analyze the data. Based on a comment we received in response to last year's proposed rule (68 FR 45366), we are proposing to move procedure code 51.23 (Laparoscopic cholecystectomy) from DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis) into DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis). </P>
                    <P>The commenter suggested that a laparoscopic procedure was probably not an extensive O.R. procedure; it was more likely a nonextensive O.R. procedure. We agree and, therefore, are proposing this change. In addition, we are proposing to add several new procedure codes to DRGs 476 and 477. These procedures are also listed on Table 6B—New Procedure Codes in the Addendum to this proposed rule. However, DRGs 476 and 477 are not limited to one MDC, so the new codes are also included here for nonextensive cases in which the procedures are unrelated to the principal diagnosis: </P>
                    <FP SOURCE="FP-1">• 44.67, Laparoscopic procedures for creation of esophagogastric sphincteric competence </FP>
                    <FP SOURCE="FP-1">• 44.68, Laparoscopic gastroplasty </FP>
                    <FP SOURCE="FP-1">• 44.95, Laparoscopic gastric restrictive procedure </FP>
                    <FP SOURCE="FP-1">• 44.96, Laparoscopic revision of gastric restrictive procedure </FP>
                    <FP SOURCE="FP-1">• 44.97, Laparoscopic removal of gastric restrictive device(s) </FP>
                    <FP SOURCE="FP-1">• 44.98, Laparoscopic adjustment of size of adjustable gastric restrictive device </FP>
                    <P>In DRG 476, the above codes are to be added to the section “With or Without Operating Room Procedures” in the GROUPER logic. </P>
                    <P>We are not proposing to move any procedure codes from DRG 476 to DRGs 468 or 477, or from DRG 477 to DRGs 468 or 476. </P>
                    <HD SOURCE="HD3">c. Adding Diagnosis or Procedure Codes to MDCs </HD>
                    <P>Based on our review this year, we are not proposing to add any diagnosis codes to MDCs. </P>
                    <HD SOURCE="HD3">14. Pancreatic Islet Cell Transplantation in Clinical Trials </HD>
                    <P>[If you choose to comment on issues in this section, please include the caption “Pancreatic Islet Cell Transplantation” at the beginning of your comment.] </P>
                    <P>Section 733(a) of Public Law 108-173 directs the Secretary, acting through the National Institute of Diabetes and Digestive and Kidney Disorders (NIDDKD) to conduct a clinical investigation of pancreatic islet cell transplantation that includes Medicare beneficiaries. Section 733(b) provides for Medicare payments, beginning no earlier than October 1, 2004, for the routine costs as well as the costs of the transplantation and appropriate related items and services for Medicare beneficiaries who are participating in a clinical trial as if such transplantation were covered under Medicare Part A or Part B. Routine costs are defined as reasonable and necessary routine patient care costs (as defined in the CMS Coverage Issues Manual, Section 30-1) including immunosuppressive drugs and other followup care. Section 733(c)(2) defines transplantation and appropriate related items and services as items and services related to the acquisition and delivery of the pancreatic islet cell transplantation, notwithstanding any national noncoverage determination contained in the CMS Coverage Issues Manual. </P>
                    <P>While the DRG payment will cover the transplant injection and the subsequent hospital stay, we are considering establishing an add-on payment to the DRG payment amount to reimburse the acquisition costs associated with islet cell procurement. Historically, organ acquisition costs have been reimbursed as a cost pass-through. However, islet cell transplants are not exactly the same as solid organ transplants. While solid pancreata are procured, islet cells are not transplanted in the solid organ state as are other types of organs. Rather, the pancreata are procured by an organ procurement organization (OPO) and are then sent to an islet cell resource center that extracts the islet cells from the pancreata and sends the cells on to the transplant center. Since the procurement and processing system for islet cell transplants is not the same as for solid organ transplants, we do not intend to pay for these costs as a pass through. With the anticipated small number of beneficiaries in the clinical trial and the Medicare program's unfamiliarity with the isolation process, we believe it is most appropriate at this time to have a set payment rate for acquisition costs, rather than attempting a case-by-case determination of the reasonableness of these costs in each institution. We note there is precedent to exclude acquisition costs from the pass-through payment process. For example, stem cell transplants and corneal transplants do not have acquisition costs reimbursed as a cost pass-through payment. </P>
                    <P>
                        The add-on payment would be a single amount that includes pre-transplant tests and services, pancreas procurement, and islet isolation services. We are proposing to use an 
                        <PRTPAGE P="28219"/>
                        add-on as opposed to increasing the DRG amount because the DRGs at issue are also applied in cases involving a variety of other procedures that do not include the costly islet cell acquisition required for this procedure. Thus, including these costs in the DRGs would have the potential of skewing the weights for all other DRGs. We are asking for specific comments on whether an add-on payment amount is the appropriate way to reimburse islet cell acquisition costs, or whether another methodology may be more appropriate.
                    </P>
                    <P>In addition, while we have some data available regarding the cost of pancreas procurement, we are specifically asking for any other data that support the costs of acquisition and the costs of isolation cell resource centers. </P>
                    <P>Because we do not yet have enough data, we are unable to publish a proposed acquisition amount in this proposed rule. After analyzing data submitted during the comment period, other data acquired by CMS, and any suggested changes from the methodology proposed, we will issue the final organ acquisition payment amount in the IPPS final rule. </P>
                    <P>Pancreatic islet cell transplantation during the clinical trial will be performed to decrease or eliminate the need for insulin in patients with Type I diabetes. Islet cells are acquired from a cadaveric pancreas donor (islet allotransplantation). </P>
                    <P>As described in II.B.1. of this preamble, ICD-9-CM diagnosis and procedure codes are used to determine DRG assignments. In 1996, CMS (then HCFA) created codes for islet cell transplantation: </P>
                    <FP SOURCE="FP-1">• 52.84, Autotransplantation of cells of islets of Langerhans </FP>
                    <FP SOURCE="FP-1">• 52.85, Allotransplantation of cells of islets of Langerhans </FP>
                    <P>The Medicare GROUPER does not consider codes 52.84 and 52.85 as O.R. procedures and, therefore, these codes do not move the case from a medical DRG into a surgical DRG unless another procedure is performed. Based on the circumstances noted above under which pancreatic islet cell transplantation would be performed, we identified the three most logical DRGs to which we believe cases would be assigned. If a patient has Type I diabetes mellitus with ESRD and a pancreatectomy is performed, the case would group to DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis). If a patient has Type I diabetes mellitus with ESRD and is also receiving a kidney transplant (simultaneous kidney and islet transplantation), the case would group to DRG 302 (Kidney Transplant). If a patient has Type I diabetes mellitus with ESRD and a history of a kidney transplant and then has the islet cells inserted via an open approach, the case would group to DRG 315 (Other Kidney and Urinary Tract O.R. Procedures). </P>
                    <P>As each case is assigned to a DRG based on all of the ICD-9-CM codes reported, cases could also be assigned to DRGs other than those mentioned above. In fact, our review of FY 2003 MedPAR data revealed that codes 52.84 and 52.85 were present in only four cases, and that each case was assigned to a different DRG. We found one case each in DRG 18 (Cranial and Peripheral Nerve Disorders With CC), DRG 192 (Pancreas, Liver, and Shunt Procedures Without CC), DRG 207 (Disorders of the Biliary Tract With CC), and DRG 302 (Kidney Transplant). </P>
                    <P>We are reluctant to propose assigning the islet cell codes to one specific DRG, as the islet cell infusion will have different indications depending on the merits of each case, as is shown from the MedPAR data mentioned above. In addition, we do not currently have accurate cost data or charges for patients in this type of clinical trial, which makes it difficult to determine an appropriate DRG weight. As a result, assignment of cases to a specific DRG might have the consequence of either overpaying or underpaying the cases. We believe that both of these consequences are unacceptable. Therefore, we are not proposing that cases involved in the clinical trials be assigned to one specific DRG for payment purposes. As we believe that these cases will be assigned to DRGs 302, 315, and 468, we are proposing to establish an add-on payment for cases in these three DRGs containing procedure codes 52.84 or 52.85. As stated earlier, we will not be able to establish the amount of this add-on until we have determined procurement costs for the islet cells. We are soliciting information from transplant centers and organ procurement organizations on costs for these types of transplantations. </P>
                    <HD SOURCE="HD3">15. Changes to the ICD-9-CM Coding System </HD>
                    <P>[If you choose to comment on issues in this section, please include the caption “ICD-9-CM Coding” at the beginning of your comment.] </P>
                    <P>As described in section II.B.1. of this preamble, the ICD-9-CM is a coding system that is used for the reporting of diagnoses and procedures performed on a patient. In September 1985, the ICD-9-CM Coordination and Maintenance Committee was formed. This is a Federal interdepartmental committee, co-chaired by the National Center for Health Statistics (NCHS) and CMS, charged with maintaining and updating the ICD-9-CM system. The Committee is jointly responsible for approving coding changes, and developing errata, addenda, and other modifications to the ICD-9-CM to reflect newly developed procedures and technologies and newly identified diseases. The Committee is also responsible for promoting the use of Federal and non-Federal educational programs and other communication techniques with a view toward standardizing coding applications and upgrading the quality of the classification system. </P>
                    <P>
                        The ICD-9-CM Manual contains the list of valid diagnosis and procedure codes. (The ICD-9-CM Manual is available from the Government Printing Office on CD-ROM for $25.00 by calling (202) 512-1800.) The NCHS has lead responsibility for the ICD-9-CM diagnosis codes included in the 
                        <E T="03">Tabular List</E>
                         and 
                        <E T="03">Alphabetic Index for Diseases</E>
                        , while CMS has lead responsibility for the ICD-9-CM procedure codes included in the 
                        <E T="03">Tabular List</E>
                         and 
                        <E T="03">Alphabetic Index for Procedures</E>
                        . 
                    </P>
                    <P>The Committee encourages participation in the above process by health-related organizations. In this regard, the Committee holds public meetings for discussion of educational issues and proposed coding changes. These meetings provide an opportunity for representatives of recognized organizations in the coding field, such as the American Health Information Management Association (AHIMA), the American Hospital Association (AHA), and various physician specialty groups, as well as individual physicians, medical record administrators, health information management professionals, and other members of the public, to contribute ideas on coding matters. After considering the opinions expressed at the public meetings and in writing, the Committee formulates recommendations, which then must be approved by the agencies. </P>
                    <P>
                        The Committee presented proposals for coding changes for implementation in FY 2005 at public meetings held on April 3, 2003 and December 4-5, 2003, and finalized the coding changes after consideration of comments received at the meetings and in writing by January 12, 2004. Those coding changes are announced in Tables 6A through 6F in the Addendum to this proposed rule. Copies of the minutes of the procedure codes discussions at the Committee's 2003 meetings can be obtained from the CMS Web site: 
                        <E T="03">http://www.cms.gov/paymentsystems/icd9/.</E>
                         The minutes of 
                        <PRTPAGE P="28220"/>
                        the diagnoses codes discussions at the 2003 meetings are found at: 
                        <E T="03">http://www.cdc.gov/nchs/icd9.htm.</E>
                         Paper copies of these minutes are no longer available and the mailing list has been discontinued. 
                    </P>
                    <P>
                        For a report of procedure topics discussed at the April 1-2, 2004 meeting, see the Summary Report at: 
                        <E T="03">http://www.cms.hhs.gov/paymentsystems/icd9/.</E>
                         For a report of the diagnosis topics discussed at the April 1-2, 2004 meeting, see the Summary Report at: 
                        <E T="03">http:/www.cdc.gov/nchs/icd9.htm.</E>
                    </P>
                    <P>
                        We encourage commenters to address suggestions on coding issues involving diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-9-CM Coordination and Maintenance Committee, NCHS, Room 2404, 3311 Toledo Road, Hyattsville, MD 20782. Comments may be sent by E-mail to: 
                        <E T="03">dfp4@cdc.gov.</E>
                    </P>
                    <P>
                        Questions and comments concerning the procedure codes should be addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination and Maintenance Committee, CMS, Center for Medicare Management, Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent by E-mail to: 
                        <E T="03">Patricia.Brooks1@cms.hhs.gov.</E>
                    </P>
                    <P>The ICD-9-CM code changes that have been approved will become effective October 1, 2004. The new ICD-9-CM codes are listed, along with their DRG classifications, in Tables 6A and 6B (New Diagnosis Codes and New Procedure Codes, respectively) in the Addendum to this proposed rule. As we stated above, the code numbers and their titles were presented for public comment at the ICD-9-CM Coordination and Maintenance Committee meetings. Both oral and written comments were considered before the codes were approved. In this proposed rule, we are only soliciting comments on the proposed DRG classification of these new codes. </P>
                    <P>For codes that have been replaced by new or expanded codes, the corresponding new or expanded diagnosis codes are included in Table 6A. New procedure codes are shown in Table 6B. Diagnosis codes that have been replaced by expanded codes or other codes or have been deleted are in Table 6C (Invalid Diagnosis Codes). These invalid diagnosis codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2004. Table 6D usually contains invalid procedure codes, however, for FY 2005, there are no invalid procedure codes. Revisions to diagnosis code titles are in Table 6E (Revised Diagnosis Code Titles), which also includes the DRG assignments for these revised codes. Table 6F includes revised procedure code titles for FY 2005. </P>
                    <P>The first of the 2004 public meetings was held on April 1-2, 2004. In the September 7, 2001 final rule implementing the IPPS new technology add-on payments (66 FR 46906), we indicated we would attempt to include proposals for procedure codes that would describe new technology discussed and approved at the April meeting as part of the code revisions effective the following October. </P>
                    <P>Section 503(a) of Public Law 108-173 includes a requirement for updating ICD-9-CM codes twice a year instead of the current process of annual updates on October 1 of each year. This requirement is included as part of the amendments to the Act relating to recognition of new technology under the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by adding a new clause (vii) which states that the “Secretary shall provide for the addition of new diagnosis and procedure codes in April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) * * * until the fiscal year that begins after such date.” Because this new statutory requirement will have a significant impact on health care providers, coding staff, publishers, system maintainers, software systems, among others, we are soliciting comments on our proposals described below to implement this requirement. This new requirement will improve the recognition of new technologies under the IPPS system by providing information on these new technologies at an earlier date. Data would be available 6 months earlier than would be possible with updates occurring only once a year on October 1. Many coding changes apply to longstanding medical issues. </P>
                    <P>While the new requirement states that the Secretary shall not adjust the payment of the DRG classification for the April 1 new codes, the Department will have to update its DRG software and other systems in order to recognize and accept the new codes. We will also have to publicize the code changes and the need for a mid-year systems update by providers to capture the new codes. Hospitals will have to obtain the new code books and encoder updates, and make other system changes in order to capture and report the new codes. We are aware of the additional burden this will have on health care providers. </P>
                    <P>
                        The ICD-9-CM Coordination and Maintenance Committee has held its meetings in April and December of each year in order to update the codes and the applicable payment and reporting systems by October 1 of each year. Items are placed on the agenda for the ICD-9-CM Coordination and Maintenance Committee meeting if the request is received at least 2 months prior to the meeting. This requirement allows time for staff to review and research the coding issues and prepare material for discussion at the meeting. It also allows time for the topic to be publicized in meeting announcements in the 
                        <E T="04">Federal Register</E>
                         as well as on the CMS Web site. The public decides whether or not to attend the meeting based on the topics listed on the agenda. In order to provide an update on April 1, it became clear that a December Committee meeting would not provide time to finalize and publicize these code revisions. Final decisions on code title revisions are currently made by March 1 so that these titles can be included in the IPPS proposed rule. A complete addendum describing details of all changes to ICD-9-CM, both tabular and index, are publicized on CMS and NCHS web pages in May of each year. Publishers of coding books and software companies use this information to modify their products that are used by health care providers. This 5-month time period has proved to be necessary for hospitals and other providers to update their systems. 
                    </P>
                    <P>A discussion of this timeline and the need for changes are included in the December 4-5, 2003 ICD-9-CM Coordination and Maintenance Committee minutes. The public provided comment that additional time would be needed to update hospital systems and obtain new code books and coding software. There was considerable concern expressed about the impact this new update would have on providers. Therefore, we are rescheduling the second Committee meeting for 2004. We have scheduled this meeting for October 7-8, 2004. Those who wish to have a coding issue discussed at the October Committee meeting would be required to submit their request by August 7, 2004. The Department will continue this process to accommodate all requestors who submit appropriate requests in a timely manner. </P>
                    <P>
                        We are proposing to implement section 503(a) by developing a mechanism for approving, in time for the April update, diagnoses and procedure code revisions needed to describe new technologies and medical services for purposes of the new technology add-on payment process. We are proposing the following process for 
                        <PRTPAGE P="28221"/>
                        making these determinations. Topics considered during the October ICD-9-CM Coordination and Maintenance Committee meeting would be considered for an April 1 update if a strong and convincing case is made by the requestor at the Committee's public meeting. The request must identify the reason why a new code is needed in April for purposes of the new technology process. The participants at the meeting and those reviewing the Committee meeting summary report would be provided the opportunity to comment on this expedited request. All other topics would be considered for the October 1 update. Participants at the Committee meeting would be encouraged to comment on all such requests. 
                    </P>
                    <P>We believe that this proposal captures the intent of section 503(a). This requirement was included in the provision revising the standards and process for recognizing new technology under the IPPS. In addition, the need for approval of new codes outside the existing cycle (October 1) arises most frequently and most acutely where the new codes would capture new technologies that are (or will be) under consideration for new technology add-on payments. Thus, we believe this provision was intended to expedite data collection through the assignment of new ICD-9-CM codes for new technologies seeking higher payments. Our proposal is designed to carry out that intention, while minimizing the additional administrative costs associated with mid-year changes to the ICD-9-CM codes. </P>
                    <P>The Department of Health and Human Services has been actively working on the development of new coding systems to replace the ICD-9-CM. In December 1990, the National Committee on Vital and Health Statistics (NCVHS) issued a report noting that, while the ICD-9-CM classification system had been responsive to changing technologies and identifying new diseases, there was concern that the ICD classification might be stressed to a point where the quality of the system would soon be compromised. The ICD-10-CM (for diagnoses) and the ICD-10-PCS (for procedures) were developed in response to these concerns. These efforts have become increasingly important because of the growing number of problems with the ICD-9-CM, which was implemented 25 years ago. </P>
                    <P>
                        In November 2003, the NCVHS recommended that the Secretary prepare a notice of proposed rulemaking for the implementation of ICD-10-CM and ICD-10-PCS. A complete report on the activities of this committee can be found at: 
                        <E T="03">http://www.ncvhs.hhs.gov.</E>
                         The Department is studying these recommendations. 
                    </P>
                    <HD SOURCE="HD3">16. Other Issues </HD>
                    <P>[If you choose to comment on issues in this section, please include the caption “Other DRG Issues” at the beginning of your comments.] </P>
                    <HD SOURCE="HD3">a. Craniotomy Procedures </HD>
                    <P>As discussed in the August 1, 2003 IPPS final rule (68 FR 45353), for FY 2004 we conducted an analysis of the charges for various procedures and diagnoses within DRG 1 (Craniotomy Age &gt; 17 With CC) and DRG 2 (Craniotomy Age &gt; 17 Without CC) to determine whether further changes to these DRGs were warranted. Based on our analysis and consideration of public comments received on our May 19, 2003 IPPS proposed rule (68 FR 27161), in the August 1, 2003 IPPS final rule, we created three new DRGs: DRG 528 (Intracranial Vascular Procedures With a Principal Diagnosis of Hemorrhage) for patients with an intracranial vascular procedure and an intracranial hemorrhage; and DRGs 529 (Ventricular Shunt Procedures With CC) and 530 (Ventricular Shunt Procedures Without CC) for patients with only a vascular shunt procedure.</P>
                    <P>As discussed below, we have received further comments regarding the composition of DRGs 1 and 2 that relate to the appropriate DRG assignment of unruptured cerebral aneurysm cases and cases involving implantation of GLIADEL® chemotherapy wafers. We have also received comments on possible revisions to DRG 3 (Craniotomy Age 0-17).</P>
                    <HD SOURCE="HD3">(1) Unruptured Cerebral Aneurysms </HD>
                    <P>In the August 1, 2003 final rule (68 FR 45354), in response to a comment that suggested we create a companion DRG to DRG 528 for intracranial vascular procedures for unruptured cerebral aneurysms, we evaluated cases in the MedPAR file involving unruptured cerebral aneurysm and determined that the average charges for unruptured cerebral aneurysm cases were consistent with the variation of charges found in DRGs 1 and 2. Therefore, we did not propose a change in the DRG classification. We indicated that we would continue to monitor cases involving unruptured cerebral aneurysms. </P>
                    <P>We now have examined cases in the FY 2003 MedPAR file that reported unruptured cerebral aneurysms. We found 657 unruptured aneurysm cases assigned to DRG 1 and 481 unruptured cerebral aneurysm cases assigned to DRG 2. The average charges for these unruptured cerebral aneurysm cases in DRG 1 ($50,879) are slightly lower than the overall charges for all cases in that DRG ($51,300). For unruptured cerebral aneurysm cases assigned to DRG 2, we found the average charges of approximately $29,524 are consistent with the overall average charges of that DRG of approximately $28,416. </P>
                    <P>Based on the results of our analysis, we still do not believe a proposal to modify the DRG assignment of unruptured cerebral aneurysm cases is warranted. </P>
                    <HD SOURCE="HD3">(2) GLIADEL® Chemotherapy Wafers </HD>
                    <P>In the August 1, 2003 final rule (68 FR 45354), we stated that we had received comments requesting a change to the DRG assignment of cases involving implantation of GLIADEL® chemotherapy wafers to treat brain tumors. One of the commenters had offered two options: (1) Create a new DRG for cases involving implantation of GLIADEL® chemotherapy wafers; and (2) reassign these cases to DRG 484 (Craniotomy for Multiple Significant Trauma).</P>
                    <P>At that time, we had analyzed data in the March 2003 update of the FY 2003 MedPAR file and found a total of 61 cases in which procedure code 00.10 (Implantation of a chemotherapy agent) was reported for cases assigned to DRGs 1 and 2. There were 38 cases assigned to DRG 1 and 23 cases assigned to DRG 2. The GROUPER logic for these DRGs assigns cases with CCs to DRG 1 and those without CCs to DRG 2. Consistent with the GROUPER logic for these DRGs, we had found that the average standardized charges in DRGs 1 and 2 were approximately $64,864 and $42,624, respectively. However, while the estimated average charges for GLIADEL® wafer cases of $50,394 may have been higher than the average standardized charges for DRG 2, they were within the normal variation of overall charges within each DRG. In addition, the volume of cases in these two DRGs was too small to warrant the establishment of a separate new DRG for this technology. Therefore, we stated that we wanted to review a full year of data and take the time to consider alternative options that might appear warranted before proposing a change.</P>
                    <P>
                        We have now examined more complete MedPAR data (December 2003 update for FY 2003) on cases reporting GLIADEL® chemotherapy wafers. We found a total of 127 cases in which procedure code 00.10 was reported for cases assigned to DRGs 1 and 2. There were 80 cases assigned to DRG 1 and 47 cases assigned to DRG 2. The average 
                        <PRTPAGE P="28222"/>
                        charges for these cases in DRGs 1 and 2 were approximately $61,866 and $47,189, respectively. The average charges for these cases are higher than the overall charges of DRGs 1 and 2 of approximately $51,300 and $28,416, respectively. Although the average charges for the GLIADEL® wafer cases within these DRGs are higher than the average charges of all cases in these DRGs, they remain within the range of average charges for other procedures included in these DRGs. The majority of the GLIADEL® wafer cases are assigned to the second highest weighted DRG in MDC 1 behind DRG 528 (Intracranial Vascular Procedure With a Principal Diagnosis of Hemorrhage) in which the weights were derived from average charges of approximately $113,884. In DRG 1, there are 10 procedures that have higher average charges than the GLIADEL® wafer cases. However, in DRG 2, the charges associated with GLIADEL® wafer cases are the highest of the procedures included within the DRG.
                    </P>
                    <P>DRGs are based on the principal diagnosis, secondary diagnosis, and procedures performed on the patient. DRGs are not generally created to recognize the presence or absence of specific technologies for each patient. In the past, we have made one exception to this rule. The exception was the creation of two new DRGs for drug-eluting stents: DRG 526 (Percutaneous Cardiovascular Procedure With Drug-Eluting Stent With Acute Myocardial Infarction) and DRG 527 (Percutaneous Cardiovascular Procedure With Drug-Eluting Stent Without Acute Myocardial Infarction) (67 FR 50003). We took this unprecedented approach in response to the unique circumstances surrounding the potential breakthrough nature of this technology. We currently have 59,613 drug-eluting cases annually, far more cases than the volume for GLIADEL® wafers. We believe that the volume of GLIADEL® wafer cases remains too small to warrant the taking of the exceptional step of establishing a separate new DRG for this technology. </P>
                    <P>Commenters also have proposed the reassignment of GLIADEL® wafer cases to other existing DRGs, such as DRG 484 (Craniotomy for Multiple Significant Trauma), DRG 528 (Intracranial Vascular Procedures With Principal Diagnosis of Hemorrhage), DRG 492 (Chemotherapy With Acute Leukemia as a Secondary Diagnoses or With Use of a High Dose Chemotherapeutic Agent), or DRG 481 (Bone Marrow Transplant). We have examined these alternatives, and have come to the conclusion that none of these alternatives meets the standard of clinical coherence under the DRG system. For example, reconfiguring DRG 484 to include GLIADEL® wafer cases would not produce a clinically coherent DRG because DRG 484 contains cases where craniotomy is performed in the setting of multiple significant trauma. Similarly, assigning GLIADEL® wafer cases to DRG 528 would not produce a clinically coherent DRG because DRG 528 contains cases where craniotomy is performed as part of a vascular procedure with a primary diagnosis of hemorrhage, as in the case of a ruptured aneurysm. DRG 492 is clinically inappropriate because it contains cases of acute leukemia treated with chemotherapy, and DRG 481 is clinically inappropriate because it contains cases involving bone marrow transplant. None of these DRGs contains cases of glioblastoma multiforme or other primary brain tumors. Therefore, we are not proposing to adopt any of these changes at this time.</P>
                    <P>We also considered several other approaches to reassigning GLIADEL® wafer cases in a manner that is appropriate both in terms of clinical coherence and resource use. For example, we considered the creation of a new DRG that includes GLIADEL® wafer cases along with other types of local therapy for intracerebral malignant disease. Specifically, we considered the creation of a new DRG that includes GLIADEL® wafers and a Gliasite Radiation Therapy System, a relatively new form of intracavitary brachytherapy. Such a DRG would be clinically coherent because it would contain cases of malignant brain tumors treated with local therapy. However, our analysis of existing MedPAR data suggests that such a DRG would probably not provide enhanced reimbursement for the GLIADEL® wafer cases, and that, in fact, decreased reimbursement for GLIADEL® wafer cases is a more likely result. Therefore, we are not proposing a change at this time. However, we will continue to monitor our data to determine whether a change is warranted in the future. </P>
                    <P>We recognize that the implantation of chemotherapeutically active wafers for local therapy of malignant brain tumors represents a significant medical technology that currently offers clinical benefits to patients and holds out the promise of future innovation in the treatment of these brain tumors. Therefore, we invite further comments and suggestions regarding the appropriate DRG assignment for this technology. (3) DRG 3 (Craniotomy Age 0-17)</P>
                    <P>We received a comment stating concern that DRG 3 has not been reviewed, while DRGs 1 and 2 have had some revisions. The commenter believed that, particularly with the removal of major trauma cases, age distinctions may no longer be significant for craniotomies and the other intracranial procedures classified in DRGs 1 through 3. The commenter stated that it may be more consistent, from both a clinical and resource perspective, to simply eliminate DRG 3 and redistribute the pediatric and juvenile cases to DRGs 1 and 2 based on the procedures performed and the complication or comorbidities present, instead. This analysis would require supplemental data from non-MedPAR sources.</P>
                    <P>We note that the primary focus of updates to the Medicare DRG classification system is for changes relating to the Medicare patient population, not the pediatric patient population. In the FY 2003 data, there were only two cases assigned to DRG 3. Therefore, we do not believe a proposal to address the commenter's request is warranted at this time. We are aware that the Medicare DRGs are sometimes used to classify other patient populations. We advise those non-Medicare systems that need a more up-to-date system to consider choosing from other systems that are currently in use in this country, or developing their own modifications.</P>
                    <HD SOURCE="HD3">b. Coronary Stent Procedures </HD>
                    <P>We have received comments and recommendations from several industry representatives about the DRG assignments for coronary artery stents. These representatives expressed concern about whether the reimbursement for stents is adequate, especially for insertion of multiple stents. They also expressed concern about whether the current DRG structure represents the most clinically coherent classification of stent cases.</P>
                    <P>We received two comprehensive recommendations for refinement and restructuring of the current coronary stent DRGs. The current DRG structure incorporates stent cases into the following two pairs of DRGs, depending on whether bare metal or drug-eluting stents are used and whether acute myocardial infarction (AMI) is present:</P>
                    <FP SOURCE="FP-1">• DRG 516 (Percutaneous Cardiovascular Procedures With AMI) </FP>
                    <FP SOURCE="FP-1">• DRG 517 (Percutaneous Cardiovascular Procedures With Nondrug-Eluting Stent Without AMI)</FP>
                    <FP SOURCE="FP-1">• DRG 526 (Percutaneous Cardiovascular Procedures With Drug-Eluting Stent With AMI)</FP>
                    <FP SOURCE="FP-1">• DRG 527 (Percutaneous Cardiovascular Procedures With Drug-Eluting Stent Without AMI) </FP>
                    <PRTPAGE P="28223"/>
                    <P>One of the recommendations involved restructuring these DRGs to create two additional stent DRGs that are closely patterned after these existing pairs and that would reflect insertion of multiple stents with and without AMI. The manufacturer recommended incorporating either stenting code 36.06 (Insertion of nondrug-eluting coronary artery stent(s)) or code 36.07 (Insertion of drug-eluting coronary artery stent(s)) when they are reported along with code 36.05 (Multiple vessel percutaneous transluminal coronary angioplasty [PTCA] or coronary atherectomy performed during the same operation, with or without mention of thrombolytic agent). The manufacturer expressed concern that hospitals are steering patients toward coronary artery bypass graft surgery in place of stenting in order to avoid significant financial losses due to what it considered the inadequate reimbursement for inserting multiple stents.</P>
                    <P>We appreciate receiving the manufacturer's recommendation, and agree that the DRG classification of cases involving coronary stents must be clinically coherent and provide for adequate reimbursement, including adequate reimbursement of cases requiring multiple stents. We also agree that the recommendation has some merits and deserves further study. However, we believe that it is premature to act on this recommendation for two reasons. One reason is that the current coding structure for coronary artery stents cannot distinguish cases in which multiple stents are inserted from cases in which only a single stent is inserted. Current codes are able to identify performance of PTCA in more than one vessel by use of code 36.05. However, while this code indicates that PTCA was performed in more than one vessel, its use does not reflect the exact number of procedures performed or the exact number of vessels treated. Similarly, when codes 36.06 and 36.07 are used, they document the insertion of at least one stent. However, these stenting codes do not identify how many stents were inserted in a procedure, nor distinguish insertion of a single stent from insertion of multiple stents. Even the use of one of the stenting codes in conjunction with multiple-PTCA code 36.05 does not distinguish insertion of a single stent from insertion of multiple stents. The use of code 36.05 in conjunction with code 36.06 or code 36.07 indicates only performance of PTCA in more than one vessel, along with insertion of at least one stent. The precise numbers of PTCA-treated vessels, the number of vessels into which stents were inserted, and the total number of stents inserted in all treated vessels cannot be determined. Therefore, the capabilities of the current coding structure do not permit the distinction between single vessel stenting and multiple vessel stenting that would be required under the recommended restructuring of the stenting DRGs.</P>
                    <P>In addition, because the FDA approved drug-eluting stents for use in April 2003, the distinct DRGs for drug-eluting stents have only been effective for payment in the last year. The MedPAR file thus does not contain a full year of data with which to conduct the requisite analysis to evaluate the adequacy of the current structure of four stenting DRGs. Therefore, we believe that it is still premature to undertake such a thorough restructuring of the stent DRGs. Nevertheless, we will consider this recommendation as we evaluate the current DRG structure once adequate data on the current stenting DRGs become available.</P>
                    <P>The second recommendation was that we transform the current structure of stenting DRGs into two new pairs of DRGs, reclassifying stenting cases according to whether bare metal or drug-eluting stents are used (as with the present DRGs) and whether the cases are “complex” or “noncomplex.” The manufacturer indicated that complex cases are those that include certain comorbid conditions or procedural factors such as hypertensive renal failure, diabetes, AMI, and multivessel PCI. The manufacturer further indicated that this structure would provide an improvement in both clinical and resource coherence over the current structure that classifies cases according to the type of stent inserted and the presence or absence of AMI alone, without considering other complicating conditions. Specifically, the manufacturer recommended replacing the current structure with the following four DRGs:</P>
                    <FP SOURCE="FP-1">• Recommended restructured DRG 516 (Complex percutaneous cardiovascular procedures with nondrug-eluting stents) </FP>
                    <FP SOURCE="FP-1">• Recommended restructured DRG 517 (Noncomplex percutaneous cardiovascular procedures with nondrug-eluting stents) </FP>
                    <FP SOURCE="FP-1">• Recommended restructured DRG 526 (Complex percutaneous cardiovascular procedures with drug-eluting stents) </FP>
                    <FP SOURCE="FP-1">• Recommended restructured DRG 527 (Noncomplex percutaneous cardiovascular procedures with drug-eluting stents) </FP>
                    <P>The manufacturer presented an analysis based on FY 2002 MedPAR data, in which it evaluated charges and lengths of stay for cases with expected high resource use, and reclassified cases into the recommended new structure of paired “complex” and “noncomplex” DRGs. The analysis shows some evidence of clinical and resource coherence in the recommended DRG structure. However, the analysis does not yet provide a convincing case for adopting the recommended restructure. First, the analysis does not reveal significant gains in resource coherence compared to previous DRGs for stenting cases. Second, the analysis is limited in assessing the feasibility of using the recommended DRG restructure versus the current DRG structure for classification of stent cases. Because the manufacturer used FY 2002 MedPAR data in its analysis, it was not able to compare the resource coherence of the recommended structure with the current structure of four DRGs, but only with the two DRGs that preceded the approval of drug-eluting stents. While the manufacturer asserted that “similar results would be expected” from a comparison between its recommended DRG restructure and the current DRG structure, we do not believe that it is advisable to undertake a critical DRG restructuring without examining the recommendation against actual experience under the current structure. Nevertheless, we believe that this recommendation may have merit, and we will conduct a full analysis of the recommendation in comparison to the current DRG structure once adequate data become available. </P>
                    <P>
                        The drug-eluting stents had not yet been FDA approved when we calculated the relative weights for DRGs 526 and 527 for the FY 2003 IPPS final rule. Therefore, in the absence of MedPAR data, we based our FY 2003 relative weight calculations on prices in countries where drug-eluting stents were already being used. A full discussion of this process can be found in the FY 2004 IPPS final rule (68 FR 45370). For computation of the proposed relative weights for FY 2005 for this proposed rule, we are using the December update of FY 2003 MedPAR data. There have been a total of 42,356 cases in DRG 526, and 33,179 cases in DRG 527, with adjustments made for transfers to other facilities. For computation of the final FY 2005 relative weights, we will use the latest update of the MedPAR data file for cases in these two DRGs. No foreign data will be used to compute the relative weights for DRGs 526 and 527 in FY 2005. 
                        <PRTPAGE P="28224"/>
                    </P>
                    <HD SOURCE="HD3">c. Severe Sepsis </HD>
                    <P>We received a comment that recommended a separate DRG be assigned to the diagnosis of severe sepsis. Patients admitted with sepsis currently are assigned to DRG 416 (Septicemia Age &gt; 17) and DRG 417 (Septicemia Age 0-17) in MDC 18 (Infectious and Parasitic Diseases, Systemic or Unspecified Sites). The commenter contended that the costs of caring for patients with severe sepsis exceed those costs associated with other types of sepsis. Therefore, the commenter indicated, severe sepsis should be given a separate, unique DRG. Furthermore, the commenter requested that all cases in which severe sepsis is present on admission, as well as those cases in which it develops after admission (which are currently classified elsewhere) be included in this new DRG. The commenter suggested using various coexisting conditions and their corresponding ICD-9-CM codes (for example, respiratory failure or hypotension and renal failure) to identify patients with severe sepsis. The conditions suggested do not describe a clinically coherent set of patients that have severe sepsis. Using this list of conditions would erroneously identify patients as having severe sepsis. </P>
                    <P>We acknowledge the high costs of caring for seriously ill patients with sepsis. However, we do not find, from a clinical perspective, that a subset of patients with severe sepsis exists to the degree that a separate DRG classification is justified. Sepsis in all forms is quite common across many DRGs in the Medicare population. In addition, we do not believe that the commenter's suggested defining criteria for severe sepsis are specific, accurate, or unique enough to warrant a new DRG classification. Therefore, at this time, we are not proposing any change to the current DRG structure for sepsis. </P>
                    <HD SOURCE="HD3">d. Implantable Cardiac Defibrillators </HD>
                    <P>There is a range of implantable cardiac defibrillators (ICDs) available on the market from extremely complex devices with multiple leads, settings, and functions to simpler models with a single lead and simpler functions. ICDs deliver electrical shocks to the heart to eliminate the life-threatening abnormal rhythms such as ventricular fibrillation or ventricular tachycardia. </P>
                    <P>We have received a coverage request to expand the indications for implantable defibrillators to include the population studied in the Sudden Cardiac Death in Heart Failure Trial (SCD-HeFT) sponsored by the National Institutes of Health. SCD-HeFT treated heart failure patients with conventional therapy and randomized them to one of three additional treatment strategies: (1) Placebo; (2) amiodarone (drug therapy); or (3) single lead implantable defibrillator. The SCD-HeFT investigators presented results at the American College of Cardiology annual meeting that the basic single-lead implantable defibrillator is effective for saving lives in a population at low-moderate risk for sudden cardiac death. The requestor indicated that, as part of CMS' coverage decisions, CMS could expand the population eligible for implantable defibrillators. The requestor further added that CMS could restrict use of complex defibrillators to patients for whom they are medically necessary, that is, in the population at low-moderate risk for sudden cardiac death. </P>
                    <P>Given the potential increase of implantable defibrillator use in our population, we are soliciting input on how to encourage physicians to use the simpler, less costly device when advanced devices are not medically preferred. We are also soliciting input on the appropriate measures within the payment systems to accommodate payment for classes of defibrillators with very different costs. Ideally, we would like not only to align payments with relative costs, but also to align the incentives within the payment system with medically appropriate uses of different technologies. </P>
                    <P>We believe that, within the PPS for inpatient hospital operating costs, there are several ways to deal with the expanding use of simpler, lower cost defibrillators. One possibility is to maintain the current DRG configuration, under which complex, expensive devices and simpler, less costly devices would remain within the same DRGs and receive the same payment rates. This approach would encourage use of the simpler devices, which would receive relatively higher reimbursement because their lower charges would be averaged in with the higher charges for the more complex devices in setting the DRG weights. However, it could lead to complaints that the program is underpaying for the more complex, expensive devices as the lower charges for simpler, less expensive devices begin to affect (lower) the DRG weights. </P>
                    <P>Another approach would be to recognize the cost differences between various classes of defibrillators by establishing separate DRGs for basic single-lead implantable defibrillators as opposed to more complex, expensive models. This approach would prevent payments for the use of more expensive defibrillators (where medically necessary) from being diluted by the effect of the lower charges for basic single-lead implantable defibrillators on the weights within common DRGs. However, this policy would arguably provide less incentive for use of the lower cost devices: the weights for the DRGs containing the less expensive devices would be driven solely by their relatively lower charges, without being lifted by the higher charges for the more expensive models. This approach might also be criticized for departing from the averaging principle within the DRG system by basing too much on the cost differential alone in reconfiguring these DRGs. </P>
                    <P>We welcome comments on these and other approaches to paying for defibrillators under the IPPS. We discuss an application for new technology add-on payments for a Cardiac Resynchronization Therapy with Defibrillator (CRT-D) in section II.E.4.c. of this proposed rule. </P>
                    <HD SOURCE="HD2">C. Recalibration of DRG Weights </HD>
                    <P>[If you choose to comment on issues in this section, please include the caption “DRG Weights” at the beginning of your comment.] </P>
                    <P>We are proposing to use the same basic methodology for the FY 2005 recalibration as we did for FY 2004 (August 1, 2003 IPPS final rule (68 FR 45373)). That is, we are proposing to recalibrate the DRG weights based on charge data for Medicare discharges using the most current charge information available (the FY 2003 MedPAR file). </P>
                    <P>The MedPAR file is based on fully coded diagnostic and procedure data for all Medicare inpatient hospital bills. The FY 2003 MedPAR data used in this proposed rule include discharges occurring between October 1, 2002 and September 30, 2003, based on bills received by CMS through December 31, 2003, from all hospitals subject to the IPPS and short-term acute care hospitals in Maryland (which is under a waiver from the IPPS under section 1814(b)(3) of the Act). The FY 2003 MedPAR file includes data for approximately 11,717,744 Medicare discharges. Discharges for Medicare beneficiaries enrolled in a Medicare+Choice managed care plan are excluded from this analysis. The data excludes CAHs, including hospitals that subsequently became CAHs after the period from which the data were taken. </P>
                    <P>The proposed methodology used to calculate the DRG relative weights from the FY 2003 MedPAR file is as follows: </P>
                    <P>
                        • To the extent possible, all the claims were regrouped using the DRG classification revisions discussed in section II.B. of this preamble. 
                        <PRTPAGE P="28225"/>
                    </P>
                    <P>• The transplant cases that were used to establish the relative weight for heart and heart-lung, liver, and lung transplants (DRGs 103, 480, and 495) were limited to those Medicare-approved transplant centers that have cases in the FY 2001 MedPAR file. (Medicare coverage for heart, heart-lung, liver, and lung transplants is limited to those facilities that have received approval from CMS as transplant centers.) </P>
                    <P>• Organ acquisition costs for kidney, heart, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplants continue to be paid on a reasonable cost basis. Because these acquisition costs are paid separately from the prospective payment rate, it is necessary to subtract the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average charge for the DRG and before eliminating statistical outliers. </P>
                    <P>• Charges were standardized to remove the effects of differences in area wage levels, indirect medical education and disproportionate share payments, and, for hospitals in Alaska and Hawaii, the applicable cost-of-living adjustment. </P>
                    <P>• The average standardized charge per DRG was calculated by summing the standardized charges for all cases in the DRG and dividing that amount by the number of cases classified in the DRG. A transfer case is counted as a fraction of a case based on the ratio of its transfer payment under the per diem payment methodology to the full DRG payment for nontransfer cases. That is, a transfer case receiving payment under the transfer methodology equal to half of what the case would receive as a nontransfer would be counted as 0.5 of a total case. </P>
                    <P>• Statistical outliers were eliminated by removing all cases that are beyond 3.0 standard deviations from the mean of the log distribution of both the charges per case and the charges per day for each DRG. </P>
                    <P>• The average charge for each DRG was then recomputed (excluding the statistical outliers) and divided by the national average standardized charge per case to determine the relative weight. </P>
                    <P>The proposed new weights are normalized by a proposed adjustment factor of 1.46899 so that the average case weight after recalibration is equal to the average case weight before recalibration. This proposed adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS. </P>
                    <P>When we recalibrated the DRG weights for previous years, we set a threshold of 10 cases as the minimum number of cases required to compute a reasonable weight. We are proposing to use that same case threshold in recalibrating the proposed DRG weights for FY 2005. Using the FY 2003 MedPAR data set, there are 42 DRGs that contain fewer than 10 cases. We are proposing to compute the weights for these low-volume DRGs by adjusting the FY 2004 weights of these DRGs by the percentage change in the average weight of the cases in the other DRGs. </P>
                    <P>Section 1886(d)(4)(C)(iii) of the Act requires that, beginning with FY 1991, reclassification and recalibration changes be made in a manner that assures that the aggregate payments are neither greater than nor less than the aggregate payments that would have been made without the changes. Although normalization is intended to achieve this effect, equating the average case weight after recalibration to the average case weight before recalibration does not necessarily achieve budget neutrality with respect to aggregate payments to hospitals because payments to hospitals are affected by factors other than average case weight. Therefore, as we have done in past years and as discussed in section II.A.4.a. of the Addendum to this proposed rule, we are proposing to make a budget neutrality adjustment to ensure that the requirement of section 1886(d)(4)(C)(iii) of the Act is met. </P>
                    <HD SOURCE="HD2">D. Proposed LTC-DRG Reclassifications and Relative Weights for LTCHs for FY 2005 </HD>
                    <P>[If you choose to comment on issues in this section, please include the caption “LTC-DRGs” at the beginning of your comment.] </P>
                    <HD SOURCE="HD3">1. Background </HD>
                    <P>In the June 6, 2003 LTCH PPS final rule (68 FR 34122), we changed the LTCH PPS annual payment rate update cycle to be effective July 1 through June 30 instead of October 1 through September 30. In addition, since the patient classification system utilized under the LTCH PPS is based directly on the DRGs used under the IPPS for acute care hospitals, in that same final rule, we explained that the annual update of the long-term care diagnosis-related group (LTC-DRG) classifications and relative weights will continue to remain linked to the annual reclassification and recalibration of the CMS-DRGs under the IPPS. </P>
                    <P>The annual update to the IPPS DRGs is based on the annual revisions to the ICD-9-CM codes and is effective each October 1. In the health care industry, annual changes to the ICD-9-CM codes are effective for discharges occurring on or after October 1 each year. The use of the ICD-9-CM coding system is also compliant with the requirements of the Health Insurance Portability and Accountability Act (HIPAA), Public Law 104-191, under 45 CFR Parts 160 and 162. Therefore, the manual and electronic versions of the GROUPER software, which are based on the ICD-9-CM codes, are also revised annually and effective for discharges occurring on or after October 1 each year. Because the LTC-DRGs are based on the patient classification system used under the IPPS (CMS-DRGs), which is updated annually and effective for discharges occurring on or after October 1 through September 30 each year, in the June 6, 2003 LTCH PPS final rule (68 FR 34128), we specified that we will continue to update the LTC-DRG classifications and relative weights to be effective for discharges occurring on or after October 1 through September 30 each year. Furthermore, we stated that we will publish the annual update of the LTC-DRGs in the proposed and final rules for the IPPS. </P>
                    <P>In this proposed rule, we are proposing revisions to the LTC-DRG classifications and relative weights and will finalize them in the IPPS final rule, to be effective October 1, 2004 through September 30, 2005. The proposed LTC-DRGs and relative weights for FY 2005 in this proposed rule are based on the IPPS DRGs (GROUPER version 22.0) discussed in section II. of this proposed rule. </P>
                    <HD SOURCE="HD3">2. Proposed Changes in the LTC-DRG Classifications</HD>
                    <HD SOURCE="HD3">a. Background </HD>
                    <P>Section 123 of Public Law 106-113 specifically requires that the PPS for LTCHs be a per discharge system with a DRG-based patient classification system reflecting the differences in patient resources and costs in LTCHs while maintaining budget neutrality. Section 307(b)(1) of Public Law 106-554 modified the requirements of section 123 of Public Law 106-113 by specifically requiring that the Secretary examine “the feasibility and the impact of basing payment under such a system [the LTCH PPS] on the use of existing (or refined) hospital diagnosis-related groups (DRGs) that have been modified to account for different resource use of long-term care hospital patients as well as the use of the most recently available hospital discharge data.” </P>
                    <P>
                        In accordance with section 307(b)(1) of Public Law 106-554 and § 412.515 of our existing regulations, the LTCH PPS uses information from LTCH patient 
                        <PRTPAGE P="28226"/>
                        records to classify patient cases into distinct LTC-DRGs based on clinical characteristics and expected resource needs. The LTC-DRGs used as the patient classification component of the LTCH PPS correspond to the DRGs under the IPPS for acute care hospitals. Thus, in this proposed rule, we are proposing to use the IPPS version 22.0 GROUPER for FY 2005 to process LTCH PPS claims. The proposed changes to the IPPS DRG classification system for FY 2005 (Grouper 22.0) are discussed in section II.B. of this preamble. 
                    </P>
                    <P>Under the LTCH PPS, we determine relative weights for each of the CMS DRGs to account for the difference in resource use by patients exhibiting the case complexity and multiple medical problems characteristic of LTCH patients. In a departure from the IPPS, as we discussed in the August 30, 2002 final rule (67 FR 55985), which implemented the LTCH PPS, and the August 1, 2003 IPPS final rule (68 FR 45374), we use low-volume quintiles in determining the LTC-DRG weights for LTC-DRGs with less than 25 LTCH cases, since LTCHs do not typically treat the full range of diagnoses as do acute care hospitals. Specifically, we group those low-volume LTC-DRGs (LTC-DRGs with fewer than 25 cases) into 5 quintiles based on average charge per discharge. (A listing of the composition of low-volume quintiles for the FY 2004 LTC-DRGs (based on FY 2002 MedPAR data) appears in section II.D.3. of the August 1, 2003 IPPS final rule (68 FR 45377—45380).) We also adjust for cases in which the stay at the LTCH is less than or equal to five-sixths of the geometric average length of stay; that is, short-stay outlier cases (§ 412.529), as discussed below in section II.D.4. of this preamble.</P>
                    <HD SOURCE="HD3">b. Patient Classifications Into DRGs </HD>
                    <P>Generally, under the LTCH PPS, Medicare payment is made at a predetermined specific rate for each discharge; that is, payment varies by the LTC-DRG to which a beneficiary's stay is assigned. Similar to case classification for acute care hospitals under the IPPS (see section II.B. of this preamble), cases are classified into LTC-DRGs for payment under the LTCH PPS based on the principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay, as well as age, sex, and discharge status of the patient. The diagnosis and procedure information is reported by the hospital using codes from the ICD-9-CM. </P>
                    <P>As discussed above in section II.B. of this preamble, the CMS DRGs are organized into 25 major diagnostic categories (MDCs), most of which are based on a particular organ system of the body; the remainder involve multiple organ systems (such as MDC 22, Burns). Accordingly, the principal diagnosis determines MDC assignment. Within most MDCs, cases are then divided into surgical DRGs and medical DRGs. Some surgical and medical DRGs are further differentiated based on the presence or absence of CCs. (See section II.B. of this preamble for further discussion of surgical DRGs and medical DRGs.) </P>
                    <P>Because the assignment of a case to a particular LTC-DRG will help determine the amount that is paid for the case, it is important that the coding is accurate. As used under the IPPS, classifications and terminology used under the LTCH PPS are consistent with the ICD-9-CM and the Uniform Hospital Discharge Data Set (UHDDS), as recommended to the Secretary by the National Committee on Vital and Health Statistics (“Uniform Hospital Discharge Data: Minimum Data Set, National Center for Health Statistics, April 1980”) and as revised in 1984 by the Health Information Policy Council (HIPC) of the U.S. Department of Health and Human Services. We wish to point out again that the ICD-9-CM coding terminology and the definitions of principal and other diagnoses of the UHDDS are consistent with the requirements of the Administrative Simplification Act of 1996 of the HIPAA (45 CFR Parts 160 and 162). </P>
                    <P>The emphasis on the need for proper coding cannot be overstated. Inappropriate coding of cases can adversely affect the uniformity of cases in each LTC-DRG and produce inappropriate weighting factors at recalibration and result in inappropriate payments under the LTCH PPS. LTCHs are to follow the same coding guidelines used by the acute care hospitals to ensure accuracy and consistency in coding practices. There will be only one LTC-DRG assigned per long-term care hospitalization; it will be assigned at the discharge. Therefore, it is mandatory that the coders continue to report the same principal diagnosis on all claims and include all diagnostic codes that coexist at the time of admission, that are subsequently developed, or that affect the treatment received. Similarly, all procedures performed during that stay are to be reported on each claim. </P>
                    <P>Upon the discharge of the patient from a LTCH, the LTCH must assign appropriate diagnosis and procedure codes from the ICD-9-CM. As of October 16, 2002, a LTCH that was required to comply with the HIPAA Administrative Simplification Standards and that had not obtained an extension in compliance with the Administrative Compliance Act (Public Law 107-105) is obligated to comply with the standards at 45 CFR 162.1002 and 45 CFR 162.1102. Completed claim forms are to be submitted to the LTCH's Medicare fiscal intermediary. Medicare fiscal intermediaries enter the clinical and demographic information into their claims processing systems and subject this information to a series of automated screening processes called the Medicare Code Editor (MCE). These screens are designed to identify cases that require further review before assignment into an LTC-DRG can be made. </P>
                    <P>After screening through the MCE, each LTCH claim will be classified into the appropriate LTC-DRG by the Medicare LTCH GROUPER. The LTCH GROUPER is specialized computer software based on the same GROUPER used under the IPPS. After the LTC-DRG is assigned, the Medicare fiscal intermediary determines the prospective payment by using the Medicare LTCH PPS PRICER program, which accounts for LTCH hospital-specific adjustments. As provided for under the IPPS, we provide an opportunity for the LTCH to review the LTC-DRG assignments made by the fiscal intermediary and to submit additional information within a specified timeframe (§ 412.513(c)).</P>
                    <P>The GROUPER is used both to classify past cases in order to measure relative hospital resource consumption to establish the LTC-DRG weights and to classify current cases for purposes of determining payment. The records for all Medicare hospital inpatient discharges are maintained in the MedPAR file. The data in this file are used to evaluate possible DRG classification changes and to recalibrate the DRG weights during our annual update (as discussed in section II. of this preamble). The LTC-DRG relative weights are based on data for the population of LTCH discharges, reflecting the fact that LTCH patients represent a different patient mix than patients in short-term acute care hospitals. </P>
                    <HD SOURCE="HD3">3. Development of the Proposed FY 2005 LTC-DRG Relative Weights</HD>
                    <HD SOURCE="HD3">a. General Overview of Development of the LTC-DRG Relative Weights </HD>
                    <P>
                        As we stated in the August 30, 2002 LTCH PPS final rule (67 FR 55981), one of the primary goals for the implementation of the LTCH PPS is to pay each LTCH an appropriate amount for the efficient delivery of care to Medicare patients. The system must be able to account adequately for each 
                        <PRTPAGE P="28227"/>
                        LTCH's case-mix in order to ensure both fair distribution of Medicare payments and access to adequate care for those Medicare patients whose care is more costly. To accomplish these goals, we adjust the LTCH PPS standard Federal prospective payment system rate by the applicable LTC-DRG relative weight in determining payment to LTCHs for each case. 
                    </P>
                    <P>Under the LTCH PPS, relative weights for each LTC-DRG are a primary element used to account for the variations in cost per discharge and resource utilization among the payment groups (§ 412.515). To ensure that Medicare patients classified to each LTC-DRG have access to an appropriate level of services and to encourage efficiency, we calculate a relative weight for each LTC-DRG that represents the resources needed by an average inpatient LTCH case in that LTC-DRG. For example, cases in a LTC-DRG with a relative weight of 2 will, on average, cost twice as much as cases in a LTC-DRG with a weight of 1.</P>
                    <HD SOURCE="HD3">b. Data </HD>
                    <P>To calculate the proposed LTC-DRG relative weights for FY 2005 in this proposed rule, we obtained total Medicare allowable charges from FY 2003 Medicare hospital bill data from the December 2003 update of the MedPAR file, and we used the proposed Version 22.0 of the CMS GROUPER for IPPS, as discussed in section II.B. of this preamble, to classify cases. Consistent with the methodology under the IPPS, we are proposing to recalculate the FY 2005 LTC-DRG relative weights based on the best available data for the final rule. </P>
                    <P>As we discussed in the August 1, 2003 final rule (68 FR 45376), we have excluded the data from LTCHs that are all-inclusive rate providers and LTCHs that are reimbursed in accordance with demonstration projects authorized under section 402(a) of Public Law 90-248 (42 U.S.C. 1395b-1) or section 222(a) of Public Law 92-603 (42 U.S.C. 1395b-1). Therefore, in the development of the proposed FY 2005 LTC-DRG relative weights, we have excluded the data of the 22 all-inclusive rate providers and the 3 LTCHs that are paid in accordance with demonstration projects that had claims in the FY 2003 MedPAR file. </P>
                    <P>In the August 1, 2003 final rule (68 FR 45367), we discussed coding inaccuracies that were found in claims data for a large chain of LTCHs in the FY 2002 MedPAR file used to determine the LTC-DRG relative weights for FY 2004. Specifically, the principal diagnosis was not reported correctly on many of those LTCHs' claims, which resulted in those claims being incorrectly assigned to a LTC-DRG. As we explained in that same final rule, we were able to determine the correct diagnoses and procedure codes for the claims that contained the coding errors, and we used them to group each LTCH case to the appropriate LTC-DRG for determining the LTC-DRG relative weights for FY 2004. In addition, we stated that since the LTCH PPS was implemented for cost reporting periods beginning on or after October 1, 2002 (FY 2003), we believe that this problem will be self-correcting as LTCHs submit more completely coded data in the future. </P>
                    <P>As we discussed in the May 7, 2004 LTCH PPS final rule (69 FR 25673), an analysis of LTCH claims data from the September 2003 update of the FY 2003 MedPAR file contained coding errors. Specifically, a large hospital chain of LTCHs continued to consistently code diagnoses inaccurately on the claims it submitted, and these coding errors were reflected in the September 2003 update of the FY 2003 MedPAR file. Upon discovering the coding errors, we notified the large chain of LTCHs whose claims contained the coding inaccuracies to request that they resubmit those claims with the correct diagnoses codes by December 31, 2003, so that those corrected claims would be contained in the December 2003 update of the FY 2003 MedPAR file. As we discussed in that same final rule, it appears that those claims were submitted timely with the correct diagnoses codes. Therefore, it was not necessary to correct the FY 2003 MedPAR data for the development of the rates and factors established in the May 7, 2004 LTCH PPS final rule. Accordingly, we are proposing to use LTCH claims data from the December 2003 update of the FY 2003 MedPAR file for the determination of the proposed FY 2005 LTC-DRG relative weights in this proposed rule.</P>
                    <HD SOURCE="HD3">c. Hospital-Specific Relative Value Methodology </HD>
                    <P>By nature LTCHs often specialize in certain areas, such as ventilator-dependent patients and rehabilitation and wound care. Some case types (DRGs) may be treated, to a large extent, in hospitals that have, from a perspective of charges, relatively high (or low) charges. Such nonarbitrary distribution of cases with relatively high (or low) charges in specific LTC-DRGs has the potential to inappropriately distort the measure of average charges. To account for the fact that cases may not be randomly distributed across LTCHs, we use a hospital-specific relative value method to calculate the LTC-DRG relative weights instead of the methodology used to determine the DRG relative weights under the IPPS described above in section II.C. of this preamble. We believe this method will remove this hospital-specific source of bias in measuring LTCH average charges. Specifically, we reduce the impact of the variation in charges across providers on any particular LTC-DRG relative weight by converting each LTCH's charge for a case to a relative value based on that LTCH's average charge. </P>
                    <P>Under the hospital-specific relative value method, we standardize charges for each LTCH by converting its charges for each case to hospital-specific relative charge values and then adjusting those values for the LTCH's case-mix. The adjustment for case-mix is needed to rescale the hospital-specific relative charge values (which, by definition, averages 1.0 for each LTCH). The average relative weight for a LTCH is its case-mix, so it is reasonable to scale each LTCH's average relative charge value by its case-mix. In this way, each LTCH's relative charge value is adjusted by its case-mix to an average that reflects the complexity of the cases it treats relative to the complexity of the cases treated by all other LTCHs (the average case-mix of all LTCHs). </P>
                    <P>In accordance with the methodology established under § 412.523, we standardize charges for each case by first dividing the adjusted charge for the case (adjusted for short-stay outliers under § 412.529 as described in section II.D.4. (step 3) of this preamble) by the average adjusted charge for all cases at the LTCH in which the case was treated. Short-stay outliers under § 412.529 are cases with a length of stay that is less than or equal to five-sixths the average length of stay of the LTC-DRG. The average adjusted charge reflects the average intensity of the health care services delivered by a particular LTCH and the average cost level of that LTCH. The resulting ratio is multiplied by that LTCH's case-mix index to determine the standardized charge for the case. </P>
                    <P>
                        Multiplying by the LTCH's case-mix index accounts for the fact that the same relative charges are given greater weight in a LTCH with higher average costs than they would at a LTCH with low average costs which is needed to adjust each LTCH's relative charge value to reflect its case-mix relative to the average case-mix for all LTCHs. Because we standardize charges in this manner, we count charges for a Medicare patient at a LTCH with high average charges as less resource intensive than they would 
                        <PRTPAGE P="28228"/>
                        be at a LTCH with low average charges. For example, a $10,000 charge for a case in a LTCH with an average adjusted charge of $17,500 reflects a higher level of relative resource use than a $10,000 charge for a case in a LTCH with the same case-mix, but an average adjusted charge of $35,000. We believe that the adjusted charge of an individual case more accurately reflects actual resource use for an individual LTCH because the variation in charges due to systematic differences in the markup of charges among LTCHs is taken into account. 
                    </P>
                    <HD SOURCE="HD3">d. Low-Volume LTC-DRGs </HD>
                    <P>In order to account for LTC-DRGs with low-volume (that is, with fewer than 25 LTCH cases), in accordance with the methodology discussed in the August 1, 2002 final rule (67 FR 55984), we group those low-volume LTC-DRGs into one of five categories (quintiles) based on average charges, for the purposes of determining relative weights. For this proposed rule, using LTCH cases from the December 2003 update of the FY 2003 MedPAR file, we identified 171 LTC-DRGs that contained between 1 and 24 cases. This list of proposed LTC-DRGs was then divided into one of the five low-volume quintiles, each containing a minimum of 34 LTC-DRGs (171/5 = 34 with 1 LTC-DRG as the remainder). For FY 2005, we are proposing to make an assignment to a specific low-volume quintile by sorting the 171 low-volume proposed LTC-DRGs in ascending order by average charge. Since the number of LTC-DRGs with less than 25 LTCH cases is not evenly divisible by five, the average charge of the proposed low-volume LTC-DRG was used to determine which low-volume quintile received the proposed additional LTC-DRG. After sorting the 171 low-volume proposed LTC-DRGs in ascending order, we are proposing that the first fifth (34) of low-volume LTC-DRGs with the lowest average charge would be grouped into Quintile 1. The highest average charge cases would be grouped into Quintile 5. Since the average charge of the proposed 69th LTC-DRG in the sorted list is closer to the previous proposed LTC-DRG's average charge (assigned to Quintile 2) than to the average charge of the proposed 70th LTC-DRG in the sorted list (to be assigned to Quintile 3), we are proposing to place it into Quintile 2. This process was repeated through the remaining low-volume proposed LTC-DRGs so that 4 proposed low-volume quintiles contain 34 proposed LTC-DRGs and 1 proposed low-volume quintile contains 35 proposed LTC-DRGs. </P>
                    <P>In order to determine the proposed relative weights for the proposed LTC-DRGs with low volume for FY 2005, in accordance with the methodology described in the August 1, 2002 final rule (67 FR 55984), we are proposing to use the five proposed low-volume quintiles described above. The composition of each of the five proposed low-volume quintiles shown below in Table 1 would be used in determining the proposed LTC-DRG relative weights for FY 2005. We would determine a proposed relative weight and (geometric) average length of stay for each of the five proposed low-volume quintiles using the formula that we are proposing to apply to the regular proposed LTC-DRGs (25 or more cases), as described below in section II.D.4. of this preamble. We are proposing to assign the same proposed relative weight and proposed average length of stay to each of the proposed LTC-DRGs that make up that proposed low-volume quintile. We note that as this system is dynamic, it is possible that the number and specific type of LTC-DRGs with a low volume of LTCH cases will vary in the future. We use the best available claims data in the MedPAR file to identify low-volume LTC-DRGs and to calculate the relative weights based on our methodology.</P>
                    <GPOTABLE COLS="2" OPTS="L2,i1" CDEF="xs40,r150">
                        <TTITLE>Table 1.—Proposed Composition of Low-Volume Quintiles </TTITLE>
                        <BOXHD>
                            <CHED H="1">Proposed LTC-DRG </CHED>
                            <CHED H="1">Description </CHED>
                        </BOXHD>
                        <ROW EXPSTB="01" RUL="s">
                            <ENT I="21">
                                <E T="02">QUINTILE 1</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">11 </ENT>
                            <ENT>NERVOUS SYSTEM NEOPLASMS W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">43 </ENT>
                            <ENT>HYPHEMA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">45 </ENT>
                            <ENT>NEUROLOGICAL EYE DISORDERS.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">47 </ENT>
                            <ENT>OTHER DISORDERS OF THE EYE AGE &gt;17 W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">84 </ENT>
                            <ENT>MAJOR CHEST TRAUMA W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">95 </ENT>
                            <ENT>PNEUMOTHORAX W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">110 </ENT>
                            <ENT>MAJOR CARDIOVASCULAR PROCEDURES W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">119 </ENT>
                            <ENT>VEIN LIGATION &amp; STRIPPING.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">143 </ENT>
                            <ENT>CHEST PAIN.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">149 </ENT>
                            <ENT>MAJOR SMALL &amp; LARGE BOWEL PROCEDURES W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">178 </ENT>
                            <ENT>UNCOMPLICATED PEPTIC ULCER W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">193 </ENT>
                            <ENT>BILIARY TRACT PROC EXCEPT ONLY CHOLECYST W OR W/O C.D.E. W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">208 </ENT>
                            <ENT>DISORDERS OF THE BILIARY TRACT W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">229 </ENT>
                            <ENT>HAND OR WRIST PROC, EXCEPT MAJOR JOINT PROC, W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">241 </ENT>
                            <ENT>CONNECTIVE TISSUE DISORDERS W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">260 </ENT>
                            <ENT>SUBTOTAL MASTECTOMY FOR MALIGNANCY W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">273 </ENT>
                            <ENT>MAJOR SKIN DISORDERS W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">284 </ENT>
                            <ENT>MINOR SKIN DISORDERS W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">301 </ENT>
                            <ENT>ENDOCRINE DISORDERS W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">323 </ENT>
                            <ENT>URINARY STONES W CC, &amp;/OR ESW LITHOTRIPSY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">324 </ENT>
                            <ENT>URINARY STONES W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">326 </ENT>
                            <ENT>KIDNEY &amp; URINARY TRACT SIGNS &amp; SYMPTOMS AGE &gt;17 W/O CC .</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">339 </ENT>
                            <ENT>TESTES PROCEDURES, NON-MALIGNANCY AGE &gt;17.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">347 </ENT>
                            <ENT>MALIGNANCY, MALE REPRODUCTIVE SYSTEM, W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">367 </ENT>
                            <ENT>MALIGNANCY, FEMALE REPRODUCTIVE SYSTEM W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">404 </ENT>
                            <ENT>LYMPHOMA &amp; NON-ACUTE LEUKEMIA W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">414 </ENT>
                            <ENT>OTHER MYELOPROLIF DIS OR POORLY DIFF NEOPL DIAG W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">433 </ENT>
                            <ENT>ALCOHOL/DRUG ABUSE OR DEPENDENCE, LEFT AMA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">450 </ENT>
                            <ENT>POISONING &amp; TOXIC EFFECTS OF DRUGS AGE &gt;17 W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">479 </ENT>
                            <ENT>OTHER VASCULAR PROCEDURES W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <PRTPAGE P="28229"/>
                            <ENT I="01">500 </ENT>
                            <ENT>BACK &amp; NECK PROCEDURES EXCEPT SPINAL FUSION W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">509 </ENT>
                            <ENT>FULL THICKNESS BURN W/O SKIN GRFT OR INH INJ W/O CC OR SIG TRAUMA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">522 </ENT>
                            <ENT>ALC/DRUG ABUSE OR DEPEND W REHABILITATION THERAPY W/O CC </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="01">523 </ENT>
                            <ENT>ALC/DRUG ABUSE OR DEPEND W/O REHABILITATION THERAPY W/O CC </ENT>
                        </ROW>
                        <ROW EXPSTB="01" RUL="s">
                            <ENT I="21">
                                <E T="02">QUINTILE 2</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">8 </ENT>
                            <ENT>PERIPH &amp; CRANIAL NERVE &amp; OTHER NERV SYST PROC W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">22 </ENT>
                            <ENT>HYPERTENSIVE ENCEPHALOPATHY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">25 </ENT>
                            <ENT>SEIZURE &amp; HEADACHE AGE &gt;17 W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">31 </ENT>
                            <ENT>CONCUSSION AGE &gt;17 W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">69* </ENT>
                            <ENT>OTITIS MEDIA &amp; URI AGE &gt;17 W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">109 </ENT>
                            <ENT>CORONARY BYPASS W/O PTCA OR CARDIAC CATH.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">128 </ENT>
                            <ENT>DEEP VEIN THROMBOPHLEBITIS.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">129 </ENT>
                            <ENT>CARDIAC ARREST, UNEXPLAINED.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">140 </ENT>
                            <ENT>ANGINA PECTORIS.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">175 </ENT>
                            <ENT>G.I. HEMORRHAGE W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">177 </ENT>
                            <ENT>UNCOMPLICATED PEPTIC ULCER W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">181 </ENT>
                            <ENT>G.I. OBSTRUCTION W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">227 </ENT>
                            <ENT>SOFT TISSUE PROCEDURES W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">228 </ENT>
                            <ENT>MAJOR THUMB OR JOINT PROC, OR OTH HAND OR WRIST PROC W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">234 </ENT>
                            <ENT>OTHER MUSCULOSKELET SYS &amp; CONN TISS O.R. PROC W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">237 </ENT>
                            <ENT>SPRAINS, STRAINS, &amp; DISLOCATIONS OF HIP, PELVIS &amp; THIGH.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">250 </ENT>
                            <ENT>FX, SPRN, STRN &amp; DISL OF FOREARM, HAND, FOOT AGE &gt;17 W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">251 </ENT>
                            <ENT>FX, SPRN, STRN &amp; DISL OF FOREARM, HAND, FOOT AGE &gt;17 W/O CC .</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">276 </ENT>
                            <ENT>NON-MALIGANT BREAST DISORDERS.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">295 </ENT>
                            <ENT>DIABETES AGE 0-35.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">305 </ENT>
                            <ENT>KIDNEY,URETER &amp; MAJOR BLADDER PROC FOR NON-NEOPL W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">307 </ENT>
                            <ENT>PROSTATECTOMY W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">325 </ENT>
                            <ENT>KIDNEY &amp; URINARY TRACT SIGNS &amp; SYMPTOMS AGE &gt;17 W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">328 </ENT>
                            <ENT>URETHRAL STRICTURE AGE &gt;17 W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">348 </ENT>
                            <ENT>BENIGN PROSTATIC HYPERTROPHY W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">349 </ENT>
                            <ENT>BENIGN PROSTATIC HYPERTROPHY W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">399 </ENT>
                            <ENT>RETICULOENDOTHELIAL &amp; IMMUNITY DISORDERS W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">420 </ENT>
                            <ENT>FEVER OF UNKNOWN ORIGIN AGE &gt;17 W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">427 </ENT>
                            <ENT>NEUROSES EXCEPT DEPRESSIVE.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">441 </ENT>
                            <ENT>HAND PROCEDURES FOR INJURIES.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">447 </ENT>
                            <ENT>ALLERGIC REACTIONS AGE &gt;17.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">449 </ENT>
                            <ENT>POISONING &amp; TOXIC EFFECTS OF DRUGS AGE &gt;17 W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">467 </ENT>
                            <ENT>OTHER FACTORS INFLUENCING HEALTH STATUS.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">511 </ENT>
                            <ENT>NON-EXTENSIVE BURNS W/O CC OR SIGNIFICANT TRAUMA </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="01">532 </ENT>
                            <ENT>SPINAL PROCEDURES W/O CC </ENT>
                        </ROW>
                        <ROW EXPSTB="01" RUL="s">
                            <ENT I="21">
                                <E T="02">QUINTILE 3</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">17 </ENT>
                            <ENT>NONSPECIFIC CEREBROVASCULAR DISORDERS W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">21 </ENT>
                            <ENT>VIRAL MENINGITIS.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">29 </ENT>
                            <ENT>TRAUMATIC STUPOR &amp; COMA, COMA &lt;1 HR AGE &gt;17 W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">44 </ENT>
                            <ENT>ACUTE MAJOR EYE INFECTIONS.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">53 </ENT>
                            <ENT>SINUS &amp; MASTOID PROCEDURES AGE &gt;17.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">83 </ENT>
                            <ENT>MAJOR CHEST TRAUMA W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">122 </ENT>
                            <ENT>CIRCULATORY DISORDERS W AMI W/O MAJOR COMP, DISCHARGED ALIVE.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">124 </ENT>
                            <ENT>CIRCULATORY DISORDERS EXCEPT AMI, W CARD CATH &amp; COMPLEX DIAG.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">136 </ENT>
                            <ENT>CARDIAC CONGENITAL &amp; VALVULAR DISORDERS AGE &gt;17 W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">159 </ENT>
                            <ENT>HERNIA PROCEDURES EXCEPT INGUINAL &amp; FEMORAL AGE &gt;17 W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">185 </ENT>
                            <ENT>DENTAL &amp; ORAL DIS EXCEPT EXTRACTIONS &amp; RESTORATIONS, AG &gt;17.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">200 </ENT>
                            <ENT>HEPATOBILIARY DIAGNOSTIC PROCEDURE FOR NON-MALIGNANCY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">262 </ENT>
                            <ENT>BREAST BIOPSY &amp; LOCAL EXCISION FOR NON- MALIGNANCY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">266 </ENT>
                            <ENT>SKIN GRAFT &amp;/OR DEBRID EXCEPT FOR SKIN ULCER OR CELLULITIS W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">270 </ENT>
                            <ENT>OTHER SKIN, SUBCUT TISS &amp; BREAST PROC W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">275 </ENT>
                            <ENT>MALIGNANT BREAST DISORDERS W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">288 </ENT>
                            <ENT>O.R. PROCEDURES FOR OBESITY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">299 </ENT>
                            <ENT>INBORN ERRORS OF METABOLISM.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">306 </ENT>
                            <ENT>PROSTATECTOMY W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">319* </ENT>
                            <ENT>KIDNEY &amp; URINARY TRACT NEOPLASMS W/O CC </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">336 </ENT>
                            <ENT>TRANSURETHRAL PROSTATECTOMY W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">352 </ENT>
                            <ENT>OTHER MALE REPRODUCTIVE SYSTEM DIAGNOSES.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">369 </ENT>
                            <ENT>MENSTRUAL &amp; OTHER FEMALE REPRODUCTIVE SYSTEM DISORDERS.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">394 </ENT>
                            <ENT>OTHER O.R. PROCEDURES OF THE BLOOD AND BLOOD FORMING ORGANS.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">410 </ENT>
                            <ENT>CHEMOTHERAPY W/O ACUTE LEUKEMIA AS SECONDARY DIAGNOSIS.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">476 </ENT>
                            <ENT>PROSTATIC O.R. PROCEDURE UNRELATED TO PRINCIPAL DIAGNOSIS.</ENT>
                        </ROW>
                        <ROW>
                            <PRTPAGE P="28230"/>
                            <ENT I="01">493 </ENT>
                            <ENT>LAPAROSCOPIC CHOLECYSTECTOMY W/O C.D.E. W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">496 </ENT>
                            <ENT>COMBINED ANTERIOR/POSTERIOR SPINAL FUSION.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">497 </ENT>
                            <ENT>SPINAL FUSION EXCEPT CERVICAL W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">502 </ENT>
                            <ENT>KNEE PROCEDURES W PDX OF INFECTION W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">517 </ENT>
                            <ENT>PERC CARDIO PROC W NON-DRUG ELUTING STENT W/O AMI.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">518 </ENT>
                            <ENT>PERC CARDIO PROC W/O CORONARY ARTERY STENT OR AMI.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">538 </ENT>
                            <ENT>LOCAL EXCIS &amp; REMOV OF INT FIX DEV EXCEPT HIP &amp; FEMUR W/O CC </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="01">539 </ENT>
                            <ENT>LYMPHOMA &amp; LEUKEMIA W MAJOR OR PROCEDURE W CC </ENT>
                        </ROW>
                        <ROW EXPSTB="01" RUL="s">
                            <ENT I="21">
                                <E T="02">QUINTILE 4</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">1 </ENT>
                            <ENT>CRANIOTOMY AGE &gt;17 W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">63 </ENT>
                            <ENT>OTHER EAR, NOSE, MOUTH &amp; THROAT O.R. PROCEDURES.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">86* </ENT>
                            <ENT>PLEURAL EFFUSION W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">102* </ENT>
                            <ENT>OTHER RESPIRATORY SYSTEM DIAGNOSES W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">108 </ENT>
                            <ENT>OTHER CARDIOTHORACIC PROCEDURES.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">115 </ENT>
                            <ENT>PRM CARD PACEM IMPL W AMI/HR/SHOCK OR AICD LEAD OR GNRTR.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">116 </ENT>
                            <ENT>OTHER PERMANENT CARDIAC PACEMAKER IMPLANT.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">157 </ENT>
                            <ENT>ANAL &amp; STOMAL PROCEDURES W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">168 </ENT>
                            <ENT>MOUTH PROCEDURES W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">201 </ENT>
                            <ENT>OTHER HEPATOBILIARY OR PANCREAS O.R. PROCEDURES.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">216 </ENT>
                            <ENT>BIOPSIES OF MUSCULOSKELETAL SYSTEM &amp; CONNECTIVE TISSUE.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">218 </ENT>
                            <ENT>LOWER EXTREM &amp; HUMER PROC EXCEPT HIP, FOOT, FEMUR AGE &gt;17 W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">224 </ENT>
                            <ENT>SHOULDER, ELBOW OR FOREARM PROC,EXC MAJOR JOINT PROC, W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">226 </ENT>
                            <ENT>SOFT TISSUE PROCEDURES W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">268 </ENT>
                            <ENT>SKIN, SUBCUTANEOUS TISSUE &amp; BREAST PLASTIC PROCEDURES.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">292 </ENT>
                            <ENT>OTHER ENDOCRINE, NUTRIT &amp; METAB O.R. PROC W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">303 </ENT>
                            <ENT>KIDNEY, URETER &amp; MAJOR BLADDER PROCEDURES FOR NEOPLASM.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">304 </ENT>
                            <ENT>KIDNEY, URETER &amp; MAJOR BLADDER PROC FOR NON-NEOPL W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">308 </ENT>
                            <ENT>MINOR BLADDER PROCEDURES W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">310 </ENT>
                            <ENT>TRANSURETHRAL PROCEDURES W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">312 </ENT>
                            <ENT>URETHRAL PROCEDURES, AGE &gt;17 W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">345 </ENT>
                            <ENT>OTHER MALE REPRODUCTIVE SYSTEM O.R. PROC EXCEPT FOR MALIGNANCY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">401 </ENT>
                            <ENT>LYMPHOMA &amp; NON-ACUTE LEUKEMIA W OTHER O.R. PROC W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">408 </ENT>
                            <ENT>MYELOPROLIF DISORD OR POORLY DIFF NEOPL W OTHER O.R. PROC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">419 </ENT>
                            <ENT>FEVER OF UNKNOWN ORIGIN AGE &gt;17 W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">455 </ENT>
                            <ENT>OTHER INJURY, POISONING &amp; TOXIC EFFECT DIAG W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">485 </ENT>
                            <ENT>LIMB REATTACHMENT, HIP AND FEMUR PROC FOR MULTIPLE SIGNIFICANT TRA .</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">487 </ENT>
                            <ENT>OTHER MULTIPLE SIGNIFICANT TRAUMA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">501 </ENT>
                            <ENT>KNEE PROCEDURES W PDX OF INFECTION W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">503 </ENT>
                            <ENT>KNEE PROCEDURES W/O PDX OF INFECTION.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">505 </ENT>
                            <ENT>EXTENSIVE BURNS OF FULL THICKNESS BURNS WITH MECH VENT 96+HRS WITHOUT SKIN GRAFT.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">506 </ENT>
                            <ENT>FULL THICKNESS BURN W SKIN GRAFT OR INHAL INJ W CC OR SIG TRAUMA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">519 </ENT>
                            <ENT>CERVICAL SPINAL FUSION W CC </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="01">529 </ENT>
                            <ENT>VENTRICULAR SHUNT PROCEDURES W CC </ENT>
                        </ROW>
                        <ROW EXPSTB="01" RUL="s">
                            <ENT I="21">
                                <E T="02">QUINTILE 5</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">46 </ENT>
                            <ENT>OTHER DISORDERS OF THE EYE AGE &gt;17 W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">55 </ENT>
                            <ENT>MISCELLANEOUS EAR, NOSE, MOUTH &amp; THROAT PROCEDURES.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">77 </ENT>
                            <ENT>OTHER RESP SYSTEM O.R. PROCEDURES W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">117 </ENT>
                            <ENT>CARDIAC PACEMAKER REVISION EXCEPT DEVICE REPLACEMENT.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">118 </ENT>
                            <ENT>CARDIAC PACEMAKER DEVICE REPLACEMENT.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">125 </ENT>
                            <ENT>CIRCULATORY DISORDERS EXCEPT AMI, W CARD CATH W/O COMPLEX DIAG.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">150 </ENT>
                            <ENT>PERITONEAL ADHESIOLYSIS W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">152 </ENT>
                            <ENT>MINOR SMALL &amp; LARGE BOWEL PROCEDURES W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">154 </ENT>
                            <ENT>STOMACH, ESOPHAGEAL &amp; DUODENAL PROCEDURES AGE &gt;17 W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">161 </ENT>
                            <ENT>INGUINAL &amp; FEMORAL HERNIA PROCEDURES AGE &gt;17 W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">171*</ENT>
                            <ENT>OTHER DIGESTIVE SYSTEM O.R. PROCEDURES W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">191 </ENT>
                            <ENT>PANCREAS, LIVER &amp; SHUNT PROCEDURES W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">197 </ENT>
                            <ENT>CHOLECYSTECTOMY EXCEPT BY LAPAROSCOPE W/O C.D.E. W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">206*</ENT>
                            <ENT>DISORDERS OF LIVER EXCEPT MALIG,CIRR,ALC HEPA W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">209 </ENT>
                            <ENT>MAJOR JOINT &amp; LIMB REATTACHMENT PROCEDURES OF LOWER EXTREMITY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">210 </ENT>
                            <ENT>HIP &amp; FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE &gt;17 W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">230 </ENT>
                            <ENT>LOCAL EXCISION &amp; REMOVAL OF INT FIX DEVICES OF HIP &amp; FEMUR.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">261 </ENT>
                            <ENT>BREAST PROC FOR NON-MALIGNANCY EXCEPT BIOPSY &amp; LOCAL EXCISION.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">267 </ENT>
                            <ENT>PERIANAL &amp; PILONIDAL PROCEDURES.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">338 </ENT>
                            <ENT>TESTES PROCEDURES, FOR MALIGNANCY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">341 </ENT>
                            <ENT>PENIS PROCEDURES.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">365 </ENT>
                            <ENT>OTHER FEMALE REPRODUCTIVE SYSTEM O.R. PROCEDURES.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">406 </ENT>
                            <ENT>MYELOPROLIF DISORD OR POORLY DIFF NEOPL W MAJ O.R. PROC W CC.</ENT>
                        </ROW>
                        <ROW>
                            <PRTPAGE P="28231"/>
                            <ENT I="01">424 </ENT>
                            <ENT>O.R. PROCEDURE W PRINCIPAL DIAGNOSES OF MENTAL ILLNESS.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">443*</ENT>
                            <ENT>OTHER O.R. PROCEDURES FOR INJURIES W/O CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">454 </ENT>
                            <ENT>OTHER INJURY, POISONING &amp; TOXIC EFFECT DIAG W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">486 </ENT>
                            <ENT>OTHER O.R. PROCEDURES FOR MULTIPLE SIGNIFICANT TRAUMA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">488 </ENT>
                            <ENT>HIV W EXTENSIVE O.R. PROCEDURE.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">499 </ENT>
                            <ENT>BACK &amp; NECK PROCEDURES EXCEPT SPINAL FUSION W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">515 </ENT>
                            <ENT>CARDIAC DEFIBRILLATOR IMPLANT W/O CARDIAC CATH.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">531 </ENT>
                            <ENT>SPINAL PROCEDURES W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">533 </ENT>
                            <ENT>EXTRACRANIAL PROCEDURES W CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">535 </ENT>
                            <ENT>CARDIAC DEFIB IMPLANT W CARDIAC CATH W AMI/HF/SHOCK.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">536 </ENT>
                            <ENT>CARDIAC DEFIB IMPLANT W CARDIAC CATH W/O AMI/HF/SHOCK. </ENT>
                        </ROW>
                        <TNOTE>* One of the original 171 proposed low-volume LTC-DRGs initially assigned to this low-volume quintile; removed from the low-volume quintiles in addressing nonmonotonicity (see step 5 below). </TNOTE>
                    </GPOTABLE>
                    <HD SOURCE="HD3">4. Steps for Determining the Proposed FY 2005 LTC-DRG Relative Weights</HD>
                    <P>As we noted previously, the proposed FY 2005 LTC-DRG relative weights are determined in accordance with the methodology described in the August 1, 2003 final rule (68 FR 45380). In summary, LTCH cases must be grouped in the appropriate LTC-DRG, while taking into account the low-volume LTC-DRGs as described above, before the proposed FY 2005 LTC-DRG relative weights can be determined. After grouping the cases in the appropriate proposed LTC-DRG, we are proposing to calculate the proposed relative weights for FY 2005 in this proposed rule by first removing statistical outliers and cases with a length of stay of 7 days or less. Next, we are proposing to adjust the number of cases in each proposed LTC-DRG for the effect of short-stay outlier cases under § 412.529. The short-stay adjusted discharges and corresponding charges would be used to calculate “relative adjusted weights” in each proposed LTC-DRG using the hospital-specific relative value method described above.</P>
                    <P>Below we discuss in detail the steps for calculating the proposed FY 2005 LTC-DRG relative weights.</P>
                    <P>
                        <E T="03">Step 1—Remove statistical outliers.</E>
                    </P>
                    <P>The first step in the calculation of the proposed FY 2005 LTC-DRG relative weights is to remove statistical outlier cases. We define statistical outliers as cases that are outside of 3.0 standard deviations from the mean of the log distribution of both charges per case and the charges per day for each LTC-DRG. These statistical outliers would be removed prior to calculating the proposed relative weights. We believe that they may represent aberrations in the data that distort the measure of average resource use. Including those LTCH cases in the calculation of the proposed relative weights could result in an inaccurate proposed relative weight that does not truly reflect relative resource use among the proposed LTC-DRGs.</P>
                    <P>
                        <E T="03">Step 2—Remove cases with a length of stay of 7 days or less.</E>
                    </P>
                    <P>The proposed FY 2005 LTC-DRG relative weights should reflect the average of resources used on representative cases of a specific type. Generally, cases with a length of stay 7 days or less do not belong in a LTCH because such stays do not fully receive or benefit from treatment that is typical in a LTCH stay, and full resources are often not used in the earlier stages of admission to a LTCH. If we were to include stays of 7 days or less in the computation of the proposed FY 2005 LTC-DRG relative weights, the value of many proposed relative weights would decrease and, therefore, payments would decrease to a level that may no longer be appropriate. </P>
                    <P>We do not believe that it would be appropriate to compromise the integrity of the payment determination for those LTCH cases that actually benefit from and receive a full course of treatment at a LTCH, in order to include data from these very short-stays. Thus, in determining the proposed FY 2005 LTC-DRG relative weights, we remove LTCH cases with a length of stay of 7 days or less.</P>
                    <P>
                        <E T="03">Step 3—Adjust charges for the effects of short-stay outliers.</E>
                    </P>
                    <P>The third step in the calculation of the proposed FY 2005 LTC-DRG relative weights is to adjust each LTCH's charges per discharge for short-stay outlier cases (that is, a patient with a length of stay that is less than or equal to five-sixths the average length of stay of the LTC-DRG).</P>
                    <P>We make this adjustment by counting a short-stay outlier as a fraction of a discharge based on the ratio of the length of stay of the case to the average length of stay for the proposed LTC-DRG for nonshort-stay outlier cases. This has the effect of proportionately reducing the impact of the lower charges for the short-stay outlier cases in calculating the average charge for the proposed LTC-DRG. This process produces the same result as if the actual charges per discharge of a short-stay outlier case were adjusted to what they would have been had the patient's length of stay been equal to the average length of stay of the proposed LTC-DRG. </P>
                    <P>As we explained in the August 1, 2003 final rule (68 FR 45380), counting short-stay outlier cases as full discharges with no adjustment in determining the proposed LTC-DRG relative weights would lower the proposed LTC-DRG relative weight for affected proposed LTC-DRGs because the relatively lower charges of the short-stay outlier cases would bring down the average charge for all cases within a proposed LTC-DRG. This would result in an “underpayment” to nonshort-stay outlier cases and an “overpayment” to short-stay outlier cases. Therefore, in this proposed rule, we adjust for short-stay outlier cases under § 412.529 in this manner since it results in more appropriate payments for all LTCH cases.</P>
                    <P>
                        <E T="03">Step 4—Calculate the Proposed FY 2005 LTC-DRG relative weights on an iterative basis.</E>
                    </P>
                    <P>
                        The process of calculating the proposed LTC-DRG relative weights using the hospital specific relative value methodology is iterative. First, for each LTCH case, we calculate a hospital-specific relative charge value by dividing the short-stay outlier adjusted charge per discharge (see step 3) of the LTCH case (after removing the statistical outliers (see step 1)) and LTCH cases with a length of stay of 7 days or less (see step 2) by the average charge per discharge for the LTCH in which the case occurred. The resulting ratio is then multiplied by the LTCH's case-mix 
                        <PRTPAGE P="28232"/>
                        index to produce an adjusted hospital-specific relative charge value for the case. An initial case-mix index value of 1.0 is used for each LTCH. 
                    </P>
                    <P>For each proposed LTC-DRG, the proposed FY 2005 LTC-DRG relative weight is calculated by dividing the average of the adjusted hospital-specific relative charge values (from above) for the proposed LTC-DRG by the overall average hospital-specific relative charge value across all cases for all LTCHs. Using these recalculated proposed LTC-DRG relative weights, each LTCH's average proposed relative weight for all of its cases (case-mix) is calculated by dividing the sum of all the LTCH's proposed LTC-DRG relative weights by its total number of cases. The LTCHs' hospital-specific relative charge values above are multiplied by these hospital specific case-mix indexes. These hospital-specific case-mix adjusted relative charge values are then used to calculate a new set of proposed LTC-DRG relative weights across all LTCHs. In this proposed rule, this iterative process is continued until there is convergence between the weights produced at adjacent steps, for example, when the maximum difference is less than 0.0001. </P>
                    <P>
                        <E T="03">Step 5—Adjust the proposed FY 2005 LTC-DRG relative weights to account for nonmonotonically increasing relative weights.</E>
                    </P>
                    <P>As explained in section II.B. of this preamble, the proposed FY 2005 CMS DRGs, upon which the proposed FY 2005 LTC-DRGs are based, contain “pairs” that are differentiated based on the presence or absence of CCs. The proposed LTC-DRGs with CCs are defined by certain secondary diagnoses not related to or inherently a part of the disease process identified by the principal diagnosis, but the presence of additional diagnoses does not automatically generate a CC. As we discussed in the August 1, 2003 final rule (68 FR 45381), the value of monotonically increasing relative weights rises as the resource use increases (for example, from uncomplicated to more complicated). The presence of CCs in a proposed LTC-DRG means that cases classified into a “without CC” proposed LTC-DRG are expected to have lower resource use (and lower costs). In other words, resource use (and costs) are expected to decrease across “with CC”/”without CC” pairs of proposed LTC-DRGs. </P>
                    <P>For a case to be assigned to a proposed LTC-DRG with CCs, more coded information is called for (that is, at least one relevant secondary diagnosis), than for a case to be assigned to a proposed LTC-DRG “without CCs” (which is based on only one principal diagnosis and no relevant secondary diagnoses). Currently, the LTCH claims data include both accurately coded cases without complications and cases that have complications (and cost more) but were not coded completely. Both types of cases are grouped to a proposed LTC-DRG “without CCs” since only one principal diagnosis was coded. Since the LTCH PPS was only implemented for cost reporting periods beginning on or after October 1, 2002 (FY 2003) and LTCHs were previously paid under cost-based reimbursement, which is not based on patient diagnoses, coding by LTCHs for these cases may not have been as detailed as possible. </P>
                    <P>Thus, in developing the FY 2003 LTC-DRG relative weights for the LTCH PPS based on FY 2001 claims data, as we discussed in the August 30, 2002 LTCH PPS final rule (67 FR 55990), we found on occasion that the data suggested that cases classified to the LTC-DRG “with CCs” of a “with CC”/“without CC” pair had a lower average charge than the corresponding LTC-DRG “without CCs.” Similarly, based on FY 2003 claims data, we also found on occasion that the data suggested that cases classified to the proposed LTC-DRG “with CCs” of a “with CC”/“without CC” pair have a lower average charge than the corresponding proposed LTC-DRG “without CCs” for FY 2005. </P>
                    <P>We believe this anomaly may be due to coding that may not have fully reflected all comorbidities that were present. Specifically, LTCHs may have failed to code relevant secondary diagnoses, which resulted in cases that actually had CCs being classified into a “without CC” LTC-DRG. It would not be appropriate to pay a lower amount for the “with CC” LTC-DRG. Therefore, in this proposed rule, we grouped both the cases “with CCs” and “without CCs” together for the purpose of calculating the proposed FY 2005 LTC-DRG relative weights in this proposed rule. As we stated in the August 30, 2002 LTCH PPS final rule (67 FR 55990), we will continue to employ this methodology to account for nonmonotonically increasing relative weights until we have adequate data to calculate appropriate separate weights for these anomalous LTC-DRG pairs. We expect that, as was the case when we first implemented the IPPS, this problem will be self-correcting, as LTCHs submit more completely coded data in the future. </P>
                    <P>There are three types of “with CC” and “without CC” pairs that could be nonmonotonic, that is, where the “without CC” proposed LTC-DRG would have a higher average charge than the “with CC” proposed LTC-DRG. For this proposed rule, using the LTCH cases in the December 2003 update of the FY 2003 MedPAR file, we identified two of the three types of nonmonotonic LTC-DRG pairs. </P>
                    <P>The first category of nonmonotonically increasing proposed relative weights for FY 2005 LTC-DRG pairs “with and without CCs” contains 2 pairs of proposed LTC-DRGs in which both the proposed LTC-DRG “with CCs” and the proposed LTC-DRG “without CCs” had 25 or more LTCH cases and, therefore, did not fall into one of the 5 low-volume quintiles. For those nonmonotonic LTC-DRG pairs, we would combine the LTCH cases and compute a new proposed relative weight based on the case-weighted average of the combined LTCH cases of the proposed LTC-DRGs. The case-weighted average charge is determined by dividing the total charges for all LTCH cases by the total number of LTCH cases for the combined proposed LTC-DRG. This new proposed relative weight would then be assigned to both of the proposed LTC-DRGs in the pair. In this proposed rule, we are proposing that, for FY 2005, proposed LTC-DRGs 144 and 145 and LTC-DRGs 444 and 445 are in this category. </P>
                    <P>The second category of nonmonotonically increasing relative weights for proposed LTC-DRG pairs with and without CCs consists of zero pairs of proposed LTC-DRGs that has fewer than 25 cases, and each proposed LTC-DRG would be grouped to different proposed low-volume quintiles in which the “without CC” proposed LTC-DRG would be in a higher-weighted proposed low-volume quintile than the “with CC” proposed LTC-DRG. For those pairs, we would combine the LTCH cases and determine the case-weighted average charge for all LTCH cases. The case-weighted average charge is determined by dividing the total charges for all LTCH cases by the total number of LTCH cases for the combined proposed LTC-DRG. Based on the case-weighted average LTCH charge, we determine which low-volume quintile the “combined LTC-DRG” would be grouped. Both proposed LTC-DRGs in the pair would then be grouped into the same proposed low-volume quintile, and thus would have the same proposed relative weight. For FY 2005, in this proposed rule, there are no proposed LTC-DRGs that fall into this category. </P>
                    <P>
                        The third category of nonmonotonically increasing relative weights for proposed LTC-DRG pairs with and without CCs consists of 7 pairs of proposed LTC-DRGs where one of the proposed LTC-DRGs has fewer than 
                        <PRTPAGE P="28233"/>
                        25 LTCH cases and is grouped to a proposed low-volume quintile and the other proposed LTC-DRG has 25 or more LTCH cases and has its own proposed LTC-DRG relative weight, and the proposed LTC-DRG “without CCs” has the higher proposed relative weight. We remove the proposed low-volume LTC-DRG from the proposed low-volume quintile and combine it with the other proposed LTC-DRG for the computation of a new proposed relative weight for each of these proposed LTC-DRGs. This new proposed relative weight is assigned to both proposed LTC-DRGs, so they each have the same proposed relative weight. For FY 2005, in this proposed rule, we are proposing the following proposed LTC-DRGs would be in this category: LTC-DRGs 68 and 69; LTC-DRGs 85 and 86; LTC-DRGs 101 and 102; LTC-DRGs 170 and 171; LTC-DRGs 205 and 206; LTC-DRGs 318 and 319; and LTC-DRGs 442 and 443. 
                    </P>
                    <P>
                        <E T="03">Step 6—Determine a proposed FY 2005 LTC-DRG relative weight for proposed LTC-DRGs with no LTCH cases.</E>
                    </P>
                    <P>As we stated above, we determine the proposed relative weight for each proposed LTC-DRG using charges reported in the December 2003 update of the FY 2003 MedPAR file. Of the 519 proposed LTC-DRGs for FY 2005, we identified 170 proposed LTC-DRGs for which there were no LTCH cases in the database. That is, based on data from the FY 2003 MedPAR file used in this proposed rule, no patients who would have been classified to those proposed LTC-DRGs were treated in LTCHs during FY 2003 and, therefore, no charge data were reported for those proposed LTC-DRGs. Thus, in the process of determining the proposed LTC-DRG relative weights, we are unable to determine proposed weights for these 170 proposed LTC-DRGs using the methodology described in steps 1 through 5 above. However, since patients with a number of the diagnoses under these proposed LTC-DRGs may be treated at LTCHs beginning in FY 2005, we assign proposed relative weights to each of the 170 “no volume” proposed LTC-DRGs based on clinical similarity and relative costliness to one of the remaining 349 (519−170 = 349) proposed LTC-DRGs for which we are able to determine proposed relative weights, based on FY 2003 claims data. </P>
                    <P>As there are currently no LTCH cases in these “no volume” proposed LTC-DRGs, we determine proposed relative weights for the 170 proposed LTC-DRGs with no LTCH cases in the FY 2003 MedPAR file used in this proposed rule by grouping them to the appropriate proposed low-volume quintile. This methodology is consistent with our methodology used in determining proposed relative weights to account for the proposed low-volume LTC-DRGs described above. </P>
                    <P>Our methodology for determining proposed relative weights for the “no volume” proposed LTC-DRGs is as follows: First, we crosswalk the proposed no volume LTC-DRGs by matching them to other similar proposed LTC-DRGs for which there were LTCH cases in the FY 2003 MedPAR file based on clinical similarity and intensity of use of resources as determined by care provided during the period of time surrounding surgery, surgical approach (if applicable), length of time of surgical procedure, post-operative care, and length of stay. We assign the proposed relative weight for the applicable proposed low-volume quintile to the proposed no volume LTC-DRG if the proposed LTC-DRG to which it is crosswalked is grouped to one of the proposed low-volume quintiles. If the proposed LTC-DRG to which the proposed no volume LTC-DRG is crosswalked is not one of the proposed LTC-DRGs to be grouped to one of the proposed low-volume quintiles, we compare the proposed relative weight of the proposed LTC-DRG to which the proposed no volume LTC-DRG is crosswalked to the proposed relative weights of each of the five quintiles and we assign the proposed no volume LTC-DRG the proposed relative weight of the proposed low-volume quintile with the closest proposed weight. For this proposed rule, a list of the proposed no volume FY 2005 LTC-DRGs and the proposed FY 2005 LTC-DRG to which it is crosswalked in order to determine the appropriate proposed low-volume quintile for the assignment of a proposed relative weight for FY 2005 is shown below in Table 2.</P>
                    <GPOTABLE COLS="4" OPTS="L2,i1" CDEF="xs40,r150,12,12">
                        <TTITLE>Table 2.—Proposed No Volume LTC-DRG Crosswalk and Proposed Quintile Assignment for FY 2005 </TTITLE>
                        <BOXHD>
                            <CHED H="1">Proposed LTC-DRG </CHED>
                            <CHED H="1">Description </CHED>
                            <CHED H="1">Proposed cross-walked LTC-DRG </CHED>
                            <CHED H="1">Proposed low-volume quintile assigned.</CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">2 </ENT>
                            <ENT>CRANIOTOMY AGE &gt;17 W/O CC </ENT>
                            <ENT>1 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">3 </ENT>
                            <ENT>CRANIOTOMY AGE 0-17 </ENT>
                            <ENT>1 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">6 </ENT>
                            <ENT>CARPAL TUNNEL RELEASE </ENT>
                            <ENT>251 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">26 </ENT>
                            <ENT>SEIZURE &amp; HEADACHE AGE 0-17 </ENT>
                            <ENT>25 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">30 </ENT>
                            <ENT>TRAUMATIC STUPOR &amp; COMA, COMA &lt;1 HR AGE 0-17</ENT>
                            <ENT>29 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">32 </ENT>
                            <ENT>CONCUSSION AGE &gt;17 W/O CC </ENT>
                            <ENT>25 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">33 </ENT>
                            <ENT>CONCUSSION AGE 0-17 </ENT>
                            <ENT>25 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">36 </ENT>
                            <ENT>RETINAL PROCEDURES </ENT>
                            <ENT>47 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">37 </ENT>
                            <ENT>ORBITAL PROCEDURES </ENT>
                            <ENT>47 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">38 </ENT>
                            <ENT>PRIMARY IRIS PROCEDURES </ENT>
                            <ENT>47 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">39 </ENT>
                            <ENT>LENS PROCEDURES WITH OR WITHOUT VITRECTOMY</ENT>
                            <ENT>47 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">40 </ENT>
                            <ENT>EXTRAOCULAR PROCEDURES EXCEPT ORBIT AGE &gt;17</ENT>
                            <ENT>47 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">41 </ENT>
                            <ENT>EXTRAOCULAR PROCEDURES EXCEPT ORBIT AGE 0-17</ENT>
                            <ENT>47 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">42 </ENT>
                            <ENT>INTRAOCULAR PROCEDURES EXCEPT RETINA, IRIS &amp; LENS </ENT>
                            <ENT>47 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">48 </ENT>
                            <ENT>OTHER DISORDERS OF THE EYE AGE 0-17 </ENT>
                            <ENT>47 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">49 </ENT>
                            <ENT>MAJOR HEAD &amp; NECK PROCEDURES </ENT>
                            <ENT>64 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">50 </ENT>
                            <ENT>SIALOADENECTOMY </ENT>
                            <ENT>63 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">51 </ENT>
                            <ENT>SALIVARY GLAND PROCEDURES EXCEPT SIALOADENECTOMY</ENT>
                            <ENT>63 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">52 </ENT>
                            <ENT>CLEFT LIP &amp; PALATE REPAIR </ENT>
                            <ENT>63 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">54 </ENT>
                            <ENT>SINUS &amp; MASTOID PROCEDURES AGE 0-17 </ENT>
                            <ENT>53 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">56 </ENT>
                            <ENT>RHINOPLASTY </ENT>
                            <ENT>53 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">57 </ENT>
                            <ENT>T&amp;A PROC, EXCEPT TONSILLECTOMY &amp;/OR ADENOIDECTOMY ONLY, AGE &gt;17 </ENT>
                            <ENT>69 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">58 </ENT>
                            <ENT>T&amp;A PROC, EXCEPT TONSILLECTOMY &amp;/OR ADENOIDECTOMY ONLY, AGE 0-17 </ENT>
                            <ENT>69 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">59 </ENT>
                            <ENT>TONSILLECTOMY &amp;/OR ADENOIDECTOMY ONLY, AGE &gt;17 </ENT>
                            <ENT>69 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">60 </ENT>
                            <ENT>TONSILLECTOMY &amp;/OR ADENOIDECTOMY ONLY, AGE 0-17 </ENT>
                            <ENT>69 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <PRTPAGE P="28234"/>
                            <ENT I="01">61 </ENT>
                            <ENT>MYRINGOTOMY W TUBE INSERTION AGE &gt;17 </ENT>
                            <ENT>69 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">62 </ENT>
                            <ENT>MYRINGOTOMY W TUBE INSERTION AGE 0-17 </ENT>
                            <ENT>69 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">66 </ENT>
                            <ENT>EPISTAXIS </ENT>
                            <ENT>69 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">67 </ENT>
                            <ENT>EPIGLOTTITIS </ENT>
                            <ENT>63 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">70 </ENT>
                            <ENT>OTITIS MEDIA &amp; URI AGE 0-17 </ENT>
                            <ENT>69 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">71 </ENT>
                            <ENT>LARYNGOTRACHEITIS </ENT>
                            <ENT>97 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">72 </ENT>
                            <ENT>NASAL TRAUMA &amp; DEFORMITY </ENT>
                            <ENT>53 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">74 </ENT>
                            <ENT>OTHER EAR, NOSE, MOUTH &amp; THROAT DIAGNOSES AGE 0-17 </ENT>
                            <ENT>69 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">81 </ENT>
                            <ENT>RESPIRATORY INFECTIONS &amp; INFLAMMATIONS AGE 0-17 </ENT>
                            <ENT>69 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">91 </ENT>
                            <ENT>SIMPLE PNEUMONIA &amp; PLEURISY AGE 0-17 </ENT>
                            <ENT>90 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">98 </ENT>
                            <ENT>BRONCHITIS &amp; ASTHMA AGE 0-17 </ENT>
                            <ENT>97 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">104 </ENT>
                            <ENT>CARDIAC VALVE &amp; OTH MAJOR CARDIOTHORACIC PROC W CARD CATH </ENT>
                            <ENT>110 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">105 </ENT>
                            <ENT>CARDIAC VALVE &amp; OTH MAJOR CARDIOTHORACIC PROC W/O CARD CATH </ENT>
                            <ENT>110 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">106 </ENT>
                            <ENT>CORONARY BYPASS W PTCA </ENT>
                            <ENT>110 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">107 </ENT>
                            <ENT>CORONARY BYPASS W CARDIAC CATH </ENT>
                            <ENT>110 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">111 </ENT>
                            <ENT>MAJOR CARDIOVASCULAR PROCEDURES W/O CC </ENT>
                            <ENT>110 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">137 </ENT>
                            <ENT>CARDIAC CONGENITAL &amp; VALVULAR DISORDERS AGE 0-17 </ENT>
                            <ENT>136 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">146 </ENT>
                            <ENT>RECTAL RESECTION W CC </ENT>
                            <ENT>148 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">147 </ENT>
                            <ENT>RECTAL RESECTION W/O CC </ENT>
                            <ENT>148 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">151 </ENT>
                            <ENT>PERITONEAL ADHESIOLYSIS W/O CC </ENT>
                            <ENT>150 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">153 </ENT>
                            <ENT>MINOR SMALL &amp; LARGE BOWEL PROCEDURES W/O CC </ENT>
                            <ENT>152 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">155 </ENT>
                            <ENT>STOMACH, ESOPHAGEAL &amp; DUODENAL PROCEDURES AGE &gt;17 W/O CC </ENT>
                            <ENT>154 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">156 </ENT>
                            <ENT>STOMACH, ESOPHAGEAL &amp; DUODENAL PROCEDURES AGE 0-17 </ENT>
                            <ENT>154 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">158 </ENT>
                            <ENT>ANAL &amp; STOMAL PROCEDURES W/O CC </ENT>
                            <ENT>157 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">160 </ENT>
                            <ENT>HERNIA PROCEDURES EXCEPT INGUINAL &amp; FEMORAL AGE &gt;17 W/O CC </ENT>
                            <ENT>159 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">162 </ENT>
                            <ENT>INGUINAL &amp; FEMORAL HERNIA PROCEDURES AGE &gt;17 W/O CC </ENT>
                            <ENT>178 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">163 </ENT>
                            <ENT>HERNIA PROCEDURES AGE 0-17 </ENT>
                            <ENT>178 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">164 </ENT>
                            <ENT>APPENDECTOMY W COMPLICATED PRINCIPAL DIAG W CC </ENT>
                            <ENT>148 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">165 </ENT>
                            <ENT>APPENDECTOMY W COMPLICATED PRINCIPAL DIAG W/O CC </ENT>
                            <ENT>148 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">166 </ENT>
                            <ENT>APPENDECTOMY W/O COMPLICATED PRINCIPAL DIAG W CC </ENT>
                            <ENT>148 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">167 </ENT>
                            <ENT>APPENDECTOMY W/O COMPLICATED PRINCIPAL DIAG W/O CC </ENT>
                            <ENT>148 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">169 </ENT>
                            <ENT>MOUTH PROCEDURES W/O CC </ENT>
                            <ENT>53 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">184 </ENT>
                            <ENT>ESOPHAGITIS, GASTROENT &amp; MISC DIGEST DISORDERS AGE 0-17</ENT>
                            <ENT>183 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">186 </ENT>
                            <ENT>DENTAL &amp; ORAL DIS EXCEPT EXTRACTIONS &amp; RESTORATIONS, AGE 0-17 </ENT>
                            <ENT>185 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">187 </ENT>
                            <ENT>DENTAL EXTRACTIONS &amp; RESTORATIONS </ENT>
                            <ENT>185 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">190 </ENT>
                            <ENT>OTHER DIGESTIVE SYSTEM DIAGNOSES AGE 0-17 </ENT>
                            <ENT>189 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">192 </ENT>
                            <ENT>PANCREAS, LIVER &amp; SHUNT PROCEDURES W/O CC </ENT>
                            <ENT>191 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">194 </ENT>
                            <ENT>BILIARY TRACT PROC EXCEPT ONLY CHOLECYST W OR W/O C.D.E. W/O CC </ENT>
                            <ENT>193 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">195 </ENT>
                            <ENT>CHOLECYSTECTOMY W C.D.E. W CC </ENT>
                            <ENT>197 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">196 </ENT>
                            <ENT>CHOLECYSTECTOMY W C.D.E. W/O CC </ENT>
                            <ENT>197 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">198 </ENT>
                            <ENT>CHOLECYSTECTOMY EXCEPT BY LAPAROSCOPE W/O C.D.E. W/O CC </ENT>
                            <ENT>197 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">199 </ENT>
                            <ENT>HEPATOBILIARY DIAGNOSTIC PROCEDURE FOR MALIGNANCY </ENT>
                            <ENT>200 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">211 </ENT>
                            <ENT>HIP &amp; FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE &gt;17 W/O CC </ENT>
                            <ENT>210 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">212 </ENT>
                            <ENT>HIP &amp; FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE 0-17 </ENT>
                            <ENT>210 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">219 </ENT>
                            <ENT>LOWER EXTREM &amp; HUMER PROC EXCEPT HIP, FOOT, FEMUR AGE &gt;17 W/O CC ]</ENT>
                            <ENT>218 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">220 </ENT>
                            <ENT>LOWER EXTREM &amp; HUMER PROC EXCEPT HIP, FOOT, FEMUR AGE 0-17 </ENT>
                            <ENT>218 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">223 </ENT>
                            <ENT>MAJOR SHOULDER/ELBOW PROC, OR OTHER UPPER EXTREMITY PROC W CC </ENT>
                            <ENT>224 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">232 </ENT>
                            <ENT>ARTHROSCOPY </ENT>
                            <ENT>234 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">252 </ENT>
                            <ENT>FX, SPRN, STRN &amp; DISL OF FOREARM, HAND, FOOT AGE 0-17 </ENT>
                            <ENT>234 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">255 </ENT>
                            <ENT>FX, SPRN, STRN &amp; DISL OF UPARM, LOWLEG EX FOOT AGE 0-17 </ENT>
                            <ENT>234 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">257 </ENT>
                            <ENT>TOTAL MASTECTOMY FOR MALIGNANCY W CC </ENT>
                            <ENT>275 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">258 </ENT>
                            <ENT>TOTAL MASTECTOMY FOR MALIGNANCY W/O CC</ENT>
                            <ENT>275 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">259 </ENT>
                            <ENT>SUBTOTAL MASTECTOMY FOR MALIGNANCY W CC </ENT>
                            <ENT>275 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">279 </ENT>
                            <ENT>CELLULITIS AGE 0-17 </ENT>
                            <ENT>273 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">282 </ENT>
                            <ENT>TRAUMA TO THE SKIN, SUBCUT TISS &amp; BREAST AGE 0-17 </ENT>
                            <ENT>281 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">286 </ENT>
                            <ENT>ADRENAL &amp; PITUITARY PROCEDURES </ENT>
                            <ENT>53 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">289 </ENT>
                            <ENT>PARATHYROID PROCEDURES </ENT>
                            <ENT>53 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">290 </ENT>
                            <ENT>THYROID PROCEDURES </ENT>
                            <ENT>53 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">291 </ENT>
                            <ENT>THYROGLOSSAL PROCEDURES </ENT>
                            <ENT>53 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">293 </ENT>
                            <ENT>OTHER ENDOCRINE, NUTRIT &amp; METAB O.R. PROC W/O CC</ENT>
                            <ENT>292 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">298 </ENT>
                            <ENT>NUTRITIONAL &amp; MISC METABOLIC DISORDERS AGE 0-17 </ENT>
                            <ENT>297 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">309 </ENT>
                            <ENT>MINOR BLADDER PROCEDURES W/O CC </ENT>
                            <ENT>308 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">311 </ENT>
                            <ENT>TRANSURETHRAL PROCEDURES W/O CC </ENT>
                            <ENT>310 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">313 </ENT>
                            <ENT>URETHRAL PROCEDURES, AGE &gt;17 W/O CC </ENT>
                            <ENT>312 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">314 </ENT>
                            <ENT>URETHRAL PROCEDURES, AGE 0-17 </ENT>
                            <ENT>305 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">322 </ENT>
                            <ENT>KIDNEY &amp; URINARY TRACT INFECTIONS AGE 0-17 </ENT>
                            <ENT>326 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">327 </ENT>
                            <ENT>KIDNEY &amp; URINARY TRACT SIGNS &amp; SYMPTOMS AGE 0-17 </ENT>
                            <ENT>326 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">329 </ENT>
                            <ENT>URETHRAL STRICTURE AGE &gt;17 W/O CC </ENT>
                            <ENT>305 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">330 </ENT>
                            <ENT>URETHRAL STRICTURE AGE 0-17 </ENT>
                            <ENT>305 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <PRTPAGE P="28235"/>
                            <ENT I="01">333 </ENT>
                            <ENT>OTHER KIDNEY &amp; URINARY TRACT DIAGNOSES AGE 0-17 </ENT>
                            <ENT>332 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">334 </ENT>
                            <ENT>MAJOR MALE PELVIC PROCEDURES W CC </ENT>
                            <ENT>345 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">335 </ENT>
                            <ENT>MAJOR MALE PELVIC PROCEDURES W/O CC </ENT>
                            <ENT>345 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">337 </ENT>
                            <ENT>TRANSURETHRAL PROSTATECTOMY W/O CC </ENT>
                            <ENT>306 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">340 </ENT>
                            <ENT>TESTES PROCEDURES, NON-MALIGNANCY AGE 0-17 </ENT>
                            <ENT>339 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">342 </ENT>
                            <ENT>CIRCUMCISION AGE &gt;17 </ENT>
                            <ENT>339 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">343 </ENT>
                            <ENT>CIRCUMCISION AGE 0-17 </ENT>
                            <ENT>339 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">344 </ENT>
                            <ENT>OTHER MALE REPRODUCTIVE SYSTEM O.R. PROCEDURES FOR MALIGNANCY </ENT>
                            <ENT>345 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">351 </ENT>
                            <ENT>STERILIZATION, MALE </ENT>
                            <ENT>339 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">353 </ENT>
                            <ENT>PELVIC EVISCERATION, RADICAL HYSTERECTOMY &amp; RADICAL VULVECTOMY </ENT>
                            <ENT>365 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">354 </ENT>
                            <ENT>UTERINE, ADNEXA PROC FOR NON-OVARIAN/ADNEXAL MALIG W CC </ENT>
                            <ENT>365 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">355 </ENT>
                            <ENT>UTERINE, ADNEXA PROC FOR NON-OVARIAN/ADNEXAL MALIG W/O CC </ENT>
                            <ENT>365 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">356 </ENT>
                            <ENT>FEMALE REPRODUCTIVE SYSTEM RECONSTRUCTIVE PROCEDURES </ENT>
                            <ENT>303 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">357 </ENT>
                            <ENT>UTERINE &amp; ADNEXA PROC FOR OVARIAN OR ADNEXAL MALIGNANCY </ENT>
                            <ENT>303 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">358 </ENT>
                            <ENT>UTERINE &amp; ADNEXA PROC FOR NON-MALIGNANCY W CC </ENT>
                            <ENT>303 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">359 </ENT>
                            <ENT>UTERINE &amp; ADNEXA PROC FOR NON-MALIGNANCY W/O CC </ENT>
                            <ENT>303 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">360 </ENT>
                            <ENT>VAGINA, CERVIX &amp; VULVA PROCEDURES </ENT>
                            <ENT>303 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">361 </ENT>
                            <ENT>LAPAROSCOPY &amp; INCISIONAL TUBAL INTERRUPTION </ENT>
                            <ENT>149 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">362 </ENT>
                            <ENT>ENDOSCOPIC TUBAL INTERRUPTION </ENT>
                            <ENT>149 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">363 </ENT>
                            <ENT>D&amp;C, CONIZATION &amp; RADIO-IMPLANT, FOR MALIGNANCY </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">364 </ENT>
                            <ENT>D&amp;C, CONIZATION EXCEPT FOR MALIGNANCY </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">370 </ENT>
                            <ENT>CESAREAN SECTION W CC </ENT>
                            <ENT>369 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">371 </ENT>
                            <ENT>CESAREAN SECTION W/O CC </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">372 </ENT>
                            <ENT>VAGINAL DELIVERY W COMPLICATING DIAGNOSES </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">373 </ENT>
                            <ENT>VAGINAL DELIVERY W/O COMPLICATING DIAGNOSES </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">374 </ENT>
                            <ENT>VAGINAL DELIVERY W STERILIZATION &amp;/OR D&amp;C </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">375 </ENT>
                            <ENT>VAGINAL DELIVERY W O.R. PROC EXCEPT STERIL &amp;/OR D&amp;C </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">376 </ENT>
                            <ENT>POSTPARTUM &amp; POST ABORTION DIAGNOSES W/O O.R. PROCEDURE </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">377 </ENT>
                            <ENT>POSTPARTUM &amp; POST ABORTION DIAGNOSES W O.R. PROCEDURE </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">378 </ENT>
                            <ENT>ECTOPIC PREGNANCY </ENT>
                            <ENT>369 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">379 </ENT>
                            <ENT>THREATENED ABORTION </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">380 </ENT>
                            <ENT>ABORTION W/O D&amp;C </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">381 </ENT>
                            <ENT>ABORTION W D&amp;C, ASPIRATION CURETTAGE OR HYSTEROTOMY </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">382 </ENT>
                            <ENT>FALSE LABOR </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">383 </ENT>
                            <ENT>OTHER ANTEPARTUM DIAGNOSES W MEDICAL COMPLICATIONS </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">384 </ENT>
                            <ENT>OTHER ANTEPARTUM DIAGNOSES W/O MEDICAL COMPLICATIONS </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">385 </ENT>
                            <ENT>NEONATES, DIED OR TRANSFERRED TO ANOTHER ACUTE CARE FACILITY </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">386 </ENT>
                            <ENT>EXTREME IMMATURITY OR RESPIRATORY DISTRESS SYNDROME, NEONATE </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">387 </ENT>
                            <ENT>PREMATURITY W MAJOR PROBLEMS </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">388 </ENT>
                            <ENT>PREMATURITY W/O MAJOR PROBLEMS </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">389 </ENT>
                            <ENT>FULL TERM NEONATE W MAJOR PROBLEMS </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">390 </ENT>
                            <ENT>NEONATE W OTHER SIGNIFICANT PROBLEMS </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">391 </ENT>
                            <ENT>NORMAL NEWBORN </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">392 </ENT>
                            <ENT>SPLENECTOMY AGE &gt;17 </ENT>
                            <ENT>197 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">393 </ENT>
                            <ENT>SPLENECTOMY AGE 0-17 </ENT>
                            <ENT>197 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">396 </ENT>
                            <ENT>RED BLOOD CELL DISORDERS AGE 0-17</ENT>
                            <ENT>399 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">402 </ENT>
                            <ENT>LYMPHOMA &amp; NON-ACUTE LEUKEMIA W OTHER O.R. PROC W/O CC </ENT>
                            <ENT>395 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">405 </ENT>
                            <ENT>ACUTE LEUKEMIA W/O MAJOR O.R. PROCEDURE AGE 0-17 </ENT>
                            <ENT>404 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">407 </ENT>
                            <ENT>MYELOPROLIF DISORD OR POORLY DIFF NEOPL W MAJ O.R. PROC W/O CC </ENT>
                            <ENT>408 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">411 </ENT>
                            <ENT>HISTORY OF MALIGNANCY W/O ENDOSCOPY </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">412 </ENT>
                            <ENT>HISTORY OF MALIGNANCY W ENDOSCOPY </ENT>
                            <ENT>367 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">417 </ENT>
                            <ENT>SEPTICEMIA AGE 0-17 </ENT>
                            <ENT>416 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">422 </ENT>
                            <ENT>VIRAL ILLNESS &amp; FEVER OF UNKNOWN ORIGIN AGE 0-17 </ENT>
                            <ENT>426 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">432 </ENT>
                            <ENT>OTHER MENTAL DISORDER DIAGNOSES </ENT>
                            <ENT>427 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">446 </ENT>
                            <ENT>TRAUMATIC INJURY AGE 0-17 </ENT>
                            <ENT>445 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">448 </ENT>
                            <ENT>ALLERGIC REACTIONS AGE 0-17 </ENT>
                            <ENT>447 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">451 </ENT>
                            <ENT>POISONING &amp; TOXIC EFFECTS OF DRUGS AGE 0-17 </ENT>
                            <ENT>455 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">471 </ENT>
                            <ENT>BILATERAL OR MULTIPLE MAJOR JOINT PROCS OF LOWER EXTREMITY </ENT>
                            <ENT>236 </ENT>
                            <ENT>Quintile 2.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">481 </ENT>
                            <ENT>BONE MARROW TRANSPLANT </ENT>
                            <ENT>394 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">482 </ENT>
                            <ENT>TRACHEOSTOMY FOR FACE, MOUTH &amp; NECK DIAGNOSES </ENT>
                            <ENT>63 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">484 </ENT>
                            <ENT>CRANIOTOMY FOR MULTIPLE SIGNIFICANT TRAUMA </ENT>
                            <ENT>1 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">491 </ENT>
                            <ENT>MAJOR JOINT &amp; LIMB REATTACHMENT PROCEDURES OF UPPER EXTREMITY </ENT>
                            <ENT>209 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">492 </ENT>
                            <ENT>CHEMOTHERAPY W ACUTE LEUKEMIA OR W USE OF HI DOSE CHEMOAGENT </ENT>
                            <ENT>410 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">494 </ENT>
                            <ENT>LAPAROSCOPIC CHOLECYSTECTOMY W/O C.D.E. W/O CC </ENT>
                            <ENT>493 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">498 </ENT>
                            <ENT>SPINAL FUSION EXCEPT CERVICAL W/O CC </ENT>
                            <ENT>497 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">504 </ENT>
                            <ENT>EXTENSIVE BURNS OF FULL THICKNESS BURNS WITH MECH VENT 96+HRS WITH SKIN GRAFT </ENT>
                            <ENT>468 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">507 </ENT>
                            <ENT>FULL THICKNESS BURN W SKIN GRFT OR INHAL INJ W/O CC OR SIG TRAUMA </ENT>
                            <ENT>508 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">516 </ENT>
                            <ENT>PERCUTANEOUS CARDIOVASC PROC W AMI </ENT>
                            <ENT>518 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <PRTPAGE P="28236"/>
                            <ENT I="01">520 </ENT>
                            <ENT>CERVICAL SPINAL FUSION W/O CC </ENT>
                            <ENT>497 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">525 </ENT>
                            <ENT>OTHER HEART ASSIST SYSTEM IMPLANT </ENT>
                            <ENT>468 </ENT>
                            <ENT>Quintile 5.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">526 </ENT>
                            <ENT>PERCUTNEOUS CARDIOVASULAR PROC W DRUG ELUTING STENT W AMI </ENT>
                            <ENT>517 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">527 </ENT>
                            <ENT>PERCUTNEOUS CARDIOVASULAR PROC W DRUG ELUTING STENT W/O AMI </ENT>
                            <ENT>517 </ENT>
                            <ENT>Quintile 3.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">528 </ENT>
                            <ENT>INTRACRANIAL VASCULAR PROC W PDX HEMORRHAGE </ENT>
                            <ENT>1 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">530 </ENT>
                            <ENT>VENTRICULAR SHUNT PROCEDURES W/O CC </ENT>
                            <ENT>529 </ENT>
                            <ENT>Quintile 4.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">534 </ENT>
                            <ENT>EXTRACRANIAL PROCEDURES W/O CC </ENT>
                            <ENT>500 </ENT>
                            <ENT>Quintile 1.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">540 </ENT>
                            <ENT>LYMPHOMA &amp; LEUKEMIA W MAJOR OR PROCEDURE W/O CC </ENT>
                            <ENT>399 </ENT>
                            <ENT>Quintile 2. </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>To illustrate this methodology for determining the proposed relative weights for the 170 proposed LTC-DRGs with no LTCH cases, we are providing the following examples, which refer to the no volume proposed LTC-DRGs crosswalk information for FY 2005 provided above in Table 2:</P>
                    <EXAMPLE>
                        <HD SOURCE="HED">Example 1:</HD>
                        <P>There were no cases in the FY 2003 MedPAR file used for this proposed rule for proposed LTC-DRG 163 (Hernia Procedures Age 0-17). Since the procedure is similar in resource use and the length and complexity of the procedures and the length of stay are similar, we determined that proposed LTC-DRG 178 (Uncomplicated Peptic Ulcer Without CC), which is assigned to proposed low-volume quintile 1 for the purpose of determining the proposed FY 2005 relative weights, would display similar clinical and resource use. Therefore, we assign the same proposed relative weight of proposed LTC-DRG 178 of 0.4964 (Quintile 1) for FY 2005 (Table 11 in the Addendum to this proposed rule) to LTC-DRG 163.</P>
                    </EXAMPLE>
                    <EXAMPLE>
                        <HD SOURCE="HED">Example 2:</HD>
                        <P>There were no LTCH cases in the FY 2003 MedPAR file used in this proposed rule for proposed LTC-DRG 91 (Simple Pneumonia and Pleurisy Age 0-17). Since the severity of illness in patients with bronchitis and asthma is similar in patients regardless of age, we determined that proposed LTC-DRG 90 (Simple Pneumonia and Pleurisy Age &gt;17 Without CC) would display similar clinical and resource use characteristics and have a similar length of stay to LTC-DRG 91. There were over 25 cases in proposed LTC-DRG 90. Therefore, it would not be assigned to a low-volume quintile for the purpose of determining the LTC-DRG relative weights. However, under our established methodology, proposed LTC-DRG 91, with no LTCH cases, would need to be grouped to a low-volume quintile. We identified that the proposed low-volume quintile with the closest weight to proposed LTC-DRG 90 (0.7368; see Table 11 in the Addendum to this proposed rule) would be proposed low-volume quintile 2 (0.6685; see Table 11 in the Addendum to this proposed rule). Therefore, we assign proposed LTC-DRG 91 a proposed relative weight of 0.6885 for FY 2005. </P>
                        <P>Furthermore, we are proposing LTC-DRG relative weights of 0.0000 for heart, kidney, liver, lung, pancreas, and simultaneous pancreas/kidney transplants (LTC-DRGs 103, 302, 480, 495, 512, and 513, respectively) for FY 2005 because Medicare will only cover these procedures if they are performed at a hospital that has been certified for the specific procedures by Medicare and presently no LTCH has been so certified. </P>
                        <P>Based on our research, we found that most LTCHs only perform minor surgeries, such as minor small and large bowel procedures, to the extent any surgeries are performed at all. Given the extensive criteria that must be met to become certified as a transplant center for Medicare, we believe it is unlikely that any LTCHs would become certified as a transplant center. In fact, in the nearly 20 years since the implementation of the IPPS, there has never been a LTCH that even expressed an interest in becoming a transplant center. </P>
                        <P>However, if in the future a LTCH applies for certification as a Medicare-approved transplant center, we believe that the application and approval procedure would allow sufficient time for us to determine appropriate weights for the LTC-DRGs affected. At the present time, we would only include these six transplant LTC-DRGs in the GROUPER program for administrative purposes. Since we use the same GROUPER program for LTCHs as is used under the IPPS, removing these LTC-DRGs would be administratively burdensome. </P>
                        <P>Again, we note that as this system is dynamic, it is entirely possible that the number of proposed LTC-DRGs with a zero volume of LTCH cases based on the system will vary in the future. We used the best most recent available claims data in the MedPAR file to identify zero volume LTC-DRGs and to determine the proposed relative weights in this proposed rule. </P>
                        <P>Table 11 in the Addendum to this proposed rule lists the proposed LTC-DRGs and their respective proposed relative weights, geometric mean length of stay, and five-sixths of the geometric mean length of stay (to assist in the determination of short-stay outlier payments under § 412.529) for FY 2005.</P>
                    </EXAMPLE>
                    <HD SOURCE="HD2">E. Proposed Add-On Payments for New Services and Technologies </HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “New Technology Applications” at the beginning of your comment.] </FP>
                    <HD SOURCE="HD3">1. Background </HD>
                    <P>Sections 1886(d)(5)(K) and (L) of the Act establish a process of identifying and ensuring adequate payment for new medical services and technologies under the IPPS. Section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be considered new if it meets criteria established by the Secretary after notice and opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that the process must apply to a new medical service or technology if, “based on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate.” </P>
                    <P>
                        The regulations implementing this provision establish three criteria for special treatment. First, § 412.87(b)(2) defines when a specific medical service or technology will be considered new for purposes of new medical service or technology add-on payments. The statutory provision contemplated the special payment treatment for new medical services or technologies until such time as data are available to reflect the cost of the technology in the DRG weights through recalibration. There is a lag of 2 to 3 years from the point a new medical service or technology is first introduced on the market and when data reflecting the use of the medical service or technology are used to calculate the DRG weights. For example, data from discharges occurring during FY 2003 are used to calculate the proposed FY 2005 DRG weights in this proposed rule. Section 412.87(b)(2) provides that a “medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new medical service or technology (depending on when a new code is assigned and data on the new medical service or technology become 
                        <PRTPAGE P="28237"/>
                        available for DRG recalibration). After CMS has recalibrated the DRGs, based on available data, to reflect the costs of an otherwise new medical service or technology, the medical service or technology will no longer be considered ‘new’ under the criterion for this section.” 
                    </P>
                    <P>The 2-year to 3-year period would ordinarily begin with FDA approval, unless there was some documented delay in bringing the product onto the market after that approval (for instance, component production or drug production had been postponed until FDA approval due to shelf life concerns). After the DRGs have been recalibrated to reflect the costs of an otherwise new medical service or technology, the special add-on payment for new medical services or technology ceases (§ 412.87(b)(2)). For example, an approved new technology that received FDA approval in October 2003 and entered the market at that time may be eligible to receive add-on payments as a new technology until FY 2006 (discharges occurring before October 1, 2005), when data reflecting the costs of the technology would be used to recalibrate the DRG weights. Because the FY 2006 DRG weights will be calculated using FY 2004 MedPAR data, the costs of such a new technology would likely be reflected in the FY 2006 DRG weights. </P>
                    <P>Section 412.87(b)(3) further provides that, to receive special payment treatment, new medical services or technologies must be inadequately paid otherwise under the DRG system. To assess whether technologies would be inadequately paid under the DRGs, we establish thresholds to evaluate applicants for new technology add-on payments. In the August 1, 2003 final rule (68 FR 45385), we established the threshold at the geometric mean standardized charge for all cases in the DRG plus 75 percent of 1 standard deviation above the geometric mean standardized charge (based on the logarithmic values of the charges and transformed back to charges) for all cases in the DRG to which the new medical service or technology is assigned (or the case-weighted average of all relevant DRGs, if the new medical service or technology occurs in many different DRGs). Table 10 in the Addendum to the August 1, 2003 final rule (68 FR 45648) listed the qualifying threshold by DRG, based on the discharge data that we used to calculate the FY 2004 DRG weights. </P>
                    <P>
                        However, section 503(b)(1) of Public Law 108-173 amended section 1886(d)(5)(K)(ii)(I) of the Act to provide for “applying a threshold* * *that is the lesser of 75 percent of the standardized amount (increased to reflect the difference between cost and charges) or 75 percent of one standard deviation for the diagnosis-related group involved.” The provisions of section 503(b)(1) apply to classification for fiscal years beginning with FY 2005. We have updated Table 10 from the October 6, 2003 
                        <E T="04">Federal Register</E>
                         correction document, which contains the thresholds that we are using to evaluate applications for new service or technology add-on payments for FY 2005, using the section 503(b)(1) measures stated above, and posted these new thresholds on our Web site at: 
                        <E T="03">www.cms.hhs.gov/providers/hipps/newtech.asp.</E>
                         The thresholds published in this FY 2005 proposed rule are preliminary thresholds for FY 2006. The final thresholds published in the FY 2005 final rule will be used to evaluate applicants for new technology add-on payments during FY 2006. (Refer to section IV. D. of this preamble for a discussion of a revision of the regulations to incorporate the change made by section 503(b)(1) of Public Law 108-173.) 
                    </P>
                    <P>
                        Section 412.87(b)(1) of our existing regulations provides that a new technology is an appropriate candidate for an additional payment when it represents an advance in medical technology that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. For example, a new technology represents a substantial clinical improvement when it reduces mortality, decreases the number of hospitalizations or physician visits or reduces recovery time compared to the technologies previously available. (
                        <E T="03">See</E>
                         the September 7, 2001 final rule (66 FR 46902) for a complete discussion of this criterion.) 
                    </P>
                    <P>The new medical service or technology add-on payment policy provides additional payments for cases with high costs involving eligible new medical services or technologies while preserving some of the incentives under the average-based payment system. The payment mechanism is based on the cost to hospitals for the new medical service or technology. Under § 412.88, Medicare pays a marginal cost factor of 50 percent for the costs of a new medical service or technology in excess of the full DRG payment. If the actual costs of a new medical service or technology case exceed the DRG payment by more than the 50-percent marginal cost factor of the new medical service or technology, Medicare payment is limited to the DRG payment plus 50 percent of the estimated costs of the new technology. </P>
                    <P>The report language accompanying section 533 of Public Law 106-554 indicated Congressional intent that the Secretary implement the new mechanism on a budget neutral basis (H.R. Conf. Rep. No. 106-1033, 106th Cong., 2nd Sess. at 897 (2000)). Section 1886(d)(4)(C)(iii) of the Act requires that the adjustments to annual DRG classifications and relative weights must be made in a manner that ensures that aggregate payments to hospitals are not affected. Therefore, in the past, we accounted for projected payments under the new medical service and technology provision during the upcoming fiscal year at the same time we estimated the payment effect of changes to the DRG classifications and recalibration. The impact of additional payments under this provision was then included in the budget neutrality factor, which was applied to the standardized amounts and the hospital-specific amounts. </P>
                    <P>Section 503(d)(2) of Public Law 108-173 amended section 1886(d)(5)(K)(ii)(III) of the Act to provide that there shall be no reduction or adjustment in aggregate payments under the IPPS due to add-on payments for new medical services and technologies. Therefore, add-on payments for new medical services or technologies for FY 2005 and later years will not be budget neutral. We discuss the regulation change necessary to implement this provision in section IV.H. of this proposed rule. </P>
                    <P>
                        Applicants for add-on payments for new medical services or technologies for FY 2006 must submit a formal request, including a full description of the clinical applications of the medical service or technology and the results of any clinical evaluations demonstrating that the new medical service or technology represents a substantial clinical improvement, along with a significant sample of data to demonstrate the medical service or technology meets the high-cost threshold, no later than early October 2004. Applicants must submit a complete database no later than mid-December 2004. Complete application information, along with final deadlines for submitting a full application, will be available at our Web site after publication of the FY 2005 final rule at: 
                        <E T="03">www.cms.hhs.gov/providers/hipps/default.asp.</E>
                         To allow interested parties to identify the new medical services or technologies under review before the publication of the proposed rule for FY 2006, the Web site will also list the tracking forms completed by each applicant. 
                        <PRTPAGE P="28238"/>
                    </P>
                    <HD SOURCE="HD3">2. Other Provisions of Section 503 of Public Law 108-173 </HD>
                    <P>Section 503(b)(2) of Public Law 108-173 amended section 1886(d)(5)(K) of the Act by adding a new clause (viii) to provide for a mechanism for public input before publication of a notice of proposed rule making regarding whether a medical service or technology represents a substantial improvement or advancement. The revised process for evaluating new medical service and technology applications requires the Secretary to— </P>
                    <P>• Provide, before publication of a proposed rule, for public input regarding whether a new service or technology represents an advance in medical technology that substantially improves the diagnosis or treatment of Medicare beneficiaries. </P>
                    <P>• Make public and periodically update a list of the services and technologies for which an application for add-on payments is pending. </P>
                    <P>• Accept comments, recommendations, and data from the public regarding whether a service or technology represents a substantial improvement. </P>
                    <P>• Provide, before publication of a proposed rule, for a meeting at which organizations representing hospitals, physicians, manufacturers, and any other interested party may present comments, recommendations, and data regarding whether a new service or technology represents a substantial clinical improvement to the clinical staff of CMS. </P>
                    <P>
                        In order to satisfy the requirements of this last provision, we published a notice in the 
                        <E T="04">Federal Register</E>
                         on February 27, 2004, and held a town meeting at the CMS Headquarters Office in Baltimore, MD, on March 15, 2004. In the announcement notice for the meeting, we stated that the opinions and alternatives provided during the meeting would assist us in our evaluations of applications by allowing public discussions of the substantial clinical improvement criteria for each of the FY 2005 new medical service and technology add-on payment applications before the publication of this FY 2005 IPPS proposed rule. 
                    </P>
                    <P>Approximately 70 participants registered and attended in person, while additional participants listened over an open telephone line. The participants focused on presenting data on the substantial clinical improvement aspect of their products, as well as the need for additional payments to ensure access to Medicare beneficiaries. In addition, we also received many written comments regarding the substantial clinical improvement criterion for the applicants. We have considered these comments in our evaluation of each new application for FY 2005 in this proposed rule. We have summarized these comments, or if applicable, indicated that no comments were received, at the end of the discussion of the individual applications. </P>
                    <P>Section 503(c) of Public Law 108-173 amended section 1886(d)(5)(K) of the Act by adding a new clause (ix) requiring that before establishing any add-on payment for a new medical service or technology, that the Secretary shall seek to identify one or more DRGs associated with the new technology, based on similar clinical or anatomical characteristics and the costs of the technology and assign the new technology into a DRG where the average costs of care most closely approximate the costs of care using the new technology. No add-on payment shall be made with respect to such a new technology. </P>
                    <P>At the time an application is submitted, the DRGs associated with the new technology are identified. We only determine that a new technology add-on payment is appropriate when the reimbursement under these DRGs is not adequate for this new technology. The criterion for this determination is the cost threshold, which we discuss below. We discuss the assignments of several new technologies within the DRG payment system in section II.B. of this preamble. </P>
                    <P>In this proposed rule, we evaluate whether new technology add-on payments will continue in FY 2005 for the two technologies that currently receive such payments. In accordance with section 503(e)(2) of Public Law 108-173, we also reconsider one application for new technology add-on payments that was denied last year. Finally, we present our evaluations of 10 new applications for add-on payments in FY 2005. </P>
                    <HD SOURCE="HD3">3. FY 2005 Status of Technology Approved for FY 2004 Add-On Payments</HD>
                    <P>a. Drotrecogin Alfa (Activated)—Xigris® </P>
                    <P>Xigris®, a biotechnology product that is a recombinant version of naturally occurring Activated Protein C (APC), was approved by the FDA on November 21, 2001. In the August 1, 2002 IPPS final rule (67 FR 50013), we determined that cases involving the administration of Xigris®, (as identified by the presence of code 00.11 (Infusion of drotrecogin alfa (activated)) were eligible for additional payments in FY 2003. (The August 1, 2002 final rule contains a detailed discussion of this technology.) </P>
                    <P>In the August 1, 2003 final IPPS rule (68 FR 45387), we indicated that, for FY 2004, we would continue to make add-on payments for cases involving the administration of Xigris® as identified by the presence of code 00.11. This was because we determined that Xigris® was still within the 2-year to 3-year period before the costs of this new technology would be reflected in the DRG weights. </P>
                    <P>Xigris® became available on the market at the time of its FDA licensure on November 21, 2001. Early in FY 2005, Xigris® will be beyond the 2-year to 3-year period during which a technology can be considered new. Therefore, we are proposing that Xigris® will not continue to receive new technology add-on payments in FY 2005. During the period of 2 years and 6 months since it came onto the market, Xigris® has been used frequently in the appropriate DRGs. For FY 2005, we analyzed the number of cases involving this technology in the FY 2003 MedPAR file. We found 4,243 cases that received Xigris®, the majority of which fell appropriately into DRGs 415, 416, 475, and 483, with by far the most cases in DRG 416 (Septicemia Age &gt;17). Accordingly, the costs of Xigris® are now well-represented in those DRGs. Therefore, we are proposing that FY 2004 will be the final year for Xigris® to receive add-on payments. </P>
                    <P>We received no public comments regarding the continuation of add-on payments for Xigris®. </P>
                    <P>
                        The manufacturer also asked us to consider creating a DRG specifically for severe sepsis. We discuss this request in section II.B.16.c. of this proposed rule. b. InFUSE
                        <E T="51">TM</E>
                         (Bone Morphogenetic Proteins (BMPs) for Spinal Fusions) 
                    </P>
                    <P>
                        InFUSE
                        <E T="51">TM</E>
                         was approved by FDA for use on July 2, 2002, and became available on the market immediately thereafter. In the August 1, 2003 IPPS final rule (68 FR 45388), we approved InFUSE
                        <E T="51">TM</E>
                         for add-on payments under § 412.88, effective for FY 2004. This approval was on the basis of using InFUSE
                        <E T="51">TM</E>
                         for single-level, lumbar spinal fusion, consistent with the FDA's approval and the data presented to us by the applicant. Therefore, we limited the add-on payment to cases using this technology for anterior lumbar fusions in DRGs 497 (Spinal Fusion Except Cervical With CC) and 498 (Spinal Fusion Except Cervical Without CC). Cases involving InFUSE
                        <E T="51">TM</E>
                         that are eligible for the new technology add-on payment are identified by assignment to DRGs 497 and 498 as a lumbar spinal fusion, with the combination of ICD-9-CM procedure codes 84.51 (Insertion of 
                        <PRTPAGE P="28239"/>
                        interbody spinal fusion device) and 84.52 (Insertion of recombinant bone morphogenetic protein). 
                    </P>
                    <P>
                        Because InFUSE
                        <E T="51">TM</E>
                         was approved by the FDA for use on July 2, 2003, it is still within the 2-year to 3-year period during which a technology can be considered new under the regulations. Therefore, we are proposing to continue add-on payments for FY 2005 for cases receiving InFUSE
                        <E T="51">TM</E>
                         for spinal fusions in DRGs 497 (Spinal Fusion Except Cervical With CC) and 498 (Spinal Fusion Except Cervical Without CC). We are also proposing to continue limiting the add-on payment for cases receiving InFUSE
                        <E T="51">TM</E>
                        , to those cases identified by the presence of procedure codes 84.51 and 84.52. However, we are proposing to eliminate add-on payment for the interbody fusion device that is used in combination with this recombinant human bone morphogenetic protein (rhBMP) product (procedure code 84.52). We note that currently add-on payments for InFUSE
                        <E T="51">TM</E>
                         include costs for the interbody fusion device (the LT cage, identified by procedure code 84.51), used in the spinal fusion procedure with the InFUSE
                        <E T="51">TM</E>
                         product. Because this device is not a new technology, but in fact has been in use for 9 years for spinal fusions, we believe that it is inappropriate to pay for this device in conjunction with the genuinely new rhBMP technology. Therefore, we are proposing no longer to pay for the interbody fusion device as bundled in the current maximum add-on payment amount of $4,450 for cases that qualify for additional payment. This proposal would reduce the add-on payment to account for no longer paying for the LT cage. This would reduce the cost of this new technology by $4,990, which results in a total cost of $3,910 for InFUSE
                        <E T="51">TM</E>
                        . Therefore, we are proposing a maximum add-on amount of $1,955 for cases that qualify for additional payment. Although we are proposing to eliminate payment for the LT cage, we would still require the presence of procedure code 84.51 (in combination with procedure code 84.52) when making add-on payments for new technology for InFUSE
                        <E T="51">TM</E>
                        . This is due to the fact that the LT cage is still required by the FDA when InFUSE
                        <E T="51">TM</E>
                         is used for single level spinal fusions. 
                    </P>
                    <P>We received the following public comments in accordance with section 503(b)(2) of Public Law 108-173 regarding the continuation of add-on payments for this technology. </P>
                    <P>
                        <E T="03">Comment</E>
                        : Several commenters wrote expressing support for continued add-on payments for this technology. Many of these commenters were physicians who use the device. These commenters noted that the hospitals for which they work did not allow use of the device until the new technology add-on payments began on October 1, 2003. Therefore, they encouraged the continued add-on payment to ensure continued access of the device to patients. They also argued that, because utilization remained low in FY 2003, the DRG recalibration for FY 2005 would not supply adequate payment data for the cases using the device, further jeopardizing patient access to the technology. 
                    </P>
                    <P>
                        <E T="03">Response</E>
                        : As discussed above, we are proposing to continue payments because this technology is still within the 2-year to 3-year period during which a technology can be considered new under the regulation. 
                    </P>
                    <HD SOURCE="HD3">4. Reevaluation of FY 2004 Applications That Were Not Approved </HD>
                    <P>Section 503(e)(2) of Public Law 108-173 requires us to reconsider all applications for new medical service or technology add-on payments that were denied for FY 2004. We received two applications for new technologies to be designated eligible for add-on payments for new technology for FY 2004. We approved InFUSE for use in spinal fusions for new technology add-on payments in FY 2004. We denied the application for new technology add-on payments for the GLIADEL® wafer. </P>
                    <HD SOURCE="HD1">GLIADEL® Wafer </HD>
                    <P>Gliablastoma Multiforme (GBM) is a very aggressive primary brain tumor. Standard care for patients diagnosed with GBM includes surgical resection followed by radiation and, in some cases, systemic chemotherapy. According to the manufacturer, the GLIADEL® wafer is indicated for use at the time of surgery in order to prolong survival in patients with GBM. Implanted directly into the cavity that is created when a brain tumor is surgically removed, the GLIADEL® wafer delivers chemotherapy directly to the site where the tumor is most likely to recur. </P>
                    <P>The FDA gave initial approval for the GLIADEL® wafer on September 23, 1996, for use as an adjunct to surgery to prolong survival in patients with recurrent GBM for whom surgical resection is indicated. In 2003, Guilford Pharmaceuticals submitted an application for approval of the GLIADEL® wafer for add-on payments and stated that the technology should still be considered new for FY 2004, despite its approval by the FDA on September 23, 1996. The manufacturer argued that the technology was still new because it had not been possible to specifically identify cases involving use of the GLIADEL® wafer in the MedPAR data prior to the adoption of a new ICD-9-CM code 00.10 (Implantation of a chemotherapeutic agent) on October 1, 2002. However, as discussed in the September 7, 2001 final rule (66 FR 46914), the determination concerning whether a technology meets this criterion depends on the date of its availability for use in the Medicare population rather than the date a specific code may be assigned. A technology can be considered new for 2 or 3 years after data reflecting the costs of the technology begin to become available. Data on the costs of this technology began to become available in September 1996. As a result, the costs of this technology are currently reflected in the DRG weights. As discussed in the final rule for FY 2004 (68 FR 45391), on February 26, 2003, the FDA approved the GLIADEL® wafer for use in newly diagnosed patients with high-grade malignant glioma as an adjunct to surgery and radiation. However, our understanding is that many newly diagnosed patients were already receiving this therapy. To the extent that this is true, the charges associated with this use of the GLIADEL® wafer were also reflected in the DRG relative weights. Therefore, the GLIADEL® wafer did not meet this criterion for FY 2004. </P>
                    <P>Section 503(e)(2) of Public Law 108-173 required us to reconsider this application, but did not revise the criterion for determining whether a medical service or technology is new. As stated above, the FDA originally approved the GLIADEL® wafer on September 23, 1996. Therefore, this technology is beyond the period in which it can be considered new. Accordingly, we are proposing to deny this application for new technology add-on payments for FY 2005. </P>
                    <P>We received no public comments regarding our reconsideration of this application for add-on payments. </P>
                    <P>Guilford also asked us to consider reclassifying this device into another DRG. We discuss issues relating to the DRG assignment of the GLIADEL® wafer in section II.B.16.c. of this preamble. </P>
                    <HD SOURCE="HD3">5. FY 2005 Applicants for New Technology Add-On Payments </HD>
                    <HD SOURCE="HD3">
                        a. InFUSE
                        <E T="51">TM</E>
                         Bone Graft (Bone Morphogenetic Proteins (BMPs) for Tibia Fractures) 
                    </HD>
                    <P>
                        Bone Morphogenetic Proteins (BMPs) have been shown to have the capacity to induce new bone formation and, therefore, to enhance healing. Using recombinant techniques, some BMPs 
                        <PRTPAGE P="28240"/>
                        (referred to as rhBMPs) can be produced in large quantities. This has cleared the way for their potential use in a variety of clinical applications such as in delayed unions and nonunions of fractured bones and spinal fusions. One such product, rhBMP-2, is developed for use instead of a bone graft with spinal fusions. 
                    </P>
                    <P>
                        Medtronic Sofamor Danek submitted an application for the InFUSE
                        <E T="51">TM</E>
                         Bone Graft for use in tibia fractures for approval as a new technology eligible for add-on payments in FY 2005. Medtronic submitted a similar application for new technology add-on payments in FY 2004 for InFUSE
                        <E T="51">TM</E>
                         Bone Graft/LT-CAGE Lumbar Tapered Fusion Device. As discussed above, we approved this application for FY 2004, and we are proposing to continue to make new technology payments for FY 2005 for InFUSE
                        <E T="51">TM</E>
                         when used in spinal fusions (refer to section III.E.3.b. of this preamble). 
                    </P>
                    <P>
                        In cases of open tibia fractures, InFUSE
                        <E T="51">TM</E>
                         is applied using an absorbable collagen sponge, which is then applied to the fractured bone in order to promote new bone formation. This use currently represents an off-label use of InFUSE
                        <E T="51">TM</E>
                        . The manufacturer contends that this use is severely limited due to the greatly increased costs for treating these cases with InFUSE
                        <E T="51">TM</E>
                         at the time of wound debridement and closure. The manufacturer has conducted a clinical trial and is awaiting FDA approval for the use of InFUSE
                        <E T="51">TM</E>
                         for open tibia fractures. According to the manufacturer, this approval is expected before publication of the final rule. The application for add-on payments for the use of InFUSE for open tibia fractures proposes that such payment would encourage the use of InFUSE
                        <E T="51">TM</E>
                         for treatment of these fractures of grade II or higher (up to and including grade III, which often must be amputated due to the severity of injury). The additional payment, according to the applicant, would encourage more hospitals to use the technology at the time of initial wound closure and would result in reduced rates of infection and nonunion currently associated with the treatment of these injuries. 
                    </P>
                    <P>
                        The manufacturer submitted data on 315 cases using InFUSE
                        <E T="51">TM</E>
                         for open tibia fractures in the FY 2002 MedPAR file, as identified by procedure code 79.36 (Reduction, fracture, open, internal fixation, tibia and fibula) and diagnosis codes of either 823.30 (Fracture of tibia alone, shaft, open) or 823.32 (Fracture of fibula and tibia, shaft, open). The applicant also submitted data for a hospital sample that included 63 cases using the same identifying codes. Based on the data submitted by the applicant, InFUSE
                        <E T="51">TM</E>
                         would be used in four different DRGs: 217 (Wound Debridement and Skin Graft Except Hand, for Musculoskeletal and Connective Tissue Disorders), 218 and 219 (Lower Extremity and Humerus Procedures Except Hip, Foot, Femur Age &gt; 17, With and Without CCs, respectively) and 486 (Other O.R. Procedures for Multiple Significant Trauma). The analysis performed by the applicant resulted in a case-weighted cost threshold of $27,111 for these four DRGs. The average case-weighted standardized charge for cases using InFUSE in these four DRGs would be $46,468. Therefore, the applicant maintains that InFUSE
                        <E T="51">TM</E>
                         for open tibia fractures meets the cost criterion. 
                    </P>
                    <P>
                        InFUSE
                        <E T="51">TM</E>
                         was approved by the FDA for use in open tibia fractures on April 30, 2004. Because FDA approval was not received in time for full consideration of the application in this proposed rule, we are not presenting our full analysis of this application in this proposed rule. However, we have already determined that this technology still qualifies as new in the context of proposing to extend new technology add-on payments for InFUSE
                        <E T="51">TM</E>
                         for single-level spinal fusions. We must still determine whether it is appropriate to approve add-on payments for InFUSE
                        <E T="51">TM</E>
                         in cases of open tibia fractures in light of the cost and substantial improvement criteria. Therefore, we invite comments on whether use of InFUSE
                        <E T="51">TM</E>
                         for open tibia fractures should qualify for add-on payments under these criteria. 
                    </P>
                    <P>
                        We note that, in the September 7, 2001 final rule (66 FR 46915), we stated that if an existing technology was assigned to different DRGs than those in which the technology was initially used, the new use may be considered for new technology add-on payments if it also meets the substantial clinical improvement and inadequacy of payment criteria. Under the policy suggested in that rule, approval of InFUSE
                        <E T="51">TM</E>
                         for tibia fractures would start a new period of add-on payments for the new use of this technology. However, we have some reservations about whether this result would be appropriate. It might be possible, under the policy described in the September 7, 2001 final rule, for a technology to receive new technology add-on payments for many years after it is introduced, provided that use of the technology is continually expanded to treatment of new conditions. We invite comment on whether it would be more appropriate merely to extend the existing approval of InFUSE
                        <E T="51">TM</E>
                         for spinal fusions to cases where InFUSE
                        <E T="51">TM</E>
                         is used for open tibia fractures, without extending the time period during which the technology will qualify for add-on payments. 
                    </P>
                    <P>
                        We note that as part of its application, the applicant submitted evidence on the substantial clinical improvement criterion. The applicant cited data from a prospective, controlled study published on December 12, 2002 in 
                        <E T="03">The Journal of Bone and Joint Surgery</E>
                         (Govender, S., Crismma, C., Genant, H.K., Valentin-Opran, V., “Recombinant Human Bone Morphogenetic Protein-2 for Treatment of Open Tibia Fractures,” Vol. 84-A, No. 12. p. 2123). The study, also known as BESTT study group, involved 49 trauma centers in 11 countries. The study enrolled 450 patients who had sustained an open tibia shaft fracture that normally would be treated by intramedullary nail fixation and soft tissue management. The patients were randomly and blindly assigned to one of three groups: the standard of care as stated above, the standard of care plus implantation an absorbable collagen sponge soaked with .75 mg/ml of rhBmP-2, or the standard of care plus implantation of an absorbable collagen sponge soaked with 1.50 mg/ml of rhBMP-2. The study followed up with 421 (94 percent) of all patients. The applicant stated that the study found that patients who received the standard of care plus an absorbable collagen sponge soaked with 1.50 mg/ml of rhBMP-2 achieved the following results compared to the standard of care without the rhBMP: a 44-percent reduction in the rate of secondary surgery, an average of 39 days reduction in time of clinical healing and lower infection rates. As a result, the applicant maintains that InFUSE
                        <E T="51">TM</E>
                         in tibia fractures represents a substantial clinical improvement over previously available technologies. 
                    </P>
                    <P>
                        We are not presenting a full analysis of this application under the substantial clinical improvement criterion because the technology had not yet received FDA approval for this use in time for consideration in this proposed rule. However, we note that although the cited study does provide some evidence of clinical efficacy, we have some concerns about whether the study conclusively demonstrates substantial clinical improvement over previously available technologies because of its design. (It is important to note, as we stated in the August 1, 2002 
                        <E T="04">Federal Register</E>
                         (67 FR 50015), that we do not employ FDA guidelines to determine what drugs, devices, or technologies qualify for new technology add-on payments under Medicare. Our criteria 
                        <PRTPAGE P="28241"/>
                        do not depend on the standard of safety and efficacy that the FDA sets for general use, but on a demonstration of substantial clinical improvement in the Medicare population, particularly patients over age 65.) We will present our full analysis of the evidence regarding clinical improvement in the final rule. 
                    </P>
                    <P>We received no public comments regarding this application for add-on payments. </P>
                    <HD SOURCE="HD3">b. Norian Skeletal Repair System (SRS)® Bone Void Filler </HD>
                    <P>Brigham and Women's Hospital submitted an application for approval of the Norian Skeletal Repair System (SRS)® Bone Void Filler (Norian SRS® Cement), manufactured by Synthes for new technology add-on payments for FY 2005. Synthes has been assisting the applicant with supplemental information and data to help the applicant with the application process. According to the manufacturer, Norian SRS® Cement is an injectable, fast-setting carbonated apatite cement used to fill defects in areas of compromised cancellous bone during restoration or augmentation of the skeleton. The product provides a bone void filler that resorbs and is replaced with bone during the healing process. </P>
                    <P>On December 23, 1998, the FDA approved Norian SRS® for use as an adjunct for fracture stabilization in the treatment of low impact, unstable, metaphyseal distal radius fractures, in cases where early mobilization is indicated. On December 20, 2001, the FDA approved Norian SRS® Cement for use in bony voids or defects that are not intrinsic to the stability of the bony structure. Norian SRS® Cement is intended to be placed or injected into bony voids or gaps in the skeletal system. These defects may be surgically created osseous defects or osseous defects caused by traumatic injury to the bone. </P>
                    <P>Despite the time that has elapsed since FDA approval, the manufacturer contends that Norian SRS® Cement should still be considered new for several reasons. First, until April 2002, Norian SRS® Cement was hand mixed using a mortar and pestle. Once Norian SRS® Cement was approved by the FDA in December 2001 (for the indication of use in bony voids or defects that are not intrinsic to the stability of the bony structure), the manufacturer issued a new pneumatic mixer. According to the manufacturer, this new pneumatic mixer allows for better preparation, reliability, and ease of use. In addition, a new injection syringe mechanism was developed and made available in May 2002 and replaced the “Norian Delivery Device”. The manufacturer believes these new procedures for mixing and delivery of the product to the patient should be considered new services as stated in section 1886(d)(5)(k)(ii) of the Act and § 412.87(b)(1) of the regulations. Second, the manufacturer contends that the cement should still be considered new because there is no ICD-9-CM code to uniquely identify Norian SRS® Cement within the DRGs. </P>
                    <P>Although there have been changes in the way Norian SRS® Cement is mixed and delivered to the patient, we do not believe these changes are significant enough to regard the technology as new. While these changes may enhance the ease with which the technology is used, the product remains substantially the same as when it was initially developed. As we have indicated previously, technology can be considered new only for 2 to 3 years after data reflecting the costs of the technology begin to become available. Data on the costs of this technology began to become available after FDA approval in 1998, and these costs are currently reflected in the DRG weights. As we discussed in the September 7, 2001 final rule (66 FR 46914), the determination concerning whether a technology meets this criterion depends on the date of its availability for use in the Medicare population rather than the date a specific code may be assigned. Therefore, we are proposing that Norian SRS® Cement does not meet the criterion that a medical service or technology be considered new. </P>
                    <P>Although we are not proposing to approve this application for add-on payments because the technology does not meet the newness criterion, we note that the manufacturer submitted information on the cost criterion and the substantial clinical improvement criterion. The manufacturer submitted 52 Medicare and non-Medicare cases using Norian SRS® Cement. There are currently no ICD-9-CM codes that can distinctly identify Norian SRS® Cement within the MedPAR data; therefore, we cannot track this technology with our own analysis of MedPAR data. Based on the data submitted by the manufacturer, cases using Norian SRS” Cement were found in 12 DRGs, with 71.1 percent of the cases in DRGs 210, 218, 219, and 225. Based on the 52 cases submitted by the applicant, the case-weighted threshold across all DRGs was $22,493. The average case-weighted standardized charge was $29,032. As a result, the applicant and manufacturer maintain that Norian SRS® Cement meets the cost criterion. </P>
                    <P>According to the manufacturer, Norian SRS® Cement represents a substantial clinical improvement for the following reasons: It enhances short-term and long-term structural support, improves the rate and durability of healing, decreases donor site morbidity, decreases risk of infection at graft site, lowers the risk of operative complications from shorter operative procedures, lowers the rate of post-treatment hospitalizations and physician visits, and finally, reduces pain. </P>
                    <P>However, we are not presenting a full evaluation of the application for add-on payments for Norian SRS® Cement under these criteria because the technology does not meet the newness criterion. Therefore, we are proposing to deny add-on payments for this technology.</P>
                    <P>We received no public comments on this application for add-on payments. </P>
                    <HD SOURCE="HD3">c. InSync® Defibrillator System (Cardiac Resynchronization Therapy with Defibrillation (CRT-D))</HD>
                    <P>Cardiac Resynchronization Therapy (CRT), also known as bi-ventricular pacing, is a therapy for chronic heart failure. A CRT implantable system provides electrical stimulation to the right atrium, right ventricle, and left ventricle to recoordinate or resynchronize ventricular contractions and improve the oxygenated blood flow to the body (cardiac output). </P>
                    <P>Medtronic submitted an application for approval of the InSync® Defibrillator System, a cardiac resynchronization therapy with defibrillation system (CRT-D), for new technology add-on payments for FY 2005. This technology combines resynchronization therapy with defibrillation for patients with chronic, moderate-to-severe heart failure who meet the criteria for an implantable cardiac defibrillator. Unlike conventional implantable cardiac defibrillators, which treat only arrhythmias, CRT- devices have a dual therapeutic nature intended to treat two aspects of a patient's heart disease concurrently: (1) The symptoms of moderate to severe heart failure (that is, the ventricular dysynchrony); and (2) cardiac arrhythmias, as documented by an electrophysiologic testing or clinical history or both, which would cause sudden cardiac arrest. </P>
                    <P>
                        InSync® Defibrillation System received FDA approval on June 26, 2002. However, another manufacturer, Guidant, received FDA approval for its CRT-D device on May 2, 2002. Guidant, and another competitor that has yet to receive FDA approval for its CRT-D device, have requested that their devices 
                        <PRTPAGE P="28242"/>
                        be included in any approval of CRT-D for new technology add-on payments. As we discussed in the September 7, 2001 final rule (66 FR 46915), an approval of a new technology for special payment should extend to all technologies that are substantially similar. Otherwise, our payment policy would bestow an advantage to the first applicant to receive approval for a particular new technology. 
                    </P>
                    <P>The applicant contends that, despite the approval of a similar device in May 2002, the InSync® Defibrillator System should still be considered new for several reasons: First, an ICD-9-CM code was only issued in FY 2003, which falls within the 2-year to 3-year range provided in the regulations. Second, the utilization of CRT-Ds is still growing and has not reached full utilization and, therefore, CRT-Ds remain underreported within the FY 2003 MedPAR data that will be used to recalibrate the DRG weights for FY 2005. Finally, the applicant believes reporting of CRT-Ds may be insufficient to accurately recalibrate the DRGs because the new ICD-9-CM codes for CRT-Ds are unlikely to be used consistently and accurately by hospitals in the first year. </P>
                    <P>We have discussed the relationship between existence of a specific ICD-9-CM code for a technology and our determination of its status as a new technology. As discussed in the September 7, 2001 final rule (66 FR 46914), the determination of whether a technology is new depends on the date of its availability for use in the Medicare population, rather than the date a specific code may be assigned. Because CRT-Ds were available upon the initial FDA approval in May 2002, we consider the technology to be new from this date and not the date a code was assigned. </P>
                    <P>Using the December 2003 update file to the FY 2003 MedPAR file, we have identified 10,950 cases using CRT-D in the FY 2003 MedPAR database. Of these, 10,694 cases were reported in DRGs 514 and 515 (then Cardiac Defibrillator Implant With and Without Cardiac Catheter, respectively). In DRG 515, we found 3,948 cases with procedure code 00.51 (Implantation of cardiac resynchronization defibrillator, total system (CRT-D)) and 6,746 cases in DRG 514. DRG 514 is no longer valid, effective in FY 2004. In FY 2004, we assigned new cases of defibrillator implants with cardiac catheters from DRG 514 to new DRGs 535 (Cardiac Defibrillator Implant with Cardiac Catheter With Acute Myocardial Infarction (AMI) Heart Failure/Shock) and 536 (Cardiac Defibrillator Implant with Cardiac Catheter Without Acute Myocardial Infarction (AMI) Heart Failure/Shock). Using the 6,746 cases from the FY 2003 MedPAR found in DRG 514, we examined the primary diagnosis codes necessary for assignment to DRG 535 along with procedure code 00.51 and found 3,396 cases of CRT-D for DRG 535. The remaining 3,350 CRT-D cases found in DRG 514 using procedure code 00.51 fall into DRG 536. For FY 2003, the total number of cases of CRT-D found in the FY 2003 MedPAR data for DRGs 514 and 515 were 48,486. Cases reporting CRT-Ds thus represent 22 percent of all cases for these DRGs. </P>
                    <P>A medical service or technology can no longer be considered new after 2 to 3 years, when data reflecting the costs of the technology begin to become available. Data on the costs of this technology began to become available in May 2002. Our analysis of data from the FY 2003 MedPAR file also shows that the costs of CRT-D are represented by a substantial number of cases within the DRGs. However, as discussed above, the technology still remains within the 2-year to 3-year period during which it can be considered new. Therefore, we are considering whether the CRT-D technology still meets the newness criterion. We welcome comments on this issue as we analyze whether to approve this technology (which would included the InSync® application) in the final rule. </P>
                    <P>We note that the applicant submitted information on the cost and substantial clinical improvement criteria. The applicant commissioned Navigant Consulting, Inc. to collect charge data on CRT-D. Navigant found 354 Medicare cases among 30 hospitals. Cases were identified using ICD-9-CM procedure code 00.51. Of these 354 cases, 44.1 percent were reported in DRG 515, 23.7 percent were reported in DRG 535, and 32.2 percent were reported in DRG 536. These DRGs result in a case-weighted threshold of $78,674. The average case-weighted standardized charge for the 354 cases mentioned above was $79,163. Based on these data, the manufacturer contends that InSync® Defibrillator System would meet the cost criterion. </P>
                    <P>
                        In the September 7, 2001 final rule, we stated that the data submitted must be of a sufficient sample size to demonstrate a significant likelihood that the sample mean approximates the true mean across all cases likely to receive the new technology. Using a standard statistical methodology for determining the needed (random) sample size based on the standard deviations of the DRGs identified by the applicant as likely to include cases receiving a CRT-D, we have determined that a random sample size of 354 cases can be reasonably expected to produce an estimate within $3,500 of the true mean.
                        <SU>3</SU>
                        <FTREF/>
                         Of course, the data submitted do not represent a random sample of all cases in these DRGs across all hospitals. 
                    </P>
                    <FTNT>
                        <P>
                            <SU>3</SU>
                             The formula is n=4 σ/B
                            <SU>2</SU>
                            , where σ the standard deviation of the population, and B is the bound on the error of the estimate (the range within which the sample means can reliably predict the population mean). See Statistics for Management and Economics, Fifth Edition, by Mendenhall, W., Reinmuth, J., Beaver, R., and Duhan, D.
                        </P>
                    </FTNT>
                    <P>The manufacturer also contends that the added capability of the InSync® Defibrillator System device provides significant benefits over and above a conventional defibrillator. The InSync® Defibrillator System device treats both the comorbid conditions of ventricular arrhythmias and moderate to severe heart failure, and takes the place of the existing treatment of drug therapy for heart failure plus a conventional implantable cardiac defibrillator for ventricular arrhythmia. The applicant states this CRT-D is a substantial clinical improvement for patients who remain symptomatic despite drug therapy and have the comorbid condition of heart failure. According to the applicant, some of the improved outcomes that result from using a CRT-D device instead of existing treatments include: improved quality of life, improved exercise tolerance, improved homodynamic performance, and reduced hospitalizations and mortality due to chronic heart failure. </P>
                    <P>We welcome comments on whether this technology meets these criteria, but especially about whether it meets the newness criterion in the light of the extent to which it is represented cases within the relevant DRGs. We will determine whether to approve this technology in the light of these comments and our continuing analysis. </P>
                    <P>We received the following public comments in accordance with section 503(b)(2) of Public Law 108-173 regarding this application for add-on payments: </P>
                    <P>
                        <E T="03">Comment</E>
                        : One commenter noted that CRT-D has had positive clinical outcomes by reversing remodeling of the heart and improving the heart's ability to pump more efficiently. The commenter added that CRT-D has helped decrease hospitalizations and length of stay. 
                    </P>
                    <P>
                        <E T="03">Response</E>
                        : We appreciate the commenters' input on this criterion. We will consider these comments regarding the substantial clinical improvement criterion if we determine that the technology meets the other two criteria.
                        <PRTPAGE P="28243"/>
                    </P>
                    <P>d. GliaSite® Radiation Therapy System (RTS) </P>
                    <P>
                        The Pinnacle Health Group submitted an application for approval of GliaSite® Radiation Therapy System (RTS) for new technology add-on payments. GliaSite® RTS was approved by the FDA for use on April 15, 2001. The system involves several components, including a drug called Iotrex and a GliaSite® catheter. Iotrex is an organically bound liquid form of Iodine 
                        <SU>125</SU>
                         used in intracavitary brachytherapy with GliaSite® RTS. Iotrex is a single nonencapsulated (liquid) radioactive source. The liquid is a solution of sodium 
                        <E T="51">3-</E>
                        (I
                        <SU>125</SU>
                        ) iodo-4-hydroxybenzenesulfonate and is used to deliver brachytherapy for treatment of brain cancer. 
                    </P>
                    <P>The delivery system for Iotrex is the GliaSite® RTS catheter. Iotrex is administered via injection through a self-sealing port into the primary lumen of the barium-impregnated catheter that leads to the balloon reservoir. After a malignant brain tumor has been resected, the balloon catheter (GliaSite®) is implanted temporarily inside the cavity. The patient is released from the hospital. After a period of 3 days to 3 weeks, the patient is readmitted. During the second admission, the appropriate dose (200 to 600 millicuries) of radiation is then administered. Iotrex is infused into the GliaSite® catheter and intracavitary radiation is delivered to the target area. The gamma radiation emitted by Iotrex is delivered directly to the margins of the tumor bed. After 3 to 7 days, the Iotrex is removed. </P>
                    <P>GliaSite® RTS was approved by the FDA for use on April 15, 2001. Technology is no longer considered new 2 to 3 years after data reflecting the costs of the technology begin to become available. Because data regarding this technology began to become available in 2001, we have determined that GliaSite® RTS does not meet the criterion that a medical service or technology be considered new. Therefore, we are proposing to deny approval of GliaSite® RTS for new technology add-on payments. </P>
                    <P>Although we are proposing not to approve this application because GliaSite® does not meet the newness criterion, we note that the applicant submitted information on the cost criterion and substantial clinical improvement criterion. The applicant stated that the number of cases in DRG 7 for FY 2004 was projected to be 14,782, and estimated that 10 percent (or about 1,478) of those patients would be candidates for GliaSite® RTS. The applicant estimated that the standardized charge for all cases using the technology in DRG 7 was $49,406. Based on this calculation, the manufacturer stated in its application that this figure is greater than the cost threshold of $32,115 for DRG 7. Therefore, according to the manufacturer, it appears that GliaSite® would meet the cost criterion. </P>
                    <P>The applicant also claims this way of delivering brachytherapy to the brain is significantly more patient friendly. The use of a single intracavitary applicator positioned inside the resection cavity during the initial surgery in place of an interstitial-seed implant removes the need for additional invasive procedures and the need for multiple puncture sites (up to 20). In addition, the manufacturer claims that the approach used in the GliaSite® RTS system improves dose-delivery and provides a more practical means of delivering the brachytherapy. </P>
                    <P>However, as discussed above, GliaSite® does not meet the newness criterion. Therefore, we are proposing to deny add-on payments for this technology in FY 2005. </P>
                    <P>We received no public comments on this application for add-on payments. </P>
                    <HD SOURCE="HD3">e. Natrecor®—Human B-Type Natriuretic Peptide (hBNP) </HD>
                    <P>Scios, Inc. submitted an application for approval of Natrecor® for new technology add-on payments. Natrecor is a member of a new class of drugs, Human B-type Natriuretic Peptide (hBNP), and it is manufactured from E. coli with recombinant DNA technology. It binds to the particulate guanylate cyclase receptor of vascular smooth muscle endothelial cells, leading to increased intracellular concentrations of guanosine 3′5′-cyclic monophosphate, and therefore to enhance smooth muscle cell relaxation, ultimately causing dilation of arteries and veins. The applicant states that Natrecor® is more potent and relieves symptoms of heart failure more rapidly, while also causing less hemodynamic instability than intravenous nitroglycerin, the most commonly used vasodilator for heart failure. </P>
                    <P>Natrecor® was approved by the FDA for the treatment of acute congestive heart failure on August 10, 2001. It is indicated for the intravenous treatment of patients with acutely decompensated congestive heart failure (dyspnea). Congestive heart failure is the result of impaired pumping capacity of the heart. It causes a variety of clinical consequences, including water retention, sodium retention, pulmonary congestion, and diminished perfusion of blood to all parts of the body. </P>
                    <P>The applicant concedes that the FY 2003 MedPAR file includes hospital charge information for patients receiving Natrecor®. The manufacturer contends that Natrecor® should still be considered new for several reasons. The first reason is that these data will not provide an accurate representation of hospital utilization of this product nor an adequate reimbursement rate for hospitals treating acute congestive heart failure patients with Natrecor® in FY 2005. The FY 2003 MedPAR file represents the first full year in which the ICD-9-CM procedure code 00.13 (Injection or infusion of nesiritide) was in effect. Therefore, the manufacturer anticipates a slow increase in the accuracy of coding and billing in FY 2003. In addition, the manufacturer stated that market penetration for this product was 3 percent for FY 2003, but is expected to be significantly higher for FY 2005. </P>
                    <P>However, technology is no longer considered new 2 to 3 years after data reflecting its costs begin to become available. Because data reflecting the costs of Natrecor® began to become available in 2001, these costs are currently reflected in the DRG weights. In addition, as discussed in the September 7, 2001 final rule (66 FR 46914), the determination of whether a technology is new depends on the date of its availability for use in the Medicare population rather than the date a specific code was assigned. Because Natrecor® was available upon FDA approval, it does not meet the criterion that a medical service or technology be considered new. </P>
                    <P>
                        Although we are proposing not to approve this application because Natrecor® does not meet the newness criterion, we note that the applicant submitted information on the cost criterion and substantial clinical improvement criterion. Scios commissioned Premier, Inc. to search its database of 196 hospitals for cases in FY 2003 that used Natrecor®. Premier identified 9,811 cases across many DRGs using National Drug Codes from pharmacy databases. The majority of cases (approximately 42 percent) were found in DRG 127 (Heart Failure and Shock), while the remaining cases were found in other DRGs that individually had a maximum of 8 percent of the 9,811 cases identified by Premier. The case-weighted threshold across all DRGs for Natrecor®, using data provided by Premier, was $26,509. (DRGs with less than 25 discharges were not included in this analysis.) The average charge for cases with Natrecor® was $70,137. The average case-weighted standardized charge across all DRGs was $43,422. 
                        <PRTPAGE P="28244"/>
                        Because the average standardized charge is greater than the case-weighted threshold, the applicant stated that Natrecor® meets the cost criterion. 
                    </P>
                    <P>The manufacturer stated that Natrecor® represents a substantial clinical improvement over existing treatments for decompensated congestive heart failure because it provides novel clinical effects, leads to fewer complications, and improves overall clinical outcomes. Specifically, Natrecor® reduces left ventricular preload, afterload, and pulmonary capillary wedge pressure without inducing tachyphylaxis, and it causes a balanced vasodilation of veins, arteries, and coronary arteries that increases cardiac output. It has also been shown to significantly reduce dyspnea, and it blocks the rennin-aldosterone-angiotensin system, thereby reducing sodium retention and enhancing diuresis and natriuresis. In addition, Natrecor® is not pro-arrhythmic; it does not increase cardiac work by causing tachycardia, and it does not cause electrolyte imbalances. </P>
                    <P>However, as discussed above, Natrecor® does not meet the newness criterion. Therefore, we are proposing to deny add-on payments for this technology in FY 2005. </P>
                    <P>We received no public comments on this application for add-on payments.</P>
                    <HD SOURCE="HD3">f. Kinetra® Implantable Neurostimulator for Deep Brain Stimulation </HD>
                    <P>
                        Medtronic, Inc. submitted an application for approval of the Kinetra® implantable neurostimulator device for new technology add-on payments. The Kinetra® device was approved by the FDA on December 16, 2003. The Kinetra® implantable neurostimulator is designed to deliver electrical stimulation to the subthalamic nucleus (STN) or internal globus pallidus (GPi) in order to ameliorate symptoms caused by abnormal neurotransmitter levels that lead to abnormal cell-to-cell electrical impulses in Parkinson's Disease and essential tremor. Before the development of Kinetra®, treating bilateral symptoms of patients with these disorders required the implantation of two neurostimulators (in the form of a product called Soletra
                        <E T="51">TM</E>
                         manufactured by Medtronic): One for the right side of the brain (to control symptoms on the left side of the body), the other for the left side of the brain (to control symptoms on the right side of the body). Additional procedures are required to create pockets in the chest cavity to place the two generators required to run the individual leads. The Kinetra® neurostimulator generator, implanted in the pectoral area, is designed to eliminate the need for two devices by accommodating two leads that are placed in both the left and right sides of the brain to deliver the necessary impulses. The manufacturer argues that the development of a single neurostimulator that treats bilateral symptoms provides a less invasive treatment option for patients, and for simpler implantation, followup, and programming procedures for physicians. 
                    </P>
                    <P>
                        The device was approved by the FDA in December 2003. Therefore, it qualifies under the first criterion because it is not yet reflected in the DRG weights. Because there are no data available to evaluate costs associated Kinetra®, we conducted the cost analysis using Soletra
                        <E T="51">TM</E>
                        , the predecessor technology used to treat this condition, as a proxy for Kinetra®. The pre-existing technology provides the closest means to track cases that have actually used similar technology and serves to identify the need and use of the new device. The manufacturer informed us that the cost of the Kinetra® device is twice the price of a single Soletra
                        <E T="51">TM</E>
                         device. Since most patients would receive two Soletra
                        <E T="51">TM</E>
                         devices if the Kinetra® device is not implanted, data regarding the cost of Soletra
                        <E T="51">TM</E>
                         give a good measure of the actual costs that will be incurred. Medtronic submitted data for 104 cases that involved the Soletra
                        <E T="51">TM</E>
                         device (26 cases in DRG 1 (Craniotomy Age &gt; 17 With CC), and 78 cases in DRG 2 (Craniotomy Age &gt; 17 Without CC)). These cases were identified from the FY 2002 MedPAR file using procedure codes 02.93 (Implantation, intracranial neurostimulator) and 86.09 (Other incision of skin and subcutaneous tissue). In the analysis presented by the applicant, the mean standardized charges for cases involving Soletra
                        <E T="51">TM</E>
                         in DRGs 1 and 2 were $69,018 and $44,779, respectively. The mean standardized charge for these Soletra
                        <E T="51">TM</E>
                         cases according to Medtronic's data was $50,839. 
                    </P>
                    <P>
                        We used the same procedure codes to identify 187 cases involving the Soletra
                        <E T="51">TM</E>
                         device in DRGs 1 and 2 in the FY 2003 MedPAR file. Similar to the Medtronic data, 53 of the cases were found in DRG 1, and 134 cases were found in DRG 2. The average standardized charges for these cases in DRGs 1 and 2 were $51,163 and $44,874, respectively. Therefore, the case-weighted average standardized charge for cases that included implantation of the Soletra
                        <E T="51">TM</E>
                         device was $46,656. The new cost thresholds established under the revised criteria in Public Law 108-173 for DRGs 1 and 2 are $43,245 and $30,129, respectively. Accordingly, the case-weighted threshold to qualify for new technology add-on payment using the data we identified would be $33,846. Under this analysis, Kinetra® would qualify for the cost threshold. 
                    </P>
                    <P>We note that an ICD-9-CM code was approved for dual array pulse generator devices, effective October 1, 2004, for IPPS tracking purposes. The new ICD-9-CM code that will be assigned to this device is 86.95 (Insertion or replacement of dual array neurostimulator pulse generator), which includes dual array and dual channel generators for intracranial, spinal, and peripheral neurostimulators. The code will not identify cases with this specific device and will only be used to distinguish single versus dual channel-pulse generator devices. </P>
                    <P>The manufacturer claims that Kinetra® provides a range of substantial improvements beyond previously available technology. These include a reduced rate of device-related complications and hospitalizations or physician visits and less surgical trauma because only one generator implantation procedure is required. Kinetra® has a reed switch disabling function that physicians can use to prevent inadvertent shutoff of the device, as occurs when accidentally tripped by electromagnetic inference (caused by common products such as metal detectors and garage door openers). Kinetra® also provides significant patient control, allowing patients to monitor whether the device is on or off, to monitor battery life, and to fine-tune the stimulation therapy within clinician-programmed parameters. While Kinetra® provides the ability for patients to better control their symptoms and reduce the complications associated with the existing technology, it does not eliminate the necessity for two surgeries. Because the patients who receive the device are often frail, the implantation generally occurs in two phases: The brain leads are implanted in one surgery, and the generator is implanted in another surgery, typically on another day. However, implanting Kinetra® does reduce the number of potential surgeries compared to its predecessor (which requires two surgeries to implant the two single-lead arrays to the brain). </P>
                    <P>
                        Despite the improvement Kinetra® represents over its immediate predecessor, Soletra
                        <E T="51">TM</E>
                        , we have some concerns about whether the device is significantly different in terms of how it achieves its desired clinical result. The stimulation mechanism by which it treats patient symptoms remains substantially the same as the 
                        <PRTPAGE P="28245"/>
                        predecessor device. The enhancements cited by the manufacturer are primarily to features such as control, power, monitoring, and reliability. Nevertheless, these improvements, along with the reduced number of surgeries required, may be sufficient to warrant a determination that the device represents a substantial clinical improvement. We welcome further public comment on the issue of whether the device is sufficiently different from the previously used technology to qualify as a substantially improved treatment of the same patient symptoms. 
                    </P>
                    <P>
                        We also invite comments concerning the cost of the device. If the new device, at twice the cost of the existing technology, merely replaces the costs of two of the previous devices, then the charges for Kinetra® are not substantially different from current charges resulting from the use of either device alone. Because the costs for the predecessor device meet the statutory cost criterion, the successor technology would meet the criterion as well, at least under the manufacturer's assumption that a single Kinetra® costs twice as much as each of the two Soletras
                        <E T="51">TM</E>
                         required to perform the same function. However, since there should be less surgery involved, more patient control, less risk of complications, and fewer office visits as a result of using Kinetra®, the costs for patients who receive the new device would be expected to drop. This suggests that it may not be appropriate to base the cost analysis for Kinetra® on the manufacturer's assumption that total costs for Soletra
                        <E T="51">TM</E>
                         and Kinetra® are substantially the same.
                    </P>
                    <P>In addition, we also invite public comment concerning the approval of the device for add-on payment, given the uncertainty over the frequency with which the patients receiving the device have the generator implanted in a second hospital stay, and the frequency with which this implantation occurs in an outpatient setting. Any hospital performing the implantation in two separate patient stays, whether they are both inpatient or whether one is inpatient and the second is outpatient, would be paid double for the single device. Therefore, we have some concern about the appropriateness of approving add-on payments for a device that may already receive payment at a nonbundled rate for a high percentage of patients who receive the device. We are currently investigating whether a second hospital stay is needed for implantation of Kinetra®.</P>
                    <P>Despite these issues, we are still considering whether it is appropriate to approve add-on status for Kinetra® for FY 2005. If approved for add-on payments, the device would be reimbursed up to half of the costs for the device. Since the manufacturer has stated that the cost for Kinetra® would be $16,570, the maximum add-on payment for the device would be $8,285. We will make a final determination in the light of public comments and our continuing analysis.</P>
                    <P>We received no public comments on this application for add-on payments.</P>
                    <P>We note that the manufacturer of Kinetra® also submitted an application for pass-through payments under the hospital outpatient payment system (OPPS). This application was denied for pass-through payment in OPPS because the item was already described by a previously existing category of devices for pass-through payment (C1767, Generator, neurostimulator (implantable)). Therefore, no substantial improvement determination was made for that application, although one would have been required for approval if it had met all other criteria. The manufacturer subsequently applied for assignment of deep brain stimulation with Kinetra® neurostimulator to a new technology ambulatory payment classification (APC) under the OPPS. This application is currently under consideration. These special APCs were initiated in OPPS to expedite recognition of and payment for innovative new technologies that do not qualify for pass-through payment. In contrast to the annual decisionmaking under the IPPS, applications for new technology APCs of the OPPS are accepted on an ongoing basis and updates are made quarterly.</P>
                    <HD SOURCE="HD3">g. Intramedullary Skeletal Kinetic Distractor (ISKD)</HD>
                    <P>Orthofix, Inc. submitted an application for approval of the Intramedullary Skeletal Kinetic Distractor (ISKD) Internal Limb Lengthener for new technology add-on payments for FY 2005. The device received FDA marketing approval on May 2, 2001. The ISKD System is a “closed” lengthening system. There are no fixation pins exiting the skin, thus eliminating this portal for entry of infectious organisms. The device is implanted in the intramedullary canal. This provides mechanical stability and support to the bone segments during the distraction, regeneration and consolidation phases, thus reducing the opportunity for misalignment.</P>
                    <P>We reviewed the application and technology, and we have determined that the device is not new and cannot be approved for new technology add-on payments because it came on the market on May 2, 2001. The costs of the device are thus reflected in the FY 2001 MedPAR file, as acknowledged by the manufacturer's data. As a result, the costs of the device are already reflected in the DRG weights.</P>
                    <P>The manufacturer submitted charge data for cases found in the FY 2001 MedPAR file, as well as data from several hospitals that have used the device. The manufacturer identified cases using ICD-9-CM codes 78.35 (Limb lengthening procedure, femur) and 78.37 (Limb lengthening, tibia/fibula). These procedure codes occur in four DRGs: DRGs 210 and 211 (Hip and Femur Procedures Except Major Joint Procedures Age &gt; 17, With and Without CC, respectively) and DRGs 218 and 219 (Lower Extremity and Humerus Procedures Except Hip, Foot and Femur Age &gt; 17, With and Without CC). The average charges for cases involving these procedure codes identified by the applicant were not standardized. The average charges provided for DRGs 210, 211, 218, and 219 were $26,692, $18,187, $32,959 and $20,228, respectively. The manufacturer then added the cost of the device, which the manufacturer states is $6,750. The manufacturer projects that, in FY 2005, there will be 9 cases in DRG 210, 4 cases in DRG 211, 28 cases in DRG 218, and 19 cases in DRG 219, which results in a case-weighted threshold of $22,347. Thus, according to the manufacturer's data, because the case-weighted average standardized charges of $27,003 for the technology are greater than the cost threshold of $22,347 for these projected 60 cases, the ISKD would qualify for new technology add-on payments.</P>
                    <P>The manufacturer also asserted that the ISKD met the substantial clinical improvement criteria because, in addition to the improvements mentioned above (reduces infection rates and provides mechanical stability), lengthening with the ISKD occurs gradually and with no soft tissue impingement, reducing two factors commonly associated with pain during distraction. The manufacturer also pointed out that with the ISKD, the lengthening procedure is discreet because there are no external pins. There is no cumbersome external frame that may hinder the patient's activities of daily living, or draw further attention to the discrepant limb. In addition, the patient may have partial weight bearing during the lengthening process and resume some activities of normal living.</P>
                    <P>
                        However, because the device is already captured in our DRG weights, we are proposing to deny the application for the ISKD device for new technology add-on payments for FY 2005.
                        <PRTPAGE P="28246"/>
                    </P>
                    <P>We received no public comments on this application for add-on payments.</P>
                    <HD SOURCE="HD3">
                        h. Acticon
                        <E T="51">TM</E>
                         Neosphincter
                    </HD>
                    <P>
                        American Medical Systems submitted an application for approval of the Acticon
                        <E T="51">TM</E>
                         Neosphincter for new technology add-on payments for FY 2005. The Acticon
                        <E T="51">TM</E>
                         Neosphincter is a small, fluid-filled prosthesis that is completely implanted within the body. The Acticon
                        <E T="51">TM</E>
                         Neosphincter prosthesis has been developed to treat severe fecal incontinence (the accidental loss of solid or liquid stool at least weekly). It is designed to mimic the natural process of bowel control and bowel movements. The prosthesis consists of three components: a occlusive cuff implanted around the anal canal, a pressure-regulating balloon implanted in the prevesical space, and a control pump with septum implanted in the scrotum. All components are connected with color-coded, kink-resistant tubing.
                    </P>
                    <P>
                        The FDA approved the Acticon Neosphincter for use on December 18, 2001. A technology can be considered new only 2 to 3 years after data reflecting the costs of the technology begin to become available. Data on the costs of this technology began to become available after the December 2001 FDA approval. As a result, the costs of this technology are currently reflected in the DRG weights. Therefore, we have determined that Acticon
                        <E T="51">TM</E>
                         Neosphincter does not meet this criterion.
                    </P>
                    <P>
                        Although we are proposing not to approve this application because Acticon
                        <E T="51">TM</E>
                         Neosphincter does not meet the newness criterion, we note that the applicant submitted information on the cost criterion and substantial clinical improvement criterion. The applicant submitted 23 cases (that are indistinguishable as to whether they are Medicare or non-Medicare) using ICD-9-CM procedure codes 49.75 (Implantation or revision of artificial anal sphincter) and 49.76 (Removal of artificial anal sphincter) in order to identify cases where the Acticon
                        <E T="51">TM</E>
                         Neosphincter was used. Of these cases, 9 were in DRG 157 (Anal and Stomal Procedures With CC), and 14 were in DRG 158 (Anal and Stomal Procedures Without CC). The average standardized charge per case was $16,758. The case-weighted threshold for DRGs 157 and 158 (39.1 percent of cases in DRG 157 and 60.1 percent of cases in DRG 158) for this technology is $14, 426. Therefore, according to the applicant, the Acticon
                        <E T="51">TM</E>
                         Neosphincter meets the cost criterion. 
                    </P>
                    <P>
                        The applicant states in its application that the Acticon
                        <E T="51">TM</E>
                         Neosphincter represents a substantial clinical improvement for the following reasons: First, there is no other existing device in the United States that can be used to treat severe fecal incontinence. Second, self-treatment for severe fecal incontinence has proven to be largely unsuccessful and surgical options have historically been more limited, including sphincteroplasty or muscle transposition. 
                    </P>
                    <P>
                        However, since Acticon
                        <E T="51">TM</E>
                         Neosphincter does not meet the newness criterion, we are proposing to deny add-on payments for this new technology. The applicant also requested a DRG reclassification for this technology. In section II.B.4 of the preamble of this proposed rule, we are proposing, in MDC 6 (Diseases and Disorders of the Digestive System) only, to remove codes 49.75 and 49.76 from DRGs 157 and 158, and reassign them to DRGs 146 (Rectal Resection With CC) and 147 (Rectal Resection Without CC). All other MDC and DRG assignments for codes 49.75 and 49.76 would remain the same. 
                    </P>
                    <P>We received the following public comments in accordance with section 50(b)(2) of Pub. L. 108-173 regarding this application for add-on payments. </P>
                    <P>
                        <E T="03">Comment:</E>
                         One commenter noted that the implant of the Acticon
                        <E T="51">TM</E>
                         Neosphincter avoids the life-altering and disfiguring consequences of a permanent stoma. Another commenter noted that the implant of the Acticon
                        <E T="51">TM</E>
                         Neosphincter avoids the need for a colostomy, which limits a patient's ability to travel and work due to the fact they could have a fecal accident at any time. 
                    </P>
                    <P>
                        <E T="03">Response:</E>
                         We appreciate the commenters' input on this criterion. However, as stated above, the Acticon
                        <E T="51">TM</E>
                         Neosphincter is no longer new. Therefore, we are proposing that it is not eligible for add-on payments for new technologies.
                    </P>
                    <HD SOURCE="HD3">
                        i. TandemHeart
                        <E T="51">TM</E>
                         Percutaneous Left Ventricular Assist System 
                    </HD>
                    <P>
                        Brigham and Women's Hospital submitted an application for approval of the TandemHeart
                        <E T="51">TM</E>
                         Percutaneous Ventricular Assist System (PVTA) manufactured by Cardiac Assists, Inc., for new technology add-on payments for FY 2005. Cardiac Assists, Inc. has been assisting the applicant with supplemental information and data to support the application process. According to the manufacturer, the device contains a controller, arterial and venous cannulae and the TandemHeart
                        <E T="51">TM</E>
                         Percutaneous Ventricular Assist Device (pVAD) that works parallel with the left ventricle to provide left ventricular circulatory support. The device is intended for extracorporeal circulatory support using an extracorporeal bypass circuit. The duration of use approved by the FDA is for periods of up to 6 hours. 
                    </P>
                    <P>
                        On November 11, 2000, FDA approved the AB-180 XC Blood Pump (also known as the TandemHeart
                        <E T="51">TM</E>
                         pVAD) as a single use, disposable centrifugal blood pump designed to circulate blood through an extracorporeal circuit. On May 23, 2003, FDA approved the CardiacAssist Transseptal Cannula Set for transseptal catherization of the left atrium via the femoral vein for the purpose of providing a means for temporary (6 hours or less) left ventricular bypass when connected to a suitable extracorporeal blood pump unit that returns blood to the patient via the femoral artery or other appropriate site. The manufacturer stated that, although the TandemHeart
                        <E T="51">TM</E>
                         pVAD was approved in November 2000, this device should still be considered new because the device was not marketed and sold to hospitals until the CardiacAssist Transseptal Cannula Set was approved by FDA in May 2003. We have received confirmation from hospitals that the TandemHeart
                        <E T="51">TM</E>
                         pVAD was indeed not marketed until FDA approved the CardiacAssist Transseptal Cannula Set. Also, only half of a year's worth of data containing the TandemHeart
                        <E T="51">TM</E>
                         pVAD is reflected within the FY 2003 MedPAR file. The manufacturer stated that approximately 60 TandemHeart
                        <E T="51">TM</E>
                         pVADs have been used since FDA approved the Cardiac Arrest Transseptal Cannula Set in May 2003. Therefore, the costs of the TandemHeart
                        <E T="51">TM</E>
                         pVAD are not adequately reflected within the DRGs. As a result, we consider the TandemHeart
                        <E T="51">TM</E>
                         pVAD to be new under our criterion. 
                    </P>
                    <P>
                        As stated above, according to the manufacturer, approximately 60 TandemHeart
                        <E T="51">TM</E>
                         pVADs have been used since FDA approved the Cardiac Assist Transseptal Cannula Set in May 2003 (not all of these have been used in Medicare beneficiaries). However, only two actual cases were submitted by the applicant with an ICD-9-CM code of 37.65 (Implant of an external pulsatile heart assist system) used to identify the device. As stated in the September 7, 2001 final rule (66 FR 46916), data submitted by the applicant must be of a sufficient sample size to demonstrate a significant likelihood that the true mean across all cases likely to receive the technology will exceed the threshold established by CMS. Because we lack a significant sample of data reflecting the costs of this technology, 
                        <PRTPAGE P="28247"/>
                        we cannot accurately determine the average charge per case for the TandemHeart
                        <E T="51">TM</E>
                         pVAD. Neither can we determine whether this technology meets our cost criterion. If we receive sufficient data to complete our analysis in time for inclusion in the final rule, we will assess whether this technology meets the cost criterion. 
                    </P>
                    <P>
                        Although we are not proposing to approve this application because we have insufficient data to determine whether TandemHeart
                        <E T="51">TM</E>
                         pVAD meets the cost criterion, we note that the applicant submitted information on the substantial clinical improvement criterion. The applicant stated in its application that the TandemHeart
                        <E T="51">TM</E>
                         pVAD represents a substantial clinical improvement because, at present, the only alternative to intra-aortic balloon pump support is the surgical implantation of a ventricular assist device. The TandemHeart
                        <E T="51">TM</E>
                         pVAD is the only therapeutic intervention that is capable of achieving effective circulatory support to stabilize cardiogenic shock patients that could be placed via a percutaneous approach. We will present a full analysis of this technology under the significant improvement criterion if we receive sufficient data in time for the final rule to evaluate whether the technology meets the cost criterion. 
                    </P>
                    <P>The applicant also requested an ICD-9-CM code for this technology. We discuss this request in section II.B.3. of the preamble of this proposed rule. </P>
                    <P>We received no public comments on this application for add-on payments.</P>
                    <HD SOURCE="HD3">
                        j. Aquadex
                        <E T="51">TM</E>
                         System 100 Fluid Removal System (System 100) 
                    </HD>
                    <P>CHF Solutions, Inc. submitted an application for the approval of the System 100 for new technology add-on payments for FY 2005. The System 100 is designed to remove excess fluid (primarily excess water) from patients suffering from severe fluid overload through the process of ultrafiltration. Fluid retention, sometimes to an extreme degree, is a common symptom of patients with chronic congestive heart failure. This technology removes excess fluid without causing hemodynamic instability. It also avoids the inherent nephrotoxicity and tachyphylaxis associated with aggressive diuretic therapy, the mainstay of current therapy for fluid overload in congestive heart failure. </P>
                    <P>The System 100 consists of: (1) An S-100 console; (2) a UF 500 blood circuit; (3) an extended length catheter (ELC); and (4) a catheter extension tubing. The System 100 is designed to monitor the extracorporeal blood circuit and to alert the user to abnormal conditions. Vascular access is established via the peripheral venous system, and up to 4 liters of excess fluid can be removed in an 8-hour period. </P>
                    <P>On June 3, 2002, FDA approved the System 100 for use with peripheral venous access. On November 20, 2003, FDA approved the System 100 for expanded use with central venous access and catheter extension use for infusion or withdrawal circuit line with other commercial applicable venous catheters. According to the applicant, although the System 100 was first approved by FDA in June 2002, the System 100 was not used by hospitals until August 2002 because it took a substantial amount of time to market and sell the device to hospitals. As a result, the applicant believes that the System 100 should still be considered new. The applicant has presented data and evidence demonstrating that the System 100 was not marketed until August 2002. Therefore, we also believe August 1, 2002 is the relevant date for determining the availability of the System 100. </P>
                    <P>The applicant estimates that 308 patients (approximately 120 cases per year) have used the System 100 since its inception and the potential population for use of the device is 60,000 cases per year. These 308 cases represent a small percentage of the potential number of cases that can utilize the System 100. Therefore, the System 100 is not adequately reflected within the DRG weights (as discussed in the September 7, 2001 final rule (66 FR 46914)). In addition, the System 100 is within the 2 to 3 year period contemplated under § 412.87(b)(2) of the regulations. Therefore, the System 100 could be considered new. However, the ultrafiltration process that the System 100 employs can also be considered to be a type of hemodialysis, which is an old and well-established technology. We have concerns about whether new technology add-on payments should be extended to a well-established technology, even when a new clinical application is developed for that technology. As discussed above, in the September 7, 2001 final rule (66 FR 46915), we noted that if an existing technology is used for treating patients not expected to be assigned to the same DRG as the patients already receiving the technology, it may be considered for approval if it also meets the other cost and clinical improvement criteria. In this case, the device does treat a different patient population of congestive heart failure than the patient population for renal dialysis. Under the policy described in the September 7, 2001 final rule, this technology may be considered new for the purposes of determining whether it qualifies for add-on payments. However, we have some concerns about whether this is an appropriate result, and about whether technologies that have been in use for many years, in some cases decades, should be able to qualify for add-on payments for new technologies. Therefore, we invite comments on whether this technology should be considered new, and on the general issue of whether existing technologies should be approved for add-on payments when new applications are developed for these technologies and whether special standards regarding, for example, clinical improvement, should be applied in such cases. </P>
                    <P>The applicant submitted five sets of data to demonstrate that the System 100 meets the cost criterion. Of these five, three sets of data were flawed in the analysis of the cost criterion. Therefore, we will discuss only the data that are most accurate and relevant. It is important to note at the outset of the cost analysis that the console is reusable and is, therefore, a capital cost. Only the circuits and catheters are components that represent operating expenses. Section 1886(d)(K)(i) of the Act requires that the Secretary establish a mechanism to recognize the costs of new medical services or technologies under the payment system established under that subsection, which establishes the system for paying for the operating costs of inpatient hospital services. The system of payment for capital costs is established under section 1886(g) of the Act, which makes no mention of any add-on payments for a new medical service or technology. Therefore, it is not appropriate to include capital costs in the add-on payments for a new medical service or technology and these costs should also not be considered in evaluating whether a technology meets the cost criterion. The applicant has applied for add-on payments only for the circuits and catheter, which represent the operating expenses of the device. However, catheters cannot be considered new technology in any sense. As a result, only the UF 500 disposable blood circuit is relevant to the evaluation of the cost criterion. </P>
                    <P>
                        The applicant commissioned Covance to search the FY 2002 MedPAR file. The applicant used a combination of diagnosis codes to determine which cases could potentially use the System 100. Covance found 27,589 cases with the following combination of ICD-9-CM diagnosis codes: 428.0 through 428.9 (Heart Failure), 402.91 (Unspecified with Heart Failure), or 402.11 
                        <PRTPAGE P="28248"/>
                        (Hypertensive Heart Disease with Heart Failure), in combination with 276.6 (Fluid Overload) and 782.3 (Edema). The 27,589 cases were found among 281 DRGs with 49.4 percent of cases mapped across DRGs 88, 89, 127, 277 and 316. The applicant eliminated those DRGs with less than 150 cases, which resulted in a total of 22,024 cases that could potentially use the System 100. The case-weighted average standardized charge across all DRGs was $14,534. The case-weighted threshold across all DRGs was $17,789. Although the case-weighted threshold is greater than the case-weighted standardized charge, it is necessary to include the standardized charge for the circuits used in each case. In order to establish the charge per circuit, the manufacturer submitted data regarding 51 actual cases that used the System 100. Based on these 51 cases, the standardized charge per circuit was $2,209. The manufacturer also stated that an average of two circuits are used per case. Therefore, adding $4,418 for the charge of the two circuits to the case-weighted average standardized charge of $14,534 results in a total case-weighted standardized charge of $18,952. This is greater than the case-weighed threshold of $17,789. We welcome comments from the public on the charge information submitted by the applicant for the circuits. 
                    </P>
                    <P>Using the FY 2003 MedPAR file, we used the same combination of diagnosis codes to identify 28,660 cases across all DRGs. As in the applicant's analysis, we eliminated those DRGs with less than 150 cases, which resulted in 22,395 cases. The case-weighted average standardized charge for these cases is $15,447. The case-weighted threshold to qualify for new technology add-on payment using the data we identified would then be $18,029. Again, as in the applicant's analysis, it was necessary to include in the charge of $4,418 for the circuits. This results in a total case-weighted average standardized charge of $19,865, which is also greater than the case-weighted threshold of $18,029. Based on these two analyses, the System 100 meets the cost criterion. </P>
                    <P>The applicant contends that the System 100 represents a substantial clinical improvement for the following reasons: It removes excess fluid without the use of diuretics; it does not lead to electrolyte imbalance, hemodynamic instability or worsening renal function; it can restore diuretic responsiveness; it does not adversely affect the renin-angiotensin system; it reduces hospital length of stay for the treatment of congestive heart failure; and it requires only peripheral venous access. </P>
                    <P>Although we lack data from a large, multicenter, randomized, prospective clinical trial, we believe the applicant has submitted data that demonstrate the use of this technology in achieving the clinical benefits cited. We believe that there is some basis for concluding that the System 100 represents a substantial clinical improvement over current standard treatment of fluid overload in congestive heart failure. However, we invite comment on whether the data submitted are indeed adequate to demonstrate significant clinical improvement. </P>
                    <P>Based on the criteria, we believe that the System 100 could be approved for new technology add-on payments for FY 2005. However, we invite comments on this application, and especially on whether the System 100 is really new and on whether it represents a new technology within the meaning of the statute and regulations. If approved for add-on payments, the device would be reimbursed up to half of the costs for the disposable portion of the device. The manufacturer has stated that the cost for the disposable blood circuit and filter would be $900. As stated above, an average two circuits are used per case, which results in a total cost of $1,800 per case. Therefore, the maximum add-on payment for the disposable parts of the device would be $900 per case. We will determine whether to approve this application in the light of the comments we receive and our continuing analysis. </P>
                    <P>We received the following public comments in accordance with section 503(b)(2) of Pub. L. 108-173 regarding this application for add-on payments. </P>
                    <P>
                        <E T="03">Comment:</E>
                         Several commenters noted that the System 100 provides physicians a new treatment option for patients with fluid overload who are unresponsive to diuretics and has been documented in clinical studies and other published articles to effectively treat fluid overload. Another commenter noted that patients who have been treated with the System 100 seem to have improved health versus those who have lingered on diuretic therapy or have been treated by hemodialysis. The commenter also noted that the system 100 reduces hospital stays. Other commenters noted that the System 100 is safer for those patients in terms of reduced electrolyte imbalance and renal dysfunction and is a major step forward in the treatment of decompensated heart failure. 
                    </P>
                    <P>
                        <E T="03">Response:</E>
                         As we stated above, we believe that there is some basis for concluding that the System 100 offers substantial clinical improvement. We will consider these comments as we continue to evaluate whether the System 100 meets this criterion. 
                    </P>
                    <HD SOURCE="HD1">III. Proposed Changes to the Hospital Wage Index </HD>
                    <HD SOURCE="HD2">A. Background </HD>
                    <P>Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective payments to hospitals, the Secretary must adjust the standardized amounts “for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level.” In accordance with the broad discretion conferred under the Act, we currently define hospital labor market areas based on the definitions of statistical areas established by the Office of Management and Budget (OMB). A detailed discussion of the proposed FY 2005 hospital wage index based on the statistical areas, including OMB's revised definitions of Metropolitan Areas, appears under section III.B of this preamble. </P>
                    <P>Beginning October 1, 1993, section 1886(d)(3)(E) of the Act requires that we update the wage index annually. Furthermore, this section provides that the Secretary base the update on a survey of wages and wage-related costs of short-term, acute care hospitals. The survey should measure, to the extent feasible, the earnings and paid hours of employment by occupational category, and must exclude the wages and wage-related costs incurred in furnishing skilled nursing services. This provision also requires us to make any updates or adjustments to the wage index in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. The adjustment we are proposing for FY 2005 is discussed in section II.B. of the Addendum to this proposed rule. </P>
                    <P>
                        As discussed below in section III.G. of this preamble, we also take into account the geographic reclassification of hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating the wage index. Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. The budget neutrality adjustment we are proposing for FY 
                        <PRTPAGE P="28249"/>
                        2005 is discussed in section II.B. of the Addendum to this proposed rule. 
                    </P>
                    <P>Section 1886(d)(3)(E) of the Act also provides for the collection of data every 3 years on the occupational mix of employees for short-term, acute care hospital participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index. A discussion of the initial collection of these data and the occupational mix adjustment that we are proposing to apply beginning October 1, 2004 (the FY 2005 wage index) appears under section III.C. of this preamble. </P>
                    <HD SOURCE="HD2">B. Revised OMB Definitions for Geographical Statistical Areas </HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Revised MSAs” at the beginning of your comment.] </FP>
                    <HD SOURCE="HD3">1. Current Labor Market Areas Based on MSAs </HD>
                    <P>The wage index is calculated and assigned to hospitals on the basis of the labor market area in which the hospital is located. In accordance with the broad discretion under section 1886(d)(3)(E) of the Act, we currently define hospital labor market areas based on the definitions of Metropolitan Statistical Areas (MSAs), Primary MSAs (PMSAs), and New England County Metropolitan Areas (NECMAs) issued by OMB. OMB also designates Consolidated MSAs (CMSAs). A CMSA is a metropolitan area with a population of one million or more, comprising two or more PMSAs (identified by their separate economic and social character). For purposes of the hospital wage index, we use the PMSAs rather than CMSAs because they allow a more precise breakdown of labor costs. If a metropolitan area is not designated as part of a PMSA, we use the applicable MSA. </P>
                    <P>These different designations use counties as the building blocks upon which they are based. Therefore, hospitals are assigned to either an MSA, PMSA, or NECMA based on whether the county in which the hospital is located is part of that area. For purposes of the IPPS wage index, we combine all of the counties in a State outside a designated MSA, PMSA, or NECMA together to calculate a statewide rural wage index. </P>
                    <HD SOURCE="HD3">2. Core-Based Statistical Areas </HD>
                    <P>
                        OMB reviews its Metropolitan Area (MA) definitions preceding each decennial census. In the fall of 1998, OMB chartered the Metropolitan Area Standards Review Committee to examine the MA standards and develop recommendations for possible changes to those standards. Three notices related to the review of the standards were published on the following dates in the 
                        <E T="04">Federal Register</E>
                        , providing an opportunity for public comment on the recommendations of the Committee: December 21, 1998 (63 FR 70526); October 20, 1999 (64 FR 56628), and August 22, 2000 (65 FR 51060). 
                    </P>
                    <P>
                        In the December 27, 2000 
                        <E T="04">Federal Register</E>
                         (65 FR 82228 through 82238), OMB announced its new standards. According to that notice, OMB defines a Core-Based Statistical Area (CBSA), beginning in 2003, as “a geographic entity associated with at least one core of 10,000 or more population, plus adjacent territory that has a high degree of social and economic integration with the core as measured by commuting ties. The standards designate and define two categories of CBSAs: Metropolitan Statistical Areas and Micropolitan Statistical Areas.” (65 FR 82235) 
                    </P>
                    <P>According to OMB, MSAs are based on urbanized areas of 50,000 or more population, and Micropolitan Statistical Areas (referred to in this discussion as Micropolitan Areas) are based on urban clusters of at least 10,000 population but less than 50,000 population. Counties that do not fall within CBSAs are deemed “Outside CBSAs.” In the past, OMB defined MSAs around areas with a minimum core population of 50,000, and smaller areas were “Outside MSAs.” </P>
                    <P>The general concept of the CBSAs is that of an area containing a recognized population nucleus and adjacent communities that have a high degree of integration with that nucleus. The purpose of the standards is to provide nationally consistent definitions for collecting, tabulating, and publishing Federal statistics for a set of geographic areas. CBSAs include adjacent counties that have a minimum of 25 percent commuting to the central counties of the area. This is an increase over the minimum commuting threshold for outlying counties applied in the previous MSA definition of 15 percent. </P>
                    <P>
                        On June 6, 2003, OMB announced the new CBSAs, comprised of MSAs and the new Micropolitan areas based on Census 2000 data. (A copy of the announcement may be obtained at the following Internet address: 
                        <E T="03">http://www.whitehouse.gov/omb/bulletins/fy04/b04-03.html</E>
                        .) The new definitions recognize 49 new MSAs and 565 new Micropolitan Areas, and extensively revise the construct of many of the existing MSAs. There are 1,090 counties in MSAs under these new definitions (previously, there were 848 counties in MSAs). Of these 1,090 counties, 737 are in the same MSA as they were prior to the changes, 65 are in a different MSA, and 288 were not previously designated to any MSA. There are 674 counties in Micropolitan Areas. Of these, 41 were previously in an MSA, while 633 were not previously designated to an MSA. There are five counties that previously were designated to an MSA but are no longer designated to either an MSA or a new Micropolitan Area: Carter County, KY; St. James Parish, LA; Kane County, UT; Culpepper County, VA; and King George County, VA. 
                    </P>
                    <HD SOURCE="HD3">3. Revised Labor Market Areas </HD>
                    <P>In its June 6, 2003 announcement, OMB cautioned that these new definitions “should not be used to develop and implement Federal, State, and local nonstatistical programs and policies without full consideration of the effects of using these definitions for such purposes. These areas should not serve as a general-purpose geographic framework for nonstatistical activities, and they may or may not be suitable for use in program funding formulas.” </P>
                    <P>We have previously examined alternatives to the use of MSAs for the purpose of establishing labor market areas for the Medicare wage index. In the May 27, 1994, proposed rule (59 FR 27724), we presented our latest research concerning possible future refinements to the labor market areas. Specifically, we discussed and solicited comment on the proposal by the Prospective Payment Assessment Commission (ProPAC, a predecessor organization to the Medicare Payment Advisory Commission (MedPAC)) for hospital-specific labor market areas based on each hospital's nearest neighbors, and our research and analysis on alternative labor market areas. Even though we found that none of the alternative labor market areas that we studied provided a distinct improvement over the use of MSAs, we presented an option using the MSA-based wage index but generally giving a hospital's own wages a higher weight than under the current system. We also described for comment a State labor market option, under which hospitals would be allowed to design labor market areas within their own State boundaries.</P>
                    <P>
                        We described the comments we received in the June 2, 1995 proposed rule (60 FR 29219). There was no consensus among the commenters on the choice for new labor market areas. Many individual hospitals that commented expressed dissatisfaction with all of the proposals. However, several State hospital associations commented that the options merited further study. Therefore, we contacted the association representatives that 
                        <PRTPAGE P="28250"/>
                        participated in our November 1993 meeting on labor market issues in which we solicited ideas for additional types of labor market research to conduct. None of the individuals we contacted suggested any ideas for further research. 
                    </P>
                    <P>Consequently, we have continued to use MSAs to define labor market areas for purposes of the wage index. While we recognize MSAs are not designed specifically to define labor market areas, we believe they do represent a useful proxy for this purpose, and our analysis and discussion here are focused on issues related to adopting the new CBSAs to define labor market areas. </P>
                    <HD SOURCE="HD3">a. New England MSAs </HD>
                    <P>As stated above, we currently use NECMAs to define labor market areas in New England, because these are county-based designations rather than the 1990 MSA definitions for New England, which used minor civil divisions such as cities and towns. Under the previous MSA definitions, NECMAs provided more consistency in labor market definitions for New England compared with the rest of the country, where MSAs are county-based. Under the new CBSAs, OMB has defined the MSAs and Micropolitan Areas in New England on the basis of counties. OMB also established New England City and Town Areas, which are similar to the previous New England MSAs. Therefore, to maintain consistency in the definition of labor market areas between New England and the rest of the country, we are proposing to use the New England MSAs under the new CBSA definition.</P>
                    <HD SOURCE="HD3">b. Metropolitan Divisions </HD>
                    <P>A Metropolitan Division is a county or group of counties within a CBSA that contains a core population of at least 2.5 million, representing an employment center, plus adjacent counties associated with the main county or counties through commuting ties. A county qualifies as a main county if 65 percent or more of its employed residents work within the county and the ratio of the number of jobs located in the county to the number of employed residents is at least .75. A county qualifies as a secondary county if 50 percent or more, but less than 65 percent, of its employed residents work within the county and the ratio of the number of jobs located in the county to the number of employed residents is at least .75. After all the main and secondary counties are identified and grouped, each additional county that already has qualified for inclusion in the MSA falls within the Metropolitan Division associated with the main/secondary county or counties with which the county at issue has the highest employment interchange measure. Counties in a Metropolitan Division must be contiguous. (65 FR 82236) </P>
                    <P>As noted above, in the past, OMB designated CMSAs as Metropolitan Areas with a population of one million or more and comprising two or more PMSAs. We currently use the PMSAs rather than CMSAs to define labor market areas because they comprise a smaller geographic area with potentially varying labor costs due to different local economies. Similarly, we are proposing to use the Metropolitan Divisions where applicable under the CBSA definitions. </P>
                    <P>Under the CBSA definitions, there are 11 MSAs containing Metropolitan Divisions: Boston; Chicago; Dallas; Detroit; Los Angeles; Miami; New York; Philadelphia; San Francisco; Seattle; and Washington, D.C. Although these MSAs were also CMSAs under the prior definitions, in some cases their areas have been significantly altered. Under the prior definitions, Boston was a single NECMA. It is now comprised of 4 Divisions. Los Angeles went from 4 PMSAs to 2 Divisions because 2 MSAs became separate MSAs. The New York CMSA went from 15 MSAs down to only 4 Divisions. Five PMSAs in Connecticut now become separate MSAs, and the number of PMSAs in New Jersey goes from 5 to 2, with the consolidation of 2 New Jersey PMSAs (Bergen-Passaic and Jersey City) into the New York-Wayne-White Plains, NY-NJ Division. In San Francisco, only 2 Divisions remain where there were once 6 PMSAs, some of which are now separate MSAs. </P>
                    <P>Previously, Cincinnati, Cleveland, Denver, Houston, Milwaukee, Portland, Sacramento, and San Juan were all previously designated as CMSAs, but are not any longer. As noted previously, the population threshold to be designated a CMSA was one million. In most of these cases, counties formerly in a PMSA have become a separate, independent MSA, leaving only the MSA for the core area under the new CBSA definitions. </P>
                    <HD SOURCE="HD3">c. Micropolitan Areas </HD>
                    <P>One of the major issues with respect to the new definitions is whether to use Micropolitan Areas to define labor market areas for the purpose of the IPPS wage index. Because the new Micropolitan Areas are essentially a third area definition made up mostly of currently rural areas, but also some or all of current MSAs, how these areas are treated will have significant impacts on the calculation and application of the wage index. Treating Micropolitan Areas as separate and distinct labor market areas would affect both the wage indexes of the hospitals in the Micropolitan Areas and the hospitals in the labor market areas where those hospitals are currently located (both positively and negatively). </P>
                    <P>Because we currently use MSAs to define urban labor market areas and we group all the hospitals in counties within each State that are not assigned to an MSA together into a statewide rural labor market area, we have used the terms “urban” and “rural” wage indexes in the past for ease of reference. However, the introduction of Micropolitan Areas complicates this terminology because these areas include so many hospitals that are currently included in the statewide rural labor market areas. In order to facilitate the discussion below, we use the term “rural” hospitals to describe hospitals in counties that are not assigned to either an MSA or a Micropolitan Area. This should not be taken to indicate that hospitals in Micropolitan Areas are no longer “rural” hospitals. In fact, we are proposing that hospitals in Micropolitan Areas are included in the statewide rural labor market areas, for the reasons outlined below. The reader is referred to section IV.B. of the preamble of this proposed rule for a more specific discussion of the implications of these changes for defining urban and rural areas under § 412.62(f). </P>
                    <P>Chart 1 below demonstrates the distributions of hospitals by their current and new designations. Approximately 50 percent of hospitals currently designated rural are now in either Micropolitan Areas (691 hospitals) or MSAs (197 hospitals). The vast majority of hospitals currently in MSAs remain in an MSA (2,478, although in some cases the MSAs have been reconfigured), while 2 are now in rural areas and 65 are now in Micropolitan Areas. </P>
                    <GPOTABLE COLS="3" OPTS="L2,i1" CDEF="s25,9,9">
                        <TTITLE>Chart 1.—Distribution of Hospitals by Current and New Designation </TTITLE>
                        <BOXHD>
                            <CHED H="1">Statistical area </CHED>
                            <CHED H="1">Currently rural </CHED>
                            <CHED H="1">Currently MSA.</CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">Rural</ENT>
                            <ENT>861</ENT>
                            <ENT>2</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Micropolitan</ENT>
                            <ENT>691</ENT>
                            <ENT>65 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">MSA</ENT>
                            <ENT>197</ENT>
                            <ENT>2,478</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Totals</ENT>
                            <ENT>1,749</ENT>
                            <ENT>2,545 </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>
                        In order to evaluate the impact of these changes, we grouped hospitals based on the county where they are located according to the new MSA and Micropolitan areas using the definitions 
                        <PRTPAGE P="28251"/>
                        on the Census Bureau's Web site: 
                        <E T="03">http://www.census.gov/population/www/estimates/metrodef.html.</E>
                         We then compared the proposed FY 2004 wage indexes (using data from hospitals' FY 2001 cost reports) calculated based on the current MSAs, without any effects of hospital geographic reclassifications. Consistent with current policy, we applied the rural floor in the case where the statewide rural wage index is greater than the wage index for a particular urban area. We excluded Indian Health Service hospitals from the analysis due to the special characteristics of the prospective payment system for these hospitals. Hospitals in Maryland were excluded from the analysis because they remain excluded from the IPPS under the waiver at section 1814(b)(3) of the Act. Our analysis also does not reflect any changes to the Puerto Rico-specific wage index, which is applicable only to the Puerto Rico standardized amounts (the analysis does include the national wage index values for Puerto Rico hospitals). 
                    </P>
                    <P>Chart 2 below shows the impact on hospitals' wage indexes of recalculating new wage indexes based on the new MSAs, and treating the new Micropolitan Areas as separate labor market areas. Specifically, the table shows the impact of treating the new MSA and Micropolitan Areas as labor market areas and calculating a wage index for each one. The most dramatic impact of this change would be on hospitals that are currently classified as rural. Only 10 currently rural hospitals would experience no changes in their wage indexes after applying the new MSA definitions. Five of these hospitals are in Delaware and Connecticut (three and two hospitals respectively), where the only counties in the State currently considered rural are now part of Micropolitan Areas. </P>
                    <P>Approximately 62 percent (1,092 out of 1,749) of currently rural hospitals experience decreases in their wage indexes under this change. Among hospitals that remain rural after separately recognizing Micropolitan Areas (those hospitals in counties “outside CBSAs”), rural hospitals in six States (Arizona, Florida, Idaho, Indiana, Minnesota, and Missouri) experience a positive impact after applying the new MSA definitions. These hospitals benefit because the net effect on their wage index of other hospitals moving into Micropolitan Areas is positive. The majority of the currently rural hospitals (762 out of 1,092) that experience decreases in their wage indexes are hospitals that would remain rural under the new definitions. Moreover, among the 646 rural hospitals whose wage indexes would increase under the new definitions, 547 would now be in an MSA or Micropolitan Area. </P>
                    <P>Furthermore, in many cases, the magnitude of the changes is quite large. Nearly one-half of all rural hospitals would experience payment changes of at least 5.0 percent, either negatively or positively, if we were to adopt labor market areas based in part on the new Micropolitan Areas. </P>
                    <P>In contrast, there are 938 currently urban hospitals (37 percent) with wage indexes that are unaffected by the new MSA definitions. These hospitals are in MSAs or PMSAs that are either unchanged (for example, the Austin, Buffalo, Milwaukee, Oakland, Phoenix, San Diego, and Tampa-St. Petersburg MSAs are all unchanged) or include new counties without any hospitals in those counties that are now part of the existing MSA (for example, Atlanta, Denver, Little Rock, Omaha, Portland, Richmond, Toledo, Virginia Beach-Norfolk added counties but not hospitals). </P>
                    <P>The most significant negative impact (more than a 20-percent decrease) among hospitals currently in an MSA is on those located in counties that become Micropolitan areas or rural areas. Among hospitals with the largest positive impacts (more than a 20-percent increase), the changes appear to be largely due to changes in the counties that are now included (under the CBSAs) in the MSA labor market area.</P>
                    <GPOTABLE COLS="4" OPTS="L2,i1" CDEF="s100,10,10,10">
                        <TTITLE>Chart 2.—Impact on Wage Indexes of New MSA, Micropolitan Areas, and Rural Labor Market Areas </TTITLE>
                        <BOXHD>
                            <CHED H="1">Percent change in area wage index </CHED>
                            <CHED H="1">
                                Number of currently rural 
                                <LI>hospitals </LI>
                            </CHED>
                            <CHED H="1">
                                Number of currently MSA 
                                <LI>hospitals </LI>
                            </CHED>
                            <CHED H="1">
                                Total 
                                <LI>number of </LI>
                                <LI>hospitals.</LI>
                            </CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">Decrease Greater Than 10.0</ENT>
                            <ENT>99</ENT>
                            <ENT>36</ENT>
                            <ENT>135</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Decrease Between 5.0 and 10.0</ENT>
                            <ENT>420</ENT>
                            <ENT>77</ENT>
                            <ENT>497</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Decrease Between 2.0 and 5.0</ENT>
                            <ENT>238</ENT>
                            <ENT>95</ENT>
                            <ENT>333</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Decrease Between 0 and 02.0</ENT>
                            <ENT>335</ENT>
                            <ENT>585</ENT>
                            <ENT>920</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">No Change</ENT>
                            <ENT>10</ENT>
                            <ENT>938</ENT>
                            <ENT>948</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Increase Between 0 and 2.0</ENT>
                            <ENT>168</ENT>
                            <ENT>495</ENT>
                            <ENT>663</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Increase Between 2.0 and 5.0</ENT>
                            <ENT>138</ENT>
                            <ENT>145</ENT>
                            <ENT>283</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Increase Between 5.0 and 10.0</ENT>
                            <ENT>203</ENT>
                            <ENT>139</ENT>
                            <ENT>342 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Increase Greater Than 10.0</ENT>
                            <ENT>138</ENT>
                            <ENT>35</ENT>
                            <ENT>173</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Total</ENT>
                            <ENT>1,749</ENT>
                            <ENT>2,545</ENT>
                            <ENT>4,294 </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>One of the reasons Micropolitan Areas have such a dramatic impact on the wage index is, because Micropolitan Areas encompass smaller populations than MSAs, they tend to include fewer hospitals per Micropolitan Area. Currently, there are only 25 MSAs with one hospital in the MSA. However, under the new definitions, there are 373 Micropolitan Areas with one hospital, and 49 MSAs with only one hospital. </P>
                    <P>This large number of labor market areas with only one hospital and the increased potential for dramatic shifts in the wage indexes from one year to the next is a problem for several reasons. First, it creates instability in the wage index from year to year for a large number of hospitals. Second, it reduces the averaging effect of the wage index, lessening some of the efficiency incentive inherent in a system based on the average hourly wages for a large number of hospitals. In labor market areas with a single hospital, high wage costs are passed directly into the wage index with no counterbalancing averaging with lower wages paid at nearby competing hospitals. Third, it creates an arguably inequitable system when so many hospitals have wage indexes based solely on their own wages, while other hospitals' wage indexes are based on an average hourly wage across many hospitals. </P>
                    <P>
                        For these reasons, we are proposing not to adopt Micropolitan Areas as independent labor market areas. Although we considered alternative 
                        <PRTPAGE P="28252"/>
                        approaches that would aggregate Micropolitan Areas in order to reduce the number of one-hospital labor market areas, these approaches created geographically disconnected labor market areas, an undesirable outcome. Therefore, we are proposing to maintain our current policy of defining labor market areas based on the new MSAs (and Divisions, where they exist) using OMB's new criteria and the 2000 Census data. 
                    </P>
                    <P>Chart 3 displays the impacts on hospital wage indexes of this proposed approach. The most apparent difference comparing this chart to Chart 2 is the reduction in the numbers of currently rural hospitals impacted by more than 2.0 percent. Recognizing Micropolitan Areas as independent labor market areas results in negative impacts of more than 2.0 percent for 757 currently rural hospitals, while the comparative number, when recognizing only MSAs, is 256. Conversely, the number of currently rural hospitals positively impacted by more than 2.0 percent declines from 479 to 154. </P>
                    <P>The greatest negative impacts among hospitals currently designated rural are in Idaho, where the statewide rural wage index falls 6.7 percent as a result of 6 formerly rural hospitals now being included in either new or redefined MSAs. The wage index for rural Utah hospitals declines by 5.7 percent, for similar reasons. Conversely, formerly rural hospitals that are not part of an MSA generally experience positive impacts. </P>
                    <P>Among hospitals that are currently in MSAs, the number of hospitals with decreases in their wage indexes of at least 10 percent increases under this proposal from 35 to 45. These are primarily hospitals that are now located in Micropolitan Areas that are included in the statewide labor market area. There are 46 counties with 72 hospitals that are currently in an MSA that would be treated as rural under our proposal. </P>
                    <GPOTABLE COLS="4" OPTS="L2,i1" CDEF="s100,10,10,10">
                        <TTITLE>Chart 3.—Impact on Wage Indexes of New MSA and Rural Labor Market Areas </TTITLE>
                        <BOXHD>
                            <CHED H="1">Percent change in area wage index </CHED>
                            <CHED H="1">
                                Number of currently rural 
                                <LI>hospitals </LI>
                            </CHED>
                            <CHED H="1">
                                Number of currently MSA 
                                <LI>hospitals </LI>
                            </CHED>
                            <CHED H="1">
                                Total 
                                <LI>number of </LI>
                                <LI>hospitals.</LI>
                            </CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">Decrease Greater Than 10.0</ENT>
                            <ENT>0</ENT>
                            <ENT>45</ENT>
                            <ENT>45</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Decrease Between 5.0 and 10.0</ENT>
                            <ENT>122</ENT>
                            <ENT>60</ENT>
                            <ENT>182</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Decrease Between 2.0 and 5.0</ENT>
                            <ENT>134</ENT>
                            <ENT>73</ENT>
                            <ENT>207</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Decrease Between 0 and 2.0</ENT>
                            <ENT>588</ENT>
                            <ENT>615</ENT>
                            <ENT>1,203</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">No Change</ENT>
                            <ENT>160</ENT>
                            <ENT>1,015</ENT>
                            <ENT>1,175</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Increase Between 0 and 2.0</ENT>
                            <ENT>591</ENT>
                            <ENT>574</ENT>
                            <ENT>1,165</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Increase Between 2.0 and 5.0</ENT>
                            <ENT>32</ENT>
                            <ENT>103</ENT>
                            <ENT>135</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Increase Between 5.0 and 10.0</ENT>
                            <ENT>64</ENT>
                            <ENT>25</ENT>
                            <ENT>89 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Increase Greater Than 10.0</ENT>
                            <ENT>58</ENT>
                            <ENT>35</ENT>
                            <ENT>93</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Total</ENT>
                            <ENT>1,749</ENT>
                            <ENT>2,545</ENT>
                            <ENT>4,294 </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>d. Transition Period </P>
                    <P>We have in the past provided for transition periods when adopting changes that have significant payment implications, particularly large negative impacts. When we recently removed the wage costs of teaching physicians and residents from the wage index data of teaching hospitals, we spread out the impact over 3 years by blending the hospitals' average hourly wages with and without the data. Similarly, the regulations at § 412.102 provide for a 3-year transition to the standardized amount and DSH adjustment payments to a hospital redesignated from urban to rural. </P>
                    <P>Given the significant payment impacts upon some hospitals of these changes, we considered options to transition from the current MSAs to the new MSAs. As noted above, the most dramatic negative impacts are among hospitals currently located in an MSA but would become rural under our proposal. Some negative impacts also occur among urban hospitals that remain in MSAs that have been reconfigured. However, these impacts are generally smaller than those among currently urban hospitals that would become rural. To help alleviate the decreased payments for currently urban hospitals that would become rural, we are proposing to allow them to maintain their assignment to the MSA where they are currently located for the 3-year period FY 2005, FY 2006, and FY 2007. Beginning in FY 2008, these hospitals would receive their statewide rural wage index, although they would be eligible to apply for reclassification by the MGCRB, both during this transition period as well as subsequent years. </P>
                    <P>We also considered the option of allowing a transition to the new MSAs for all hospitals, such as a blend of wage indexes based on the old and new MSAs for some specified period of time. Although this would help some hospitals that are negatively impacted by the changes to the MSAs, it would dampen the payment increases for those hospitals that are positively impacted by the changes. However, we are not proposing a blended transition. We note that OMB in the past has announced MSA changes on an annual basis due to population changes, and we have not transitioned these changes.</P>
                    <HD SOURCE="HD2">C. Proposed Occupational Mix Adjustment to Proposed FY 2005 Index </HD>
                    <P>[If you choose to comment on issues in this section, please include the caption “Occupational Mix” at the beginning of your comment.] </P>
                    <P>
                        As stated earlier, section 1886(d)(3)(E) of the Act provides for the collection of data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index, for application beginning October 1, 2004 (the FY 2005 wage index). The purpose of the occupational mix adjustment is to control for the effect of hospitals' employment choices on the wage index. For example, hospitals may choose to employ different combinations of registered nurses, licensed practical nurses, nursing aides, and medical assistants for the purpose of providing nursing care to their patients. The varying labor costs associated with these choices reflect hospital management decisions rather than geographic differences in the costs of labor. 
                        <PRTPAGE P="28253"/>
                    </P>
                    <HD SOURCE="HD3">1. Development of Data for the Occupational Mix Adjustment </HD>
                    <P>
                        In the September 19, 2003 
                        <E T="04">Federal Register</E>
                         (68 FR 54905), we published a final notice of intent to collect occupational mix data from hospitals using the Medicare Wage Index Occupational Mix Survey, Form CMS-10079. (The survey and instructions may be accessed at the Web site:
                        <E T="03">http://cms.hhs.gov/providers/hipps/ippswage.asp.)</E>
                         The survey requires hospitals to report the number of total paid hours for directly hired and contract employees in occupations that provide the following services: Nursing, physical therapy, occupational therapy, respiratory therapy, medical and clinical laboratory, dietary, and pharmacy. These services each include several standard occupational classifications (SOCs), as defined by the Bureau of Labor Statistics (BLS) on its Occupational Employment Statistics (OES) survey 
                        <E T="03">(http://www.bls.gov/oes/2001/oes_tec.htm)</E>
                        , that may be used by hospitals in different mixes to provide specific aspects of patient care. CMS decided to use BLS's SOCs to categorize employees for the occupational mix survey in an effort to ease hospitals' reporting burden; most hospitals have had experience with collecting and reporting their employment data according to the SOC definitions. The survey includes a total of 19 SOCs that provide services for the above 7 categories and an “all other occupations” category. The hours collected on the survey would be used to determine the proportion of a general service category total that is attributable to each of the category's SOCs, that is, the category's occupational mix. 
                    </P>
                    <P>
                        In order to accurately reflect a hospital's employment, we initially planned to require all hospitals to provide occupational mix data collected from a 1-year period. Several hospitals and their representatives advised us that a 1-year reporting period was feasible because salary and wage data are maintained quarterly for revenue and tax reporting purposes. However, several hospitals expressed concern that their payroll and other personnel accounting systems are typically not set up to collect data on hours for contract employees. The hospitals and their representatives advised us that the approximately 2-month timeframe (
                        <E T="03">see</E>
                         dates below) for collecting and submitting the occupational mix data to the fiscal intermediaries would not allow hospitals enough time to develop a year's worth of hours data for contract workers. Therefore, given the short timeframe for collecting the occupational mix data, and to reduce hospitals' reporting burden associated with the initial collection of the data, we decided to allow hospitals the option of providing their hours data for the 19 SOCs either prospectively for a 4-week period beginning on or between December 28, 2003 and January 11, 2004, and ending no later than February 7, 2004, or retrospectively for a 12-month period, that is, calendar year 2003. Although we recognize that using data from only a 4-week period increases our risk of obtaining results that reflect seasonal rather than normal employment trends, we believe that the 4-week prospective reporting period should enable hospitals to plan and provide more accurate data according to our survey instructions and definitions. (
                        <E T="03">See</E>
                         the discussion below on the verification and validity of our occupational mix survey results.) 
                    </P>
                    <P>An advance copy of the occupational mix survey was provided to hospitals in mid-December 2003 so that hospitals could begin gathering their data and documentation necessary to complete the survey. The official survey was published as a CMS One-Time Notification (Pub. 100-20, R47OTN) on January 23, 2004. We instructed our fiscal intermediaries to distribute and collect completed occupational mix surveys from any hospital that is subject to IPPS, or any hospital that would be subject to IPPS if not granted a waiver. If a hospital was not an IPPS provider during FY 2001 or, otherwise, did not submit a FY 2001 cost report, the hospital was not required to submit occupational mix data. Consistent with the wage data, CAHs were excluded from the occupational mix survey. In addition, the FY 2005 wage index does not include occupational mix data for hospitals that submitted FY 2001 wage data, but terminated participation in the Medicare program as IPPS providers before calendar year 2003. For such terminated hospitals, there would be no occupational mix data to collect for our survey period. </P>
                    <P>
                        Hospitals were to submit their completed occupational mix surveys to their fiscal intermediaries by February 16, 2004. Our initial collection of these data was completed by March 1, 2004, the deadline for fiscal intermediaries to submit hospitals' survey data to CMS. We released a public use file containing the data on March 8, 2004 (through the Internet on our Web site at: 
                        <E T="03">http://cms/hhs.gov/providers/hipps/ippswage.asp</E>
                        . In a memorandum also dated March 8, 2004, we instructed all fiscal intermediaries to inform the IPPS hospitals they service of the availability of the occupational mix data file and the process and timeframe for requesting corrections and revisions. If a hospital wished to request a change to its data as shown in that file, the hospital had to submit the changes to its fiscal intermediary by March 22, 2004. In addition, as this was hospitals' first experience with the occupational mix survey, we provided hospitals another opportunity, if they missed the February 16 filing deadline, to submit their completed surveys. The deadline for this one-time, final opportunity to submit occupational mix data to fiscal intermediaries for the FY 2005 wage index was also March 22, 2004. The final deadline for fiscal intermediaries to submit hospitals' data to CMS was April 16, 2004. (From April 16 until the final rule is published, the process, criteria, and timetable for correcting occupational mix data is the same as for Worksheet S-3 wage data, under Section H.) Occupational mix survey data received by us through March 15, 2004, are used in computing the proposed wage index in this proposed rule. Data received from intermediaries after March 15 through April 16, 2004 will be included in the final rule. 
                    </P>
                    <P>The response rate for the occupational mix survey, as of March 15, 2004, was 89.4 percent. We received occupational mix data from 3,593 hospitals. We expected to receive completed survey data from 4,018 hospitals that submitted cost report wage data for FY 2001 and were still IPPS hospitals during calendar year 2003 or on January 1, 2004. For any hospital that was expected to provide occupational mix data but did not, we are considering using proxy occupational mix data to adjust the hospital's wage data in the final wage index. One option would be to assume that the hospital only has employees in the highest level SOC for each of the general service categories included on the occupational mix survey. Another option would be to assume that such hospitals have the national SOC mix for each general service category. We invite public comment to this proposal. We note that the wage index in this proposed rule does not include proxy data for hospitals that did not complete and submit the occupational mix survey. </P>
                    <P>
                        As this was the first administration of the occupational mix survey, we did not provide fiscal intermediaries an extensive program for reviewing the hours of data collected. However, hospitals were required to be able to provide any documentation that could be used by the fiscal intermediaries to verify the survey data. In addition, after reviewing the compiled survey data, we contacted fiscal intermediaries to 
                        <PRTPAGE P="28254"/>
                        request corrections from a few hospitals that provided data for reporting periods that were out of range with our specified 12-month or 4-week data collection periods. As the wage index is a relative measure of labor costs across geographic areas, it is important that the data collected from hospitals reflects a common period. We also tested the validity of our occupational mix survey data by comparing our results to those of the 2001 BLS OES survey. As shown in Charts 4 and 5 below, the results of our survey are consistent with the findings of the BLS OES survey. 
                    </P>
                    <P>
                        In addition, to compute the occupational mix adjustment, we collected data on the average hourly rates for the 19 SOCs so that we could derive a weighted average hourly rate for each labor market area. (More details about the occupational mix calculation are included in section III.C.2. of this preamble.) To decrease hospital's reporting burden for this initial collection of the occupational mix data, and to facilitate the timely collection of the data, we did not require hospitals to report data on their total wages or average hourly rates associated with the 19 SOCs. Instead, we used national average hourly rates from the BLS OES 
                        <E T="03">2001 National Industry—Specific Occupational Employment and Wage Estimates, SIC—Hospitals</E>
                         (accessible at Web site: 
                        <E T="03">http://www.bls.gov/oes/2001/oesi3_806.htm),</E>
                         as reflected in Chart 4 below.
                    </P>
                    <GPOTABLE COLS="5" OPTS="L2,i1" CDEF="s75,12,12,12,12">
                        <TTITLE>Chart 4.—BLS National Occupational Employment and Wage Estimates for Hospitals </TTITLE>
                        <BOXHD>
                            <CHED H="1">General service categories </CHED>
                            <CHED H="1">Number of hospital employees </CHED>
                            <CHED H="1">Percent of service category </CHED>
                            <CHED H="1">Percent of total employees </CHED>
                            <CHED H="1">National average hourly wage $ </CHED>
                        </BOXHD>
                        <ROW EXPSTB="04" RUL="s">
                            <ENT I="21">
                                <E T="02">Nursing Services and Medical Assistant Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Registered Nurses</ENT>
                            <ENT>1,307,960</ENT>
                            <ENT>68.8</ENT>
                            <ENT>25.88</ENT>
                            <ENT>23.62</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Licensed Practical Nurses</ENT>
                            <ENT>194,900</ENT>
                            <ENT>10.2</ENT>
                            <ENT>3.86</ENT>
                            <ENT>14.65</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Nursing Aides, Orderlies, &amp; Attendants</ENT>
                            <ENT>351,910</ENT>
                            <ENT>18.5</ENT>
                            <ENT>6.96</ENT>
                            <ENT>10.01 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Medical Assistants</ENT>
                            <ENT>47,250</ENT>
                            <ENT>2.5</ENT>
                            <ENT>0.93</ENT>
                            <ENT>11.79 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Total</ENT>
                            <ENT>1,902,020</ENT>
                            <ENT>100.0</ENT>
                            <ENT>37.63 </ENT>
                        </ROW>
                        <ROW EXPSTB="04" RUL="s">
                            <ENT I="21">
                                <E T="02">Physical Therapy Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Physical Therapists</ENT>
                            <ENT>46,290</ENT>
                            <ENT>61.0</ENT>
                            <ENT>0.92</ENT>
                            <ENT>27.80</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Physical Therapist Assistants</ENT>
                            <ENT>17,610</ENT>
                            <ENT>23.2</ENT>
                            <ENT>0.35</ENT>
                            <ENT>17.11 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Physical Therapist Aides</ENT>
                            <ENT>12,020</ENT>
                            <ENT>15.8</ENT>
                            <ENT>0.24</ENT>
                            <ENT>10.40 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Total</ENT>
                            <ENT>75,920 </ENT>
                            <ENT>100.0</ENT>
                            <ENT>1.50 </ENT>
                        </ROW>
                        <ROW EXPSTB="04" RUL="s">
                            <ENT I="21">
                                <E T="02">Occupational Therapy Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Occupation Therapists</ENT>
                            <ENT>24,110</ENT>
                            <ENT>75.3</ENT>
                            <ENT>0.48</ENT>
                            <ENT>25.62</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Occupation Therapist Assistants</ENT>
                            <ENT>5,690</ENT>
                            <ENT>17.8</ENT>
                            <ENT>0.11</ENT>
                            <ENT>16.81 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Occupation Therapist Aides</ENT>
                            <ENT>2,220</ENT>
                            <ENT>6.9</ENT>
                            <ENT>0.04</ENT>
                            <ENT>11.60 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Total</ENT>
                            <ENT>32,020</ENT>
                            <ENT>100.0</ENT>
                            <ENT>0.63 </ENT>
                        </ROW>
                        <ROW EXPSTB="04" RUL="s">
                            <ENT I="21">
                                <E T="02">Respiratory Therapy Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Respiratory Therapists</ENT>
                            <ENT>68,920 </ENT>
                            <ENT>72.8</ENT>
                            <ENT>1.36 </ENT>
                            <ENT>19.26 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Respiratory Therapy Technicians</ENT>
                            <ENT>25,710</ENT>
                            <ENT>27.2</ENT>
                            <ENT>0.51</ENT>
                            <ENT>16.96 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Total</ENT>
                            <ENT>94,630</ENT>
                            <ENT>100.0</ENT>
                            <ENT>1.87 </ENT>
                        </ROW>
                        <ROW EXPSTB="04" RUL="s">
                            <ENT I="21">
                                <E T="02">Pharmacy Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Pharmacists</ENT>
                            <ENT>48,630</ENT>
                            <ENT>48.8</ENT>
                            <ENT>0.96</ENT>
                            <ENT>34.58</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Pharmacy Technicians</ENT>
                            <ENT>44,270 </ENT>
                            <ENT>44.4 </ENT>
                            <ENT>0.88</ENT>
                            <ENT>12.30 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Pharmacy Assistants/Aides</ENT>
                            <ENT>6,810</ENT>
                            <ENT>6.8</ENT>
                            <ENT>0.13</ENT>
                            <ENT>11.52 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Total</ENT>
                            <ENT>99,710</ENT>
                            <ENT>100.0</ENT>
                            <ENT>1.97 </ENT>
                        </ROW>
                        <ROW EXPSTB="04" RUL="s">
                            <ENT I="21">
                                <E T="02">Dietary Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Dieticians</ENT>
                            <ENT>16,820</ENT>
                            <ENT>56.4 </ENT>
                            <ENT>0.33 </ENT>
                            <ENT>20.02</ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Dietetic Technicians</ENT>
                            <ENT>13,020</ENT>
                            <ENT>43.6</ENT>
                            <ENT>0.26</ENT>
                            <ENT>11.64 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Total</ENT>
                            <ENT>29,840</ENT>
                            <ENT>100.0</ENT>
                            <ENT>0.59 </ENT>
                        </ROW>
                        <ROW EXPSTB="04" RUL="s">
                            <ENT I="21">
                                <E T="02">Medical &amp; Clinical Lab Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Medical &amp; Clinical Lab Technologists</ENT>
                            <ENT>87,380</ENT>
                            <ENT>57.8</ENT>
                            <ENT>1.73</ENT>
                            <ENT>20.74 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Medical &amp; Clinical Lab Technicians</ENT>
                            <ENT>63,900</ENT>
                            <ENT>42.2 </ENT>
                            <ENT>1.26</ENT>
                            <ENT>14.90 </ENT>
                        </ROW>
                        <ROW RUL="n,d">
                            <ENT I="03">Total</ENT>
                            <ENT>151,280 </ENT>
                            <ENT>100.0</ENT>
                            <ENT>2.99 </ENT>
                        </ROW>
                        <ROW RUL="n,d">
                            <PRTPAGE P="28255"/>
                            <ENT I="03">Total Nursing, Therapy, Pharmacy, Dietary, and Medical &amp; Clinical Occupations</ENT>
                            <ENT>2,385,420</ENT>
                            <ENT> </ENT>
                            <ENT>47.19 </ENT>
                        </ROW>
                        <ROW RUL="n,d">
                            <ENT I="03">All Other Occupations</ENT>
                            <ENT>2,669,400</ENT>
                            <ENT> </ENT>
                            <ENT>52.81</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Total Hospital Employees</ENT>
                            <ENT>5,054,820</ENT>
                            <ENT> </ENT>
                            <ENT>100.0 </ENT>
                        </ROW>
                        <TNOTE>
                            <E T="02">Source:</E>
                             BLS, OES, 2001 National Industry-Specific Occupational Employment and Wage Estimates, 
                            <E T="03">http://www.bls.gov/oes/2001</E>
                        </TNOTE>
                    </GPOTABLE>
                    <GPOTABLE COLS="4" OPTS="L2,i1" CDEF="s75,20,12,12">
                        <TTITLE>Chart 5.—Medicare Occupational Mix Survey Results </TTITLE>
                        <BOXHD>
                            <CHED H="1">General Service Categories </CHED>
                            <CHED H="1">Number of employee hours </CHED>
                            <CHED H="1">Percent of service category hours </CHED>
                            <CHED H="1">Percent of total employee hours </CHED>
                        </BOXHD>
                        <ROW EXPSTB="03" RUL="s">
                            <ENT I="21">
                                <E T="02">Nursing Services and Medical Assistant Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Registered Nurses </ENT>
                            <ENT>1,349,683,706.61 </ENT>
                            <ENT>70.38</ENT>
                            <ENT>26.23</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Licensed Practical Nurses </ENT>
                            <ENT>148,480,984.66 </ENT>
                            <ENT>7.74</ENT>
                            <ENT>2.89</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Nursing Aides, Orderlies, &amp; Attendants </ENT>
                            <ENT>349,482,222.23 </ENT>
                            <ENT>18.22</ENT>
                            <ENT>6.79 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Medical Assistants </ENT>
                            <ENT>70,155,219.44 </ENT>
                            <ENT>3.66</ENT>
                            <ENT>1.36 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Total </ENT>
                            <ENT>1,917,802,132.94 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>37.27 </ENT>
                        </ROW>
                        <ROW EXPSTB="03" RUL="s">
                            <ENT I="21">
                                <E T="02">Physical Therapy Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Physical Therapists </ENT>
                            <ENT>42,728,556.90 </ENT>
                            <ENT>60.87</ENT>
                            <ENT>0.83</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Physical Therapist Assistants </ENT>
                            <ENT>16,278,842.28 </ENT>
                            <ENT>23.19</ENT>
                            <ENT>0.32 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Physical Therapist Aides </ENT>
                            <ENT>11,192,122.93 </ENT>
                            <ENT>15.94</ENT>
                            <ENT>0.22 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Total </ENT>
                            <ENT>70,199,522.11 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>1.36 </ENT>
                        </ROW>
                        <ROW EXPSTB="03" RUL="s">
                            <ENT I="21">
                                <E T="02">Occupational Therapy Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Occupation Therapists </ENT>
                            <ENT>18,016,924.74 </ENT>
                            <ENT>76.46</ENT>
                            <ENT>0.35</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Occupation Therapist Assistants </ENT>
                            <ENT>3,912,014.51 </ENT>
                            <ENT>16.60</ENT>
                            <ENT>0.08 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Occupation Therapist Aides </ENT>
                            <ENT>1,635,953.90 </ENT>
                            <ENT>6.94</ENT>
                            <ENT>0.03 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Total </ENT>
                            <ENT>23,564,893.16 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>0.46 </ENT>
                        </ROW>
                        <ROW EXPSTB="03" RUL="s">
                            <ENT I="21">
                                <E T="02">Respiratory Therapy Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Respiratory Therapists </ENT>
                            <ENT>79,768,909.24 </ENT>
                            <ENT>79.96</ENT>
                            <ENT>1.55 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Respiratory Therapy Technicians </ENT>
                            <ENT>19,993,236.90 </ENT>
                            <ENT>20.04</ENT>
                            <ENT>0.39 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Total </ENT>
                            <ENT>99,762,146.14 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>1.94 </ENT>
                        </ROW>
                        <ROW EXPSTB="03" RUL="s">
                            <ENT I="21">
                                <E T="02">Pharmacy Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Pharmacists </ENT>
                            <ENT>52,574,888.83 </ENT>
                            <ENT>48.35</ENT>
                            <ENT>1.02</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Pharmacy Technicians </ENT>
                            <ENT>51,947,662.82 </ENT>
                            <ENT>47.77</ENT>
                            <ENT>1.01 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Pharmacy Assistants/Aides </ENT>
                            <ENT>4,219,798.43 </ENT>
                            <ENT>3.88</ENT>
                            <ENT>0.08 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Total </ENT>
                            <ENT>108,742,350.08 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>2.11 </ENT>
                        </ROW>
                        <ROW EXPSTB="03" RUL="s">
                            <ENT I="21">
                                <E T="02">Dietary Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Dieticians </ENT>
                            <ENT>18,221,465.33 </ENT>
                            <ENT>42.23 </ENT>
                            <ENT>0.35</ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Dietetic Technicians </ENT>
                            <ENT>24,929,864.59 </ENT>
                            <ENT>57.77</ENT>
                            <ENT>0.48 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Total </ENT>
                            <ENT>43,151,329.92 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>0.84 </ENT>
                        </ROW>
                        <ROW EXPSTB="03" RUL="s">
                            <ENT I="21">
                                <E T="02">Medical &amp; Clinical Lab Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Medical &amp; Clinical Lab Technologists </ENT>
                            <ENT>109,938,139.37 </ENT>
                            <ENT>52.07</ENT>
                            <ENT>2.14 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Medical &amp; Clinical Lab Technicians </ENT>
                            <ENT>101,208,507.21 </ENT>
                            <ENT>47.93</ENT>
                            <ENT>1.97 </ENT>
                        </ROW>
                        <ROW RUL="n,d">
                            <ENT I="03">Total </ENT>
                            <ENT>211,146,646.58 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>4.10 </ENT>
                        </ROW>
                        <ROW RUL="n,d">
                            <ENT I="05">Total Nursing, Therapy, Pharmacy, Dietary, and Medical &amp; Clinical Occupations </ENT>
                            <ENT>2,474,369,020.92 </ENT>
                            <ENT/>
                            <ENT>48.08 </ENT>
                        </ROW>
                        <ROW RUL="n,d">
                            <PRTPAGE P="28256"/>
                            <ENT I="05">All Other Occupations </ENT>
                            <ENT>2,671,751,872.61 </ENT>
                            <ENT/>
                            <ENT>51.92</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="07">Total Hospital Employees </ENT>
                            <ENT>5,146,120,893.53 </ENT>
                            <ENT/>
                            <ENT>100.00 </ENT>
                        </ROW>
                        <TNOTE>
                            <E T="02">Source:</E>
                             Medicare Wage Index Occupational Mix Survey, Form CMS-10079 
                        </TNOTE>
                    </GPOTABLE>
                    <HD SOURCE="HD3">2. Proposed Calculation of the Occupational Mix Adjustment Factor and the Proposed Occupational Mix Adjusted Wage Index </HD>
                    <P>The method used to calculate the proposed occupational mix adjusted wage index follows: </P>
                    <P>Step 1—For each hospital, the percentage of the general service category attributable to an SOC is determined by dividing the SOC hours by the general service category's total hours. Repeat this calculation for each of the 19 SOCs. </P>
                    <P>
                        Step 2—For each hospital, the weighted average hourly rate for an SOC is determined by multiplying the percentage of the general service category (from Step 1) by the national average hourly rate for that SOC from the 2001 BLS OES survey (
                        <E T="03">see</E>
                         Chart 4 above). Repeat this calculation for each of the 19 SOCs. 
                    </P>
                    <P>Step 3—For each hospital, the hospital's adjusted average hourly rate for a general service category is computed by summing the weighted hourly rate for each SOC within the general category. Repeat this calculation for each of the 7 general service categories. </P>
                    <P>Step 4—For each hospital, the occupational mix adjustment factor for a general service category is calculated by dividing the national adjusted average hourly rate for the category by the hospital's adjusted average hourly rate for the category. (The national adjusted average hourly rate is computed in the same manner as Steps 1 through 3, using instead, the total SOC and general service category hours for all hospitals in the occupational mix survey database.) Repeat this calculation for each of the 7 general service categories. If the hospital's adjusted rate is less than the national adjusted rate (indicating the hospital employs a less costly mix of employees within the category), the occupational mix adjustment factor will be greater than 1.0000. If the hospital's adjusted rate is greater than the national adjusted rate, the occupational mix adjustment factor will be less than 1.0000. </P>
                    <P>
                        Step 5—For each hospital, the occupational mix adjusted salaries and wage-related costs for a general service category is calculated by multiplying the hospital's total salaries and wage-related costs (from Step 5 of the unadjusted wage index calculation in section F) by the national percentage of total hospital workers attributable to the general service category (from the occupational mix survey data; 
                        <E T="03">see</E>
                         Chart 5 above) and by the general service category's occupational mix adjustment factor (from Step 4 above). Repeat this calculation for each of the 7 general service categories. The remaining portion of the hospital's total salaries and wage-related costs that is attributable to all other employees of the hospital is not adjusted for occupational mix. 
                    </P>
                    <P>Step 6—For each hospital, the total occupational mix adjusted salaries and wage-related costs for a hospital are calculated by summing the occupational mix adjusted salaries and wage-related costs for the 7 general service categories (from Step 5) and the unadjusted portion of the hospital's salaries and wage-related costs for all other employees. To compute a hospital's occupational mix adjusted average hourly wage, divide the hospital's total occupational mix adjusted salaries and wage-related costs by the hospital's total hours (from Step 4 of the unadjusted wage index calculation in Section F). </P>
                    <P>Step 7—To compute the occupational mix adjusted average hourly wage for an urban or rural area, sum the total occupational mix adjusted salaries and wage-related costs for all hospitals in the area, then sum the total hours for all hospitals in the area. Next, divide the area's occupational mix adjusted salaries and wage-related costs by the area's hours. </P>
                    <P>Step 8—To compute the national occupational mix adjusted average hourly wage, sum the total occupational mix adjusted salaries and wage-related costs for all hospitals in the nation, then sum the total hours for all hospitals in the nation. Next, divide the national occupational mix adjusted salaries and wage-related costs by the national hours. The proposed national occupational mix adjusted average hourly wage is 26.2566. </P>
                    <P>Step 9—To compute the occupational mix adjusted wage index, divide each area's occupational mix adjusted average hourly wage (Step 7) by the proposed national occupational mix adjusted average hourly wage (Step 8). </P>
                    <P>Step 10—To compute the proposed Puerto Rico specific occupational mix adjusted wage index, follow the Steps 1 through 9 above. The proposed Puerto Rico occupational mix adjusted average hourly wage is 12.2035.</P>
                    <GPOTABLE COLS="5" OPTS="L2,i1" CDEF="s100,14,13,13,13">
                        <TTITLE>Example of Occupational Mix Adjustment </TTITLE>
                        <BOXHD>
                            <CHED H="1">General service categories/SOCs </CHED>
                            <CHED H="1">
                                Number of 
                                <LI>employee </LI>
                                <LI>hours </LI>
                            </CHED>
                            <CHED H="1">
                                Percent of 
                                <LI>service </LI>
                                <LI>category </LI>
                                <LI>hours </LI>
                            </CHED>
                            <CHED H="1">
                                Percent of 
                                <LI>total </LI>
                                <LI>employee </LI>
                                <LI>hours </LI>
                            </CHED>
                            <CHED H="1">
                                BLS 
                                <LI>national</LI>
                                <LI>average </LI>
                                <LI>hourly </LI>
                                <LI>wage </LI>
                            </CHED>
                        </BOXHD>
                        <ROW EXPSTB="04" RUL="s">
                            <ENT I="21">
                                <E T="02">NATIONAL—Nursing and Medical Assistant Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Registered Nurses </ENT>
                            <ENT>1,349,683,707 </ENT>
                            <ENT>70.38 </ENT>
                            <ENT>26.23</ENT>
                            <ENT>$23.62.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Licensed Practical Nurses</ENT>
                            <ENT>148,480,985 </ENT>
                            <ENT>7.74</ENT>
                            <ENT>2.89</ENT>
                            <ENT>14.65.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Nursing Aides, Orderlies, &amp; Attendants</ENT>
                            <ENT>349,482,222 </ENT>
                            <ENT>18.22</ENT>
                            <ENT>6.79</ENT>
                            <ENT>10.01 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Medical Assistants </ENT>
                            <ENT>70,155,219 </ENT>
                            <ENT>3.66</ENT>
                            <ENT>1.36</ENT>
                            <ENT>11.79 .</ENT>
                        </ROW>
                        <ROW>
                            <PRTPAGE P="28257"/>
                            <ENT I="03">Total </ENT>
                            <ENT>1,917,802,133 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>37.27</ENT>
                            <ENT>20.01.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22">Hospital A:</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Registered Nurses </ENT>
                            <ENT>1,642,116 </ENT>
                            <ENT>79.84</ENT>
                            <ENT/>
                            <ENT>18.86.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Licensed Practical Nurses</ENT>
                            <ENT>67,860 </ENT>
                            <ENT>3.30</ENT>
                            <ENT/>
                            <ENT>0.48.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Nursing Aides, Orderlies, &amp; Attendants</ENT>
                            <ENT>259,177 </ENT>
                            <ENT>12.60</ENT>
                            <ENT/>
                            <ENT>1.26 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="03">Medical Assistants </ENT>
                            <ENT>87,622 </ENT>
                            <ENT>4.26</ENT>
                            <ENT/>
                            <ENT>0.50.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Total </ENT>
                            <ENT>2,056,774 </ENT>
                            <ENT>100.00</ENT>
                            <ENT/>
                            <ENT>21.11</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Occupational Mix Adjustment </ENT>
                            <ENT/>
                            <ENT/>
                            <ENT/>
                            <ENT>0.9481</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22">Hospital B:</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Registered Nurses </ENT>
                            <ENT>1,510,724 </ENT>
                            <ENT>64.44</ENT>
                            <ENT/>
                            <ENT>0.31</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Licensed Practical Nurses</ENT>
                            <ENT>159,795 </ENT>
                            <ENT>6.82</ENT>
                            <ENT/>
                            <ENT>0.09</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Nursing Aides, Orderlies, &amp; Attendants</ENT>
                            <ENT>391,201 </ENT>
                            <ENT>16.69</ENT>
                            <ENT>  </ENT>
                            <ENT>0.08 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="03">Medical Assistants </ENT>
                            <ENT>282,728 </ENT>
                            <ENT>12.06</ENT>
                            <ENT>  </ENT>
                            <ENT>2.55</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="05">Total </ENT>
                            <ENT>2,344,449 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>  </ENT>
                            <ENT>19.31 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Occupational Mix Adjustment</ENT>
                            <ENT/>
                            <ENT/>
                            <ENT/>
                            <ENT>1.0362 </ENT>
                        </ROW>
                        <ROW EXPSTB="04" RUL="s">
                            <ENT I="21">
                                <E T="02">NATIONAL—Physical Therapy Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Physical Therapists </ENT>
                            <ENT>42,728,557 </ENT>
                            <ENT>60.87</ENT>
                            <ENT>0.83</ENT>
                            <ENT>27.80</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Physical Therapist Assistants</ENT>
                            <ENT>16,278,842 </ENT>
                            <ENT>23.19</ENT>
                            <ENT>0.32</ENT>
                            <ENT>17.11 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Physical Therapist Aides</ENT>
                            <ENT>11,192,123 </ENT>
                            <ENT>15.94</ENT>
                            <ENT>0.22</ENT>
                            <ENT>10.40</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Total </ENT>
                            <ENT>70,199,522 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>1.36</ENT>
                            <ENT>22.55</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22">Hospital A:</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Physical Therapists </ENT>
                            <ENT>94,987 </ENT>
                            <ENT>61.40</ENT>
                            <ENT>  </ENT>
                            <ENT>17.07</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Physical Therapist Assistants</ENT>
                            <ENT>36,254 </ENT>
                            <ENT>23.43</ENT>
                            <ENT>  </ENT>
                            <ENT>4.01 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="03">Physical Therapist Aides</ENT>
                            <ENT>23,460 </ENT>
                            <ENT>15.16</ENT>
                            <ENT>  </ENT>
                            <ENT>1.58</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="05">Total </ENT>
                            <ENT>154,701 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>  </ENT>
                            <ENT>22.66 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Occupational Mix Adjustment </ENT>
                            <ENT/>
                            <ENT/>
                            <ENT/>
                            <ENT>0.9953</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22">Hospital B:</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Physical Therapists </ENT>
                            <ENT>60,337 </ENT>
                            <ENT>57.37</ENT>
                            <ENT/>
                            <ENT>15.95</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Physical Therapist Assistants</ENT>
                            <ENT>22,391 </ENT>
                            <ENT>21.29</ENT>
                            <ENT>  </ENT>
                            <ENT>3.64 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="03">Physical Therapist Aides</ENT>
                            <ENT>22,444 </ENT>
                            <ENT>21.34</ENT>
                            <ENT>  </ENT>
                            <ENT>2.22</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="05">Total </ENT>
                            <ENT>105,173 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>  </ENT>
                            <ENT>21.81 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Occupational Mix Adjustment </ENT>
                            <ENT/>
                            <ENT/>
                            <ENT/>
                            <ENT>1.0339 </ENT>
                        </ROW>
                        <ROW EXPSTB="04" RUL="s">
                            <ENT I="21">
                                <E T="02">NATIONAL—Occupational Therapy Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Occupation Therapists</ENT>
                            <ENT>18,016,925 </ENT>
                            <ENT>76.46</ENT>
                            <ENT>0.35</ENT>
                            <ENT>25.62</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Occupation Therapist Assistants</ENT>
                            <ENT>3,912,015 </ENT>
                            <ENT>16.60</ENT>
                            <ENT>0.08</ENT>
                            <ENT>16.81 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Occupation Therapist Aides</ENT>
                            <ENT>1,635,954 </ENT>
                            <ENT>6.94</ENT>
                            <ENT>0.03</ENT>
                            <ENT>11.60</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Total </ENT>
                            <ENT>23,564,893 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>0.46</ENT>
                            <ENT>23.18.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22">Hospital A:</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Occupation Therapists</ENT>
                            <ENT>40,366 </ENT>
                            <ENT>90.06</ENT>
                            <ENT> </ENT>
                            <ENT>23.07</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Occupation Therapist Assistants</ENT>
                            <ENT>0 </ENT>
                            <ENT>0.00</ENT>
                            <ENT>  </ENT>
                            <ENT>0.00 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="03">Occupation Therapist Aides</ENT>
                            <ENT>4,454 </ENT>
                            <ENT>9.94</ENT>
                            <ENT>  </ENT>
                            <ENT>1.15</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="05">Total </ENT>
                            <ENT>44,820 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>  </ENT>
                            <ENT>24.23 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Occupational Mix Adjustment</ENT>
                            <ENT/>
                            <ENT/>
                            <ENT/>
                            <ENT>0.9568</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22">Hospital B:</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Occupation Therapists</ENT>
                            <ENT>26,547 </ENT>
                            <ENT>79.48</ENT>
                            <ENT>  </ENT>
                            <ENT>20.36</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Occupation Therapist Assistants</ENT>
                            <ENT>1,610 </ENT>
                            <ENT>4.82</ENT>
                            <ENT>  </ENT>
                            <ENT>0.81 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="03">Occupation Therapist Aides</ENT>
                            <ENT>5,242 </ENT>
                            <ENT>15.70</ENT>
                            <ENT>  </ENT>
                            <ENT>1.82</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="05">Total </ENT>
                            <ENT>33,399 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>  </ENT>
                            <ENT>22.99 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Occupational Mix Adjustment</ENT>
                            <ENT/>
                            <ENT/>
                            <ENT/>
                            <ENT>1.0081 </ENT>
                        </ROW>
                        <ROW EXPSTB="04" RUL="s">
                            <ENT I="21">
                                <E T="02">NATIONAL—Respiratory Therapy Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Respiratory Therapists</ENT>
                            <ENT>79,768,909 </ENT>
                            <ENT>79.96</ENT>
                            <ENT>1.55</ENT>
                            <ENT>19.26 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Respiratory Therapy Technicians</ENT>
                            <ENT>19,993,237 </ENT>
                            <ENT>20.04</ENT>
                            <ENT>0.39</ENT>
                            <ENT>16.96</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Total </ENT>
                            <ENT>99,762,146 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>1.94</ENT>
                            <ENT>18.80</ENT>
                        </ROW>
                        <ROW>
                            <PRTPAGE P="28258"/>
                            <ENT I="22">Hospital A:</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Respiratory Therapists</ENT>
                            <ENT>75,339 </ENT>
                            <ENT>97.40</ENT>
                            <ENT/>
                            <ENT>18.76 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="03">Respiratory Therapy Technicians</ENT>
                            <ENT>2,008 </ENT>
                            <ENT>2.60</ENT>
                            <ENT/>
                            <ENT>0.44</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="05">Total </ENT>
                            <ENT>77,347 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>  </ENT>
                            <ENT>19.20</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Occupational Mix Adjustment </ENT>
                            <ENT/>
                            <ENT/>
                            <ENT/>
                            <ENT>0.9792</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22">Hospital B:</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Respiratory Therapists</ENT>
                            <ENT>73,592 </ENT>
                            <ENT>65.62</ENT>
                            <ENT>  </ENT>
                            <ENT>12.64 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="03">Respiratory Therapy Technicians</ENT>
                            <ENT>38,549 </ENT>
                            <ENT>34.38</ENT>
                            <ENT>  </ENT>
                            <ENT>5.83</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="05">Total </ENT>
                            <ENT>112,141 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>  </ENT>
                            <ENT>18.47 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Occupational Mix Adjustment </ENT>
                            <ENT/>
                            <ENT/>
                            <ENT/>
                            <ENT>1.0179 </ENT>
                        </ROW>
                        <ROW EXPSTB="04" RUL="s">
                            <ENT I="21">
                                <E T="02">NATIONAL—Pharmacy Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Pharmacists </ENT>
                            <ENT>52,574,889 </ENT>
                            <ENT>48.35</ENT>
                            <ENT>1.02</ENT>
                            <ENT>34.58</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Pharmacy Technicians </ENT>
                            <ENT>51,947,663 </ENT>
                            <ENT>47.77</ENT>
                            <ENT>1.01</ENT>
                            <ENT>12.30 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Pharmacy Assistants/Aides</ENT>
                            <ENT>4,219,798 </ENT>
                            <ENT>3.88</ENT>
                            <ENT>0.08</ENT>
                            <ENT>11.52</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Total </ENT>
                            <ENT>108,742,350 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>2.11</ENT>
                            <ENT>23.04</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22">Hospital A:</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Pharmacists </ENT>
                            <ENT>65,863 </ENT>
                            <ENT>48.65</ENT>
                            <ENT>  </ENT>
                            <ENT>16.82</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Pharmacy Technicians </ENT>
                            <ENT>69,525 </ENT>
                            <ENT>51.35</ENT>
                            <ENT>  </ENT>
                            <ENT>6.32 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="03">Pharmacy Assistants/Aides</ENT>
                            <ENT>0 </ENT>
                            <ENT>0.00</ENT>
                            <ENT>  </ENT>
                            <ENT>0.00 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="05">Total </ENT>
                            <ENT>135,388 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>  </ENT>
                            <ENT>23.14</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Occupational Mix Adjustment </ENT>
                            <ENT/>
                            <ENT/>
                            <ENT/>
                            <ENT>0.9957</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22">Hospital B:</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Pharmacists </ENT>
                            <ENT>45,856 </ENT>
                            <ENT>39.23</ENT>
                            <ENT>  </ENT>
                            <ENT>13.57</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Pharmacy Technicians </ENT>
                            <ENT>64,986 </ENT>
                            <ENT>55.60</ENT>
                            <ENT>  </ENT>
                            <ENT>6.84 </ENT>
                        </ROW>
                        <ROW RUL="s,s">
                            <ENT I="03">Pharmacy Assistants/Aides</ENT>
                            <ENT>6,039 </ENT>
                            <ENT>5.17</ENT>
                            <ENT>  </ENT>
                            <ENT>0.60 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="05">Total </ENT>
                            <ENT>116,881 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>  </ENT>
                            <ENT>21.00 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Occupational Mix Adjustment </ENT>
                            <ENT/>
                            <ENT/>
                            <ENT/>
                            <ENT>1.0971 </ENT>
                        </ROW>
                        <ROW EXPSTB="04" RUL="s">
                            <ENT I="21">
                                <E T="02">NATIONAL—Dietary Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Dieticians </ENT>
                            <ENT>18,221,465 </ENT>
                            <ENT>42.23</ENT>
                            <ENT>0.35</ENT>
                            <ENT>20.02</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Dietetic Technicians </ENT>
                            <ENT>24,929,865 </ENT>
                            <ENT>57.77</ENT>
                            <ENT>0.48</ENT>
                            <ENT>11.64 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Total </ENT>
                            <ENT>43,151,330 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>0.84</ENT>
                            <ENT>15.18 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22">Hospital A: </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Dieticians </ENT>
                            <ENT>13,943 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>  </ENT>
                            <ENT>20.02 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="03">Dietetic Technicians </ENT>
                            <ENT>0 </ENT>
                            <ENT>0.00</ENT>
                            <ENT>  </ENT>
                            <ENT>0.00 </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="05">Total </ENT>
                            <ENT>13,943 </ENT>
                            <ENT>100.00</ENT>
                            <ENT/>
                            <ENT>20.02</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Occupational Mix Adjustment </ENT>
                            <ENT/>
                            <ENT/>
                            <ENT/>
                            <ENT>0.7582</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22">Hospital B:</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Dieticians </ENT>
                            <ENT>27,458 </ENT>
                            <ENT>16.29</ENT>
                            <ENT/>
                            <ENT>3.26 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="03">Dietetic Technicians </ENT>
                            <ENT>141,148 </ENT>
                            <ENT>83.71</ENT>
                            <ENT/>
                            <ENT>9.74</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="05">Total </ENT>
                            <ENT>168,606 </ENT>
                            <ENT>100.00</ENT>
                            <ENT/>
                            <ENT>13.00 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Occupational Mix Adjustment</ENT>
                            <ENT/>
                            <ENT/>
                            <ENT/>
                            <ENT>1.1676 </ENT>
                        </ROW>
                        <ROW EXPSTB="04" RUL="s">
                            <ENT I="21">
                                <E T="02">NATIONAL—Medical &amp; Clinical Lab Services</E>
                            </ENT>
                        </ROW>
                        <ROW EXPSTB="00">
                            <ENT I="01">Medical &amp; Clinical Lab Technologists</ENT>
                            <ENT>109,938,139 </ENT>
                            <ENT>52.07</ENT>
                            <ENT>2.14</ENT>
                            <ENT>20.74 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="01">Medical &amp; Clinical Lab Technicians</ENT>
                            <ENT>101,208,507 </ENT>
                            <ENT>47.93</ENT>
                            <ENT>1.97</ENT>
                            <ENT>14.90.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Total </ENT>
                            <ENT>211,146,647 </ENT>
                            <ENT>100.00</ENT>
                            <ENT>4.10</ENT>
                            <ENT>17.94</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22">Hospital A:</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Medical &amp; Clinical Lab Technologists</ENT>
                            <ENT>166,522 </ENT>
                            <ENT>90.82</ENT>
                            <ENT/>
                            <ENT>18.84 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="03">Medical &amp; Clinical Lab Technicians</ENT>
                            <ENT>16,841 </ENT>
                            <ENT>9.18</ENT>
                            <ENT/>
                            <ENT>1.37</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="05">Total </ENT>
                            <ENT>183,363 </ENT>
                            <ENT>100.00</ENT>
                            <ENT/>
                            <ENT>20.20</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Occupational Mix Adjustment</ENT>
                            <ENT/>
                            <ENT/>
                            <ENT/>
                            <ENT>0.8880</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22">Hospital B:</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="03">Medical &amp; Clinical Lab Technologists</ENT>
                            <ENT>295,516 </ENT>
                            <ENT>47.34</ENT>
                            <ENT/>
                            <ENT>9.82 </ENT>
                        </ROW>
                        <ROW RUL="n,s">
                            <ENT I="03">Medical &amp; Clinical Lab Technicians</ENT>
                            <ENT>328,716 </ENT>
                            <ENT>52.66</ENT>
                            <ENT/>
                            <ENT>7.85</ENT>
                        </ROW>
                        <ROW>
                            <PRTPAGE P="28259"/>
                            <ENT I="05">Total </ENT>
                            <ENT>624,232 </ENT>
                            <ENT>100.00</ENT>
                            <ENT/>
                            <ENT>17.66 </ENT>
                        </ROW>
                        <ROW RUL="s">
                            <ENT I="03">Occupational Mix Adjustment</ENT>
                            <ENT/>
                            <ENT/>
                            <ENT/>
                            <ENT>1.0156</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Total Nursing, Therapy, Pharmacy, Dietary, and Medical &amp; Clinical Occupations</ENT>
                            <ENT>2,474,369,021</ENT>
                            <ENT/>
                            <ENT>48.08</ENT>
                            <ENT/>
                        </ROW>
                        <ROW>
                            <ENT I="01">All Other Occupations</ENT>
                            <ENT>2,671,751,873</ENT>
                            <ENT/>
                            <ENT>51.92</ENT>
                            <ENT/>
                        </ROW>
                        <ROW>
                            <ENT I="01">Total Hospital Employees</ENT>
                            <ENT>5,146,120,894 </ENT>
                            <ENT/>
                            <ENT>100.00</ENT>
                            <ENT/>
                        </ROW>
                    </GPOTABLE>
                    <P>In implementing an occupational mix adjusted wage index based on the above calculation, the wage index values for 18 rural areas (36.7 percent) and 166 urban areas (51.2 percent) would decrease as a result of the adjustment. Nine (9) rural areas (18.4 percent) and 89 urban areas (27.5 percent) would experience a decrease of 1 percent or greater in their wage index values. The largest negative impact for a rural area would be 2.2 percent and for an urban area, 4.5 percent. Meanwhile, 31 rural areas (63.3 percent) and 158 urban areas (48.8 percent) would experience an increase in their wage index values. Although these results show that rural hospitals would gain the most from an occupational mix adjustment to the wage index, their gains may not be as great as might have been expected. Further, it might not have been anticipated that over one-third of rural hospitals would actually fare worse under the adjustment. Overall, a fully implemented occupational mix adjusted wage index would have a redistributive effect on Medicare payments to hospitals.</P>
                    <HD SOURCE="HD2">D. Worksheet S-3 Wage Data for the Proposed FY 2005 Wage Index Update</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Wage Data” at the beginning of your comment.]</FP>
                    <P>The proposed FY 2005 wage index values (effective for hospital discharges occurring on or after October 1, 2004 and before October 1, 2005) in section VI. of the Addendum to this proposed rule are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2001 (the FY 2004 wage index was based on FY 2000 wage data).</P>
                    <P>The proposed FY 2005 wage index includes the following categories of data associated with costs paid under the IPPS (as well as outpatient costs):</P>
                    <P>• Salaries and hours from short-term, acute care hospitals (including paid lunch hours and hours associated with military leave and jury duty).</P>
                    <P>• Home office costs and hours.</P>
                    <P>• Certain contract labor costs and hours (which includes direct patient care, certain top management, pharmacy, laboratory, and nonteaching physician Part A services).</P>
                    <P>
                        • Wage-related costs (The September 1, 1994 
                        <E T="04">Federal Register</E>
                         included a list of core wage-related costs that are included in the wage index, and discussed criteria for including other wage-related costs (59 FR 45356)).
                    </P>
                    <P>Consistent with the wage index methodology for FY 2004, the proposed wage index for FY 2005 also excludes the direct and overhead salaries and hours for services not subject to IPPS payment, such as SNF services, home health services, costs related to GME (teaching physicians and residents) and certified registered nurse anesthetists (CRNAs), and other subprovider components that are not paid under the IPPS. The proposed FY 2005 wage index also excludes the salaries, hours, and wage-related costs of hospital-based rural health clinics (RHCs), and Federally qualified health centers (FQHCs) because Medicare pays for these costs outside of the IPPS (68 FR 45395). In addition, salaries, hours and wage-related costs of CAHs are excluded from the wage index, for the reasons explained in the FY 2004 IPPS final rule (68 FR 45397).</P>
                    <P>Data collected for the IPPS wage index are also currently used to calculate wage indexes applicable to other providers, such as SNFs, home health agencies, and hospices. In addition, they are used for prospective payments to rehabilitation, psychiatric, and long-term care hospitals, and for hospital outpatient services.</P>
                    <HD SOURCE="HD2">E. Verification of Worksheet S-3 Wage Data</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Wage Data” at the beginning of your comment.]</FP>
                    <P>The wage data for the proposed FY 2005 wage index were obtained from Worksheet S-3, Parts II and III of the FY 2001 Medicare cost reports. Instructions for completing the Worksheet S-3, Parts II and III are in the Provider Reimbursement Manual, Part I, sections 3605.2 and 3605.3. The data file used to construct the proposed wage index includes FY 2001 data submitted to us as of March 15, 2004. As in past years, we performed an intensive review of the wage data, mostly through the use of edits designed to identify aberrant data.</P>
                    <P>We asked our fiscal intermediaries to revise or verify data elements that resulted in specific edit failures. Some unresolved data elements are included in the calculation of the proposed FY 2005 wage index, pending their resolution before calculation of the final FY 2005 index. We instructed the fiscal intermediaries to complete their data verification of questionable data elements and to transmit any changes to the wage data no later than April 16, 2004. We believe all unresolved data elements will be resolved by the date the final rule is issued. The revised data will be reflected in the final rule.</P>
                    <P>
                        In addition, as part of our editing process, we removed data for 222 hospitals from our database: 147 hospitals became critical access hospitals by the time we published the February public use file, and 75 hospitals were low Medicare utilization hospitals or failed edits that could not be corrected because the hospitals terminated the program or changed ownership. In addition, we removed the wage data for 15 hospitals with incomplete or inaccurate data resulting in zero or negative, or otherwise aberrant, average hourly wages. We have notified the fiscal intermediaries of these hospitals and will continue to work with the fiscal intermediaries to correct these data until we finalize our database to compute the final wage index. As a result, the proposed FY 2005 wage index is calculated based on FY 2001 wage data for 3,954 hospitals.
                        <PRTPAGE P="28260"/>
                    </P>
                    <P>In constructing the proposed FY 2005 wage index, we include the wage data for facilities that were IPPS hospitals in FY 2001, even for those facilities that have terminated their participation in the program as hospitals, as long as those data do not fail any of our edits for reasonableness. We believe that including the wage data for these hospitals is, in general, appropriate to reflect the economic conditions in the various labor market areas during the relevant past period. However, we exclude the wage data for CAHs (as discussed in 68 FR 45397). The proposed wage index in this proposed rule excludes hospitals that are designated as CAHs by February 24, 2004, the date of the latest available Medicare CAH listing at the time we released the proposed wage index public use file on February 27, 2004.</P>
                    <HD SOURCE="HD2">F. Computation of the Unadjusted Wage Index</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Wage Index” at the beginning of your comment.]</FP>
                    <P>The method used to compute the proposed FY 2005 wage index without an occupational mix adjustment follows:</P>
                    <P>Step 1—As noted above, we based the proposed FY 2005 wage index on wage data reported on the FY 2001 Medicare cost reports. We gathered data from each of the non-Federal, short-term, acute care hospitals for which data were reported on the Worksheet S-3, Parts II and III of the Medicare cost report for the hospital's cost reporting period beginning on or after October 1, 2000 and before October 1, 2001. In addition, we included data from some hospitals that had cost reporting periods beginning before October 2000 and reported a cost reporting period covering all of FY 2001. These data were included because no other data from these hospitals would be available for the cost reporting period described above, and because particular labor market areas might be affected due to the omission of these hospitals. However, we generally describe these wage data as FY 2001 data. We note that, if a hospital had more than one cost reporting period beginning during FY 2001 (for example, a hospital had two short cost reporting periods beginning on or after October 1, 2000 and before October 1, 2001), we included wage data from only one of the cost reporting periods, the longer, in the wage index calculation. If there was more than one cost reporting period and the periods were equal in length, we included the wage data from the later period in the wage index calculation.</P>
                    <P>Step 2—Salaries—The method used to compute a hospital's average hourly wage excludes certain costs that are not paid under the IPPS. In calculating a hospital's average salaries plus wage-related costs, we subtracted from Line 1 (total salaries) the GME and CRNA costs reported on lines 2, 4.01, 6, and 6.01, the Part B salaries reported on Lines 3, 5 and 5.01, home office salaries reported on Line 7, and excluded salaries reported on Lines 8 and 8.01 (that is, direct salaries attributable to SNF services, home health services, and other subprovider components not subject to the IPPS). We also subtracted from Line 1 the salaries for which no hours were reported. To determine total salaries plus wage-related costs, we added to the net hospital salaries the costs of contract labor for direct patient care, certain top management, pharmacy, laboratory, and nonteaching physician Part A services (Lines 9 and 10), home office salaries and wage-related costs reported by the hospital on Lines 11 and 12, and nonexcluded area wage-related costs (Lines 13, 14, and 18).</P>
                    <P>We note that contract labor and home office salaries for which no corresponding hours are reported were not included. In addition, wage-related costs for nonteaching physician Part A employees (Line 18) are excluded if no corresponding salaries are reported for those employees on Line 4.</P>
                    <P>Step 3—Hours—With the exception of wage-related costs, for which there are no associated hours, we computed total hours using the same methods as described for salaries in Step 2.</P>
                    <P>Step 4—For each hospital reporting both total overhead salaries and total overhead hours greater than zero, we then allocated overhead costs to areas of the hospital excluded from the wage index calculation. First, we determined the ratio of excluded area hours (sum of Lines 8 and 8.01 of Worksheet S-3, Part II) to revised total hours (Line 1 minus the sum of Part II, Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, and Part III, Line 13 of Worksheet S-3). We then computed the amounts of overhead salaries and hours to be allocated to excluded areas by multiplying the above ratio by the total overhead salaries and hours reported on Line 13 of Worksheet S-3, Part III. Next, we computed the amounts of overhead wage-related costs to be allocated to excluded areas using three steps: (1) We determined the ratio of overhead hours (Part III, Line 13) to revised hours (Line 1 minus the sum of Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, and 7); (2) we computed overhead wage-related costs by multiplying the overhead hours ratio by wage-related costs reported on Part II, Lines 13, 14, and 18; and (3) we multiplied the computed overhead wage-related costs by the above excluded area hours ratio. Finally, we subtracted the computed overhead salaries, wage-related costs, and hours associated with excluded areas from the total salaries (plus wage-related costs) and hours derived in Steps 2 and 3.</P>
                    <P>
                        Step 5—For each hospital, we adjusted the total salaries plus wage-related costs to a common period to determine total adjusted salaries plus wage-related costs. To make the wage adjustment, we estimated the percentage change in the employment cost index (ECI) for compensation for each 30-day increment from October 14, 2000 through April 15, 2002 for private industry hospital workers from the Bureau of Labor Statistics' 
                        <E T="03">Compensation and Working Conditions.</E>
                         We use the ECI because it reflects the price increase associated with total compensation (salaries plus fringes) rather than just the increase in salaries. In addition, the ECI includes managers as well as other hospital workers. This methodology to compute the monthly update factors uses actual quarterly ECI data and assures that the update factors match the actual quarterly and annual percent changes. The factors used to adjust the hospital's data were based on the midpoint of the cost reporting period, as indicated below.
                    </P>
                    <GPOTABLE COLS="3" OPTS="L2,i1" CDEF="11,11,11">
                        <TTITLE>Midpoint of Cost Reporting Period </TTITLE>
                        <BOXHD>
                            <CHED H="1">After </CHED>
                            <CHED H="1">Before </CHED>
                            <CHED H="1">
                                Adjustment 
                                <LI>factor.</LI>
                            </CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">10/14/2000</ENT>
                            <ENT>11/15/2000</ENT>
                            <ENT>1.07771</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">11/14/2000</ENT>
                            <ENT>12/15/2000</ENT>
                            <ENT>1.07273</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">12/14/2000</ENT>
                            <ENT>1/15/2001 </ENT>
                            <ENT>1.06767</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">01/14/2001</ENT>
                            <ENT>02/15/2001</ENT>
                            <ENT>1.06245</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">02/14/2001</ENT>
                            <ENT>03/15/2001</ENT>
                            <ENT>1.05706</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">03/14/2001</ENT>
                            <ENT>04/15/2001</ENT>
                            <ENT>1.05168</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">04/14/2001</ENT>
                            <ENT>05/15/2001</ENT>
                            <ENT>1.04645</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">05/14/2001</ENT>
                            <ENT>06/15/2001</ENT>
                            <ENT>1.04139</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">06/14/2001</ENT>
                            <ENT>07/15/2001</ENT>
                            <ENT>1.03638</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">07/14/2001</ENT>
                            <ENT>08/15/2001</ENT>
                            <ENT>1.03134</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">08/14/2001</ENT>
                            <ENT>09/15/2001</ENT>
                            <ENT>1.02627</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">09/14/2001</ENT>
                            <ENT>10/15/2001</ENT>
                            <ENT>1.02133</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">10/14/2001</ENT>
                            <ENT>11/15/2001</ENT>
                            <ENT>1.01665</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">11/14/2001</ENT>
                            <ENT>12/15/2001</ENT>
                            <ENT>1.01224</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">12/14/2001</ENT>
                            <ENT>01/15/2002</ENT>
                            <ENT>1.00803</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">01/14/2002</ENT>
                            <ENT>02/15/2002</ENT>
                            <ENT>1.00395</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">02/14/2002</ENT>
                            <ENT>03/15/2002</ENT>
                            <ENT>1.00000</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">03/14/2002</ENT>
                            <ENT>04/15/2002</ENT>
                            <ENT>0.99610</ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>
                        For example, the midpoint of a cost reporting period beginning January 1, 2001 and ending December 31, 2001 is June 30, 2001. An adjustment factor of 1.03638 would be applied to the wages of a hospital with such a cost reporting period. In addition, for the data for any 
                        <PRTPAGE P="28261"/>
                        cost reporting period that began in FY 2001 and covered a period of less than 360 days or more than 370 days, we annualized the data to reflect a 1-year cost report. Dividing the data by the number of days in the cost report and then multiplying the results by 365 accomplish annualization.
                    </P>
                    <P>Step 6—Each hospital was assigned to its appropriate urban or rural labor market area before any reclassifications under section 1886(d)(8)(B) or section 1886(d)(10) of the Act. Within each urban or rural labor market area, we added the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in that area to determine the total adjusted salaries plus wage-related costs for the labor market area.</P>
                    <P>Step 7—We divided the total adjusted salaries plus wage-related costs obtained under both methods in Step 6 by the sum of the corresponding total hours (from Step 4) for all hospitals in each labor market area to determine an average hourly wage for the area.</P>
                    <P>Step 8—We added the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in the nation and then divided the sum by the national sum of total hours from Step 4 to arrive at a national average hourly wage. Using the data as described above, the proposed national average hourly wage is $26.2939.</P>
                    <P>Step 9—For each urban or rural labor market area, we calculated the hospital wage index value by dividing the area average hourly wage obtained in Step 7 by the national average hourly wage computed in Step 8.</P>
                    <P>Step 10—Following the process set forth above, we developed a separate Puerto Rico-specific wage index for purposes of adjusting the Puerto Rico standardized amounts. (The national Puerto Rico standardized amount is adjusted by a wage index calculated for all Puerto Rico labor market areas based on the national average hourly wage as described above.) We added the total adjusted salaries plus wage-related costs (as calculated in Step 5) for all hospitals in Puerto Rico and divided the sum by the total hours for Puerto Rico (as calculated in Step 4) to arrive at an overall proposed average hourly wage of 12.2038 for Puerto Rico. For each labor market area in Puerto Rico, we calculated the Puerto Rico-specific wage index value by dividing the area average hourly wage (as calculated in Step 7) by the overall Puerto Rico average hourly wage.</P>
                    <P>Step 11—Section 4410 of Public Law 105-33 provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. Furthermore, this wage index floor is to be implemented in such a manner as to ensure that aggregate IPPS payments are not greater or less than those that would have been made in the year if this section did not apply. For FY 2005, this change affects 195 hospitals in 51 MSAs. The MSAs affected by this provision are identified by a footnote in Table 4A in the Addendum of this proposed rule.</P>
                    <HD SOURCE="HD2">G. Computation of the Proposed FY 2005 Blended Wage Index</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Wage Index” at the beginning of your comment.]</FP>
                    <P>For the FY 2005 wage index, we are proposing a blend of the occupational mix adjusted wage index and the unadjusted wage index, in order to minimize the redistributive impact of the occupational mix adjustment (as discussed in section III.C.2. of this preamble) for the first year of its implementation. Specifically, we are proposing to base the FY 2005 wage index on a blend of 10 percent of an average hourly wage, adjusted for occupational mix, and 90 percent of an average hourly wage, unadjusted for occupational mix. Using this blend, the national average hourly wage is 26.2902 and the Puerto Rico specific average hourly wage is 12.2038. We chose this blend for FY 2005 in recognition that this was the first time, for the administration of the occupational mix survey, hospitals had a short timeframe for collecting their occupational mix survey data and documentation, and we could not collect optimum data (that is, wages and hours data from a 1-year period for all hospitals) within the mandatory timeframe for implementing the adjustment, and we had no baseline data to use in developing a desk review program that could ensure the accuracy of the occupational mix survey data.</P>
                    <P>In addition, we are moving cautiously with implementing the occupational mix adjustment in recognition of changing trends in the hiring of nurses, the largest group in our survey. Since the enactment of section 304(c) of Public Law 106-554, the law requiring the occupational mix adjustment to the wage index, some States have implemented laws that establish floors on the minimum level of registered nurse staffing that hospitals must maintain in order to continue to be licensed and certified by the State. In addition, some rural areas that are facing a shortage of physicians may be hiring more registered nurses as extenders or substitutes for physicians. Such trends may explain why the occupational mix impacts in section III.C.2. of this preamble are not as expected for rural areas in particular.</P>
                    <P>Further, we are proposing this blend because, although we want to minimize the immediate impact of the occupational mix adjustment on hospitals' wage index values, we do not want to nullify the value and intent of the occupational mix adjustment. We believe that the blended wage index we are proposing satisfies both of these goals. With only 10 percent of the wage index adjusted for occupational mix, the wage index values for 17 rural areas (34.7 percent) and 159 urban areas (49.1 percent) would decrease as a result of the adjustment. However, the decreases would be minimum; the largest negative impact for a rural area would be only 0.22 percent and for an urban area, 0.45 percent. Conversely, 32 rural areas (65.3 percent) and 165 urban areas (50.9 percent) would benefit from this adjustment, but each area's gain would be less than 1 percent. Overall, a wage index that has only 10 percent of the salaries adjusted for occupational mix would have a minimal redistributive effect on Medicare payments to hospitals. (See Appendix A to this proposed rule for further analyses of the impact of the proposed occupational mix adjustment on the FY 2005 wage index.)</P>
                    <P>The wage index values in Tables 4A, 4B, 4C, 4F, 4G, and 4H and the average hourly wages in Tables 2, 3A, and 3B in the Addendum to this proposed rule include the occupational mix adjustment as proposed. We note that, although we are proposing a blended wage index for FY 2005, at this time we are not proposing an incremental phase-in of the occupational mix adjustment beyond FY 2005. The application of the occupational mix adjustment beyond FY 2005 will be determined and discussed in subsequent IPPS updates.</P>
                    <HD SOURCE="HD2">H. Proposed Revisions to the Wage Index Based on Hospital Redesignation</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Hospital Redesignations” at the beginning of your comment.]</FP>
                    <HD SOURCE="HD3">1. General</HD>
                    <P>
                        Under section 1886(d)(10) of the Act, the Medicare Geographic Classification Review Board (MGCRB) considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. Hospitals must apply to the MGCRB to reclassify by September 1 of the year preceding the year during which reclassification is sought. 
                        <PRTPAGE P="28262"/>
                        Generally, hospitals must be proximate to the labor market area to which they are seeking reclassification and must demonstrate characteristics similar to hospitals located in that area. The MGCRB issues its decisions by the end of February for reclassification to become effective for the following fiscal year (beginning October 1). The regulations applicable to reclassifications by the MGCRB are located in §§ 412.230 through 412.280.
                    </P>
                    <P>Section 1886(d)(10)(D)(v) of the Act provides that, beginning with FY 2001, a MGCRB decision on a hospital reclassification for purposes of the wage index is effective for 3 fiscal years, unless the hospital elects to terminate the reclassification. Section 1886(d)(10)(D)(vi) of the Act provides that the MGCRB must use the 3 most recent years' average hourly wage data in evaluating a hospital's reclassification application for FY 2003 and any succeeding fiscal year.</P>
                    <P>Section 304(b) of Public Law 106-554 provides that the Secretary must establish a mechanism under which a statewide entity may apply to have all of the geographic areas in the State treated as a single geographic area for purposes of computing and applying a single wage index, for reclassifications beginning in FY 2003. The implementing regulations for this provision are located at § 412.235.</P>
                    <P>
                        Section 1886(d)(8)(B) of the Act requires the Secretary to treat a hospital located in a rural county adjacent to one or more urban areas as being located in the MSA to which the greatest number of workers in the county commute if: The rural county would otherwise be considered part of an urban area under the standards for designating MSAs if the commuting rates used in determining outlying counties were determined on the basis of the aggregate number of resident workers who commute to (and, if applicable under the standards, from) the central county or counties of 
                        <E T="03">all</E>
                         contiguous MSAs. In light of the new CBSA definitions and the Census 2000 data, we undertook to identify those counties meeting these criteria. The eligible counties are identified below, as well as a discussion of counties that no longer meet the criteria under this provision.
                    </P>
                    <HD SOURCE="HD3">2. Effects of Reclassification</HD>
                    <P>
                        Section 1886(d)(8)(C) of the Act provides that the application of the wage index to redesignated hospitals is dependent on the hypothetical impact that the wage data from these hospitals would have on the wage index value for the area to which they have been redesignated. These requirements for determining the wage index values for redesignated hospitals is applicable both to the hospitals located in rural counties deemed urban under section 1886(d)(8)(B) of the Act and hospitals that were reclassified as a result of the MGCRB decisions under section 1886(d)(10) of the Act. Therefore, as provided in section 1886(d)(8)(C) of the Act,
                        <SU>4</SU>
                        <FTREF/>
                         the wage index values were determined by considering the following:
                    </P>
                    <FTNT>
                        <P>
                            <SU>4</SU>
                             Although section 1886(d)(8)(C)(iv)(I) of the Act also provides that the wage index for an urban area may not decrease as a result of redesignated hospitals if the urban area wage index is below the wage index for rural areas in the State in which the urban area is located, this was effectively made moot by section 4410 of Public Law 105-33, which provides that the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State.
                        </P>
                        <P>Also, section 186(d)(8)(C)(iv)(II) of the Act provides that an urban area's wage index may not decrease as a result of redesignated hospitals if the urban area is located in a State that is composed of a single urban area.</P>
                    </FTNT>
                    <P>• If including the wage data for the redesignated hospitals would reduce the wage index value for the area to which the hospitals are redesignated by 1 percentage point or less, the area wage index value determined exclusive of the wage data for the redesignated hospitals applies to the redesignated hospitals.</P>
                    <P>• If including the wage data for the redesignated hospitals reduces the wage index value for the area to which the hospitals are redesignated by more than 1 percentage point, the area wage index determined inclusive of the wage data for the redesignated hospitals (the combined wage index value) applies to the redesignated hospitals.</P>
                    <P>• If including the wage data for the redesignated hospitals increases the wage index value for the urban area to which the hospitals are redesignated, both the area and the redesignated hospitals receive the combined wage index value. Otherwise, the hospitals located in the urban area receive a wage index excluding the wage data of hospitals redesignated into the area.</P>
                    <P>• The wage data for a reclassified urban hospital is included in both the wage index calculation of the area to which the hospital is reclassified (subject to the rules described above) and the wage index calculation of the urban area where the hospital is physically located.</P>
                    <P>• Rural areas whose wage index values would be reduced by excluding the wage data for hospitals that have been redesignated to another area continue to have their wage index values calculated as if no redesignation had occurred (otherwise, redesignated rural hospitals are excluded from the calculation of the rural wage index).</P>
                    <P>• The wage index value for a redesignated rural hospital cannot be reduced below the wage index value for the rural areas of the State in which the hospital is located.</P>
                    <HD SOURCE="HD3">3. FY 2005 Issues</HD>
                    <P>Recent policies and decisions that will affect hospitals' geographic classifications for FY 2005 are discussed below. First, we describe decisions by the MGCRB on applications received in accordance with the ongoing reclassification process described in the regulations at §§ 412.230 through 412.280. Second, we describe the implications for reclassification decisions by the MGCRB to be effective during FY 2005 of our proposal to adopt new MSA definitions for the FY 2005 wage index. Third, we discuss the new counties identified under the standards at section 1886(d)(8)(B) of the Act, based on the new CBSAs and the Census 2000 data. Fourth, we discuss the interactions of these changes with reclassifications approved under the one-time appeal process for hospital wage index reclassifications at section 508 of Public Law 108-173. Fifth, we discuss our proposed implementation of section 505 of Public Law 108-173. Under this provision, the Secretary must establish a new process, similar to the current wage index reclassification process, to make adjustments to the hospital wage index, based on commuting patterns of hospital employees.</P>
                    <HD SOURCE="HD3">a. FY 2005 MGCRB Reclassifications</HD>
                    <P>In the August 1, 2003 IPPS final rule, we indicated that hospitals submitting applications for reclassification by the MGCRB for FY 2005 should base those applications on the current (for Medicare payment purposes) MSAs (68 FR 45401). At the time this proposed rule was constructed, the MGCRB had completed its review of FY 2005 reclassification requests. There were 339 hospitals approved for wage index reclassifications by the MGCRB for FY 2005. Because MGCRB wage index reclassifications are effective for 3 years, hospitals reclassified during FY 2003 or FY 2004 are eligible to continue to be reclassified based on prior reclassifications to current MSAs during FY 2005. There were 55 hospitals reclassified for wage index in FY 2003 and 102 hospitals reclassified for wage index in FY 2004.</P>
                    <P>
                        In the past, hospitals have been able to apply to be reclassified for purposes of either the wage index or the standardized amount. Existing regulations at § 412.230(a)(5)(ii) state 
                        <PRTPAGE P="28263"/>
                        that, after 2002, a hospital may not be reclassified for purposes of the standardized amount if the area to which the hospital seeks reclassification does not have a higher standardized amount than the standardized amount the hospital currently receives. Standardized amount reclassifications are only effective for 1 year, so hospitals must reapply every year. At the time the FY 2005 reclassification applications were due, hospitals applied on the basis that the law still provided for a higher standardized amount for hospitals in large urban areas. However, section 401 of Public Law 108-173 established that all hospitals would be paid on the basis of the large urban standardized amount beginning with FY 2004. Consequently, all hospitals will be paid on the basis of the same standardized amount, which effectively makes standardized amount reclassifications moot, at least for purposes of the standardized amount. As a result, the MGCRB denied all applications for standardized amount reclassifications for FY 2005. In light of the fact that all hospitals are now paid on the basis of the same standardized amount, we are proposing to eliminate standardized amount reclassifications (a discussion appears under section IV.C. of this preamble). Although there could still be some benefit in terms of payments for some hospitals under the DSH adjustment for operating IPPS, section 402 of Public Law 108-173 equalized DSH payments for rural and urban hospitals, with the exception that the rural DSH adjustment is capped at 12 percent (except that rural referral centers have no cap) (a detailed discussion appears in section IV.H. of this preamble).
                    </P>
                    <HD SOURCE="HD3">b. Implementation of New MSAs</HD>
                    <P>As discussed above, we are proposing to implement the new CBSAs for FY 2005. Under these new CBSAs definitions, many existing MSAs are reconfigured. Therefore, because hospitals applied for reclassification during FY 2005 on the basis of the MSAs currently used to define labor market areas for FY 2004, the definition of the MSA to which they have been reclassified, or the area where they are located, may have changed under our proposed implementation. Hospitals that have been reclassified for FY 2005 should verify that the reclassified wage index for the labor market area into which they have been reclassified (in Table 4C or 4D in the Addendum to this proposed rule) exceeds the wage index of the labor market area where they are located (in Table 4A or 4B in the Addendum of this proposed rule) after our proposed implementation of the new MSAs. Hospitals may withdraw their FY 2005 reclassifications within 45 days of the publication of this proposed rule.</P>
                    <P>In some cases, the new CBSA definitions result in previously existing MSAs being divided into two or more separate MSAs. In these situations, we are proposing to assign the hospital to the nearest county in the current MSA, and the hospital's FY 2005 reclassification would be to the new MSA (under the CBSA definitions) that includes that county to which it has been assigned.</P>
                    <P>For example, the Ann Arbor, MI MSA currently includes the counties of Lenawee, MI; Livingston, MI; and Washtenaw, MI. Under the new CBSA definitions, the Ann Arbor, MI MSA is comprised solely of the county of Washtenaw, MI. Lenawee, MI now comprises the Adrian, MI Micropolitan Area, and Livingston, MI is now in the Warren-Farmington Hills-Troy, MI Metropolitan Division of Detroit. Therefore, a hospital that was reclassified by the MGCRB into Ann Arbor for either FY 2003, FY 2004, or FY 2005, would be assigned to either the Ann Arbor, MI MSA or the Warren-Farmington Hills-Troy, MI Metropolitan Division, depending on whether the hospital was closer to Washtenaw or Livingston (a reclassified hospital located closest to Lenawee County would be assigned to the Ann Arbor MSA, based on Lenawee County's prior inclusion in this MSA).</P>
                    <P>
                        Reclassified hospitals that have been assigned to a new MSA on this proposed basis are identified in Table 9 in the Addendum of this proposed rule by the identification of the county used to designate them. We have determined the hospital is in closest proximity to the county listed based on mapping data available to us at the time of the preparation of this proposed rule. Hospitals that disagree with our determination of the closest proximate county on which to assign them to a new MSA must submit a comment (as specified under the “Comment Period” and 
                        <E T="02">Addresses</E>
                         sections at the beginning of this proposed rule) indicating the basis for their disagreement. Changes to a hospital's MSA assignment on the basis of a hospital's disagreement will be announced in the final rule.
                    </P>
                    <HD SOURCE="HD3">c. Redesignations Under Section 1886(d)(8)(B) of the Act</HD>
                    <P>
                        Beginning October 1, 1988, section 1886(d)(8)(B) of the Act required us to treat a hospital located in a rural county adjacent to one or more urban areas as being located in the MSA to which the greatest number of workers in the county commute, if the rural county would otherwise be considered part of an urban area under the standards published in the 
                        <E T="04">Federal Register</E>
                         on January 3, 1980 (45 FR 956) for designating MSAs (and for designating NECMAs), and if the commuting rates used in determining outlying counties (or, for New England, similar recognized areas) were determined on the basis of the aggregate number of resident workers who commute to (and, if applicable under the standards, from) the central county or counties of all contiguous MSAs (or NECMAs). Hospitals that met the criteria using the January 3, 1980 version of these OMB standards were deemed urban for purposes of the standardized amounts and for purposes of assigning the wage data index.
                    </P>
                    <P>
                        Section 402 of Public Law 106-113 provides that, with respect to FYs 2001 and 2002, a hospital may elect to have the 1990 standards applied to it for purposes of section 1886(d)(8)(B) of the Act and that, beginning with FY 2003, hospitals will be required to use the standards published in the 
                        <E T="04">Federal Register</E>
                         by the Director of OMB based on the most recent decennial census. We implemented section 402 in the August 1, 2001 
                        <E T="04">Federal Register</E>
                         (66 FR 39868). However, at that time, updated standards based on the Census 2000 data were not available.
                    </P>
                    <P>
                        We have used OMB's 2000 CBSA standards and the Census 2000 data to identify counties qualifying under section 1886(d)(8)(B) of the Act for FY 2005. The number of qualifying counties, shown in the following chart, increases from 28 to 97. On the basis of the evaluation of these data, we are proposing that, effective for discharges on or after October 1, 2004, hospitals located in the rural counties listed in the first column of the following table will be redesignated for purposes of assigning the wage index to the urban area listed in the second column.
                        <PRTPAGE P="28264"/>
                    </P>
                    <GPOTABLE COLS="2" OPTS="L2,i1" CDEF="s75,xs152">
                        <TTITLE>Chart 6.—Counties Redesignated as Urban Under Section 1886(d)(8)(B) of the Act </TTITLE>
                        <TDESC>[Based on CBSAs and Census 2000 Data] </TDESC>
                        <BOXHD>
                            <CHED H="1">Rural county </CHED>
                            <CHED H="1">MSA.</CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">Cherokee, AL </ENT>
                            <ENT>Rome, GA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Macon, AL </ENT>
                            <ENT>Auburn, AL.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Talladega, AL </ENT>
                            <ENT>Anniston, AL.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Hot Spring, AR </ENT>
                            <ENT>Hot Spring, AR.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Litchfield, CT </ENT>
                            <ENT>Hartford, CT.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Windham, CT </ENT>
                            <ENT>Hartford, CT.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Bradford, FL </ENT>
                            <ENT>Gainesville, FL.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Flagler, FL </ENT>
                            <ENT>Deltona-Daytona Beach-Ormond Beach, FL.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Hendry, FL </ENT>
                            <ENT>Miami, FL.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Levy, FL </ENT>
                            <ENT>Gainesville, FL.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Walton, FL </ENT>
                            <ENT>Ft. Walton Beach, FL.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Banks, GA </ENT>
                            <ENT>Gainesville, FL.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Chattooga, GA </ENT>
                            <ENT>Chattanooga, TN-GA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Jackson, GA </ENT>
                            <ENT>Atlanta, GA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Lumpkin, GA </ENT>
                            <ENT>Atlanta, GA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Morgan, GA </ENT>
                            <ENT>Atlanta, GA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Peach, GA </ENT>
                            <ENT>Macon, GA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Polk, GA </ENT>
                            <ENT>Atlanta, GA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Talbot, GA </ENT>
                            <ENT>Columbus, GA-AL.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Bingham, ID </ENT>
                            <ENT>Idaho Falls, ID.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Christian, IL </ENT>
                            <ENT>Springfield, IL.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">DeWitt, IL </ENT>
                            <ENT>Bloomington-Normal, IL.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Iroquois, IL </ENT>
                            <ENT>Kankakee, IL.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Logan, IL </ENT>
                            <ENT>Springfield, IL.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Mason, IL </ENT>
                            <ENT>Peoria, IL.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Ogle, IL </ENT>
                            <ENT>Rockford, IL.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Clinton, IN </ENT>
                            <ENT>Lafayette, IN.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Henry, IN </ENT>
                            <ENT>Indianapolis, IN.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Spencer, IN </ENT>
                            <ENT>Evansville, IN-KY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Starke, IN </ENT>
                            <ENT>Chicago, IL-IN.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Warren, IN </ENT>
                            <ENT>Lafayette, IN.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Boone, IA </ENT>
                            <ENT>Ames, IA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Buchanan, IA </ENT>
                            <ENT>Waterloo, IA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Cedar, IA </ENT>
                            <ENT>Iowa City, IA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Allen, KY </ENT>
                            <ENT>Bowling Green, KY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Assumption Parish, LA </ENT>
                            <ENT>Baton Rouge, LA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">St. James Parish, LA </ENT>
                            <ENT>Baton Rouge, LA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Allegan, MI </ENT>
                            <ENT>Holland, MI.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Montcalm, MI </ENT>
                            <ENT>Grand Rapids, MI.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Oceana, MI </ENT>
                            <ENT>Muskegon, MI.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Shiawassee, MI </ENT>
                            <ENT>Lansing, MI.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Tuscola, MI </ENT>
                            <ENT>Saginaw, MI.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Fillmore, MN </ENT>
                            <ENT>Rochester, MN.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Dade, MO </ENT>
                            <ENT>Springfield, MO.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Pearl River, MS </ENT>
                            <ENT>Biloxi-Gulfport, MS.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Caswell, NC </ENT>
                            <ENT>Burlington, NC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Granville, NC </ENT>
                            <ENT>Durham, NC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Harnett, NC </ENT>
                            <ENT>Raleigh, NC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Lincoln, NC </ENT>
                            <ENT>Charlotte NC-SC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Polk, NC </ENT>
                            <ENT>Spartanburg, NC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Los Alamos, NM </ENT>
                            <ENT>Sante Fe, NM.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Lyon, NV </ENT>
                            <ENT>Carson City, NV.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Cayuga, NY </ENT>
                            <ENT>Syracuse, NY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Columbia, NY </ENT>
                            <ENT>Albany, NY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Genesee, NY </ENT>
                            <ENT>Rochester, NY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Greene, NY </ENT>
                            <ENT>Albany, NY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Schuyler, NY </ENT>
                            <ENT>Ithaca, NY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Sullivan, NY </ENT>
                            <ENT>Poughkeepsie-Newburgh, NY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Wyoming, NY </ENT>
                            <ENT>Buffalo, NY.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Ashtabula, OH </ENT>
                            <ENT>Cleveland, OH.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Champaign, OH </ENT>
                            <ENT>Springfield, OH.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Columbiana, OH </ENT>
                            <ENT>Youngstown, OH-PA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Cotton, OK </ENT>
                            <ENT>Lawton, OK.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Linn, OR </ENT>
                            <ENT>Corvalis, OR.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Adams, PA </ENT>
                            <ENT>York, PA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Clinton, PA </ENT>
                            <ENT>Williamsport, PA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Greene, PA </ENT>
                            <ENT>Pittsburgh, PA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Monroe, PA </ENT>
                            <ENT>New York-Newark, NY-NJ-CT.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Schuylkill, PA </ENT>
                            <ENT>Reading, PA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Susquehanna, PA </ENT>
                            <ENT>Binghamton, NY-PA.</ENT>
                        </ROW>
                        <ROW>
                            <PRTPAGE P="28265"/>
                            <ENT I="01">Clarendon, SC </ENT>
                            <ENT>Sumter, SC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Lee, SC </ENT>
                            <ENT>Sumter, SC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Oconee, SC </ENT>
                            <ENT>Greenville, SC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Union, SC </ENT>
                            <ENT>Spartanburg, SC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Meigs, TN </ENT>
                            <ENT>Cleveland, TN.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Bosque, TX </ENT>
                            <ENT>Waco, TX.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Falls, TX </ENT>
                            <ENT>Waco, TX.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Fannin, TX </ENT>
                            <ENT>Dallas-Fort Worth-Arlington, TX.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Grimes, TX </ENT>
                            <ENT>College Station-Bryan, TX.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Harrison, TX </ENT>
                            <ENT>Longview, TX.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Henderson, TX </ENT>
                            <ENT>Dallas-Fort Worth-Arlington, TX.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Milam, TX </ENT>
                            <ENT>Austin, TX.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Van Zandt, TX </ENT>
                            <ENT>Dallas-Fort Worth-Arlington, TX.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Willacy, TX </ENT>
                            <ENT>Brownsville, TX.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Buckingham, VA </ENT>
                            <ENT>Charlottesville, VA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Floyd, VA </ENT>
                            <ENT>Blacksburg, VA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Middlesex, VA </ENT>
                            <ENT>Virginia Beach, VA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Page, VA </ENT>
                            <ENT>Harrisonburg, VA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Shenandoah, VA </ENT>
                            <ENT>Winchester, VA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Island, WA </ENT>
                            <ENT>Seattle, WA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Mason, WA </ENT>
                            <ENT>Olympia-Lacey, WA.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Wahkiakum, WA </ENT>
                            <ENT>Longview, WA-OR.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Jackson, WV </ENT>
                            <ENT>Charleston, WV.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Roane, WV </ENT>
                            <ENT>Charleston, WV.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Green, WI </ENT>
                            <ENT>Madison, WI.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Green Lake, WI </ENT>
                            <ENT>Fond du Lac, WI.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Jefferson, WI </ENT>
                            <ENT>Milwaukee, WI.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Walworth, WI </ENT>
                            <ENT>Chicago, IL-IN. </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>As in the past, hospitals redesignated under section 1886(d)(8)(B) of the Act are also eligible to be reclassified to a different area by the MGCRB. Affected hospitals should compare the reclassified wage index for the labor market area in Table 4C or 4D in the Addendum of this proposed rule into which they have been reclassified by the MGCRB to the wage index for the area to which they are redesignated under section 1886(d)(8)(B) of the Act. Hospitals may withdraw from an MGCRB reclassification within 45 days of the publication of this proposed rule.</P>
                    <P>When we apply the OMB 2000 CBSA standards, 16 rural counties no longer meet the qualifying criteria, either because they are now included in a metropolitan area (with the exception of Barry, MI and Cass, MI, most of the counties are now in the metropolitan area in which they were grouped in accordance with section 402) or they fail to meet the 25-percent cumulative out-migration threshold when we apply the new OMB standards. Counties that are now identified as metropolitan are:</P>
                    <FP SOURCE="FP-1">Chilton, AL</FP>
                    <FP SOURCE="FP-1">Macoupin, IL</FP>
                    <FP SOURCE="FP-1">Piatt, IL</FP>
                    <FP SOURCE="FP-1">Brown, IN</FP>
                    <FP SOURCE="FP-1">Carroll, IN</FP>
                    <FP SOURCE="FP-1">Jefferson, KS</FP>
                    <FP SOURCE="FP-1">Barry, MI</FP>
                    <FP SOURCE="FP-1">Cass, MI</FP>
                    <FP SOURCE="FP-1">Ionia, MI</FP>
                    <FP SOURCE="FP-1">Hartnett, NC</FP>
                    <FP SOURCE="FP-1">Preble, PA</FP>
                    <P>Counties that failed to meet the 25-percent threshold are: Marshall, AL; Putnam, FL; Wilson, NC; Van Wert, OH; and Lawrence, PA. </P>
                    <HD SOURCE="HD3">d. Reclassifications Under Section 508 of Public Law 108-173</HD>
                    <P>
                        Under section 508 of Public Law 108-173, a qualifying hospital may appeal the wage index classification otherwise applicable to the hospital and apply for reclassification to another area of the State in which the hospital is located (or, at the discretion of the Secretary, to an area within a contiguous State). Hospitals were required to submit their applications by February 15, 2004. We implemented this process through notices published in the 
                        <E T="04">Federal Register</E>
                         on January 6, 2004 (69 FR 661) and February 13, 2004 (69 FR 7340). Such reclassifications are applicable to discharges occurring during the 3-year period beginning April 1, 2004 and ending March 31, 2007. Under section 508(b), reclassifications under this process do not affect the wage index computation for any area or for any other hospital and cannot be effected in a budget neutral manner.
                    </P>
                    <P>The applications submitted under this process were reviewed and decided upon by the MGCRB. The MGCRB issued notifications of its decisions on April 16, 2004. Reclassifications under this one-time appeal process interact with: FY 2005 MGCRB reclassification decisions under the ongoing reclassification process described in the regulations at §§ 412.230 through 412.280; the proposed implementation of the new MSA definitions; and the new redesignations under section 1886(d)(8)(B) of the Act.</P>
                    <P>In the notices implementing this process, we indicated that, with limited exceptions, hospitals eligible for reclassification under section 508 of Public Law 108-173 are not otherwise reclassified, effective for discharges on or after October 1, 2004. Therefore, aside from the exceptions specified in the notices, hospitals reclassified under this one-time appeal process are not otherwise reclassified by the MGCRB for FY 2005. For those hospitals that were exempted from this requirement and that were granted reclassification under this one-time appeal process, the reclassification under the one-time appeal process takes precedence over any other MGCRB reclassification. We show the reclassifications effective under the one-time appeal process in Table 9B, in the Addendum to this proposed rule.</P>
                    <P>
                        With regard to the proposed implementation of the new MSAs, we are proposing to apply the reclassified 
                        <PRTPAGE P="28266"/>
                        wage indexes on the basis of the new MSAs. Hospitals reclassified under the one-time appeal process may terminate their reclassifications that would otherwise be effective on or after October 1, 2004, under the normal termination and withdrawal process at § 412.273 (these reclassifications may not be terminated prior to October 1, 2004). Table 9B in the Addendum to this proposed rule shows the areas to which hospitals have been reclassified under the one-time appeal process. Therefore, similar to other hospitals reclassified by the MGCRB under the ongoing reclassification process for FY 2005, hospitals reclassified under the one-time appeal process should verify that the reclassified wage index for the labor market area into which they have been reclassified (in Table 4C or 4D in the Addendum to this proposed rule) exceeds the wage index of the labor market area where they are located (in Table 4A or 4B in the Addendum to this proposed rule) after our proposed implementation of the new MSAs. Affected hospitals may withdraw their one-time appeal process reclassifications within 45 days of the publication of this proposed rule.
                    </P>
                    <P>As we have discussed above, in some cases, the new CBSA definitions result in the division of previously existing MSAs into two or more separate MSAs. (See the example in section III.H.3.b of this preamble.) In these situations, we are proposing to assign a hospital reclassified under the one-time appeal process to the nearest county in the current MSA, and the hospital's FY 2005 reclassification would be to the new MSA (under the CBSA definitions) that includes that county to which it has been assigned. Hospitals reclassified under the one-time appeals process that have been assigned to a new MSA on this proposed basis are identified in Table 9B, column 7, in the Addendum of this proposed rule. We have determined the county to which a hospital is in closest proximity based on mapping data available to us at the time of the preparation of this proposed rule. Hospitals that disagree with our determination of the closest proximate county must submit a comment (as specified under the “Comment Period” and “Addresses” sections at the beginning of this proposed rule) indicating the basis for their disagreement. Changes to a hospital's MSA assignment on the basis of a hospital's disagreement will be announced in the final rule.</P>
                    <P>Similarly, hospitals reclassified under the section 508 one-time appeal process that are also in counties identified under the redesignation process in accordance with section 1886(d)(8)(B) of the Act should compare the wage index applicable to the area to which they were reclassified under section 508 with the wage index applicable to the area to which they are redesignated under section 1886(d)(8)(B) of the Act, if those areas are different. Again, affected hospitals may withdraw their one-time appeal process reclassifications within 45 days of the publication of this proposed rule. </P>
                    <HD SOURCE="HD3">e. Proposed Wage Index Adjustment Based on Commuting Patterns of Hospital Employees (Section 505 of Pub. L. 108-173)</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Out-Migration of Hospital Employees” at the beginning of your comment.]</FP>
                    <P>Section 505 of Public Law 108-173 established new section 1886(d)(13) of the Act. The new section 1886(d)(13) requires that the Secretary establish a new process to make adjustments to the hospital wage index based on commuting patterns of hospital employees. The process provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county with a higher wage index. Such adjustments to the wage index are effective for 3 years beginning with discharges occurring on or after October 1, 2004. Adjustments under this provision are not subject to the budget neutrality requirements at section 1886(d)(3)(E) or section 1886(d)(8)(D) of the Act.</P>
                    <P>The Secretary is required to establish criteria to identify “qualifying counties,” and hospitals located in such qualifying counties are to receive an adjustment to their wage index. Section 1886(d)(13)(B)(i) of the Act directs the Secretary to establish a threshold percentage difference between the county's wage index and the weighted average of the wage indexes of the surrounding higher wage index area(s) to which hospital employees commute that must be met in order for the county to qualify. Section 1886(d)(13)(B)(ii) of the Act specifies that the Secretary is also to establish the minimum out-migration threshold in order to qualify, which may not be less than 10 percent. Section 1886(d)(13)(iii) of the Act requires that the average hourly wage for all hospitals in the county must be equal to or exceed the average hourly wage for all hospitals in the labor market area. Section 1886(d)(13)(E) of the Act indicates this process may be based on the process used by the MGCRB. This section also gives the Secretary the authority to require hospitals to submit data necessary to implement this provision, or to use other data sources as available.</P>
                    <P>Hospitals located in counties that qualify for the payment adjustment are to receive an increase in the wage index that is equal to a weighted average of the differences between the wage indexes of the MSA(s) with higher wage indexes and the wage index of the resident county, weighted by the overall percentage of hospital workers residing in the qualifying county who are employed in any MSA with a higher wage index. As discussed below, we have employed the prereclassified wage indexes in making these calculations. The wage index increase is effective for 3 years, unless a hospital requests to waive the application of the payment adjustment. Hospitals that receive this payment adjustment are not eligible for reclassification under section 1886(d)(8) or section 1886(d)(10) of the Act.</P>
                    <HD SOURCE="HD3">(1) Data</HD>
                    <P>To implement this provision, we analyzed commuting data compiled by the U.S. Census Bureau. The data derive from a special tabulation of Census 2000 journey-to-work data, compiled from responses to the long-form (sample) census survey questions on where people worked. When the Census conducts its decennial survey, each household receives either a short form or a long form. On average, about 1 in every 6 households receive the long form. The results from the long form are used to formulate descriptive population estimates. Thus, the data set is based on the Census 2000 sample and represents estimates of the actual figures that would be obtained from a complete count.</P>
                    <P>
                        The data provide information about commuting patterns of workers at the county level for residents of the 50 States and the District of Columbia. Each record within the dataset represents a combination of a particular resident county, a workplace county, and a particular industry category. Thus, the record shows the county-of-residence by county-of-work commuter flows. The resident county represents the county where the worker resides, while the workplace county represents the county where the worker works. The industry category associated with workers is based on the 108 Industrial Structure codes developed by the Bureau of Economic Analysis. These Industrial Structure codes break down economic activities by defining industries (such as “fabricated metal product manufacturing,” “legal services,” and “gasoline stations”). We 
                        <PRTPAGE P="28267"/>
                        limited the data set to those employees working in the category designated “hospitals” (BEA code 622000).
                    </P>
                    <P>Using these data, we are able to identify the total number of hospital workers who live in each county and the number of workers within that county who commute to hospitals in other counties. For example, the data can be used to determine that, from a sample of 100 hospital employees who live in County A, 50 commute to work at hospitals within County A, 20 commute to work at hospitals within County B, and 30 commute to work at hospitals within County C.</P>
                    <P>There are some intrinsic limitations to the data. The file shows the weighted worker estimate for flows using a threshold or minimum size of 50 unweighted worker (from all industry codes) records. This means that only county-to-county flows that are comprised of at least 50 unweighted worker records are shown in this file. The Census Bureau omitted all other county-to-county flows from the file for confidentiality reasons. While this could eliminate the workflows of some hospital residents, we believe the eliminations would not have a major impact on the policy.</P>
                    <P>When Census calculated this special tabulation, the estimates of workers numbering from 1 through 7 have been rounded to 4. Values of 8 or greater have been rounded to the nearest multiple of 5, unless the estimate already ended in 5 or 0, in which case it was not changed. In addition, in this special tabulation, workers are defined as people 16 years and older who were employed and at work during the Census long form reference week. This is the week prior to when the questionnaire was filled out, which was the last week of March 2000 for most people.</P>
                    <P>In addition, because these data derive from the decennial census, the data file will not change until the census is taken again in 2010. This does not mean that the list of qualifying counties will not change from year to year. The out-migration percentage for each county is a function both of the commuting data and changes in the wage index values. Because the wage indices associated with each work and resident county change each year, a county's out-migration percentages can still vary each year because a higher wage index area in one year, might not be a higher wage index area in the next year. For example, if 100 hospital employees living in County A (wage index 1.00 in FY 2004) commute to County B (wage index 1.10 in FY 2004), then County B would be a higher wage index area for 2004. If in FY 2005, County A's wage index increases to 1.02 and County B's wage index decreases to 1.01, those 100 workers commuting from County A to County B will not be commuting to a higher wage index area for 2005. Consequentially, County A's out-migration percentage would decrease from 100 percent in 2004 to 0 percent in 2005. These normal changes in wage index values could also result in a county not deemed a qualifying county for FY 2005, becoming a qualifying county in FY 2006 or later.</P>
                    <P>We believe these data provide a useable data source to implement this provision. However, we welcome and encourage comments on the availability and value of alternative data sources. Although the statute authorizes the Secretary to require all hospitals to submit data on the commuting patterns of their employees, such a requirement would be a major undertaking for the hospital industry and CMS. It was not possible to pursue this approach in time to implement the provision by FY 2005. However, in addition to welcoming comments on the merits of relying on the Census data, we welcome comments on the feasibility of surveying hospitals on the residence and commuting patterns of all their hospital employees for purposes of developing future year adjustments.</P>
                    <HD SOURCE="HD3">(2) Qualifying Counties</HD>
                    <P>As noted previously, section 1886(d)(13)(B)(iii) of the Act requires that, to qualify for this commuting wage index adjustment, the average hourly wage for all hospitals in the county must be equal to or exceed the average hourly wage for all hospitals in the labor market area in which the county is located. To determine which counties meet this requirement, we calculated the average of hospitals' 3-year average hourly wages for all hospitals in a given county. We compared this county average 3-year average hourly wage to the 3-year average hourly wage for the labor market area where the county is located. We chose to use the 3-year average hourly wage because we believe it provides a more accurate and stable estimate for the wages paid by a given hospital over a period of time. This statutory requirement limits the number of eligible counties, as counties with a 3-year average hourly wage less than the 3-year average hourly wage of the MSA where the county is located were not considered to meet this requirement.</P>
                    <P>Some resident counties do not have average hourly wages because either there is no hospital located in the county, or the only hospital in the county is new and has not yet submitted wage data. We did not consider these counties to have met the average hourly wage criteria and thus hospitals in these counties are not yet eligible to receive an increase in wage index. This is consistent with our regulations at 42 CFR 412.230(e)(2)(iii), which require a new hospital to accumulate at least 1 year of wage data, before it is eligible to apply for reclassification.</P>
                    <P>As noted previously, section 1886(d)(13)(B)(ii) of the Act specifies that the Secretary is to establish the minimum out-migration threshold in order to qualify, which may not be less than 10 percent. To determine the out-migration percentage for each county, we identified higher wage index areas, by comparing 2005 prereclassified wage index of a resident county with the 2005 prereclassified wage index of the MSA or rural statewide area where the work county is located. We use the prereclassified wage index so that hospitals in the county are not disadvantaged by reclassification of other hospitals into the county.</P>
                    <P>Once we limited the dataset to those county-to-county flows where hospital employees were commuting to a higher wage index area, we calculated the out-migration percentage for resident counties. To calculate the out-migration percentage, we calculated the total number of hospital employees in a resident county who were commuting to a higher wage area as a percentage of the total number of hospital employees residing in the resident county. For example, there are 100 hospital employees who live in County A (wage index 1.0). Of those 100 employees, 50 commute to County B (wage index 1.10), 20 commute to County C (wage index 1.05), and 30 work within County A. Because 70 out of 100 people commute to higher wage areas (assuming County C also qualifies as a higher wage area), County A's out-migration percentage is equal to 70 percent.</P>
                    <P>To implement section 1886(d)(13)(B)(ii) of the Act, we are proposing that the out-migration threshold to qualify for this adjustment would be the statutory minimum of 10 percent. We believe that this threshold provides an opportunity for a reasonable number of hospitals that would not have recourse to the normal reclassification process to receive an appropriate adjustment to their wage index. We welcome comments on this proposed threshold.</P>
                    <P>
                        As noted previously, section 1886(d)(13)(B)(i) of the Act directs the Secretary to establish a threshold percentage difference between the county's wage index and the weighted average wage indexes of the higher wage index areas to which hospital 
                        <PRTPAGE P="28268"/>
                        employees commute. However, unlike the threshold for the level of out-migration, the statute does not designate a minimum level for this threshold. Because of the nature of the adjustment provided under this provision, we are proposing to establish that the minimum difference in the wage indexes between the resident county and the work county can be any percentage greater than zero. We are proposing this threshold because the wage index increment for hospitals in qualifying counties under the statutory formula is a function of the differences between that county's wage index and the wage indices of the areas into which resident hospital workers of that county are commuting. In those cases where that difference is very small, the adjustment to the wage index will also be very small. (
                        <E T="03">See</E>
                         the discussion of the statutory formula in section III.H.3.e.(3) of this preamble.) Therefore, we believe that a threshold of anything greater than zero is justifiable and consistent with the purposes of this provision.
                    </P>
                    <P>Our analysis indicates that 224 counties qualify under these proposed criteria. There are 411 hospitals located in these qualifying counties. Hospitals located in qualifying counties are identified in Table 4J in the Addendum to this proposed rule.</P>
                    <HD SOURCE="HD3">(3) The Adjustment</HD>
                    <P>Hospitals located in the qualifying counties identified in Table 4J in the Addendum to this proposed rule that have not already been reclassified for purposes of the wage index would receive the wage index adjustment listed in the table. This increase is equal to the percentage of the hospital employees residing in the qualifying county who are employed in any higher wage area, multiplied by the sum of: the products, for each higher wage index area, of the difference between the wage index for such higher wage index area and the wage index of the qualifying county, and the percentage of hospital employees residing in the qualifying county who are employed in any higher wage index area who are employed in such higher wage index area. This increase in wage index is depicted using the following equation:</P>
                    <FP SOURCE="FP-2">Adjustment = A * Σ[(B − C) * (D/E)]</FP>
                    <P>A is the percentage of hospital employees residing in a qualifying county who are employed in any higher wage index area. B represents the wage index of the higher wage index area. C represents the wage index of the qualifying resident county. D represents the number of hospital employees residing in the qualifying county involved who are employed in such higher wage index area. E represents the total number of hospital employees residing in qualifying county who are employed in any higher wage index area.</P>
                    <P>For example, County A is identified as a qualifying county. As illustrated before, if 100 hospital employees live in County A (wage index = 1.00), 50 commute to County B (wage index = 1.10), 20 commute to County C (wage index = 1.05); and 30 commute within County A, the out-migration percentage is equal to 70 percent.</P>
                    <P>The adjustment for hospitals in County A would be:</P>
                    <FP SOURCE="FP-2">= .70 * (((1.10 − 1.00)*(50/70)) + ((1.05 − 1.00)*(20/70)))</FP>
                    <FP SOURCE="FP-2">= .70 * ((.10 * .714) + (.05 * .285))</FP>
                    <FP SOURCE="FP-2">= .70 * (0.0714 + 0.01428)</FP>
                    <FP SOURCE="FP-2">= .70 * (0.0856)</FP>
                    <FP SOURCE="FP-2">= 0.05998</FP>
                    <P>So, hospitals in County A could receive a new wage index of 1.05998, instead of 1.000.</P>
                    <P>The proposed adjustments calculated for qualifying hospitals are listed in Table 4J in the Addendum to this proposed rule. These proposed adjustments are effective for each county for a period of 3 fiscal years beginning with discharges occurring on or after October 1, 2004. The commuting adjustments for each county will remain static for the 3-year period, after which the county's status as a qualifying county and the adjustment will be recalculated.</P>
                    <HD SOURCE="HD3">(4) Automatic Adjustments</HD>
                    <P>Section 1886(d)(13)(A) of the Act allows the Secretary to establish the process for receiving this increase in wage index through application or otherwise. Listed in Table 4J in the Addendum to this proposed rule are the counties and corresponding hospitals that qualify for an increase in wage index through our proposed implementation of the section. We are proposing that all hospitals located in qualifying counties will automatically receive the increase in wage index, unless the hospital has already been reclassified to another geographic area for purposes of the wage index amount (including reclassifications under section 508 of Pub. L. 108-173). This commuting wage index adjustment will be effective for the county for a period of 3 fiscal years, FY 2005 through FY 2007. As discussed previously, yearly changes in the wage indices associated with areas could result in changes in the out-migration percentage for a given county. Irrespective of these changes, a county will not lose its status as a qualifying county due to wage index changes during the 3-year period, and counties will receive the same wage index increase for those 3 years. However, a county that qualifies in FY 2005 may no longer qualify in FY 2008, or it may qualify but receive a different adjustment level.</P>
                    <P>We encourage comments on the automatic application of such a wage index adjustment, and whether an application process should be developed under which individual hospitals would have to apply in order to receive the adjustment. We note that, given the short timeframe before implementation of this provision on October 1, 2004, we believe that there is no practical alternative to providing for an automatic adjustment for FY 2005. However, one possibility is to employ an automatic adjustment process this year, and to replace the automatic process with an application process for future years. We invite comments on whether to establish the automatic process permanently, or to devise an application process for future years. We also invite comments on whether any application process should be the responsibility of the MGCRB or some other entity.</P>
                    <P>
                        Hospitals receiving this wage index increase under section 1886(d)(13)(F) of the Act are not eligible for reclassification under section 1886(d)(8) or section 1886(d)(10) of the Act. As previously noted, the wage index increase is effective for 3 years, unless a hospital elects to waive the application of the wage index adjustment. Hospitals that wish to waive the application of this wage index adjustment must notify CMS within 45 days of the publication of this proposed rule. Waiver notifications should be sent to the following address: Centers for Medicare &amp; Medicaid Services, Center for Medicare Management, Attention: Wage Index Adjustment Waivers, Division of Acute Care, C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244-1850. However, consistent with § 412.273, hospitals that have been reclassified by the MGCRB are permitted to withdraw their applications within 45 days of the publication of this proposed rule in the 
                        <E T="04">Federal Register</E>
                        . Hospitals that have been reclassified by the MGCRB (including reclassifications under section 508 of the MMA) may terminate an existing 3-year reclassification within 45 days of the publication of this proposed rule in order to receive the wage index adjustment under this provision. Hospitals that are eligible for this adjustment and that withdraw their application for reclassification will then 
                        <PRTPAGE P="28269"/>
                        automatically receive the wage index adjustment listed in Table 4J in the Addendum of this proposed rule. The request for withdrawal of an application for reclassification or termination of an existing 3-year reclassification that would be effective in FY 2005 must be received by the MGCRB within 45 days of the publication of this proposed rule. Hospitals should carefully review the wage index adjustment that they would receive under this provision (as listed in Table 2 in the Addendum to this proposed rule) in comparison with the wage index that they would receive under MGCRB reclassification (Table 9 in the Addendum to this proposed rule).
                    </P>
                    <HD SOURCE="HD3">4. Proposed FY 2005 Reclassifications</HD>
                    <P>The proposed wage index values for FY 2005 (except those for hospitals receiving wage index adjustments under section 505 of Pub. L. 108-173) are shown in Tables 4A, 4B, 4C, and 4F in the Addendum to this proposed rule. Hospitals that are redesignated will be required to use the wage index values shown in Table 4C. Areas in Table 4C may have more than one wage index value because the wage index value for a redesignated urban or rural hospital cannot be reduced below the wage index value for the rural areas of the State in which the hospital is located. Therefore, those areas with more than one wage index shown have hospitals from more than one State reclassified into them, and the rural wage index for a State in which at least one hospital is physically located is higher than the wage index for the area to which the hospital is reclassified.</P>
                    <P>Tables 3A and 3B in the Addendum to this proposed rule list the 3-year average hourly wage for each labor market area before the redesignation of hospitals, based on FYs 1999, 2000, and 2001 cost reporting periods. Table 3A lists these data for urban areas and Table 3B lists these data for rural areas. In addition, Table 2 in the Addendum to this proposed rule includes the adjusted average hourly wage for each hospital from the FY 1999 and FY 2000 cost reporting periods, as well as the FY 2001 period used to calculate the proposed FY 2005 wage index. The 3-year averages are calculated by dividing the sum of the dollars (adjusted to a common reporting period using the method described previously) across all 3 years, by the sum of the hours. If a hospital is missing data for any of the previous years, its average hourly wage for the 3-year period is calculated based on the data available during that period.</P>
                    <P>At the time this proposed wage index was constructed, the MGCRB had completed its review of FY 2005 reclassification requests. We are including in the Addendum of this proposed rule Table 9A, which shows hospitals that have been reclassified under either section 1886(d)(8) or section 1886(d)(10)(D) of the Act. This table includes 400 hospitals reclassified for FY 2005 by the MGCRB (for wage index purposes), as well as hospitals that were reclassified for the wage index in either FY 2003 53 or FY 2004 102 and are, therefore, in either the second or third year of their 3-year reclassification. This table also includes hospitals located in urban areas that have been redesignated rural in accordance with section 1886(d)(8)(E) of the Act (17). In addition, it includes rural hospitals redesignated to urban areas under section 1886(d)(8)(B) of the Act for purposes of the wage index (98).</P>
                    <P>Under § 412.273, hospitals that have been reclassified by the MGCRB are permitted to withdraw their applications within 45 days of the publication of this proposed rule. The request for withdrawal of an application for reclassification or termination of an existing 3-year reclassification that would be effective in FY 2004 must be received by the MGCRB within 45 days of the publication of this proposed rule. If a hospital elects to withdraw its wage index application after the MGCRB has issued its decision but prior to the above date, it may later cancel its withdrawal in a subsequent year and request the MGCRB to reinstate its wage index reclassification for the remaining fiscal year(s) of the 3-year period (§ 412.273(b)(2)(i)). The request to cancel a prior withdrawal must be made in writing to the MGCRB no later than the deadline for submitting reclassification applications for the following fiscal year (§ 412.273(d)). For further information about withdrawing, terminating, or canceling a previous withdrawal or termination of a 3-year reclassification for wage index purposes, we refer the reader to § 412.273, as well as the August 1, 2002 IPPS final rule (67 FR 50065) and the August 1, 2001 IPPS final rule (66 FR 39887).</P>
                    <P>Any changes to the wage index that result from withdrawals of requests for reclassification, wage index corrections, appeals, and the Administrator's review process will be incorporated into the wage index values published in the final rule following this proposed rule. Therefore, the final wage indexes will likely be different from those published in this proposed rule, and in some cases, they may be quite different.</P>
                    <P>Although, as described above, the statute provides that a reclassified rural hospital may not have a lower wage index after reclassification than before, there is not similar protection for urban hospitals. Therefore, hospitals should carefully evaluate the impacts of their reclassifications prior to the deadline for withdrawing from an approved reclassification.</P>
                    <P>
                        Applications for FY 2006 reclassifications are due to the MGCRB by September 1, 2004. We note that this is also the deadline for canceling a previous wage index reclassification withdrawal or termination under § 412.273(d). Applications and other information about MCGRB reclassifications may be obtained, beginning in mid-July 2004, via the CMS Internet Web site at: 
                        <E T="03">http://cms.hhs.gov/providers/prrb/mgcinfo.asp,</E>
                         or by calling the MCGRB at (410) 786-1174. The mailing address of the MGCRB is: 2520 Lord Baltimore Drive, Suite L, Baltimore, MD 21244-2670.
                    </P>
                    <HD SOURCE="HD2">I. Process for Requests for Wage Index Data Corrections</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Wage Data Corrections” at the beginning of your comment.]</FP>
                    <HD SOURCE="HD3">1. Worksheet S-3 Wage Data</HD>
                    <P>
                        In the August 1, 2003 final rule (68 FR 27194), we revised the process and timetable for application for development of the wage index, beginning with the FY 2005 wage index. The preliminary and unaudited Worksheet S-3 wage data file was made available on October 8, 2003 through the Internet on CMS's Web site at: 
                        <E T="03">http://cms.hhs.gov/providers/hipps/ippswage.asp.</E>
                         In a memorandum dated October 10, 2003, we instructed all Medicare fiscal intermediaries to inform the IPPS hospitals they service of the availability of the wage data file and the process and timeframe for requesting revisions (including the specific deadlines listed below). We also instructed the fiscal intermediaries to advise hospitals that these data are also made available directly through their representative hospital organizations.
                    </P>
                    <P>
                        If a hospital wished to request a change to its data as shown in that wage data file, the hospital was to submit corrections along with complete, detailed supporting documentation to its intermediary by November 24, 2003. Hospitals were notified of this deadline and of all other possible deadlines and requirements, including the requirement to review and verify their data as posted on the preliminary wage data file on the Internet, through the October 10, 2003 memorandum referenced above.
                        <PRTPAGE P="28270"/>
                    </P>
                    <P>The fiscal intermediaries notified the hospitals in early February of any changes to the wage data as a result of the desk reviews and the resolution of the hospitals' early November change requests. The fiscal intermediaries also submitted the revised data to CMS in early February. CMS published the proposed wage index public use file that included hospitals' revised wage data on February 27, 2004. In a memorandum also dated March 1, 2004, we instructed fiscal intermediaries to notify all hospitals regarding the availability of the proposed wage index public use file and the criteria and process for requesting corrections and revisions to the wage data. Hospitals had until March 12, 2004 to submit requests to the fiscal intermediaries for reconsideration of adjustments made by the fiscal intermediaries as a result of the desk review, and to correct errors due to CMS's or the intermediary's mishandling of the wage data. Hospitals were also required to submit sufficient documentation to support their requests.</P>
                    <P>After reviewing requested changes submitted by hospitals, fiscal intermediaries are to submit additional revisions resulting from the hospitals' reconsideration requests by April 16, 2004. The deadline for hospitals to request CMS intervention in cases where the hospital disagrees with the fiscal intermediary's policy interpretations is April 23, 2004.</P>
                    <P>Hospitals should also examine Table 2 in the Addendum to this proposed rule. Table 2 contains each hospital's adjusted average hourly wage used to construct the wage index values for the past 3 years, including the FY 2001 data used to construct the proposed FY 2005 wage index. We note that the hospital average hourly wages shown in Table 2 only reflect changes made to a hospital's data and transmitted to CMS by March 15, 2004.</P>
                    <P>
                        We will release a final wage data file in early May to hospital associations and the public on the Internet at 
                        <E T="03">http://www.cms.hhs.gov/providers/hipps/ippswage.asp.</E>
                         The May 2004 public use file will be made available solely for the limited purpose of identifying any potential errors made by CMS or the fiscal intermediary in the entry of the final wage data that result from the correction process described above (revisions submitted to CMS by the fiscal intermediaries by April 16, 2004). If, after reviewing the May 2004 final file, a hospital believes that its wage data are incorrect due to a fiscal intermediary or CMS error in the entry or tabulation of the final wage data, it should send a letter to both its fiscal intermediary and CMS that outlines why the hospital believes an error exists and provide all supporting information, including relevant dates (for example, when it first became aware of the error).
                    </P>
                    <P>CMS and the fiscal intermediaries must receive these requests no later than June 11, 2004. Requests mailed to CMS should be sent to: Centers for Medicare &amp; Medicaid Services, Center for Medicare Management, Attention: Wage Index Team, Division of Acute Care, C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244-1850. Each request also must be sent to the hospital's fiscal intermediary. The intermediary will review requests upon receipt and contact CMS immediately to discuss its findings.</P>
                    <P>At this point in the process, that is, after the release of the May 2004 wage index file, changes to the hospital wage data will only be made in those very limited situations involving an error by the intermediary or CMS that the hospital could not have known about before its review of the final wage data file. Specifically, neither the intermediary nor CMS will approve the following types of requests:</P>
                    <P>• Requests for wage data corrections that were submitted too late to be included in the data transmitted to CMS by fiscal intermediaries on or before April 16, 2004.</P>
                    <P>• Requests for correction of errors that were not, but could have been, identified during the hospital's review of the March 1, 2004 wage data file (or the March 8 occupational mix data; see section III.H.2. of this preamble).</P>
                    <P>• Requests to revisit factual determinations or policy interpretations made by the intermediary or CMS during the wage index data correction process.</P>
                    <HD SOURCE="HD3">2. Occupational Mix Data</HD>
                    <P>The process and criteria for requesting corrections to the occupational mix survey data are described in section III.C.1 of this preamble. As stated in that section, from April 16, 2004 forward, the process for correcting the final occupational mix survey data is the same, and on the same schedule, as described above for correcting the final Worksheet S-3 wage data.</P>
                    <HD SOURCE="HD3">3. All FY 2005 Wage Index Data</HD>
                    <P>Verified corrections to the wage index received timely (that is, by June 11, 2004) will be incorporated into the final wage index in the final rule to be published by August 1, 2004, and to be effective October 1, 2004.</P>
                    <P>
                        We created the processes described above to resolve all substantive wage index data correction disputes before we finalize the wage and occupational mix data for the FY 2005 payment rates. Accordingly, hospitals that did not meet the procedural deadlines set forth above will not be afforded a later opportunity to submit wage data corrections or to dispute the intermediary's decision with respect to requested changes. Specifically, our policy is that hospitals that do not meet the procedural deadlines set forth above will not be permitted to challenge later, before the Provider Reimbursement Review Board, the failure of CMS to make a requested data revision (
                        <E T="03">See W. A. Foote Memorial Hospital</E>
                         v. 
                        <E T="03">Shalala,</E>
                         No. 99-CV-75202-DT (E.D. Mich. 2001), also 
                        <E T="03">Palisades General Hospital</E>
                         v. 
                        <E T="03">Thompson,</E>
                         No. 99-1230 (D.D.C. 2003)).
                    </P>
                    <P>Again, we believe the wage index data correction process described above provides hospitals with sufficient opportunity to bring errors in their wage data to the fiscal intermediaries' attention. Moreover, because hospitals will have access to the final wage index data by early May 2004, they will have the opportunity to detect any data entry or tabulation errors made by the fiscal intermediary or CMS before the development and publication of the FY 2005 wage index by August 1, 2004, and the implementation of the FY 2005 wage index on October 1, 2004. If hospitals avail themselves of this opportunity, the wage index implemented on October 1 should be accurate. Nevertheless, in the event that errors are identified after that date, we retain the right to make midyear changes to the wage index under very limited circumstances.</P>
                    <P>
                        Specifically, in accordance with § 412.63(x)(2) of our existing regulations, we make midyear corrections to the wage index for an area only if a hospital can show: (1) That the intermediary or CMS made an error in tabulating its data; and (2) that the requesting hospital could not have known about the error or did not have an opportunity to correct the error, before the beginning of FY 2005 (that is, by the June 11, 2004 deadline). This provision is not available to a hospital seeking to revise another hospital's data that may be affecting the requesting hospital's wage index. As described earlier, the requesting hospital must show that it could not have known about the error, or that it did not have the opportunity to correct the error, before the publication of the FY 2005 wage index. As indicated earlier, since a hospital will have the opportunity to verify its data, and the fiscal intermediary will notify the hospital of any changes, we do not expect that midyear corrections will be necessary. However, if the correction of a data error 
                        <PRTPAGE P="28271"/>
                        changes the wage index value for an area, the revised wage index value will be effective prospectively from the date the correction is approved.
                    </P>
                    <HD SOURCE="HD2">J. Proposed Revision of the Labor-Related Share of the Wage Index</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Labor-Related Share” at the beginning of your comment.]</FP>
                    <P>Section 1886(d)(3)(E) of the Act directs the Secretary to adjust the proportion of the national prospective payment system base payment rates that are attributable to wages and wage-related costs by a factor that reflects the relative differences in labor costs among geographic areas. It also directs the Secretary to estimate from time to time the proportion of hospital costs that are labor-related: “The Secretary shall adjust the proportion (as estimated by the Secretary from time to time) of hospitals' costs which are attributable to wages and wage-related costs of the DRG prospective payment rates. * * *” The portion of hospital costs attributable to wages and wage-related costs is referred to as the labor-related share. The labor-related share of the prospective payment rate is adjusted by an index of relative labor costs, which is referred to as the wage index. In the past, we have defined the labor-related share for prospective payment acute care hospitals as the national average proportion of operating costs that are related to, influenced by, or vary with the local labor market. The labor-related share for the acute care hospital inpatient prospective payment system has been calculated as the sum of the weights for wages and salaries, fringe benefits, nonmedical professional fees, contract labor, postage, and labor-intensive services.</P>
                    <P>In its June 2001 Report to Congress, MedPAC recommended that the Secretary “should reevaluate current assumptions about the proportion of providers” costs that reflect resources purchased in local and national markets.” (Report to the Congress: Medicare in Rural America, Recommendation 4D, page 80.) MedPAC recommended that the labor-related share include the weights for wages and salaries, fringe benefits, contract labor, and other labor-related costs for locally purchased inputs only. MedPAC noted that this would likely result in a lower labor share, which would decrease the amount of the national base payment amount adjusted by the wage index. As a result, hospitals located in low-wage markets (those with a wages index less than 1.0) would receive higher payments, while those located in high-wage labor markets would receive lower payments.</P>
                    <P>In our proposed and final regulations updating the IPPS for FY 2003 (67 FR 31404, May 9, 2002 and 67 FR 49982, August 1, 2002), we discussed the methodology that we have used to determine the labor-related share. We noted that, at that time, the results of employing that methodology suggested that an increase in the labor-related share (from 71.066 percent to 72.495 percent) was warranted. However, we decided not to propose such an increase in the labor-related share until we conducted further research to determine whether a different methodology for determining the labor-related share should be adopted. The labor-related share has thus remained 71.066 percent.</P>
                    <P>Section 403 of Pub. L. 108-173 amended sections 1886(d)(3)(E) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless this “would result in lower payments than would otherwise be made.” However, this provision of Pub. L. 108-173 did not the change the legal requirement that the Secretary estimate “from time to time” the proportion of hospitals” costs that are “attributable to wages and wage-related costs.” In fact, section 404 of Pub. L. 108-173 requires the Secretary to develop a frequency for revising the weights used in the hospital market basket, including the labor share, to reflect the most current data more frequently than once every 5 years. This reflects Congressional intent that hospitals will receive payment based on a 62-percent labor share, or the labor share estimated from time to time by the Secretary, whichever is higher.</P>
                    <P>Section 404 further requires us to include in the final IPPS rule for FY 2006 an explanation of the reasons for, and options considered, in determining the frequency for revising the weights used in the hospital market basket, including the labor share. In the meantime, we are also continuing our research into the assumptions employed in calculating the labor-related share. Our research involves analyzing the compensation share separately for urban and rural hospitals, using regression analysis to determine the proportion of costs influenced by the area wage index, and exploring alternative methodologies to determine whether all or only a portion of professional fees and nonlabor intensive services should be considered labor-related. We will present our analysis and conclusions regarding the frequency and methodology for updating the labor share in the proposed and final rules for FY 2006.</P>
                    <P>In section IV.F. of this preamble, we discuss our proposal to incorporate the requirements of section 403 of Pub. L. 108-173 in a new § 412.64(h) of the regulations.</P>
                    <P>As discussed above, the Secretary had determined, prior to the enactment of Pub. L. 108-173, that the labor-related share would be 71.066 percent. As a result, application of a 62-percent labor share would result in lower payments for any hospital with a wage index greater than 1.0. Therefore, we are modifying our payment system software for FY 2005 to apply wage indexes greater than 1.0 to 71.066 percent of the standardized amount, and to apply wage indexes less than or equal to 1.0 to 62 percent of the standardized amount.</P>
                    <HD SOURCE="HD1">IV. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs</HD>
                    <HD SOURCE="HD2">A. Postacute Care Transfer Payment Policy (§ 412.4)</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Postacute Care Transfers” at the beginning of your document.]</FP>
                    <HD SOURCE="HD3">1. Background</HD>
                    <P>Existing regulations at § 412.4(a) define discharges under the IPPS as situations in which a patient is formally released from an acute care hospital or dies in the hospital. Section 412.4(b) defines transfers from one acute care hospital to another, and § 412.4(c) defines transfers to certain postacute care providers. Our policy provides that, in transfer situations, full payment is made to the final discharging hospital and each transferring hospital is paid a per diem rate for each day of the stay, not to exceed the full DRG payment that would have been made if the patient had been discharged without being transferred.</P>
                    <P>The per diem rate paid to a transferring hospital is calculated by dividing the full DRG payment by the geometric mean length of stay for the DRG. Based on an analysis that showed that the first day of hospitalization is the most expensive (60 FR 45804), our policy provides for payment that is double the per diem amount for the first day (§ 412.4(f)(1)). Transfer cases are also eligible for outlier payments. The outlier threshold for transfer cases is equal to the fixed-loss outlier threshold for nontransfer cases, divided by the geometric mean length of stay for the DRG, multiplied by the length of stay for the case, plus one day.</P>
                    <P>
                        Medicare adopted its IPPS transfer policy because, if the program were to pay the full DRG payment regardless of 
                        <PRTPAGE P="28272"/>
                        whether a patient is transferred or discharged, there would be a strong incentive for hospitals to transfer patients to another IPPS hospital early in the patients' stay in order to minimize costs while still receiving the full DRG payment. The transfer policy adjusts the payments to approximate the reduced costs of transfer cases.
                    </P>
                    <P>Previously, when a patient chose to depart from a hospital against the medical opinion of treating physicians, the case was treated as a left against medical advice (LAMA) discharge and coded as discharge status “07-Left Against Medical Advice (LAMA)” on the inpatient billing claim form. Because, by definition, LAMA discharges were assumed not to involve the active participation of the hospital administration, our policy had been to treat LAMA cases as discharges. This policy applied even if the patient was admitted to another hospital on the date of the LAMA discharge. Consequently, until FY 2004, we made a full DRG payment for any discharge coded as a LAMA case.</P>
                    <P>Last year, in response to an Office of Inspector General (OIG) report issued in March 2002 (A-06-99-00045), we became concerned that some hospitals were incorrectly coding transfers as LAMA cases. Therefore, in the August 1, 2003 final IPPS rule (68 FR 45405), we expanded our definition of a transfer under § 412.4(b) to include all patients who are admitted to another IPPS hospital on the same day that the patient is discharged from an IPPS hospital, unless the first (transferring) hospital can demonstrate that the patient's treatment was completed at the time of discharge from that hospital. In other words, unless the same-day readmission is to treat a condition that is unrelated to the condition treated during the original admission (for example, the beneficiary is in a car accident later that day), any situation where the beneficiary is admitted to another IPPS hospital on the same date that he or she is discharged from an IPPS hospital would be considered a transfer, even if the patient left against medical advice from the first hospital.</P>
                    <P>Hospitals are now allowed to report a patient as left against medical advice only if they have no knowledge that the patient has been admitted to another hospital on the same day. If a hospital later leans that a patient was admitted to another facility on the same day, the hospital must resubmit the claim and correctly code the patient as a “transfer.” This change prohibits payment of two claims for the same patient on the same day. Therefore, if a hospital believes a claim has been wrongly denied, the original discharging hospital must resubmit the claim with documentation that the discharge was appropriate and unrelated to the subsequent same-day admission.</P>
                    <HD SOURCE="HD3">2. Proposed Changes to DRGs Subject to the Postacute Care Transfer Policy (§§ 412.4(c) and (d))</HD>
                    <P>Under section 1886(d)(5)(J) of the Act, a “qualified discharge” from one of 10 DRGs selected by the Secretary to a postacute care provider is treated as a transfer case beginning with discharges on or after October 1, 1998. This section required the Secretary to define and pay as transfers all cases assigned to one of 10 DRGs selected by the Secretary, if the individuals are discharged to one of the following postacute care settings:</P>
                    <P>• A hospital or hospital unit that is not a subsection 1886(d) hospital. (Section 1886(d)(1)(B) of the Act identifies the hospitals and hospital units that are excluded from the term “subsection (d) hospital” as psychiatric hospitals and units, rehabilitation hospitals and units, children's hospitals, long-term care hospitals, and cancer hospitals.)</P>
                    <P>• A SNF (as defined at section 1819(a) of the Act).</P>
                    <P>• Home health services provided by a home health agency, if the services relate to the condition or diagnosis for which the individual received inpatient hospital services, and if the home health services are provided within an appropriate period (as determined by the Secretary).</P>
                    <P>In the July 31, 1998 IPPS final rule (63 FR 40975 through 40976), we specified the appropriate time period during which we would consider a discharge to postacute home health services to constitute a transfer as within 3 days after the date of discharge. In addition, in the July 31, 1998 final rule, we did not include in the definition of postacute care transfer cases patients transferred to a swing-bed for skilled nursing care (63 FR 40977).</P>
                    <P>Section 1886(d)(5)(J) of the Act directed the Secretary to select 10 DRGs based upon a high volume of discharges to postacute care and a disproportionate use of postacute care services. As discussed in the July 31, 1998 final rule, these 10 DRGs were selected in 1998 based on the MedPAR data from FY 1996. Using that information, we identified and selected the first 20 DRGs that had the largest proportion of discharges to postacute care (and at least 14,000 such transfer cases). In order to select 10 DRGs from the 20 DRGs on our list, we considered the volume and percentage of discharges to postacute care that occurred before the mean length of stay and whether the discharges occurring early in the stay were more likely to receive postacute care. We identified 10 DRGs to be subject to the postacute care transfer rule starting in FY 1999.</P>
                    <P>Section 1886(d)(5)(J)(iv) of the Act authorizes the Secretary to expand the postacute care transfer policy beyond 10 DRGs for FY 2001 or subsequent fiscal years. In the FY 2004 IPPS final rule (68 FR 45412), we expanded the postacute care transfer policy to include additional DRGs. We established the following criteria that a DRG must meet, for both of the 2 most recent years for which data are available, in order to be added to the postacute care transfer policy:</P>
                    <P>• At least 14,000 postacute care transfer cases; </P>
                    <P>• At least 10 percent of its postacute care transfers occurring before the geometric mean length of stay; </P>
                    <P>• A geometric mean length of stay of at least 3 days; and</P>
                    <P>• If a DRG is not already included in the policy, a decline in its geometric mean length of stay during the most recent 5 year period of at least 7 percent.</P>
                    <P>We identified 21 new DRGs that met these criteria. We also determined that one DRG from the original group of 10 DRGs (DRG 263) no longer met the volume criterion of 14,000 transfer cases. Therefore, we removed DRGs 263 and 264 (DRG 264 is paired with DRG 263) from the policy and the postacute care transfer policy to include payments for transfer cases in the new 21 DRGs, effective October 1, 2003. As a result, a total of 29 DRGs were subject to the postacute care transfer policy in FY 2004.</P>
                    <P>We indicated in last year's rule that we would review and update this list periodically to assess whether additional DRGs should be added or existing DRGs should be removed. We have analyzed the available data from the FY 2003 MedPAR file. For the 2 most recent years of available data (FY 2002 and FY 2003), we have found that no additional DRGs qualify under the four criteria set forth in the IPPS final rule for FY 2004. We have also analyzed the DRGs included under the policy for FY 2004 to determine if they still meet the criteria to remain under the policy. In addition, we have analyzed the special circumstances arising from a change to one of the DRGs included under the policy in FY 2004.</P>
                    <P>
                        As discussed in section II.B.9. of this preamble, we are proposing to eliminate DRG 483. The cases that would have been placed into DRG 483 would now be split into two proposed new DRGs, 541 (Tracheostomy With Mechanical 
                        <PRTPAGE P="28273"/>
                        Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth and Neck Diagnoses With Major O.R. Procedure) and 542 (Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth and Neck Diagnoses Without Major O.R. Procedure). This would be done by subdividing the cases in the existing DRG 483 based on the presence of a major O.R. procedure, in addition to the tracheotomy code that is currently required to be assigned to this DRG. Therefore, if the patient's case involves a major O.R. procedure (a procedure whose code is included on the list that is assigned to DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis), except for tracheostomy codes 31.21 and 31.29), the case would be assigned to the proposed new DRG 541. If the patient does not have an additional major O.R. procedure (that is, there is only a tracheotomy code assigned to the case), the case would be assigned to proposed new DRG 542.
                    </P>
                    <P>Neither of the proposed new DRGs 541 and 542 would have enough cases to meet the first criterion for inclusion in the postacute care transfer policy. DRG 483 had 44,788 total cases with 15,520 transfer cases in FY 2002, and 44,618 total cases with 20,034 transfer cases in FY 2003. These cases would now split between proposed new DRG 541 (20,812 total cases) and proposed new DRG 542 (23,387 total cases). As a result, neither of these proposed new DRGs would meet the existing threshold of 14,000 transfer cases (6,779 projected transfer cases for proposed DRG 541, and 8,570 projected transfer cases for proposed DRG 542). Nevertheless, we believe the cases that would now be incorporated into these two proposed new DRGs remain appropriate candidates for application of the postacute care transfer policy. The proposed new DRGs 541 and 542 would contain the same cases that were included in existing DRG 483, which qualified for inclusion in the postacute care transfer policy. Furthermore, many of the cases in the proposed new DRGs 541 and 542 would continue to require postacute care.</P>
                    <P>When we analyzed the cases that we projected would fall into the two proposed new DRGs in the FY 2003 GROUPER Version 22.0, we found that a high proportion of cases in both the proposed new DRGs are projected to be transfer cases: 33 percent of all cases in proposed DRG 541, and 37 percent in proposed DRG 542. In addition, a high proportion of the transfer cases in these proposed new DRGs, based on the data from cases in DRG 483 in the FY 2003 MedPAR file, are projected to fall into the short-stay transfer category: 41 percent of transfer cases in proposed new DRG 541 and 42 percent of transfer cases in proposed new DRG 542 are projected to occur before the geometric mean length of stay for these proposed new DRGs. By contrast, among all DRGs, approximately 15 percent of transfer cases are short-stay transfer cases. The percentage of transfer cases that are short-stay cases that would be in both proposed new DRGs 541 and 542 would be more than 2 standard deviations above the mean percentage of short-stay cases across all DRGs. (Two standard deviations above the mean across all DRGs is 37 percent for FY 2005.) Therefore, we believe this proposed subdivision of DRG 483 should not change the original application of the postacute care transfer policy to the cases once included in that DRG. We do not believe that it is appropriate for these cases to fall outside the scope of this policy solely because of the proposed revision to the DRG structure that was driven by policy reasons unrelated to the postacute care transfer provision. The high proportion of transfer cases among all cases that would be assigned to these proposed new DRGs, along with the unusually high proportion of short-stay cases among those transfer cases, provide solid reasons for considering whether alternate criteria might better address the special circumstances that can arise from changes in DRGs unrelated to the postacute care transfer policy.</P>
                    <P>Therefore, we are proposing alternate criteria to be applied in cases where DRGs do not satisfy the existing criteria, for discharges occurring on or after October 1, 2004. These proposed new criteria are designed to address situations such as those posed by the proposed split of DRG 483, where there remain substantial grounds for inclusion of cases within the postacute care transfer policy, although one or more of the original criteria may no longer apply. Therefore, we are proposing to examine DRGs for inclusion within the policy against two sets of criteria, first, the original four criteria, and then, the proposed alternate set of criteria. DRGs that do not satisfy the first set of criteria would still be included if they satisfy the second set. Specifically, a DRG would still be subject to the postacute care transfer policy under the alternative set of criteria if, for the 2 most recent years for which data are available, there are at least 5,000 total transfers to postacute care among the cases included in the DRG, and if, among the cases included in the DRG, the percentage of transfer cases that are short-stay transfer cases is at least 2 standard deviations above the geometric mean length of stay across all DRGs (which is 37 percent for FY 2005). We would also continue to require a geometric mean length of stay of at least 3 days among the cases included in the DRG. Finally, we would require that, if a DRG is not already included in the policy, it either experienced a decline in its geometric mean length of stay during the most recent 5 year period of at least 7 percent or contains only cases that would have been included in a DRG to which the policy applied in the prior year.</P>
                    <P>Under these proposed alternate criteria, DRGs 430, 541, and 542 would qualify for inclusion in the postacute care transfer policy. DRG 430 meets the proposed threshold of 5,000 transfer cases in both of the 2 most recent years, with 11,973 transfer cases and 46 percent short-stay transfer cases in FY 2002, and 12,202 transfer cases and 38 percent short-stay transfers in FY 2003. In addition, DRG 430 experienced a 7-percent decline in length of stay from FY 2000 to FY 2004. DRG 430 also had a 5.8 day average length of stay during those years. As discussed above, the cases that would be included in proposed new DRGs 541 and 542 contain a sufficient number of transfers to meet the first alternate criterion, and among the cases that would be included in these DRGs, the percentages of transfer cases occurring before the geometric mean length of stay for these two proposed new DRGs exceed 2 standard deviations above the geometric mean length of stay for all DRGs. The average lengths of stay for the cases that would be included in proposed new DRGs 541 and 542 are 37.7 days and 28.9 days, respectively.</P>
                    <P>We are proposing to revise the regulations governing the postacute transfer policy to include the alternative criteria described above (§ 412.4(d)). We are also proposing that DRG 430 and proposed new DRGs 541 and 542 would be included in the postacute care transfer policy.</P>
                    <P>
                        We would also like to call attention to the data concerning DRG 263, which was subject to the postacute care transfer policy until FY 2004. We removed DRG 263 from the postacute care transfer policy last year because it did not have the minimum number of cases (14,000) transferred to postacute care (13,588 transfer cases in FY 2002, with more than 50 percent of transfer cases being short-stay transfers). The FY 2003 MedPAR data show that there were 15,602 transfer cases in the DRG in FY 2003, of which 46 percent were short-stay transfers. Because we 
                        <PRTPAGE P="28274"/>
                        removed the DRG from the postacute care transfer policy in FY 2004, it must meet all criteria to be included under the policy in subsequent fiscal years. Because the geometric mean length of stay for DRG 263 shows only a 6-percent decrease since 1999, DRG 263 does not qualify to be added to the policy for FY 2005 under the existing criterion that was included in last year's rule. However, DRG 263 would qualify under the volume threshold and percent of short-stay transfer cases under the proposed new alternate criteria in this proposed rule, but it still does not meet the proposed required decline in length of stay to qualify to be added to the policy in FY 2005.
                    </P>
                    <P>The table below displays the 31 DRGs that we are proposing to include in the postacute care transfer policy, effective for discharges occurring on or after October 1, 2004. These 31 DRGs include the effects of dropping DRG 483, which we are proposing to delete from the DRG list, and adding the two proposed new DRGs 541 and 542 that would now incorporate the cases formerly assigned to DRG 483. They also include the proposed addition of DRG 430 to the list. These DRGs meet the criteria specified above during both of the 2 most recent years available prior to the publication of the FY 2005 IPPS proposed rule (FYs 2002 and 2003), as well as their paired-DRG if one of the DRGs meeting the criteria includes a CC/no-CC split.</P>
                    <GPOTABLE COLS="2" OPTS="L2,tp0,i1" CDEF="s50,r150">
                        <TTITLE>  </TTITLE>
                        <BOXHD>
                            <CHED H="1">DRG </CHED>
                            <CHED H="1">DRG title.</CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">12</ENT>
                            <ENT>Degenerative Nervous System Disorders.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">14</ENT>
                            <ENT>Intracranial Hemorrhage and Stroke with Infarction.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">24</ENT>
                            <ENT>Seizure and Headache Age &gt; 17 With CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">25</ENT>
                            <ENT>Seizure and Headache Age &gt; 17 Without CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">88</ENT>
                            <ENT>Chronic Obstructive Pulmonary Disease.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">89</ENT>
                            <ENT>Simple Pneumonia and Pleurisy Age &gt; 17 With CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">90</ENT>
                            <ENT>Simple Pneumonia and Pleurisy Age &gt; 17 Without CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">113</ENT>
                            <ENT>Amputation for Circulatory System Disorders Except Upper Limb and Toe.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">121</ENT>
                            <ENT>Circulatory Disorders With AMI and Major Complication, Discharged Alive.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">122 </ENT>
                            <ENT>Circulatory Disorders With AMI Without Major Complications Discharged Alive.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">127 </ENT>
                            <ENT>Heart Failure &amp; Shock.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">130 </ENT>
                            <ENT>Peripheral Vascular Disorders With CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">131 </ENT>
                            <ENT>Peripheral Vascular Disorders Without CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">209 </ENT>
                            <ENT>Major Joint and Limb Reattachment Procedures of Lower Extremity.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">210 </ENT>
                            <ENT>Hip and Femur Procedures Except Major Joint Age &gt; 17 With CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">211 </ENT>
                            <ENT>Hip and Femur Procedures Except Major Joint Age &gt; 17 Without CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">236 </ENT>
                            <ENT>Fractures of Hip and Pelvis.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">239 </ENT>
                            <ENT>Pathological Fractures and Musculoskeletal and Connective Tissue Malignancy.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">277 </ENT>
                            <ENT>Cellulitis Age &gt; 17 With CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">278 </ENT>
                            <ENT>Cellulitis Age &gt; 17 Without CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">294 </ENT>
                            <ENT>Diabetes Age &gt; 35.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">296 </ENT>
                            <ENT>Nutritional and Miscellaneous Metabolic Disorders Age &gt; 17 With CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">297 </ENT>
                            <ENT>Nutritional and Miscellaneous Metabolic Disorders Age &gt; 17 Without CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">320 </ENT>
                            <ENT>Kidney and Urinary Tract Infections Age &gt; 17 With CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">321 </ENT>
                            <ENT>Kidney and Urinary Tract Infections Age &gt; 17 Without CC.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">395 </ENT>
                            <ENT>Red Blood Cell Disorders Age &gt; 17.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">429 </ENT>
                            <ENT>Organic Disturbances and Mental Retardation.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">430 </ENT>
                            <ENT>Psychoses.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">468 </ENT>
                            <ENT>Extensive O.R. Procedure Unrelated to Principal Diagnosis.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Proposed 541</ENT>
                            <ENT>Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth and Neck Diagnoses With Major O.R. Procedure.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Proposed 542</ENT>
                            <ENT>Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth and Neck Diagnoses Without Major O.R. Procedure. </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>Section 1886(d)(5)(J)(i) of the Act recognizes that, in some cases, a substantial portion of the costs of care is incurred in the early days of the inpatient stay. Similar to the policy for transfers between two acute care hospitals, the transferring hospital in a postacute care transfer receives twice the per diem rate for the first day of treatment and the per diem rate for each following day of the stay before the transfer, up to the full DRG payment. However, three of the DRGs subject to the postacute care transfer policy exhibit a disproportionate share of costs very early in the hospital stay in postacute care transfer situations. For these DRGs, hospitals receive 50 percent of the full DRG payment plus the single per diem (rather than double the per diem) for the first day of the stay and 50 percent of the per diem for the remaining days of the stay, up to the full DRG payment.</P>
                    <P>In previous years, we determined that DRGs 209 and 211 met this cost threshold and qualified to receive this special payment methodology. Because DRG 210 is paired with DRG 211, we include payment for cases in that DRG for the same reason we include paired DRGs in the postacute care transfer policy (to eliminate any incentive to code incorrectly in order to receive higher payment for those cases). The FY 2003 MedPAR data show that DRGs 209 and 211 continue to have charges on the first day of the stay that are higher than 50 percent of the average charges in the DRGs. Therefore, we are proposing to continue the special payment methodology for DRGs 209, 210, and 211 for FY 2005.</P>
                    <HD SOURCE="HD2">B. Payments for Inpatient Care in Providers That Change Classification Status During a Patient Stay (§§ 412.2(b)(3) and 412.521(e))</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Crossover Patients” at the beginning of your document.]</FP>
                    <P>
                        Different Medicare payment systems apply to care furnished to Medicare beneficiaries during inpatient stays, depending on the classification status of the provider. For example, payments made to an acute care hospital for inpatient services are made under the IPPS on a per discharge basis, using a 
                        <PRTPAGE P="28275"/>
                        DRG classification system. Payments to LTCHs that are classified under section 1886(d)(1)(B)(iv)(I) and (II) of the Act are made under the LTCH PPS on a per discharge basis, using a LTC-DRG classification system. The main difference between a LTCH that is classified under section 1886(d)(1)(B)(iv)(I) of the Act and an acute care hospital is the average length of stay at the hospital. Specifically, section 1886(d)(1)(B)(iv)(I) hospitals must have a greater than 25 day average Medicare inpatient length of stay. (section 1886(d)(1)(B)(iv)(II) hospitals, among other requirements, must have a greater than 20 day Medicare and non-Medicare inpatient length of stay to qualify as LTCHs.) Situations occur in hospital inpatient care settings in which a Medicare provider changes its Medicare payment classification status during a patient's stay, for example, an acute care hospital changes to a LTCH. (We refer to the patients in these situations as “crossover patients.”)
                    </P>
                    <P>Questions have arisen as to how Medicare should pay for an inpatient stay in a hospital when the hospital changes its classification status during the course of the beneficiary's single hospital stay. Specifically, how should Medicare pay for an inpatient stay when a patient is in an acute care hospital and the acute care hospital changes to a LTCH during the beneficiary's hospitalization. In other words, how does Medicare pay for the first part of the stay that occurs before the change in classification status and how does Medicare pay for the part of the stay that occurs after the change in classification status. Although the situation may occur in other settings, this payment issue is most prevalent for services furnished to crossover patients in a newly established LTCH. This is because all new LTCHs begin as other provider types, generally as acute care hospitals, and generally after at least 5 months of experience showing an average length of stay in excess of 25 days, and are then paid as LTCHs. Therefore, as explained further below, we are currently addressing this problem in the context of crossover patients discharged from LTCHs.</P>
                    <P>To address payment for inpatient care for such crossover patients, we had issued instructions for hospital billing purposes (paper-based manual, Hospital Manual, HCFA Pub. 10, section 404, which has been replaced by the Medicare Claims Processing Manual, Pub. 100-4, Chapter 3, section 100.4.1) that were in effect prior to the implementation of the PPS for LTCHs (that is, prior to October 1, 2002). The manual instructed hospitals as follows: “The hospital must submit a discharge bill with the old provider number and an admission notice with the new provider number. The date of discharge and the date of admission are the same date, which is the first day of the new fiscal period. All subsequent billings are submitted under the new provider number.”</P>
                    <P>It is important to note that at the time this manual provision was written, IPPS-excluded hospitals, including LTCHs, were reimbursed under the reasonable cost-based (TEFRA) payment system, not under other PPSs that pay on a per discharge basis. Thus, under the manual instructions, if a patient was in an acute care hospital and the hospital converted to a LTCH during the patient's stay, Medicare would then make payment for what was, in reality, only one episode of care as if it were two episodes. Specifically, the days of the stay while the facility was certified as an acute care hospital generate a full DRG payment under the IPPS; and the services provided from the time the facility was certified as a LTCH were reimbursed under the reasonable cost-based payment system. We are proposing to revisit the issue of Medicare payment for crossover patients now that there has been a fundamental change in the Medicare payment system for LTCHs. LTCHs are now paid under the discharge-based LTCH PPS which was effective for LTCHs for cost reporting periods beginning on or after October 1, 2002.</P>
                    <P>Under the LTCH PPS for crossover patients, under the existing manual instructions, Medicare makes a full DRG payment under the IPPS to the acute care hospital for the “first portion” of the inpatient stay, and when the acute care hospital converts to an LTCH, Medicare makes a second PPS payment under the LTCH PPS for the “second portion” of the stay. We believe that this results in excessive Medicare payments and results in the inappropriate use of the Medicare Trust Fund. We believe the results described above are contrary to a basic premise of a PPS, which is that a single discharge-based PPS payment is adequate and appropriate reimbursement for the entire bundle of services that a hospital provides during the course of a patient's stay. We believe the care provided prior to and after the conversion to a LTCH is really one bundle of services provided during a single hospitalization. The “discharge” from the acute care hospital and “admission” to the LTCH has only been a “paper discharge” that was triggered solely by a change in the Medicare payment classification of the hospital treating the inpatient. In the instant case, the beneficiary, by mere coincidence, just happened to be an inpatient of the acute care hospital when it changed status—the acute care hospital does not drastically change the medical care it provides a beneficiary during his or her single hospitalization because its classification as an acute care hospital ends on one day and changes to LTCH classification on the next day, nor does the “discharge” signify the completion of a discrete period of care. Under the existing manual instructions, the hospital is receiving not one payment, but two PPS payments for a bundle of services that, in fact, was furnished during a single inpatient hospital stay and should have been adequately and properly reimbursed by a single PPS payment.</P>
                    <P>In addition, presently, if the DRG assigned to the “discharge” from the acute care hospital for a crossover patient falls within one of the DRGs covered by the postacute care transfer policy at § 412.4(c), the provider will receive a payment under the postacute care transfer policy as if the patient, who in fact has not moved, was transferred to a postacute care provider. Payment under the postacute care transfer policy is triggered when a discharge bill with the old provider number and an admission notice with the new provider number is submitted and processed by the Medicare standard bill processing systems as a transfer. Because the patient is, in reality, at the “same” facility (an acute care hospital that had met the LTCH designation criteria) and is in one episode of care, we do not believe the application of the existing transfer policy is the appropriate methodology for dealing with this situation. Under the postacute care transfer policy, the payment to the transferring hospital is only affected if the patient is discharged prior to the day before the geometric mean length of stay for the DRG. Where the patient is discharged by the day before the geometric mean length of stay, the “discharging” acute care hospital will receive the equivalent of the full IPPS DRG payment and the LTCH hospital will also receive a full LTCH PPS payment.</P>
                    <P>
                        Accordingly, we are proposing to revise our regulations to provide for only one Medicare program payment for LTCH crossover patients. After reconsidering the current payment policy for crossover patients, we do not believe it is appropriate to make two separate discharge-based payments under Medicare for what, in reality, is a single inpatient hospital stay. In fact, when a patient under existing policy is deemed discharged from an acute care 
                        <PRTPAGE P="28276"/>
                        hospital that has met the LTCH designation requirements during the patient's stay and has now changed its classification to LTCH status, we believe the patient has been receiving one consistent course of treatment throughout his or her stay. An acute care hospital that has become a LTCH prior to being paid as a LTCH has been admitting and treating patients with the multi-cormorbidities that result in longer hospital stays that are characteristic of the patient census at a LTCH, as required by § 412.23(e). Invariably, at the time the acute care hospital becomes a LTCH, there will be patients who were admitted to the acute care hospital and who remain in the facility when it converts to a LTCH and are ultimately discharged from the LTCH. An acute care hospital's change in payment classification status to a LTCH at the start of its first cost reporting period should have no impact on the course of treatment that is already underway for the patient in what is now a LTCH and not an acute care hospital. Accordingly, we believe that only one Medicare payment should be made for the entire stay.
                    </P>
                    <P>Therefore, we are proposing a more appropriate payment policy for crossover patients that would provide one Medicare payment for what has been treated, for payment purposes under Medicare, to be two stays, but is, in reality, one continuous and uninterrupted period of inpatient hospital care. Consistent with the authority granted to the Secretary in both section 123 of the BBRA (Pub. L. 106-113) and section 307 of the BIPA (Pub. L. 106-554) to develop a LTCH PPS DRG-based system, we are proposing, effective for a patient stay in which a patient is in an acute care hospital and that hospital is designated as a LTCH on or after October 1, 2004, to make only one LTCH payment based on the PPS of the facility that is actually discharging the patient. Under this approach, we would include those days of care and costs incurred by the hospital for the crossover patient before the facility met the LTCH status criteria, in determining payments to the LTCH for that patient under the LTCH PPS. Under this proposed policy, for example, if an acute care hospital admits a patient on December 28 and the hospital converts to a LTCH on January 1 when its cost reporting period begins, and the patient is physically discharged from the LTCH on February 5, a single Medicare payment would be made for this entire stay (December 28 through February 5), and payment would be made to the LTCH based on the LTCH-DRGs under the LTCH PPS. We are proposing to count the crossover patient's entire hospitalization (that is, all days and costs of the patient stay in the facility that occurred prior to and after conversion) in determining the applicable payment under the LTCH PPS. This proposed provision would also count all the days of the inpatient stay, that is, prior to and after conversion, as LTCH days for purposes of determining whether the facility continues to meet the average length of stay regulations for LTCH. We believe that this proposed policy is consistent with the discretionary authority granted to the Secretary at section 1886(d)(1)(B)(iv)(I) of the Act for determining average lengths of stay for LTCHs. Specifically, section 1886(d)(1)(B)(iv)(I) of the Act provides that a LTCH is a hospital that has an average length of stay (as determined by the Secretary) of greater than 25 days. Thus, the Secretary determines how a LTCH's average length of stay is to be determined.</P>
                    <P>We are also using the broad discretionary authority provided in section 1871 of the Act to not count the days of the patient's stay in the acute care hospital prior to conversion as acute care days. In addition, we are using the broad authority in section 1871 of the Act to not pay for the days of the patient's stay in the acute care hospital as acute days. Section 1871 of the Act authorizes the Secretary to promulgate regulations that are necessary to carry on the administration of the Medicare program.</P>
                    <P>In addition, we believe counting all days for the patient's stay is consistent with the policy at recently revised § 412.23(e)(3), which provides that if a LTCH patient is admitted in one cost reporting period and discharged in a second cost reporting period, all of the days of the patient's stay, even those from prior fiscal years, are counted in the cost reporting period in which the patient is discharged. In the example of a crossover patient cited above, including the days in December may result in a full LTC-DRG payment rather than the lower payment under the short-stay outlier policy (§ 412.529) based on the length of the stay. (Under the short-stay policy, we would adjust (lower) the Federal prospective payment if the payment is for a length of stay that is up to and including five-sixths of the geometric average length of stay for the LTC-DRG assigned to the case.)</P>
                    <P>Accordingly, we are proposing to add a new § 412.2(b)(3), applicable to acute care hospitals, and a new § 412.521(e), applicable to LTCHs, that specify that Medicare would make only one LTCH PPS payment for a crossover patient to the LTCH that is discharging the patient based on the entire stay, both prior to the change to LTCH status and after the change. Medicare considers all days of the patient stay in the facility (days prior to and after conversion to the LTCH status) to be a single episode of LTCH care. Medicare will not make any payment under 42 CFR Part 412, Subpart H for any part of the hospitalization. In addition, for purposes of determining the beneficiary LTCH length of stay, the days prior to and after conversion to LTCH status are included. In order to implement the proposed policy, we would create systems adjustments that would enable the single claim generated by the discharging provider to include patient days under the initial provider number. We note that our proposal to define and pay for crossover patient stays as one episode of care based on the PPS of the discharging provider is consistent with existing regulations that establish that payment under the per discharge PPS constitutes “payment in full” for acute care hospitals at § 412.2(b) under the IPPS and for LTCHs, at § 412.521(b) under the LTCH PPS.</P>
                    <P>
                        In this proposal, we have specifically addressed only the situation of a crossover patient that was in an acute care hospital that meets the requirements to be paid as a LTCH. However, we believe the policy may be equally applicable to other crossover situations. For example, an acute care hospital may meet the requirements to be paid as an inpatient rehabilitation facility (under the IRF PPS) and there could be rehabilitation patients who were admitted to the acute care hospital who were not discharged from the hospital until after the facility was designated as an IRF. At this time, we are not proposing to make a change to the existing payment policy in situations other than the LTCH crossover patient. We have only addressed the LTCH crossover patient because, based on the statutory and regulatory qualifying criteria, every LTCH must first be certified as a hospital before it can meet the LTCH criteria. However, the same is not true for other hospital certifications. For example, an inpatient rehabilitation hospital can be certified as an IRF without first being certified and paid as an acute care hospital for inpatient services. However, we intend to revisit the existing crossover policy as it affects other crossover situations in the future. We also welcome comments on how Medicare payment policy should address those situations.
                        <PRTPAGE P="28277"/>
                    </P>
                    <HD SOURCE="HD2">C. Geographic Reclassifications—Definitions of Urban and Rural Areas (§ 412.63(b) and Proposed New § 412.64(b))</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Urban and Rural Areas Definitions” at the beginning of your document.]</FP>
                    <P>As discussed in section III.B. and III.G. of this proposed rule, we are proposing how we would implement OMB's revised standards for defining MSAs and our plan to use the New England MSAs established by OMB. These proposals relate to our policies in established regulations under § 412.63(b) governing geographic classification of hospitals for purposes of the wage index and the standardized amounts in determining the Federal rates for inpatient operating costs. In this section, we define the geographic areas for purposes of reclassification of hospitals. Therefore, consistent with our proposed changes to reflect the new definitions of CBSAs based on the Census 2000 data, effective for discharges occurring on or after October 1, 2004, we are proposing to revise § 412.63(b) and add a new § 412.64(b) to reflect the existing geographic classification definitions.</P>
                    <HD SOURCE="HD2">D. Equalization of Urban and Rural Standardized Amounts (§ 412.63(c) and Proposed New § 412.64)</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Standardized Amounts” at the beginning of your document.]</FP>
                    <P>Sections 1886(d)(2)(D) and (d)(3) of the Act previously required the Secretary to compute two average standardized amounts for discharges occurring in a fiscal year: one for hospitals located in large urban areas and one for hospitals located in other areas. In addition, under sections 1886(d)(9)(B)(iii) and (d)(9)(C)(i) of the Act, the average standardized amount per discharge was determined for hospitals located in large urban and other areas in Puerto Rico. In accordance with section 1886(b)(3)(B)(i) of the Act, prior to April 1, 2003, the large urban average standardized amount was 1.6 percent higher than the other area average standardized amount. The two standardized amounts are currently equal, as discussed in the following paragraphs.</P>
                    <P>Section 402(b) of Pub. L. 108-7 required that, effective for discharges occurring on or after April 1, 2003, and before October 1, 2003, the Federal rate for all IPPS hospitals would be based on the large urban standardized amount. Subsequently, Pub. L. 108-89 extended section 402(b) of Pub. L. 108-7 to discharges occurring on or after October 1, 2003, and before April 1, 2004. Finally, section 401(a) of Pub. L. 108-173 required that, beginning with FY 2004 and thereafter, an equal standardized amount is to be computed for all hospitals at the level computed for large urban hospitals during FY 2003, updated by the applicable percentage update. This provision in effect makes permanent the equalization of the standardized amounts at the level of the previous standardized amount for large urban hospitals. Section 401(c) also equalizes the Puerto Rico-specific urban and other area rates.</P>
                    <P>Accordingly, we are providing in this proposed rule for a single national standardized amount and a single Puerto Rico standardized amount for FY 2005 and thereafter, as discussed in detail in the Addendum to this proposed rule. We are proposing to revise existing § 412.63 that includes the provisions related to computation of the standardized amount to make it applicable to fiscal years through FY 2004 and to establish a new § 412.64 that will include the provisions applicable to the single national standardized amount applicable for FY 2005 and subsequent years. Similarly, we are proposing to revise existing § 412.210 for Puerto Rico to make it applicable to fiscal years through FY 2004 and adding a new § 412.211 for FY 2005 and subsequent years for the Puerto Rico standardized amount. We are also proposing to make conforming changes to various other sections of the regulations to reflect the single standardized amount for the States and for Puerto Rico.</P>
                    <HD SOURCE="HD2">E. Reporting of Hospital Quality Data for Annual Hospital Payment Update (Proposed New § 412.64(d))</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Hospital Quality Data” at the beginning of your document.]</FP>
                    <HD SOURCE="HD3">1. Background</HD>
                    <P>Section 501(b) of Pub. L. 108-173 amended section 1886(b)(3)(B) of the Act to add a new subclause (vii) to revise the mechanism used to update the standardized amount for payment for inpatient hospital operating costs. Specifically, the amendment provides that the update percentage increase (also known as the market basket update) for each of FYs 2005 through 2007 will be reduced by 0.4 percentage point for any “subsection (d) hospital” that does not submit data on a set of 10 quality indicators established by the Secretary as of November 1, 2003. (The statutory reference to a “subsection (d) hospital” restricts the application of this provision to hospitals paid under the IPPS. Therefore, the provision does not apply to hospitals and hospital units excluded from the IPPS, nor to payments to hospitals under other systems such as the outpatient hospital PPS.) The statute also provides that any reduction will apply only to the fiscal year involved, and will not be taken into account in computing the applicable percentage increase for a subsequent fiscal year. This measure establishes an incentive for IPPS hospitals to submit data on the quality measures established by the Secretary.</P>
                    <P>
                        We are proposing to implement the provisions of section 501(b) as described at the CMS Web site: 
                        <E T="03">http://www.cms.hhs.gov/quality/hospital.</E>
                    </P>
                    <P>At a press conference on December 12, 2002, the Secretary of HHS announced a series of steps that HHS and its collaborators are taking for public reporting of hospital quality information. These collaborators include the American Hospital Association, the Federation of American Hospitals, the Association of American Medical Colleges, the Joint Commission on Accreditation of Healthcare Organizations, the National Quality Forum, the American Medical Association, the Consumer-Purchaser Disclosure Project, the American Association of Retired Persons, the American Federation of Labor-Congress of Industrial Organizations and the Agency for Healthcare Research and Quality, as well as CMS, QIOs, and others.</P>
                    <P>CMS began the public reporting initiative in July 2003 with a professional Web site that provides data intended for health care professionals. The professional Web site will be followed by a consumer Web site. The information on the consumer Web site will include the data from the professional Web site but in an easy-to-use format for consumers. It is intended to be an important tool for individuals to use in making decisions about their health care coverage. This information will assist beneficiaries by providing comparison information for consumers who need to select a hospital. It will also serve as a way of encouraging hospitals to adopt quality improvement strategies.</P>
                    <P>The 10 measures that were employed in this voluntary initiative as of November 1, 2003, are:</P>
                    <FP SOURCE="FP-2">• Heart Attack (Acute Myocardial Infarction)</FP>
                    <FP SOURCE="FP1-2">
                        Was aspirin given to the patient upon arrival to the hospital?
                        <PRTPAGE P="28278"/>
                    </FP>
                    <FP SOURCE="FP1-2">Was aspirin prescribed when the patient was discharged?</FP>
                    <FP SOURCE="FP1-2">Was a beta-blocker given to the patient upon arrival to the hospital?</FP>
                    <FP SOURCE="FP1-2">Was a beta-blocker prescribed when the patient was discharged?</FP>
                    <FP SOURCE="FP1-2">Was an ACE inhibitor given for the patient with heart failure?</FP>
                    <FP SOURCE="FP-2">• Heart Failure</FP>
                    <FP SOURCE="FP1-2">Did the patient get an assessment of his or her heart function?</FP>
                    <FP SOURCE="FP1-2">Was an ACE inhibitor given to the patient?</FP>
                    <FP SOURCE="FP-2">• Pneumonia</FP>
                    <FP SOURCE="FP1-2">Was an antibiotic given to the patient in a timely way?</FP>
                    <FP SOURCE="FP1-2">Had a patient received a pneumococcal vaccination?</FP>
                    <FP SOURCE="FP1-2">Was the patient's oxygen level assessed?</FP>
                    <P>These measures have been endorsed by the National Quality Forum (NQF) and are a subset of the same measures currently collected for the JCAHO by its accredited hospitals. Many hospitals are currently participating in the Department's National Voluntary Hospital Reporting Initiative (NVHRI) and are already submitting data to the QIO Clinical Warehouse. The Secretary adopted collection of data on these 10 quality measures in order to: (1) Provide useful and valid information about hospital quality to the public; (2) provide hospitals a sense of predictability about public reporting expectations; (3) begin to standardize data and data collection mechanisms; and (4) foster hospital quality improvement.</P>
                    <HD SOURCE="HD3">2. Requirements for Hospital Reporting of Quality Data</HD>
                    <P>For the hospital reporting initiative for the Medicare annual payment update provided for under section 501(b) of Public Law 108-173, we will be collecting data on the 10 clinical measures for all patients. We refer to this program as the Reporting Hospital Quality Data for the Annual Payment Update (RHQDAPU) program to distinguish it from the continuing NVHRI.</P>
                    <P>
                        The procedures for participating in the RHQDAPU can be found on the QualityNet Exchange at the Web site: 
                        <E T="03">http://qnetexchange.org</E>
                         in the “Reporting Hospital Quality Data for Annual Payment Update Reference Checklist.” This checklist also contains all of the forms to be completed by hospitals participating in the program. In order to participate in the RHQDAPU, hospitals must follow the following steps:
                    </P>
                    <P>• The hospital must identify a QualityNet Exchange administrator who follows the registration process and submits the information through the QIO. This must be done, regardless of whether the hospital uses a vendor for transmission of data.</P>
                    <P>• All participants must first register with the QualityNet Exchange, regardless of the method used for data submission. If a hospital is currently participating in the voluntary reporting initiative, re-registration on the QualityNet Exchange is unnecessary. However, registration includes completion of the RHQDAPU Notice of Participation form. All hospitals must send the RHQDAPU form to their QIOs no later than August 1, 2004, for the FY 2005 update.</P>
                    <P>• The hospital must collect data for all 10 measures and submit the data to the QIO Clinical Warehouse either using the CMS Abstraction &amp; Reporting Tool (CART), the JCAHO Oryx Core Measures Performance Measurement System (PMS), or another third-party vendor who has met the measurement specification requirements for data transmission to the QualityNet Exchange. The QIO Clinical Warehouse will submit the data to CMS on behalf of the hospitals. The submission will be done through QualityNet Exchange, which is a secure site that voluntarily meets or exceeds all current Health Insurance Portability and Accountability Act (HIPAA) requirements, while maintaining QIO confidentiality as required by law. The information in the Clinical Warehouse is considered QIO data, and therefore, is subject to the stringent confidentiality regulations in 42 CFR part 480.</P>
                    <P>Hospitals must begin the submission of data under the provisions of section 1886(b)(3)(B)(vii)(II) of the Act, as added by section 501(b) of Public Law 108-173, by July 1, 2004. Because section 501(b) of Public Law 108-173 grants a 30-day grace period for submission of data with respect to FY 2005, we are proposing to allow hospitals until August 1, 2004, for completed submissions to be successfully accepted into the QIO Clinical Warehouse. Hospitals would be required to submit data for the first calendar quarter of 2004 discharges in order to meet the requirements for the FY 2005 payment update. Hospitals participating in the NVHRI that submit the required 10 measures for the fourth calendar quarter of 2003 by the CMS-established deadline of May 15, 2004, and that meet the registration requirements for the market basket update, would be given until August 15, 2004, to submit data for the first calendar quarter of 2004. There will be no chart-audit validation criteria in place for the FY 2005 payment update beyond the CART edits, currently in force, applied to data entering the QIO Clinical Warehouse. In addition, we will estimate the minimum number of discharges anticipated to be submitted by a hospital using Medicare administrative data. We will use this anticipated minimum number to establish our expectations of the number of cases for each hospital. Hospitals that do not treat a condition or have very few discharges would not be penalized and would receive the full annual payment update if they submit all the data they do possess. New hospitals should begin collecting and reporting data immediately and complete the registration requirements for the market basket update. The same standards that are applied to established hospitals will be applied to new hospitals when determining the expected number of discharges for the calendar quarters covered for each fiscal year.</P>
                    <P>The annual payment updates will be based on the successful submission of data to CMS via the QIO Clinical Warehouse by the established deadlines. Hospitals may withdraw from RHQDAPU at any time up to August 1, 2004. Hospitals withdrawing from the program will not receive the full market basket update. Instead, they will receive a 0.4 percentage point reduction in the update. By law, a hospital's actions each fiscal year will not affect its update in a subsequent fiscal year. Therefore, a hospital must meet the requirements for RHQDAPU each fiscal year the program is in effect, and failure to receive the full update in one fiscal year will not affect its update in a succeeding fiscal year.</P>
                    <HD SOURCE="HD3">3. Submission of Hospital Data for FYs 2006 and 2007</HD>
                    <P>
                        For FYs 2006 and 2007, we will require hospitals to submit data quarterly, starting August 15, 2004. Eligibility for the full annual payment update will be based on the most recent four quarters of data. These data would be submitted on the same schedule for data transmission currently in force for CART data. That is, data must be submitted to the QIO Clinical warehouse no later than 15 calendar days after the fourth month following the end of the calendar quarter. This schedule is available at 
                        <E T="03">http://www.qnetexchange.org</E>
                        . We will establish validation requirements for submitted data for FYs 2006 and 2007. Submissions would, at a minimum, need to be accurate, timely, and complete. That is—
                    </P>
                    <P>
                        • The hospital-submitted data must meet minimum levels of reliability through chart audit re-abstractions over all topics. At the data element level, there must be an 80 percent agreement 
                        <PRTPAGE P="28279"/>
                        between the original abstraction and the re-abstraction using the CART tool.
                    </P>
                    <P>• The submitted data must be on schedule, pass all warehouse edits, and be successfully accepted into the warehouse.</P>
                    <P>• Completeness of submitted data will be assessed to ensure the number of submitted cases corresponds to the number of bills submitted by the hospital to CMS.</P>
                    <P>We are planning to publish the most recent 12 months of discharge data (4 quarters) for all data accepted into the warehouse and passing all validation requirements. For FY 2005, we will publish as much data as we have available. Hospitals will have the opportunity to review the information prior to posting on the CMS Web site. However, there will be no opportunity to withhold the publication of the information. The preview will only be to correct obvious errors.</P>
                    <HD SOURCE="HD3">4. Proposed Regulation Change</HD>
                    <P>We are proposing to establish a new § 412.64(d)(2) to provide that, for FYs 2005, 2006, and 2007, the applicable percentage change is reduced by 0.4 percentage point in the case of any subsection (d) hospital that does not submit data to CMS on the 10 quality indicators established by the Secretary as of November 1, 2003. Any reduction will apply only to the fiscal year involved, and will not be taken into account in computing the applicable percentage increase for a subsequent fiscal year. We will be modifying our payment software to apply the correct updates to hospitals, depending on whether they submit the requisite data on the 10 quality indicators. We show the different standardized amounts that apply to hospitals that submit the requisite quality data, and to hospitals that do not, in the Addendum to this proposed rule.</P>
                    <HD SOURCE="HD2">F. Proposed Revision of the Labor-Related Share for the Hospital Wage Index (§ 412.64(h))</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Labor-Related Share” at the beginning of your document.]</FP>
                    <P>As discussed in section III. of the preamble of this proposed rule, section 1886(d)(3)(E) of the Act directs the Secretary to adjust the proportion of the national prospective payment system base payment rates that are attributable to wages and wage-related costs by a factor that reflects the relative differences in labor costs among geographic areas. It also directs the Secretary to estimate from time to time the proportion of hospital costs that are labor-related. The portion of hospital costs attributable to wages and wage-related costs is referred to as the labor-related share. The labor-related share of the prospective payment rate is adjusted by an index of relative labor costs, which is referred to as the wage index. In the past, we have defined the labor-related share for prospective payment acute care hospitals as the national average proportion of operating costs that are related to, influenced by, or vary with the local labor market. The labor-related share for the acute care hospital inpatient prospective payment system has been calculated as the sum of the weights for wages and salaries, fringe benefits, nonmedical professional fees, contract labor, postage, and labor-intensive services. For FY 2004, the labor share of the hospital wage index was established at 71.066 percent.</P>
                    <P>Section 403 of Pub. L. 108-173 amended section 1886(d)(3)(E) of the Act to provide that the Secretary must use 62 percent as the labor-related share unless application of this percentage “would result in lower payments than would otherwise be made.” However, this provision of Pub. L. 108-173 did not change the legal requirement that the Secretary estimate “from time to time” the proportion of hospitals' costs that are “attributable to wages and wage-related costs.” In fact, section 404 of Pub. L. 108-173 requires the Secretary to develop a frequency for revising the weights used in the hospital market basket, including the labor share, to reflect the most current data more frequently than once every 5 years. Section 404 further requires us to include in the final IPPS rule for FY 2006 an explanation of the reasons for, and options considered, in determining such frequency.</P>
                    <P>Under section III. of this preamble, we discuss our proposed implementation of section 1886(d)(3)(E) of the Act, as amended by section 403, as it applies to the development of the proposed FY 2005 wage index. In this section IV.F. of the preamble, we are proposing to incorporate the provisions of section 403 of Pub. L. 108-173 under a new § 412.64(h). Specifically, we are proposing to specify that CMS will adjust the proportion of the Federal rate for inpatient operating costs that are attributable to wages and labor-related costs for area differences in hospital wage levels by a factor (established by CMS based on survey data) reflecting the relative level of hospital wages and wage-related costs in the geographic area (that is, urban or rural area as determined the regulations) of the hospital compared to the national average level of hospital wages and wage-related costs. The wage index would continue to be updated annually. In addition, we are proposing to specify that CMS will determine the proportion of the Federal rate that is attributable to wages and labor-related costs from time to time, employing a methodology that is described in the annual regulation updating the system of payment for inpatient hospital operating costs. However, CMS would employ 62 percent as the proportion of the rate that is adjusted for the relative level of hospital wages and wage-related costs, unless employing that percentage would result in lower payments for the hospital than employing the proportion determined under the methodology described in the preceding sentence.</P>
                    <HD SOURCE="HD2">G. Wage Index Adjustment for Commuting Patterns of Hospital Employees (Proposed New § 412.64(i))</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Out-Migration of Hospital Employees” at the beginning of your document.]</FP>
                    <P>As discussed in section III.G.2.e. of this preamble, section 505 of Pub. L. 108-173 established new section 1886(d)(13) of the Act. The new section 1886(d)(13) requires that the Secretary establish a new process to make adjustments to the hospital wage index based on commuting patterns of hospital employees. The process provides for an increase in the wage index for hospitals located in certain counties that have a high percentage of hospital employees who reside in the county but work in a different area with a higher wage index. These adjustments to the wage index are effective for 3 years beginning with discharges occurring on or after October 1, 2004. Adjustments under this provision are not subject to the budget neutrality requirements at section 1886(d)(3)(E) or section 1886(d)(8)(D) of the Act.</P>
                    <P>Under section III.G.3.e of this preamble, we discuss the proposed implementation of the provisions of section 505 in developing the proposed FY 2005 wage index and the proposed applicable adjustments to that index. We are proposing in this section IV.G. of the preamble to incorporate the provisions of section 505 in the regulations by adding a new § 412.64(i).</P>
                    <P>
                        The Secretary is required to establish criteria to identify “qualifying counties,” and hospitals located in the qualifying counties are to receive an adjustment to their wage index. To implement this provision, we are proposing to use commuting data compiled by the U.S. Census Bureau based on a special tabulation of Census 2000 journey-to-work data. This 
                        <PRTPAGE P="28280"/>
                        information is gathered from responses to the Census long-form (sample) questions on where people worked. The resulting county-of-residence by county-of-work commuter flow file uses 108 Industrial Structure codes, developed by the Bureau of Economic Analysis. Using these data, we are able to identify the total number of hospital workers who live in each county and the number of workers within that county who commute to hospitals in other counties.
                    </P>
                    <P>Section 1886(d)(13)(B)(i) of the Act directs the Secretary to establish a threshold percentage difference between the county's wage index and a weighted wage index of the surrounding higher wage index areas that must be met in order for the county to qualify. We are proposing to establish this threshold at any percentage greater than zero, such that any increase in the wage index resulting from this provision that is greater than zero percent would be recognized. Section 1886(d)(13)(B)(ii) of the Act specifies that the Secretary is to establish the minimum out-migration threshold in order to qualify, which may not be less than 10 percent. We are proposing to establish the out-migration threshold at the minimum 10 percent.</P>
                    <P>Section 1886(d)(13)(B)(iii) of the Act requires that the average hourly wage for all hospitals in the county must be equal to or exceed the average hourly wage for all hospitals in the labor market area. Section 1886(d)(13)(E) of the Act indicates this process may be based on the process used by the MGCRB. This section also gives the Secretary the authority to require hospitals to submit data necessary to implement this provision, or to use other data sources as available. To compute this requirement, we are proposing to determine the average of hospitals' 3-year average hourly wage for all hospitals in a given county. We would compare this county average hourly wage to the 3-year average hourly wage for the labor market area where the county is located. We are proposing to use the 3-year average hourly wage because we believe it gives a better estimate for the wages paid by a given hospital over a period of time. This statutory requirement limits the number of eligible counties.</P>
                    <P>Section 1886(d)(13)(A) of the Act allows the Secretary to establish the process through application or otherwise for this adjustment to the wage index. We are proposing not to use an application process. Rather, all hospitals located in qualifying counties would automatically receive the increase in wage index, unless the hospital has already been reclassified to another geographic area for purposes of wage index or standardized amount. This wage index increase would be effective for a period of 3 fiscal years, FY 2005 through FY 2007.</P>
                    <P>
                        Hospitals receiving this wage index increase under section 1886(d)(13)(F) of the Act are not eligible for reclassification under section 1886(d)(8) or section 1886(d)(10) of the Act. Therefore, consistent with § 412.273, hospitals that have been reclassified by the MGCRB are permitted to withdraw their applications within 45 days of the publication of this proposed rule in the 
                        <E T="04">Federal Register</E>
                        . Similarly, hospitals may terminate an existing 3-year reclassification within 45 days of the publication of this proposed rule. Hospitals that withdraw their application for reclassification would then automatically receive the commuting wage index adjustment. The request for withdrawal of an application for reclassification or termination of an existing 3-year reclassification that would be effective in FY 2005 must be received by the MGCRB within 45 days of the publication of this proposed rule.
                    </P>
                    <HD SOURCE="HD2">H. Additional Payments for New Medical Services and Technology: Proposed Policy Changes (§§ 412.87 and 412.88)</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “New Technology Threshold” at the beginning of your document.]</FP>
                    <P>As discussed in section II.D. of this proposed rule, sections 1886(d)(5)(K) and (L) of the Act establish a process of identifying and ensuring adequate payment for new medical services and technologies under the IPPS, effective for discharges beginning on or after October 1, 2001. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that the process must apply to a new medical service or technology if, “based on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate.” Section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be considered “new” if it meets criteria established by the Secretary after notice and opportunity for public comment.</P>
                    <P>Sections 1886(d)(5)(K)(ii) through (d)(5)(K)(vi) of the Act further provide—</P>
                    <P>• For an additional payment for new medical services and technology in an amount beyond the DRG prospective payment system payment rate that adequately reflects the estimated average costs of the service or technology.</P>
                    <P>• That the requirement for an additional payment for a new service or technology may be satisfied by means of a new technology group (described in section 1886(d)(5)(L) of the Act), an add-on payment, a payment adjustment, or any other similar mechanism for increasing the amount otherwise payable with respect to a discharge.</P>
                    <P>• For the collection of data relating to the cost of a new medical service or technology for not less than 2 years and no more than 3 years after an appropriate inpatient hospital services code is issued. The statute further provides that discharges involving new services or technology that occur after the collection of these data will be classified within a new or existing DRG group with a weighting factor derived from cost data collected for discharges occurring during such period.</P>
                    <P>Section 412.87(b)(1) of our existing regulations provides that a new technology will be an appropriate candidate for an additional payment when it represents an advance in medical technology that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries (see the September 7, 2001 final rule (66 FR 46902)). Section 412.87(b)(3) provides that, to receive special payment treatment, new technologies meeting this clinical definition must be demonstrated to be inadequately paid otherwise under the DRG system.</P>
                    <P>In the August 1, 2003 final IPPS rule, we revised the threshold amount for determining if payment for a new technology or medical service is inadequate, effective for FY 2005 and subsequent fiscal years (68 FR 45392). We lowered the previously established threshold of 1 standard deviation to 75 percent of 1 standard deviation (based on the logarithmic values of the charges) beyond the geometric mean standardized charges for all cases in the DRG to which the new technology is assigned (or the case-weighted average of all relevant DRGs, if the new technology occurs in many different DRGs), transformed back to charges.</P>
                    <P>
                        Section 503(b) of Pub. L. 108-173 amended section 1886(d)(5)(K)(ii)(I) of the Act to specify that in determining whether payments for a new technology or medical service are inadequate, the Secretary is to determine and apply a threshold amount that is the “lesser of 75 percent of the standardized amount (increased to reflect the difference between cost and charges) or 75 percent of 1 standard deviation for the DRG involved.” As a result of enactment of section 503(b), we are proposing to revise our regulations at § 412.87(b)(3) 
                        <PRTPAGE P="28281"/>
                        to incorporate the revised threshold amount.
                    </P>
                    <P>The report language accompanying section 533 of Pub. L. 106-554 indicated Congressional intent that the Secretary implement the new mechanism on a budget neutral basis (H.R. Conf. Rep. No. 106-1033, 106th Cong., 2nd Sess., at 897 (2000)). Section 1886(d)(4)(C)(iii) of the Act requires that the adjustments to annual DRG classifications and relative weights must be made in a manner that ensures that aggregate payments to hospitals are not affected. Therefore, in the past, we accounted for projected payments under the new medical service and technology provision during the upcoming fiscal year at the same time we estimated the payment effect of changes to the DRG classifications and recalibration. The impact of additional payments under this provision was then included in the budget neutrality factor, which was applied to the standardized amounts and the hospital-specific amounts.</P>
                    <P>To balance appropriately the Congressional intent to increase Medicare payments for eligible new technologies with concern that the total size of those payments not result in significantly reduced payments for other cases, we set a target limit for estimated add-on payments for new technology under the provisions of sections 1886(d)(5)(K) and (L) of the Act at 1.0 percent of estimated total operating prospective payments. In accordance with § 412.88(c) of the regulations, if the target limit was exceeded, we would reduce the level of payments for approved technologies across the board, to ensure estimated payments did not exceed the limit.</P>
                    <P>Section 503(d)(1) of Pub. L. 108-173 amended section 1886(d)(5)(K)(ii)(III) of the Act to remove the budget neutrality provision for add-on payments for a new medical service or technology. Section 503(d)(2) specifies that “There shall be no reduction or other adjustment to payments under section 1886 of the Social Security Act because an additional payment is provided” for new technology. Accordingly, as a result of the enactment of section 503(d) of Pub. L. 108-173, we will no longer include the impact of additional payments for new medical services and technologies in the budget neutrality factor. In addition, we are proposing to delete § 412.88(c) of the regulations.</P>
                    <HD SOURCE="HD2">I. Rural Referral Centers (§ 412.96)</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Rural Referral Centers” at the beginning of your document.]</FP>
                    <P>Under the authority of section 1886(d)(5)(C)(i) of the Act, the regulations at § 412.96 set forth the criteria that a hospital must meet in order to qualify under the IPPS as a rural referral center. For discharges occurring before October 1, 1994, rural referral centers received the benefit of payment based on the other urban standardized amount rather than the rural standardized amount. Although the other urban and rural standardized amounts are the same for discharges occurring on or after October 1, 1994, rural referral centers continue to receive special treatment under both the DSH payment adjustment and the criteria for geographic reclassification.</P>
                    <P>Section 402 of Pub. L. 108-173 raised the DSH adjustment for other rural hospitals with less than 500 beds and rural referral centers. Other rural hospitals with less than 500 beds are subject to a 12-percent cap on DSH payments. Rural referral centers are not subject to the 12.0 percent cap on DSH payments that is applicable to other rural hospitals (with the exception of rural hospitals with 500 or more beds). Rural referral centers are not subject to the proximity criteria when applying for geographic reclassification, and they do not have to meet the requirement that a hospital's average hourly wage must exceed 106 percent of the average hourly wage of the labor market area where the hospital is located.</P>
                    <P>
                        As discussed in 
                        <E T="04">Federal Register</E>
                         documents at 62 FR 45999 and 63 FR 26325, under section 4202 of Pub. L. 105-33, a hospital that was classified as a rural referral center for FY 1991 is to be considered as a rural referral center for FY 1998 and later years so long as that hospital continues to be located in a rural area and does not voluntarily terminate its rural referral center status. Effective October 1, 2000, if a hospital located in what is now an urban area was ever a rural referral center, it is reinstated to rural referral center status (65 FR 47089). Otherwise, a hospital seeking rural referral center status must satisfy the applicable criteria.
                    </P>
                    <P>
                        One of the criteria under which a hospital may qualify as a rural referral center is to have 275 or more beds available for use (§ 412.96(b)(1)(ii)). A rural hospital that does not meet the bed size requirement can qualify as a rural referral center if the hospital meets two mandatory prerequisites (a minimum case-mix index and a minimum number of discharges) and at least one of three optional criteria (relating to specialty composition of medical staff, source of inpatients, or referral volume) (§ 412.96(c)(1) through (c)(5)). (
                        <E T="03">See</E>
                         also the September 30, 1988 
                        <E T="04">Federal Register</E>
                         (53 FR 38513)). With respect to the two mandatory prerequisites, a hospital may be classified as a rural referral center if—
                    </P>
                    <P>• The hospital's case-mix index is at least equal to the lower of the median case-mix index for urban hospitals in its census region, excluding hospitals with approved teaching programs, or the median case-mix index for all urban hospitals nationally; and</P>
                    <P>• The hospital's number of discharges is at least 5,000 per year, or, if fewer, the median number of discharges for urban hospitals in the census region in which the hospital is located. (The number of discharges criterion for an osteopathic hospital is at least 3,000 discharges per year, as specified in section 1886(d)(5)(C)(i) of the Act.)</P>
                    <HD SOURCE="HD3">1. Case-Mix Index</HD>
                    <P>Section 412.96(c)(1) provides that CMS will establish updated national and regional case-mix index values in each year's annual notice of prospective payment rates for purposes of determining rural referral center status. The methodology we use to determine the proposed national and regional case-mix index values is set forth in regulations at § 412.96(c)(1)(ii). The proposed national median case-mix index value for FY 2005 includes all urban hospitals nationwide, and the proposed regional values for FY 2005 are the median values of urban hospitals within each census region, excluding those hospitals with approved teaching programs (that is, those hospitals receiving indirect medical education payments as provided in § 412.105). These proposed values are based on discharges occurring during FY 2003 (October 1, 2002 through September 30, 2003) and include bills posted to CMS' records through December 2003.</P>
                    <P>We are proposing that, in addition to meeting other criteria, if they are to qualify for initial rural referral center status for cost reporting periods beginning on or after October 1, 2004, rural hospitals with fewer than 275 beds must have a case-mix index value for FY 2003 that is at least—</P>
                    <P>• 1.3550; or</P>
                    <P>• The median case-mix index value (not transfer-adjusted) for urban hospitals (excluding hospitals with approved teaching programs as identified in § 412.105) calculated by CMS for the census region in which the hospital is located.</P>
                    <P>
                        The proposed median case-mix index values by region are set forth in the following table:
                        <PRTPAGE P="28282"/>
                    </P>
                    <GPOTABLE COLS="2" OPTS="L2,tp0,i1" CDEF="s150,12">
                        <TTITLE>  </TTITLE>
                        <BOXHD>
                            <CHED H="1">Region </CHED>
                            <CHED H="1">
                                Case-mix 
                                <LI>index value.</LI>
                            </CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">1. New England (CT, ME, MA, NH, RI, VT) </ENT>
                            <ENT>1.2400</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">2. Middle Atlantic (PA, NJ, NY) </ENT>
                            <ENT>1.2387</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) </ENT>
                            <ENT>1.3249</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">4. East North Central (IL, IN, MI, OH, WI) </ENT>
                            <ENT>1.2661</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">5. East South Central (AL, KY, MS, TN) </ENT>
                            <ENT>1.2777</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">6. West North Central (IA, KS, MN, MO, NE, ND, SD) </ENT>
                            <ENT>1.1787</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">7. West South Central (AR, LA, OK, TX) </ENT>
                            <ENT>1.3043</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) </ENT>
                            <ENT>1.3527</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">9. Pacific (AK, CA, HI, OR, WA) </ENT>
                            <ENT>1.3095 </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>The preceding numbers will be revised in the final rule to the extent required to reflect the updated FY 2001 MedPAR file, which will contain data from additional bills received through March 31, 2002.</P>
                    <P>Hospitals seeking to qualify as rural referral centers or those wishing to know how their case-mix index value compares to the criteria should obtain hospital-specific case-mix index values (not transfer-adjusted) from their fiscal intermediaries. Data are available on the Provider Statistical and Reimbursement (PS&amp;R) System. In keeping with our policy on discharges, these case-mix index values are computed based on all Medicare patient discharges subject to DRG-based payment.</P>
                    <HD SOURCE="HD3">2. Discharges</HD>
                    <P>Section 412.96(c)(2)(i) provides that CMS will set forth the national and regional numbers of discharges in each year's annual notice of prospective payment rates for purposes of determining rural referral center status. As specified in section 1886(d)(5)(C)(ii) of the Act, the national standard is set at 5,000 discharges. We are proposing to update the regional standards based on discharges for urban hospitals' cost reporting periods that began during FY 2001 (that is, October 1, 2000 through September 30, 2001), which is the latest available cost report data we have at this time. In last year's final rule we inadvertently indicated that we relied upon data regarding discharges occurring during FY 2002. However, we have now determined that our values were based upon data regarding discharges occurring during FY 2000.</P>
                    <P>Therefore, we are proposing that, in addition to meeting other criteria, a hospital, if it is to qualify for initial rural referral center status for cost reporting periods beginning on or after October 1, 2004, must have as the number of discharges for its cost reporting period that began during FY 2001 a figure that is at least—</P>
                    <P>• 5,000 (3,000 for an osteopathic hospital); or</P>
                    <P>• The median number of discharges for urban hospitals in the census region in which the hospital is located, as indicated in the following table:</P>
                    <GPOTABLE COLS="2" OPTS="L2,tp0,i1" CDEF="s150,12">
                        <TTITLE>  </TTITLE>
                        <BOXHD>
                            <CHED H="1">Region </CHED>
                            <CHED H="1">
                                Number of 
                                <LI>discharges.</LI>
                            </CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">1. New England (CT, ME, MA, NH, RI, VT) </ENT>
                            <ENT>8,212</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">2. Middle Atlantic (PA, NJ, NY) </ENT>
                            <ENT>9,574</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) </ENT>
                            <ENT>10,303</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">4. East North Central (IL, IN, MI, OH, WI) </ENT>
                            <ENT>8,684</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">5. East South Central (AL, KY, MS, TN) </ENT>
                            <ENT>7,624</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">6. West North Central (IA, KS, MN, MO, NE, ND, SD) </ENT>
                            <ENT>6,789</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">7. West South Central (AR, LA, OK, TX) </ENT>
                            <ENT>6,485</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) </ENT>
                            <ENT>8,489</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">9. Pacific (AK, CA, HI, OR, WA) </ENT>
                            <ENT>6,274 </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>These numbers will be revised in the final rule based on the latest available cost report data.</P>
                    <P>We reiterate that if an osteopathic hospital is to qualify for rural referral center status for cost reporting periods beginning on or after October 1, 2004, the hospital would be required to have at least 3,000 discharges for its cost reporting period that began during FY 2001.</P>
                    <HD SOURCE="HD2">J. Additional Payments to Hospitals With High Percentage of End-Stage Renal Disease (ESRD) Discharges (§ 412.104)</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “ESRD Discharges” at the beginning of your document.]</FP>
                    <P>Under existing regulations at § 412.104(a), CMS provides for additional Medicare payments to a hospital for inpatient dialysis provided to Medicare beneficiaries with end-stage renal disease (ESRD) if the hospital's ESRD Medicare beneficiary discharges are 10 percent or more of its total Medicare discharges. This provision states that discharges classified into DRG 302 (Kidney Transplant), DRG 316 (Renal Failure), or DRG 317 (Admit for Renal Dialysis) are excluded for purposes of determining a hospital's eligibility for this special payment. We have been informed that, under this provision, hospitals may be counting all discharges of ESRD Medicare beneficiaries towards determining the 10 percent factor rather than counting only those discharges where the ESRD beneficiary received inpatient dialysis.</P>
                    <P>
                        When we established this regulation in the August 31, 1984 final rule (49 FR 34747), we stated that this special payment was intended to ameliorate those circumstances in which the concentration of ESRD beneficiaries receiving inpatient dialysis may be such that the hospital would not be able to absorb the entire expense with revenue from other less costly cases. We further stated that we believed those few hospitals most extremely impacted by the ESRD beneficiary population should be afforded some protection against the chance of encountering inpatient dialysis expenses that could not be offset by revenue from cases in which the DRG payment was greater than the hospital's cost. Because this special payment is intended to limit the adverse impact on hospitals delivering inpatient dialysis services to ESRD beneficiaries, we firmly believe that only those 
                        <PRTPAGE P="28283"/>
                        discharges of beneficiaries who receive dialysis services during an inpatient stay should be counted in determining a hospital's eligibility for the additional payment. After a careful review of § 412.104(a), we acknowledge that hospitals may require additional guidance in appropriately determining their eligibility for this special payment. Therefore, we are proposing to revise § 412.104(a) to make it clear that, in determining a hospital's eligibility for the additional Medicare payment, only discharges involving ESRD Medicare beneficiaries who have received a dialysis treatment during an inpatient hospital stay are to be counted. This proposed change would be applied prospectively, effective for cost reporting periods beginning on or after October 1, 2004.
                    </P>
                    <HD SOURCE="HD2">K. Indirect Medical Education (IME) Adjustment (§ 412.105)</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “IME Adjustment” at the beginning of your document.]</FP>
                    <HD SOURCE="HD3">1. IME Adjustment Factor Formula Multipliers (Section 502(a) of Public Law 108-173 and Existing § 412.105(d)(3)(vii) and Proposed § 412.105(d)(3)(viii) Through (d)(3)(xii) of the Regulations)</HD>
                    <P>
                        Section 1886(d)(5)(B) of the Act provides that prospective payment hospitals that have residents in an approved graduate medical education (GME) program receive an additional payment to reflect the higher indirect costs of teaching hospitals relative to nonteaching hospitals. The regulations regarding the calculation of this additional payment, known as the indirect medical education (IME) adjustment, are located at § 412.105. The IME adjustment is based in part on the applicable IME adjustment factor. The IME adjustment factor is calculated using a hospital's ratio of residents to beds, which is represented as r, and a formula multiplier, which is represented as c, in the following equation: c × [{1 + r} 
                        <SU>.405</SU>
                         −1]. The formula is traditionally described in terms of a certain percentage increase in payment for every 10-percent increase in the resident-to-bed ratio.
                    </P>
                    <P>Section 502(a) of Pub. L. 108-173 modified the formula multiplier c to be used in the calculation of the IME adjustment. Prior to enactment of Pub. L. 108-173, the formula multiplier was fixed at 1.35 for discharges occurring during FY 2003 and thereafter. Section 502(a) modifies the formula multiplier beginning midway through FY 2004 and provides for a new schedule of formula multipliers for FYs 2005 and thereafter as follows:</P>
                    <P>• For discharges occurring on or after April 1, 2004, and before October 1, 2004, the formula multiplier is 1.47.</P>
                    <P>• For discharges occurring during FY 2005, the formula multiplier is 1.42.</P>
                    <P>• For discharges occurring during FY 2006, the formula multiplier is 1.37.</P>
                    <P>• For discharges occurring during FY 2007, the formula multiplier is 1.32.</P>
                    <P>• For discharges occurring during FY 2008 and fiscal years thereafter, the formula multiplier is 1.35.</P>
                    <P>We are proposing to revise § 412.105(d)(3)(vii) and add § 412.105(d)(3)(viii) through (d)(3)(xii) to incorporate these changes in the formula multipliers.</P>
                    <HD SOURCE="HD3">2. IME Adjustment Formula Multiplier for Redistributed FTE Resident Slots (Section 422(b)(1)(C) of Pub. L. 108-173)</HD>
                    <P>Under new section 1886(h)(7)(B) of the Act, added by section 422(a) of Pub. L. 108-173, a hospital may receive an increase in its FTE resident cap as a result of the agency's redistribution of unused resident positions. (This provision is discussed in detail in section IV.J.2. of the preamble of this proposed rule.) Section 422(b)(1)(C) of Pub. L. 108-173 amended section 1886(d)(5)(B) of the Act to add a new subclause (ix) to provide that, for discharges occurring on or after July 1, 2005, for a hospital whose FTE resident cap is increased as a result of a redistribution of unused resident positions, the IME adjustment factor is to be calculated using a formula multiplier of 0.66 with respect to any additional residents counted by the hospital as a result of that increase in the hospital's FTE resident cap. Thus, we are proposing that a hospital that counts additional residents as a result of an increase in its FTE resident cap under section 1886(h)(7)(B) of the Act would receive IME payments based on the sum of two different IME adjustment factors: (1) An IME adjustment factor that is calculated using the schedule of formula multipliers described in section IV.G.1. of this preamble established by section 502(a) of Pub. L. 108-173, and which also uses the hospital's number of FTE residents, not including residents attributable to an FTE cap increase under section 1886(h)(7)(B) of the Act, in the numerator of the resident-to-bed ratio; and (2) an IME adjustment factor that is calculated using the formula multiplier of 0.66, and the additional number of FTE residents that are attributable to the increase in the hospital's FTE resident cap under section 1886(h)(7)(B) of the Act in the numerator of the resident-to-bed ratio. (The number of available beds used in the denominator would be the same for both IME adjustments.)</P>
                    <P>We note that section 422(b) of Pub. L. 108-173, which addresses the application of the IME adjustment to the residents counted as a result of an increase in a hospital's FTE resident cap under section 422(a), makes no reference to section 1886(d)(5)(B)(vi) of the Act. That is, the statute does not provide for an exclusion from application of the cap on the resident-to-bed ratio at section 1886(d)(5)(B)(vi)(I) of the Act or from application of the rolling average count at section 1886(d)(5)(B)(vi)(II) of the Act for residents added as a result of FTE cap increases under section 1886(h)(7)(B). There is no specific pronouncement in section 422 exempting residents counted as a result of the FTE resident cap increases under section 422(a) from the cap on the resident-to-bed ratio and the rolling average, and we see no apparent reason to treat those residents differently for purposes of these two provisions. Therefore, we are proposing to require that if a hospital increases its IME FTE count of residents as a result of section 1886(h)(7)(B) of the Act, those FTE residents are immediately subject to the cap on the resident-to-bed ratio and the rolling average calculation. Furthermore, we believe that, given potentially significant shifts of FTE positions among hospitals as a result of the new section 1886(h)(7) of the Act, the inclusion of FTE residents added as a result of section 1886(h)(7)(B) of the Act in the cap on the resident-to-bed ratio and in the rolling average introduces a measure of stability and predictability, and mitigates radical shifts in IME payments from period to period. Thus, a hospital's increase in IME payment may be delayed for one year to the extent that the resident-to-bed ratio for the current cost reporting period is capped by the resident-to-bed ratio for the previous cost reporting period. Further, the additional FTE residents would be phased in over a 3-year period in the hospital's FTE count because they are immediately included in the rolling average calculation.</P>
                    <P>
                        The following illustrates how the IME payment would be calculated for a hospital that receives an increase to its FTE resident cap as a result of section 1886(h)(7)(B) of the Act. For example, Hospital A has a fiscal year end (FYE) of September 30, and a 1996 IME FTE cap of 20 FTEs. During its FYEs September 30, 2003, September 30, 2004, and September 30, 2005, Hospital A trains 25 FTE residents. Effective July 1, 2005, under section 1886(h)(7)(B) of 
                        <PRTPAGE P="28284"/>
                        the Act, Hospital A receives an increase to its IME 1996 cap of 5 FTEs, for a total adjusted IME cap of 25 FTEs. Hospital A has maintained an available bed count of 200 beds in FYE September 30, 2004 and throughout FYE September 30, 2005. For the FYE September 30, 2005 cost report, the IME adjustment factor is calculated as follows:
                    </P>
                    <P>
                        <E T="03">Step 1.</E>
                         For discharges occurring on October 1, 2004, through September 30, 2005 for residents NOT counted pursuant to section 1886(d)(5)(B)(ix) of the Act:
                    </P>
                    <P>• Rolling average count of FTE residents: 20+20+20/3 = 20.</P>
                    <P>• Current year resident-to-bed ratio: 20/200 = .10.</P>
                    <P>• Cap on resident-to-bed ratio (from prior year): 20/200 = .10.</P>
                    <P>• Compare, and use the lower of, prior year resident-to-bed ratio and current year resident-to-bed ratio: .10 = .10.</P>
                    <P>
                        • Compute IME adjustment factor: 1.42 × [{1 + .10} 
                        <SU>.405</SU>
                         −1] = 0.0559.
                    </P>
                    <P>
                        <E T="03">Step 2.</E>
                         For discharges occurring on July 1, 2005 through September 30, 2005 for residents counted pursuant to section 1886(d)(5)(B)(ix) of the Act:
                    </P>
                    <P>• Rolling average count of FTE residents: 25+20+20/3 = 21.7.</P>
                    <P>• Resident-to-bed ratio for 7/1/05-9/30/05: 21.7/200 = .11.</P>
                    <P>• Cap on resident-to-bed ratio (from prior year): 20/200 = .10.</P>
                    <P>• Compare, and use the lower of, prior year resident-to-bed ratio and resident-to-bed ratio for 7/1/05-9/30/05: .10 &lt; .11. Capped by prior year ratio of .10.</P>
                    <P>
                        • Compute IME adjustment factor: 0.66 × [{1 + 0} 
                        <SU>.405</SU>
                         −1] = 0.0.
                    </P>
                    <P>In this example, the addition of 5 FTE residents under section 1886(h)(7)(B) caused Hospital A's resident-to-bed ratio for discharges occurring on July 1, 2005, through September 30, 2005, to exceed the resident-to-bed ratio of .10 from the prior year. Since the multiplier of 0.66 is to be used for determining IME payment “insofar as an additional payment amount * * * is attributable to resident positions redistributed to a hospital * * *” under section 1886(d)(5)(B)(v) of the Act, as amended by section 422(b)(1)(C) of Pub. L. 108-173, Hospital A does not receive any IME payment attributable to the 5 FTE residents added as a result of section 1886(h)(7)(B) of the Act for discharges occurring on July 1, 2005, through September 30, 2005. As shown under the fifth bullet point in Step 2 of the example above, a resident-to-bed ratio of zero is used to compute the IME adjustment for FTE residents attributable to increases in the FTE resident cap under section 1886(h)(7)(B) of the Act for discharges occurring on or after July 1, 2005 and on or before September 30, 2005. The ratio of .10 would not be used to compute the IME adjustment for FTE residents attributable to an increase in the FTE resident cap under section 1886(h)(7)(B) because the ratio of .10 is attributable to the 20 FTE residents from the prior year, and is not related to residents added under section 1886(h)(7)(B) of the Act. (We note that a hospital's resident-to-bed ratio in the current year might decrease despite residents added as a result of section 1886(h)(7)(B) of the Act, due to an increase in the number of available beds in the denominator of the current year resident-to-bed ratio. In such a case, because the current year ratio would be less than the prior year ratio, the hospital's resident-to-bed ratio would not be capped by the prior year resident-to-bed ratio, and, therefore, the hospital could receive an IME payment in the current year (that is, there would not be a 1-year delay) relating to residents added under section 1886(h)(7)(B) of the Act).</P>
                    <P>However, an increase in the resident-to-bed ratio in the current period may establish a higher cap for the following period, and, all other things being equal, a hospital could then receive IME payment for FTE residents added as a result of section 1886(h)(7)(B) of the Act after a 1-year lag. In the example above, Hospital A would receive an IME payment for residents added as a result of section 1886(h)(7)(B) of the Act in its cost reporting period ending September 30, 2006, as follows:</P>
                    <P>
                        <E T="03">Step 1.</E>
                         For residents NOT counted pursuant to section 1886(d)(5)(B)(ix) of the Act:
                    </P>
                    <P>• Rolling average count of FTE residents: 20+20+20/3 = 20.</P>
                    <P>• Current year resident-to-bed ratio: 20/200 = .10.</P>
                    <P>• Cap on resident-to-bed ratio (from prior year): 20/200 = .10.</P>
                    <P>• Compare, and use the lower of, prior year resident-to-bed ratio and current year resident-to-bed ratio: .10 = .10.</P>
                    <P>
                        • Compute IME adjustment factor: 1.37 × [{1 + .10} 
                        <SU>.405</SU>
                         −1] = 0.0559.
                    </P>
                    <P>
                        <E T="03">Step 2.</E>
                         For 5 FTE residents counted pursuant to with section 1886(d)(5)(B)(ix) of the Act:
                    </P>
                    <P>• Rolling average count of FTE residents: 25+25+20/3 = 23.3.</P>
                    <P>• Resident-to-bed ratio for FYE 9/30/06: 23.3/200 = .12.</P>
                    <P>• Cap on resident-to-bed ratio (from prior year): 25/200 = .13.</P>
                    <P>• Compare, and use the lower of, prior year resident-to-bed ratio and current year resident-to-bed ratio: .13 &gt;.12. Current year ratio of .12 is the lower of the two.</P>
                    <P>
                        • Take the difference between the rolling average count of FTE residents counted as a result of section 1886(h)(7)(B) of the Act, and the rolling average count of FTE residents 
                        <E T="03">not</E>
                         counted as a result of section 1886(h)(7)(B) of the Act, (rolling average count under step 2 minus rolling average count under step 1): 23.3−20 = 3.3.
                    </P>
                    <P>• Compute current year resident-to-bed ratio attributable to residents added under section 1886(h)(7)(B): 3.3/200 = 0.02.</P>
                    <P>
                        • Compute IME adjustment factor: 0.66 × [{1 + .02} 
                        <SU>.405</SU>
                         −1] = 0.0053.
                    </P>
                    <P>
                        <E T="03">Step 3.</E>
                         Compute IME payment for FYE September 30, 2006: [Total DRG payments for discharges occurring on October 1, 2005 through September 30, 2006] × [0.0592] (that is, 0.0539 + 0.0053).
                    </P>
                    <P>We are proposing to revise § 412.105 to incorporate these changes under proposed new paragraph (d)(4), proposed new paragraph (e)(2), proposed new paragraph (f)(1)(iv)(B), and proposed added new last sentence of paragraph (f)(1)(v).</P>
                    <HD SOURCE="HD3">3. Technical Changes</HD>
                    <P>• In § 412.105(a)(1), introductory text, we include a cross-reference to “paragraph (f) and (h)” of § 412.105. Paragraph (h) no longer exists in this section. Therefore, we are proposing to remove the cross-reference to paragraph (h).</P>
                    <P>• In § 412.105(f)(1)(i)(A), we reference national organizations listed in § 415.200(a). The cross-reference to § 415.200(a) is incorrect. We are proposing to correct the cross-reference to read “§ 415.152.”</P>
                    <P>• In section IV.O. of this preamble, we discuss our proposal to redesignate existing § 413.86 governing payments for direct costs of GME to nine separate sections. Many of the paragraphs in the existing § 413.86 are cited in § 412.105 governing the IME adjustment. We are proposing to make changes to the cross-reference in § 412.105 to conform them to these proposed redesignated separate sections.</P>
                    <HD SOURCE="HD2">L. Payment to Disproportionate Share Hospitals (DSHs) (Section 402 of Pub. L. 108-173 and § 412.106 of Existing Regulations)</HD>
                    <FP>
                        [If you choose to comment on issues in this section, please include the caption “DSH Adjustment” at the beginning of your document.]
                        <PRTPAGE P="28285"/>
                    </FP>
                    <HD SOURCE="HD3">1. Enhanced DSH Adjustment for Rural Hospitals and Urban Hospitals With Fewer Than 100 Beds</HD>
                    <P>Section 1886(d)(5)(F) of the Act provides for additional payments to subsection (d) hospitals that serve a disproportionate share of low-income patients. The Act specifies two methods for a hospital to qualify for the Medicare disproportionate share hospital (DSH) adjustment. Under the first method, hospitals that are located in an urban area and have 100 or more beds may receive a DSH payment adjustment if the hospital can demonstrate that, during its cost reporting period, more than 30 percent of its net inpatient care revenues are derived from State and local government payments for care furnished to indigent patients. These hospitals are commonly known as “Pickle hospitals.” The second method, which is also the most commonly used method for a hospital to qualify, is based on a complex statutory formula under which payment adjustments are based on the level of the hospital's DSH patient percentage, which is the sum of two computations. The first computation includes the number of patient days that are furnished to patients who were entitled to both Medicare Part A and Supplemental Security Income (SSI) benefits. This number is divided by the total number of patient days that are associated with patients entitled to benefits under Medicare Part A. The second computation includes hospital patient days that are furnished to patients who, for those days, were eligible for Medicaid but were not entitled to benefits under Medicare Part A. This number is divided by the number of total hospital inpatient days in the same period.</P>
                    <P>Hospitals whose DSH patient percentage exceeds 15 percent are eligible for a DSH payment adjustment (prior to April 1, 2001, the qualifying DSH patient percentage varied, in part, by the number of beds (66 FR 39882)). The DSH payment adjustment may vary based on the DSH patient percentage and the type of hospital. The statute provides for different payment adjustments for urban hospitals with 100 or more beds and rural hospitals with 500 or more beds, hospitals that qualify as RRCs or SCHs, and other hospitals.</P>
                    <P>Effective April 1, 2004, section 402 of Public Law 108-173 amended section 1886(d)(5)(F) of the Act to revise the formulae used to calculate DSH payment adjustments for certain hospitals that qualify for the adjustments under the second method. Specifically, under the new section 1886(d)(5)(F)(xiv), added by section 402, for hospitals that are not large urban or large rural hospitals, DSH payments are calculated using the same DSH adjustment formula used for large urban hospitals. However, the DSH payment adjustment for most of these categories of hospitals, except for hospitals classified as RRCs, including RRCs that are also SCHs, is capped at 12 percent. In addition, the formula for large urban hospitals with 100 beds or more, and large rural hospitals with 500 beds or more, has not been revised by section 402. Finally, Pickle hospitals are not affected by this change; they will continue to receive a DSH adjustment under the alternative formula.</P>
                    <P>Effective for discharges occurring on or after April 1, 2004, the following DSH payment adjustment formulae apply for the following specified categories of hospitals:</P>
                    <P>• For urban hospitals with fewer than 100 beds and whose disproportionate patient percentage is equal to or greater than 15 percent and less than or equal to 20.2 percent: (Disproportionate patient percentage −15 percent) (65 percent) + 2.5 percent.</P>
                    <P>• For urban hospitals with fewer than 100 beds and whose disproportionate patient percentage is greater than 20.2: (Disproportionate patient percentage −20.2 percent) (82.5 percent) + 5.88 percent.</P>
                    <P>For urban hospitals with fewer than 100 beds, the maximum DSH payment adjustment is 12 percent.</P>
                    <P>• For rural hospitals that are SCHs and are not RRCs and whose disproportionate patient percentage is equal to or greater than 15 percent and less than or equal to 20.2 percent: (Disproportionate patient percentage −15 percent) (65 percent) + 2.5 percent.</P>
                    <P>• For rural hospitals that are SCHs and are not RRCs and whose disproportionate patient percentage is greater than 20.2 percent: (Disproportionate patient percentage −20.2 percent) (82.5 percent) + 5.88 percent.</P>
                    <P>For rural hospitals that are SCHs and are not RRCs, the maximum DSH payment adjustment is 12 percent.</P>
                    <P>• For RRCs whose disproportionate patient percentage is greater than or equal to 15 percent and less than or equal to 20.2 percent: (Disproportionate patient percentage −15 percent) (65 percent) + 2.5 percent.</P>
                    <P>• For RRCs whose disproportionate patient percentage is greater than 20.2 percent: (Disproportionate patient percentage −20.2 percent) (82.5 percent) + 5.88 percent.</P>
                    <P>• For rural hospitals that are both RRCs and SCHs and whose disproportionate patient percentage is greater than or equal to 15 percent and less than or equal to 20.2 percent: (Disproportionate patient percentage −15 percent) (65 percent) + 2.5 percent.</P>
                    <P>• For rural hospitals that are both RRCs and SCHs whose disproportionate patient percentage is greater than 20.2 percent: (Disproportionate patient percentage −20.2 percent) (82.5 percent) + 5.88 percent.</P>
                    <P>• For rural hospitals with fewer than 500 beds and whose disproportionate patient percentage is equal to or greater than 15 percent and less than or equal to 20.2 percent: (Disproportionate patient percentage −15 percent) (65 percent) + 2.5 percent.</P>
                    <P>• For rural hospitals with fewer than 500 beds and whose disproportionate patient percentage is greater than 20.2 percent: (Disproportionate patient percentage −20.2 percent) (82.5 percent) + 5.88 percent.</P>
                    <P>For rural hospitals with fewer than 500 beds, the maximum DSH payment adjustment is 12 percent.</P>
                    <P>These revised formulae, which became effective for discharges occurring on or after April 1, 2004, were implemented through a CMS One-Time Notification (CR 3158), issued on March 26, 2004. The notice describes the changes required by section 402 of Public Law 108-173. In this proposed rule, we are proposing to revise §§ 412.106 (d)(2)(ii), (d)(2)(iii), and (d)(2)(iv) of the regulations to reflect these statutory revisions.</P>
                    <P>The following DSH formulae were not affected by the changes made by section 402 of Pub. L. 108-173 and remain in effect:</P>
                    <P>• For urban hospitals with 100 beds or more and whose disproportionate patient percentage is equal to or greater than 15 percent and less than or equal to 20.2 percent: (Disproportionate patient percentage −15 percent) (65 percent) + 2.5 percent.</P>
                    <P>• For urban hospitals with 100 beds or more and whose disproportionate patient percentage is greater than 20.2 percent: (Disproportionate patient percentage −20.2 percent) (82.5 percent) + 5.88 percent.</P>
                    <P>• For rural hospitals with 500 beds or more and whose disproportionate patient percentage is equal to or greater than 15 percent and less than or equal to 20.2 percent: (Disproportionate patient percentage −15 percent) (65 percent) + 2.5 percent.</P>
                    <P>
                        • For rural hospitals with 500 beds or more and whose disproportionate patient percentage is greater than 20.2 percent: (Disproportionate patient 
                        <PRTPAGE P="28286"/>
                        percentage −20.2 percent) (82.5 percent) + 5.88 percent.
                    </P>
                    <HD SOURCE="HD3">2. Proposals for Available Beds and Patient Days for the DSH Adjustment</HD>
                    <P>In our May 19, 2003 IPPS proposed rule for FY 2004 (68 FR 27201), we proposed changes to our policy on counting available beds and patient days for the purposes of the DSH adjustment. For the available beds policy we proposed changes to counting unoccupied beds and observation beds. In regard to patient days, we proposed changes to counting dual-eligible and Medicare+Choice (M+C) days. Due to the number and nature of the public comments received, we did not respond to the public comments on these proposals in the final rule for FY 2004 (68 FR 45415). We indicated that we would address those public comments in a separate document. We plan to address the comments regarding unoccupied beds, observation beds, dual eligible days, and M+C days in the IPPS final rule for FY 2005.</P>
                    <HD SOURCE="HD2">M. Payment Adjustments for Low-Volume Hospitals (Proposed New § 412.101)</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Low-Volume Hospital Adjustment” at the beginning of your document.]</FP>
                    <P>Section 406 of Pub. L. 108-173 amended section 1886(d) of the Act to add a new subclause (12) to provide for a new payment adjustment to account for the higher costs per discharge of low-volume hospitals under the IPPS. Section 1886(d)(12)(C)(i) of the Act, as added by section 406, defines a low-volume hospital as a “subsection (d) hospital . . . that the Secretary determines is located more than 25 road miles from another subsection (d) hospital and that has less than 800 discharges during the fiscal year.” Section 1886(d)(12)(C)(ii) of the Act further stipulates that the term “discharge” refers to total discharges, and not merely to Medicare discharges. Specifically, the term refers to the “inpatient acute care discharge of an individual regardless of whether the individual is entitled to benefits under part A.” Finally, the provision requires the Secretary to determine an applicable percentage increase for these low-volume hospitals based on the “empirical relationship” between “the standardized cost-per-case for such hospitals and the total number of discharges of these hospitals and the amount of the additional incremental costs (if any) that are associated with such number of discharges.” The statute thus mandates the Secretary to develop an empirically justifiable adjustment formula based on the relationship between costs and discharges for these low-volume hospitals. The statute also limits the adjustment to no more than 25 percent.</P>
                    <P>MedPAC has published an analysis of the financial performance and cost profiles of low-volume hospitals (MedPAC June 2001 Report to Congress, page 66). Its analysis indicated that hospitals with 500 discharges or less generally have negative Medicare margins. Specifically, hospitals with 200 discharges or less have margins of −16.4 percent, and hospitals with 201 to 500 discharges have margins of −2.1 percent. MedPAC's analysis further revealed that hospitals with a small volume of discharges have higher costs per discharge than larger facilities, after controlling for the other cost factors recognized in the payment system. MedPAC's analysis thus indicates that low-volume providers are disadvantaged by payment rates based on average volume. In analyzing the relationship between costs per case and discharges, MedPAC also found that this relationship begins to level off and reaches zero variation at around 500 discharges. Therefore, MedPAC recommended an adjustment formula in the form of:</P>
                    <FP SOURCE="FP-2">1.25 = (.0005*D), if D&lt;500 discharges</FP>
                    <P>Where 1.25 represents the maximum 25-percent add-on, .0005 is the payment adjustment per case (derived by dividing .25 by 500 discharges) and “D” is the number of discharges.</P>
                    <P>Using FY 2001 cost report data, we found an even larger disparity than MedPAC found between low-volume providers and their higher-volume counterparts. Although Medicare margins remain healthy overall at 9.32 percent, the Medicare margin for providers with 200 or less discharges is −46.26 percent, and the margin for providers with 201 to 500 discharges is −11.74 percent. We employed a bivariate regression analysis to determine the fit between total hospital discharges and operating costs from FY 2001. For the final rule, we plan to conduct more detailed multivariate analyses. We have some concerns about whether we have sufficient information (for example, total hospital case-mix) to support valid multivariate analyses. We are continuing to examine this in preparation for the final rule.</P>
                    <P>We found a very strong correlation between costs and the total number of discharges. We then examined the variation in cost-per-case among subsection (d) hospitals, using both log and nonlog functions. When the analysis was limited to hospitals with fewer than 1,000 discharges, we found a strong relationship between cost per case and low volume. We found that the greatest variation from the mean costs per case exists between 1 and 150 discharges, indicating (as MedPAC also found) that hospitals with the lowest case volume generally experience greater costs per case than hospitals with higher volume. However, after about 150 discharges, the trend line begins to level off rapidly. The trend line reaches zero variation from mean cost per case at approximately 450 discharges (cost per case in log form) or 500 discharges (nonlog form). Immediately after that point, the trend line in both forms becomes negative, while still maintaining a very smooth line. Both because of where the trend line crosses zero and because there is very little variation from the mean after this point, we believe that 500 discharges is the appropriate cutoff for an add-on payment under this provision.</P>
                    <P>Based on these results, we are proposing to adopt a slightly revised version of MedPAC's recommended formula for an add-on payment to low-volume hospitals:</P>
                    <FP SOURCE="FP-2">Adjustment = 1.25 − (.0005*D), if 0&lt;D≤ 500 discharges</FP>
                    <P>Where 1.25 represents the maximum 25 percent add-on, .0005 is the payment adjustment per case (derived by dividing .25 by 500 discharges) and “D” is the number of discharges. We are proposing to revise the MedPAC recommended formula by adding the condition that “D&gt;0” in order to avoid the anomalous result that a hospital without any discharges would qualify for the maximum 25-percent adjustment.</P>
                    <P>
                        We note that, under this formula, some hospitals that meet the statutory definition of low-volume hospital would receive no adjustment. Specifically, hospitals with more than 500 but fewer than 800 total discharges for the year would receive no adjustment under this formula. Despite the statutory definition of a low-volume hospital as a subsection (d) hospital that has less than 800 discharges during the fiscal year, the statutory provision mandating this adjustment also requires the Secretary to determine the empirical relationship between the standardized cost-per-case, the total number of discharges, and the amount of incremental costs associated with the number of discharges. In addition, the provision requires that the applicable percentage increase shall be “based upon such relationship in a manner that 
                        <PRTPAGE P="28287"/>
                        reflects * * * such incremental costs.” We believe that the statutory language thus gives the Secretary the flexibility to set the percentage increase at zero for a given number of discharges if the empirical evidence shows that hospitals experience no higher incremental costs when they reach that number of discharges. In other words, the statute does not require the Secretary to provide an adjustment in the absence of empirical evidence that an adjustment is warranted by higher incremental costs.
                    </P>
                    <P>
                        While the statute defines low-volume hospitals in terms of total inpatient acute care discharges and mandates that the adjustment be based upon the amount of incremental costs associated with the number of discharges, it does not specify whether the count of discharges, either for purposes of the definition or the payment adjustment formula, should be based on the payment year or some previous year. Specifically, the statute defines low-volume hospital as “for 
                        <E T="03">a fiscal year,</E>
                         a subsection (d) hospital * * * [that] has less than 800 discharges during 
                        <E T="03">the fiscal year” (emphasis added).</E>
                    </P>
                    <P>We believe that this statutory language gives us the flexibility to define which fiscal year to use in determining the number of discharges, both for purposes of the definition of “low-volume hospital” and the payment adjustment formula. Prospective payment systems place substantial value on providing hospitals with predictability regarding payments. If the determination of whether hospitals qualify for low-volume payment adjustments and the computation of the payment adjustment amount are based on the number of discharges in the current fiscal year, neither CMS nor the hospital will know with certainty whether a hospital qualifies for the adjustment, or what the amount of the adjustment would be, until after the end of the payment year (probably not until the time of final cost report settlement for the year). In such circumstances, CMS could be faced with the prospect of recouping large overpayments in some cases or reimbursing for large underpayments in others. Hospitals would face similar uncertainties. On the other hand, if these determinations are based on discharge counts from a prior fiscal year, hospitals will know in advance whether they will be receiving a payment adjustment and what the size of the adjustment will be. Both hospitals and CMS will be able to plan accordingly.</P>
                    <P>Therefore, we are proposing to base the count of discharges, for purposes both of meeting the qualifying definition and determining the amount of the payment adjustment, on the number of inpatient acute care discharges occurring during the cost reporting period for the most recent submitted cost report. We recognize that this policy may temporarily disadvantage certain hospitals. For example, a hospital that had more than 500 discharges in its most recent submitted cost report may have fewer than 500 discharges during the first fiscal year in which this low-volume payment adjustment is available. Such a hospital would not qualify for the low-volume adjustment during the first fiscal year of the adjustment under the policy that we are proposing, but it would qualify under alternative policy of basing the discharge count on the fiscal year for which payment is made. However, even in such cases, the hospital would not be certain about whether it would receive an adjustment until its cost report for the payment year is settled. In addition, under the policy we are now proposing, the hospital would still be certain of receiving a low-volume adjustment for any fiscal year in which it had 500 or fewer discharges. The hospital would receive the adjustment during the fiscal year after the cost report is submitted for any fiscal year in which the hospital had 500 discharges or less.</P>
                    <P>A further implication of this proposed policy is that a new hospital would not receive an adjustment during its first year of operation, even if it has fewer than 500 total discharges during that year. While this approach is somewhat disadvantageous for hospitals in their first year of existence, we believe that it is justified in order to avoid setting up a settlement process to finalize payments under this new proposed adjustment. Therefore, we are proposing that new hospitals that meet the distance requirement would not be eligible for the adjustment until data become available to determine that the annual number of discharges is 500 or less. Under this approach, new hospitals would not receive a low-volume adjustment during at least the first 2 years of their existence. (This is generally the amount of time that elapses before submission of a cost report.) This treatment is consistent with the treatment of some existing hospitals, for example, hospitals that have declining numbers of discharges, and would not be eligible for the adjustment until their data show 500 or fewer discharges.</P>
                    <P>As we noted above, the statute defines a low-volume hospital as a subsection (d) hospital that the Secretary determines is located more than 25 road miles from another subsection (d) hospital and that has less than 800 discharges during the fiscal year. In order to enforce the requirement that a qualifying hospital must be located more than 25 miles from another PPS hospital, we are proposing that a hospital that wishes to qualify for the adjustment must provide its fiscal intermediary with evidence that it meets this distance requirement. The intermediary will then certify, on the basis of the evidence presented by the hospital and any other relevant evidence that it may be able to develop, that the hospital meets this requirement. Other relevant evidence may include maps, mapping software, and inquiries to State and local police, transportation officials, or other government officials.</P>
                    <P>We are proposing to add a new § 412.101 to incorporate the provisions of section 406 of Public Law 108-173.</P>
                    <HD SOURCE="HD2">N. Medicare Geographic Classification Review Board (MGCRB) Reclassifications (§§ 412.230, 412.234, and 412.236)</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Hospital Reclassifications” at the beginning of your document.]</FP>
                    <HD SOURCE="HD3">1. Background</HD>
                    <P>
                        With the creation of the MGCRB, beginning in FY 1991, under section 1886(d)(10) of the Act, hospitals could request reclassification from one geographic location to another for the purpose of using the other area's standardized amount for inpatient operating costs or the wage index value, or both (September 6, 1990 interim final rule with comment period (55 FR 36754), June 4, 1991 final rule with comment period (56 FR 25458), and June 4, 1992 proposed rule (57 FR 23631)). Implementing regulations in Subpart L of Part 412 (§§ 412.230 
                        <E T="03">et seq.</E>
                        ) set forth criteria and conditions for redesignations for purposes of the wage index or the average standardized amount, or both, from rural to urban, rural to rural, or from an urban area to another urban area, with special rules for SCHs and rural referral centers.
                    </P>
                    <P>
                        Effective with reclassifications for FY 2003, section 1886(d)(10)(D)(vi)(II) of the Act provides that the MGCRB must use the average of the 3 years of hourly wage data from the most recently published data for the hospital when evaluating a hospital's request for reclassification. The regulations at § 412.230(e)(2)(ii) stipulate that the wage data are taken from the CMS hospital wage survey used to construct the wage index in effect for prospective payment purposes. To evaluate applications for wage index reclassifications for FY 2005, the 
                        <PRTPAGE P="28288"/>
                        MGCRB used the 3-year average hourly wages published in Table 2 of the August 1, 2003 IPPS final rule (68 FR 50135). These average hourly wages are taken from data used to calculate the wage indexes for FY 2002, FY 2003, and FY 2004, based on cost reporting periods beginning during FY 1998, FY 1999, and FY 2000, respectively.
                    </P>
                    <HD SOURCE="HD3">2. Standardized Amount Reclassification Provisions</HD>
                    <P>As specified in § 412.230(d)(1), to be reclassified to an adjacent area for the purpose of using that area's standardized amount, an individual hospital seeking redesignation must demonstrate that its incurred costs are comparable to hospital costs in the adjacent area (that is, hospitals must demonstrate that their costs exceed their current payments by 75 percent of the additional payments they would receive through reclassification) and that it has the necessary close proximity to that area (that is, an urban hospital must be no more than 15 miles and a rural hospital no more than 35 miles from the adjacent area; or at least 50 percent of the hospital's employees must reside in the adjacent area).</P>
                    <P>
                        Under section 402(b) of Public Law 108-7, Congress provided that all inpatient PPS hospitals be paid at the large urban average standardized amount for discharges occurring on or after April 1, 2003 and before October 1, 2003. Under Public Law 108-89, Congress extended section 402(b) of Public Law 108-7 to discharges occurring through March 31, 2004. Section 401 of Public Law 108-173 further extended the equalization of urban and rural operating standardized payment amounts. (
                        <E T="03">See</E>
                         section IV.B. of this preamble for a more detailed discussion.) Section 401 also equalized the Puerto Rico-specific urban and other area rates by requiring that the Puerto Rico-specific urban and other area rates be made retroactive to October 1, 2003. The Puerto Rico-specific equalization of the urban and rural operating standardized amounts became effective for discharges beginning on or after April 1, 2004.
                    </P>
                    <P>As a result of these legislative changes, the standardized amount reclassification criterion is no longer necessary or appropriate. Therefore, we are proposing to revise § 412.230 and § 412.234 to remove all standardized amount criteria provisions. We are proposing to remove the provisions of “§ 412.230(d)” (existing paragraph (e) would be redesignated as paragraph (d)), and to remove § 412.234(c) and (d)(2) (existing paragraph (d)(1) would be redesignated as paragraph (c) and revised), which contain the criterion requiring individual hospitals and urban hospital groups to demonstrate that their costs are more comparable to the average amount they would be paid if they were reclassified than the amount they would be paid under their current classification.</P>
                    <P>With the implementation of the equalization of the national adjusted operating standardized amount for large urban and other areas provision of Public Law 108-173, we also are proposing the following technical revisions to several sections under Subpart L of Part 412, which set forth the criteria and conditions for redesignations.</P>
                    <P>• We are proposing to delete the cross-reference to “§ 412.230(d)(2)” cited in § 412.230(a)(4) and to make redesignation changes for the existing cross-reference changes to paragraph (e), which is proposed to be redesignated as paragraph (d).</P>
                    <P>• We are proposing to delete § 412.230(a)(5)(ii) (the existing paragraphs (a)(5)(iii), (a)(5)(iv), and (a)(5)(v) would be redesignated as paragraphs (a)(5)(ii), (a)(5)(iii), and (a)(5)(iv), respectively. Under existing § 412.230(a)(5)(ii), we defined, for fiscal years 1997, 1998, and 2002, the limitation for redesignation for purposes of the standardized amount. Our policy has been that a hospital may not be redesignated for purposes of the standardized amount to an area that does not have a higher standardized amount than the standardized amount the hospital currently receives.</P>
                    <P>We are proposing to delete existing § 412.236. Section 412.236 sets forth the redesignation criteria for hospitals in a NECMA. Under the new CBSAs, OMB has defined the MSAs and Micropolitan areas in New England on the basis of counties. As discussed in section III.B. of this proposed rule, to maintain consistency in the definition of labor market areas between New England and the rest of the country, we are proposing to use the New England MSAs under the new CBSA definition. Proposing to adopt the New England MSAs requires not only that we delete the reference to NECMAs in existing definitions, but that we also delete reference to criteria applicable to hospitals located in a NECMA that apply for reclassification. In keeping with the proposal to define labor market areas as MSAs, including those in New England, the criteria and conditions for redesignation set forth in § 412.230 will be applicable to New England hospitals seeking to reclassify.</P>
                    <P>In an effort to refine the reclassification guidelines, we established §§ 412.234 and 412.236 in the existing guidelines to allow for reclassification of urban groups and New England groups, respectively (56 FR 25458). Under § 412.232(a) and § 412.234(a), we set forth similar criteria for rural and urban hospitals to be reclassified as a group, respectively. Prior to the implementation of legislation to eliminate the differential in the standardized amount, urban county groups that were interested in applying for purposes of the wage index submitted applications to the MGCRB for consideration. Many urban county group applications were unable to reclassify solely because they failed to meet the standardized amount criteria. In light of the fact that the standardized amount criteria are no longer appropriate, we believe it would be appropriate to make an adjustment to the hospital's wage index by assigning, to hospitals that were unable to reclassify in applications for both FY 2004 and FY 2005, the wage index for the MSA requested in the FY 2004 and FY 2005 group application. Section 1886(d)(5)(I)(i) of the Act provides the Secretary with broad authority to make adjustments and exceptions under the IPPS. Specifically, the section provides that the “Secretary shall provide by regulation for such other exceptions and adjustments to such payment amounts under this subsection as the Secretary deems appropriate.” Under this unique circumstance, we are proposing to exercise the broad authority under section 1886(d)(5)(I)(i) of the Act, to make an exception to the assignment of wage index value for certain hospitals that failed to reclassify as a group under § 412.234 for FY 2004 and FY 2005. Specifically, effective with discharges occurring during the 3-year period beginning October 1, 2004 through September 30, 2007, any hospital whose urban county group application under § 412.234 would have been approved by the MGCRB but for the failure to meet the requirements in § 412.234(c), would be assigned the wage index for the MSA identified in the FY 2004 and FY 2005 group application (in cases where the group identified more than one preference, the hospital would be assigned the wage index that is most advantageous). Hospitals that wish to receive the wage index of the area identified in their FY 2004 and FY 2005 group applications under this provision need only notify CMS in writing, at the address provided under the Addresses section of this proposed rule, before the close of the comment period. The notification should only contain:</P>
                    <P>• The hospital's name and street address.</P>
                    <P>
                        • The hospital's provider number.
                        <PRTPAGE P="28289"/>
                    </P>
                    <P>• The name, title, and telephone number of a contact person for communications.</P>
                    <P>• The area (name and MSA number) identified in their FY 2005 group application.</P>
                    <P>• Copies of any and all MGCRB decision notification letters for FY 2004 and FY 2005.</P>
                    <HD SOURCE="HD3">3. Reclassification of Urban Rural Referral Centers</HD>
                    <P>Under existing regulations at § 412.230(e)(3), rural referral centers (RRCs) (including hospitals that were ever RRCs) are exempt from one of the average hourly wage criteria that apply to other hospitals seeking reclassification. Specifically, an RRC is exempt from the requirement under § 412.230(e)(1)(iii) that the hospital's 3-year average hourly wage meet a threshold percentage in relation to the average hourly wage of all the hospitals in the area in which the hospital is located. These threshold percentages are 108 percent for hospitals located in urban areas, and 106 percent for hospitals located in rural areas. However, an RRC is not exempt from another threshold requirement, namely the requirement under § 412.230(e)(1)(iv) that the hospital's 3-year average hourly wage must meet a threshold percentage of the 3-year average hourly wage of the hospitals located in the area to which the hospital seeks reclassification. As in the case of the first threshold, this threshold percentage is different for urban and rural hospitals. An urban hospital's 3-year average hourly wage must be at least 84 percent of the average hourly wage of the hospitals located in the area to which the hospital seeks reclassification, while a rural hospital's 3-year average hourly wage must be at least 82 percent of the average hourly wage of the hospitals located in the area to which the hospital seeks reclassification.</P>
                    <P>It has come to our attention that the requirement of § 412.230(e)(1)(iv) places RRCs located in urban areas on a different footing than RRCs located in rural areas. In some cases, urban RRCs that have been denied reclassification because they failed to meet the 84-percent threshold would have been able to meet the 82-percent threshold that would have applied if they were located in a rural area. RRCs play a significant role in treating Medicare beneficiaries from rural areas, whether or not a particular RRC is physically located in a rural area or an urban area. Thus, we believe that it would be more appropriate for all RRCs, whether they are actually located in urban or rural areas, to be treated on an equal basis with respect to the qualifications for geographic reclassification. Therefore, we are proposing to revise § 412.230(e)(1)(iii) of the regulations to provide that RRCs, including RRCs located in urban areas, must meet the 82-percent threshold that applies to rural hospitals rather than the 84-percent threshold that applies to urban hospitals.</P>
                    <P>Furthermore, we are aware of at least one case in which an RRC was reclassified by the MGCRB for FY 2004, but upon applying to the MGCRB for FY 2005, was found to be ineligible for reclassification because its 3-year average hourly wage was now less than 84 percent of the hospitals located in the MSA to which it applied for reclassification. In this case, the hospital's 3-year average hourly wage was still greater than 82 percent of the MSA to which it had applied for reclassification. In such a case, we believe that it would be appropriate to make an accommodation for one year, so that the hospital is not subjected to the financial strain that may be caused by receiving a lower wage index for one year until it qualifies to apply for reclassification under the revised threshold criterion that we are proposing here. Therefore, we are proposing that, in such a case, we would exercise our authority under section 1886(d)(5)(I)(i) of the Act to make an exception by assigning to the hospitals for one additional year the wage index that applied to the hospital in FY 2004 through FY 2005. We are proposing to use this authority to provide, under this unique circumstance, special protection to a small number of hospitals that would otherwise be subject to a temporary, but serious, disadvantage. Specifically, we would assign an RRC that meets the conditions described above, the wage index value of the MSA to which it was reclassified by the MGCRB in FY 2004. In order to be eligible for this exception, the hospital may not qualify for any geographic reclassification for discharges effective October 1, 2004 (under the regular rules or the special one-time appeal provision). This assignment would be valid only for FY 2005, after which the hospital would have the opportunity to apply for reclassification under the new threshold for all RRCs that we are proposing in this rule.</P>
                    <P>We are proposing to revise proposed redesignated § 412.230(d)(3) and add a new § 412.64(j) to incorporate this proposal.</P>
                    <HD SOURCE="HD3">4. Special Circumstances of Sole Community Hospitals (SCHs) in Low Population Density States</HD>
                    <P>Medicare program policy has long provided special treatment for hospitals in rural areas. For many years, rural hospitals have experienced lower margins than other hospitals, and Congress has created several special measures to address the unique issues of hospitals in rural areas. For example, Congress created the CAH program in 1997 to ensure that beneficiaries in isolated areas had access to emergency services and certain essential inpatient services. To qualify for CAH designation, a hospital must be located more than 35 miles from the nearest similar hospital and have an average length of stay not exceeding 4 days. A CAH must provide 24-hour emergency care services and have no more than 25 acute care beds. CAHs are currently paid 101 percent of their current Medicare allowable costs for inpatient and outpatient services. Similarly, the SCH program has long served to maintain access to needed health services for beneficiaries in isolated communities. SCHs are paid based on whichever of the following rates yields the greatest aggregate payment: the Federal national rate; the updated hospital-specific rate based on FY 1982 costs per discharge; the updated hospital-specific rate based on FY 1987 costs per discharge; or the updated hospital-specific rate based on FY 1996 costs per discharge.</P>
                    <P>
                        Many rural hospitals have taken advantage of the opportunity to participate in the CAH program in recent years. We expect the number of hospitals to increase because of the changes made to the CAH program under recently enacted Public Law 108-173 (for example, increasing the reasonable cost payment rate from 100 percent to 101 percent and increasing the qualifying bed size limitation from 15 to 25). Because CAHs are paid on the basis of their reasonable costs, the wage index is not a factor in their payments, and geographic reclassification is thus not an issue for these hospitals. However, for many rural hospitals that cannot qualify for CAH status, the wage index remains an important factor in their payment, even in the case of SCHs paid on their hospital-specific rate, for which the only impact of the wage index may be on their inpatient capital and outpatient payments. The regulations governing reclassifications by the MGCRB provide special treatment for SCHs by exempting them from the normal rules that require hospitals to demonstrate a close 
                        <PRTPAGE P="28290"/>
                        proximity (15 miles in the case of urban hospitals; 35 miles for rural hospitals), and allowing these hospitals to reclassify to the urban area or the rural area that is the closest to the hospital.
                    </P>
                    <P>Wage index assignment is an especially pressing issue for hospitals in States with low population densities. In such States, employees are likely to commute greater distances to work. More distant areas are thus likely to compete for labor than is the case in more densely populated States. Because of this concern, and the program's longstanding recognition of these hospitals, we exercised our discretion in implementing the special one-time wage index reclassification appeal provision of section 508 of Pub. L. 108-173 to provide special consideration for SCHs in States with fewer than 10 people per square mile, based on 2000 census data (Alaska, Montana, North Dakota, South Dakota, and Wyoming). Specifically, we provided that SCHs in such a State could reclassify to an MSA within its State. More than 20 SCHs in those States were able to reclassify under this provision.</P>
                    <P>However, a number of SCHs from those States were precluded from reclassifying under the terms of section 508. We are concerned that these hospitals could now be placed at a serious disadvantage in comparison to other SCHs in their States and regions. Under the authority of section 1886(d)(5)(I)(i) of the Act, we are proposing to provide, under these unique and temporary circumstances, special protection to a small number of hospitals that would otherwise be subject to a temporary, but serious, disadvantage. Specifically, we are proposing to allow an SCH in one of the States with fewer than 10 people per square mile (Alaska, Montana, North Dakota, South Dakota, and Wyoming) to adopt the wage index of another geographic area within its State for 3 years.</P>
                    <P>Such wage index assignments would become effective for FY 2005 through FY 2007. Because the wage index assignments would be made in order to remedy a temporary disadvantage, the assignments would be for the 3-year period only and would not be available thereafter. In order to receive the wage index of another area under this proposal, a SCH may not qualify for reclassification (under the regular rules or the special one-time appeal provision) effective for discharges on or after October 1, 2004. SCHs in the identified States will not be required to meet proximity or access requirements similar to those required for reclassification in order to qualify for change in wage index under this provision. SCHs that wish to receive the wage index of another area within their State under this provision need only notify CMS in writing, at the address in the “Addresses” section provided for comments on this proposed rule, before the close of the comment period. The notification should contain:</P>
                    <P>• The hospital's name and street address.</P>
                    <P>• The hospital's provider number.</P>
                    <P>• The name, title, and telephone number of a contact person for communications.</P>
                    <P>• A statement certifying the SCH status.</P>
                    <P>• The name of the area within the State whose wage index the hospital wishes to adopt.</P>
                    <HD SOURCE="HD3">5. Possible Reclassifications for Dominant Hospitals and Hospitals in Single-Hospital MSAs</HD>
                    <P>Representatives of individual hospitals have expressed concern about the special circumstances of dominant hospitals and hospitals in single-hospital MSAs in relation to the wage index and the rules governing geographic reclassification. The term “dominant hospital” generally refers to a hospital that pays a substantial proportion of all the wages paid by hospitals geographically located in the hospital's area. A dominant hospital necessarily has a preponderate influence on the wage index calculation for the area in which it is located. As a result, dominant hospitals find it difficult to meet the threshold requirements for wage index reclassification; for example, the requirement that an urban hospital's average hourly wage is at least 108 percent of the average hourly wage of hospitals in the area in which the hospital is located (§ 412.230(e)(1)(iii)(B)). Indeed, a dominant hospital would find it difficult to meet any threshold based on the ratio of the hospital's average hourly wage to the average hourly wage of hospitals in the area, unless the dominant hospital's wage data were removed from the denominator for purposes of the comparison. Dominant hospitals have argued that this places them in an unfair situation. While the lower wages of other, smaller hospitals in the area can still have the effect of holding down their wage index, their dominant position makes it difficult, or even impossible, to reclassify to another area where the wage index may more closely reflect their costs.</P>
                    <P>Hospitals in single-hospital MSAs face a situation that is similar in certain respects, but quite different in others. By definition, the wage index for the sole hospital in an MSA is based completely on that hospital's wage data. Such a hospital receives, in effect, its own unique wage index, reflecting the hospital's exact position in relation to the national average hourly wage. As a result, these hospitals cannot qualify for reclassification, unless they are exempt from the wage threshold requirements due to rural referral center status. By definition, the ratio of such a hospital's average hourly wages to the area average hourly wage is always 100 percent, and these hospitals thus cannot meet either the 108 percent threshold for urban hospitals or the 106 percent threshold for rural hospitals (§ 412.230(e)(1)(iii)(B)). Unlike dominant hospitals, hospitals in single-hospital MSAs cannot argue that they are disadvantaged by the effect that lower wage hospitals can have on the area wage index. However, these hospitals have contended that they are sometimes in the position of competing for labor with hospitals in nearby MSAs with higher wage indexes. Under these circumstances, these hospitals cannot reclasssify to the higher wage index area even if they meet the relevant distance requirements. These hospitals also contend that they cannot afford to compete with hospitals that are paid under a higher wage index, and the 3-year lag in the data used to compute the wage index can place them in a permanent position of playing catchup. On the other hand, it is also true that such a disadvantage may be only temporary because increasing wages may eventually equalize wage index values despite the temporary financial disadvantage that would accrue to these hospitals during the 3-year lag period.</P>
                    <P>
                        We are inviting comment on the concerns raised by hospitals in these two situations and on possible methods of addressing these concerns. A number of measures might be considered to address the concerns of these hospitals. In the case of dominant hospitals, the threshold requirements for reclassification could be revised to provide that a hospital's average hourly wage is at least 108 percent (in the case of urban hospitals) or 106 percent (in the case of rural hospitals) of the average hourly wages of 
                        <E T="03">all other</E>
                         hospitals in the area. Removing a dominant hospital's wages from the denominator of the ratio would remove the current disadvantage imposed by their dominant status, and make it more realistic for a dominant hospital to meet the threshold requirement. An existing provision under § 412.230(e)(4) provides this treatment for certain dominant 
                        <PRTPAGE P="28291"/>
                        hospitals, specifically those that were approved for reclassification each year from 1992 through 1997. We could develop a parallel provision that applies to dominant hospitals generally. The use of this revised ratio could be restricted to the special circumstances of dominant hospitals, or extended to all hospitals. We could also adopt a revised threshold for dominant hospitals, as we did in the notice setting forth the criteria for reclassification under the one-time wage index appeal provision of section 508 of Public Law 108-173 (69 FR 7342). Consistent with the criteria from that notice, a dominant hospital might be defined for this purpose as a hospital that pays at least 40 percent of all the wages paid by hospitals geographically located in the hospital's area. We are considering adopting one of these measures in the final rule, and welcome comments on the advisability of doing so.
                    </P>
                    <P>
                        In the case of hospitals in single-hospital MSAs, one new provision that we are proposing to implement in this proposed rule may address some of their concerns (
                        <E T="03">see</E>
                         section III.G.3.2. of this preamble). Section 505 of Public Law 108-173 provides for a new wage index adjustment for hospitals in lower wage areas in cases where significant numbers of hospital workers commute from the lower wage area to higher wage areas nearby. The statute requires that at least 10 percent of the hospital workers in a county must be commuting to a higher wage area, or areas, in order for the hospitals in the county to receive the adjustment. The adjustment formula provides for an increase to the wage index for hospitals in the county, based on the differences between the wage index that applies to the county and the higher wage indexes of nearby areas, in proportion to the percentages of hospital workers commuting to the higher wage index areas. To the degree that hospitals in single-hospital MSAs experience disadvantages in competing for hospital workers with hospitals in higher wage index areas, we expect that the counties in which these hospitals are located would qualify for this adjustment. We are actively considering whether to address the concerns of these hospitals more directly. At the same time, we intend to analyze the extent to which this provision would alleviate the concerns of these hospitals. We welcome comments on the special circumstances of hospitals in single-hospital MSAs and whether their special circumstances should be addressed by revisions to the regulations governing reclassification, or other measures.
                    </P>
                    <HD SOURCE="HD3">6. Special Circumstances of Hospitals in All-Urban States</HD>
                    <P>Section 4410 of Public Law 105-33 (BBA) provides that, for the purposes of section 1886(d)(3)(E) of the Act, for discharges occurring on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in the State. This provision, commonly referred to as the “rural floor,” currently affects the payments received by 150 hospitals in 49 MSAs. For these 150 hospitals, the applicable wage index and overall payment amounts under the IPPS are higher than they would be if their wage indexes were computed solely on the basis of the wage data from their MSAs. The wage index floor is applied in a budget neutral manner, so that aggregate IPPS payments each year are not greater or less than those that would have been made in the absence of this provision.</P>
                    <P>The “rural floor” under section 4410 of Public Law 105-33 does not apply in the two States that have no rural areas under the labor market definitions that apply within the IPPS. Hospitals in these two States have commented that the absence of a rural floor disadvantages them for wage index purposes compared to hospitals in States where the “rural floor” provision can apply. Specifically, some hospitals contend that they would have higher wage indexes, and higher payments overall, if there were a rural area in their State to set a floor under the wage indexes within the State.</P>
                    <P>We are considering whether it would be appropriate to adopt some measure to address the concerns of these hospitals. For example, we are examining the ratios between the lowest and highest wage index values in States where the “rural floor” affects the wage indexes of some hospitals. We might consider employing the average ratio of highest-to-lowest wage indexes in those States to set an imputed “rural floor” for all-urban States. For example, assume the average “lowest-to-highest” ratio of States with rural floors is 0.9500. Assume further that the lowest wage index in an all-urban State is 1.0000, and the highest is 1.1000. The “lowest-to-highest” ratio for that State is 0.9091. If we apply the average “lowest-to-highest” ratio to the highest wage index in the all-urban State, we would multiply 0.9500 by 1.1000, which yields 1.0450. The imputed analogue to the “rural floor” for the all-urban State would then be 1.0450. Any hospital with a regular wage index value less than 1.0450 would then receive the new imputed floor.</P>
                    <P>We welcome comments on the position of hospitals in all-urban States relative to hospitals that receive the “rural floor” in other States. We also welcome comments on whether it would be advisable to adopt an imputed floor measure or some alternative measure to address the concerns of hospitals in these States. We note that, in order to be consistent with the statutory provision establishing the rural floor, we would apply any such measure in budget neutral manner, that is, we would adjust the standardized amount so that aggregate IPPS payments each year are not greater or less than those that would have been made in the absence of this provision.</P>
                    <HD SOURCE="HD2">O. Payment for Direct Graduate Medical Education (Existing § 413.86)</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Graduate Medical Education” at the beginning of your comment.]</FP>
                    <HD SOURCE="HD3">1. Background</HD>
                    <P>
                        Section 1886(h) of the Act, as added by section 9202 of the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L. 99-272) and implemented in regulations at existing § 413.86, establishes a methodology for determining payments to hospitals for the costs of approved GME programs. Section 1886(h)(2) of the Act, as added by COBRA, sets forth a payment methodology for the determination of a hospital-specific, base-period per resident amount (PRA) that is calculated by dividing a hospital's allowable costs of GME for a base period by its number of residents in the base period. The base period is, for most hospitals, the hospital's cost reporting period beginning in FY 1984 (that is, the period of October 1, 1983 through September 30, 1984). The PRA is multiplied by the weighted number of full-time equivalent (FTE) residents working in all areas of the hospital (and nonhospital sites, when applicable), and the hospital's Medicare share of total inpatient days to determine Medicare's direct GME payments. In addition, as specified in section 1886(h)(2)(D)(ii) of the Act, for cost reporting periods beginning on or after October 1, 1993, through September 30, 1995, each hospital-specific PRA for the previous cost reporting period is not updated for inflation for any FTE residents who are not either a primary care or an obstetrics and gynecology resident. As a result, hospitals that train primary care and obstetrics and gynecology residents, as well as nonprimary care residents in FY 
                        <PRTPAGE P="28292"/>
                        1994 or FY 1995, have two separate PRAs: one for primary care and obstetrics and gynecology and one for nonprimary care.
                    </P>
                    <P>The BBRA (Pub. L. 106-113) amended section 1886(h)(2) of the Act to establish a methodology for the use of a national average PRA in computing direct GME payments for cost reporting periods beginning on or after October 1, 2000, and on or before September 30, 2005. The BBRA established a “floor” for hospital-specific PRAs equal to 70 percent of the locality-adjusted national average PRA. In addition, the BBRA established a “ceiling” that limited the annual adjustment to a hospital-specific PRA if the PRA exceeded 140 percent of the locality-adjusted national average PRA. Section 511 of the BIPA (Pub. L. 106-554) increased the floor established by the BBRA to equal 85 percent of the locality-adjusted national average PRA. Existing regulations at § 413.86(e)(4) specify that, for purposes of calculating direct GME payments, each hospital-specific PRA is compared to the floor and the ceiling to determine whether a hospital-specific PRA should be revised.</P>
                    <P>Section 1886(h)(4)(F) of the Act established caps on the number of allopathic and osteopathic residents that hospitals may count for purposes of calculating direct GME payments. For most hospitals, the caps were the number of allopathic and osteopathic FTE residents training in the most recent cost reporting period ending on or before December 31, 1996.</P>
                    <NOTE>
                        <HD SOURCE="HED">Note to Readers:</HD>
                        <P>This proposed rule includes a major redesignation of the contents of § 413.86. As a result of the numerous amendments we have made over the years, the size of § 413.86 has become voluminous and difficult to follow because of the multiple levels of coding. We are taking a first step to split the one section (§ 413.86) into nine individual sections (§§ 413.75 through 413.83). We are proposing to designate each first level paragraph under existing § 413.86 as a separate new section and vacate § 413.86. At this time, we are not proposing to make any changes in the language of these new redesignated sections, except for the changes that are discussed in section IV.O. of this preamble (which would conform to the existing language of § 413.86) and any appropriate cross-reference and conforming changes. We are providing a detailed crosswalk of the existing paragraphs of § 413.86 to the proposed new §§ 413.75 through 413.83. In addition, in any discussion of changes we are proposing to make, we are providing both the existing citation under § 413.86 and the proposed redesignated section and paragraph. At a later date, we may further refine the contents of the redesignated sections to improve readability. </P>
                    </NOTE>
                    <HD SOURCE="HD3">2. Reductions of and Increases in Hospitals' FTE Resident Caps for GME Payment Purposes Under Section 422 of Public Law 108-173 (Proposed Redesignated § 413.79 (a Proposed Redesignation of § 413.86(g))</HD>
                    <HD SOURCE="HD3">a. General Background on Methodology for Determining the FTE Resident Count</HD>
                    <P>As we explain earlier in this preamble, Medicare makes both direct and indirect GME payments to hospitals that train residents in approved medical residency training programs. Direct GME payments are made in accordance with section 1886(h) of the Act, based generally on hospital-specific PRAs, the number of FTE residents a hospital trains, and the hospital's Medicare patient share. IME payments are made in accordance with section 1886(d)(5)(B) of the Act, based generally on the ratio of the hospital's FTE residents to the number of hospital beds. Accordingly, the calculation of both direct GME and IME payments is affected by the number of FTE residents that a hospital is allowed to count; generally, the greater the number of FTE residents a hospital counts, the greater the amount of Medicare direct GME and IME payments the hospital will receive. In an attempt to end the implicit incentive for hospitals to increase the number of FTE residents, Congress instituted a cap on the number of allopathic and osteopathic residents a hospital is allowed to count for direct GME and IME purposes under the provisions of section 1886(h)(4)(F) of the Act for direct GME and section 1886(d)(5)(B)(v) of the Act for IME. Dental and podiatric residents were not included in this statutorily mandated cap. </P>
                    <HD SOURCE="HD3">b. Reduction of Hospitals' FTE Resident Caps Under the Provisions of Section 422 of Public Law 108-173</HD>
                    <P>Medicare makes direct GME and IME payments based only on the number of FTE residents that is within a hospital's FTE resident cap. Some hospitals have trained a number of allopathic and osteopathic residents in excess of their FTE resident caps. Other hospitals have reduced their resident counts to some level below their FTE resident caps. Section 422 of Public Law 108-173 added a new section 1886(h)(7) to the Act to provide for reductions in the statutory resident caps under Medicare for certain hospitals and authorize a “redistribution” of the FTE resident slots resulting from the reduction in the FTE resident caps to other hospitals.</P>
                    <P>The new section 1886(h)(7)(A) of the Act provides that a hospital's FTE resident cap will be reduced if its reference resident level, as described below, is less than its otherwise applicable FTE resident cap. Rural hospitals with less than 250 acute care inpatient beds are exempt from these reductions. For other hospitals, the reduction will be equal to 75 percent of the difference between the hospital's otherwise applicable FTE resident cap and its reference resident level.</P>
                    <P>(We note that the remainder of this section IV.O. of this preamble addresses the provisions of section 1886(h)(7) of the Act, as added by section 422 of Public Law 108-173, as it relates to hospitals' FTE resident caps for direct GME and IME payment purposes. We address the provisions of section 1886(h)(7) of the Act as it relates specifically to the IME adjustment under section IV.K.2. of this preamble.)</P>
                    <P>Under the new section 1886(h)(7)(B) of the Act, the Secretary is authorized to increase the otherwise applicable FTE resident caps for certain categories of hospitals for portions of cost reporting periods occurring on or after July 1, 2005, by an aggregate number that does not exceed the estimated overall reduction in FTE resident caps for all hospitals under section 1886(h)(7)(A). A single hospital may receive an increase in its FTE resident cap of no more than 25 additional FTEs. In determining which hospitals would receive an increase in their FTE resident caps, section 1886(h)(7)(B) of the Act directs us to—</P>
                    <P>• Take into account the demonstrated likelihood of the hospital filling the additional positions within the first three cost reporting periods beginning on or after July 1, 2005.</P>
                    <P>• Establish a priority order to distribute resident slots first to programs in hospitals located in rural areas; second, to urban hospitals that are not in large urban areas; and third, to other hospitals operating a training program in a State where there is no other training program for a particular specialty in the State.</P>
                    <P>
                        In summary, section 422 of Public Law 108-173 added a new section 1886(h)(7) of the Act that prescribes a methodology for determining reductions to certain hospitals' FTE resident caps based on unused FTE resident slots, provides for certain exceptions to the FTE resident cap reductions, and includes general criteria that CMS must consider in the redistribution, to other hospitals, of the estimated number of FTE resident slots resulting from the reductions in the FTE resident caps. In this proposed rule, we are proposing procedures for determining whether, and by what amount, a hospital's FTE resident cap is subject to a reduction under section 1886(h)(7) of the Act. We 
                        <PRTPAGE P="28293"/>
                        also are proposing an application process for hospitals that seek to receive increases in their FTE resident caps and the specific criteria that we would use to determine which hospitals will receive the increases in their FTE resident caps under section 1886(h)(7)(B) of the Act. 
                    </P>
                    <HD SOURCE="HD3">c. Hospitals Subject to the FTE Resident Cap Reduction</HD>
                    <P>As indicated earlier, section 1886(h)(7)(A) of the Act, as added by section 422 of Public Law 108-173, provides that if a hospital's “reference resident level” is less than its “otherwise applicable resident limit,” its “otherwise applicable resident limit” will be reduced by 75 percent of the difference between its “otherwise applicable resident limit” and its “reference resident level.” Under the amendments made by section 422, the “reference resident level” generally refers to the number of unweighted allopathic and osteopathic FTE residents who are training at a hospital in a given cost reporting period. The “otherwise applicable resident limit” refers to a hospital's FTE resident cap established under sections 1886(h)(4)(F)(i) and (h)(4)(H) of the Act. A hospital's permanent FTE cap under section 1886(h)(4)(F)(i) of the Act is based on (1) for an urban hospital, the number of unweighted allopathic or osteopathic FTE residents in the hospital's most recent cost reporting period ending on or before December 31, 1996 (the “1996 cap”), as specified under existing regulations at § 413.86(g)(4) (proposed redesignated § 413.79(c)(2)), and, if applicable, the 1996 cap adjusted for new programs as specified under existing § 413.86(g)(6) (proposed redesignated § 413.79(e)); or (2) for a rural hospital, 130 percent of the 1996 cap increased, as specified under existing § 413.86(g)(4) and, if applicable, the 1996 cap adjusted for new programs as specified under § 413.86(g)(6), or the 1996 cap with both adjustments. We also note that a hospital's 1996 cap may be adjusted in other instances (such as temporary adjustments for program or hospital closure) if the hospital is a member of a Medicare GME affiliated group under existing § 413.86(b) (proposed redesignated § 413.75(b)), but we will discuss the applicability of affiliations under section 1886(h)(7)(A) of the Act in more detail at section IV.O.2.f.(5) of this preamble.</P>
                    <P>In our discussion of the provisions of section 422 of Public Law 108-173 under this section of this proposed rule, we will generally refer to a hospital's number of unweighted allopathic and osteopathic FTE residents in a particular period as a hospital's “resident level.” We will also refer to a hospital's resident level in the applicable “reference period,” as explained further below, as the hospital's “reference resident level.” In addition, we will refer to the “otherwise applicable resident cap” as the hospital's FTE resident cap that is applicable during a particular cost reporting period. Thus, we are proposing that if a hospital's resident level is less than the hospital's otherwise applicable resident cap in the “reference period” (as explained below), effective for portions of cost reporting periods occurring on or after July 1, 2005, we would permanently reduce the hospital's FTE resident cap by 75 percent of the difference between a reference resident level and the otherwise applicable FTE resident cap. For example, if a hospital's otherwise applicable FTE resident cap for the reference period is 100, and its resident level for that period is 80 FTEs, we would reduce the hospital's FTE resident cap by 15 FTEs [0.75 (100−80)] = 15). (Proposed redesignated § 413.79(c)(3)). </P>
                    <HD SOURCE="HD3">d. Exemption From FTE Resident Cap Reduction for Certain Rural Hospitals</HD>
                    <P>Section 1886(h)(7)(A)(i)(II) of the Act, as added by section 422 of Public Law 108-173, specifically exempts rural hospitals (as defined in section 1886(d)(2)(D)(ii) of the Act) with less than 250 acute care inpatient beds from the possible 75 percent reduction to their FTE resident caps. Section 1886(d)(2)(D)(ii) of the Act defines a rural area as any area outside a Metropolitan Statistical Area (MSA). Under the existing regulations at § 413.62(f)(ii), an “urban area” means (1) a Metropolitan Statistical Area (MSA) or New England County Metropolitan Area (NECMA); or (2) the following New England counties: Litchfield County, Connecticut; York County, Maine; Sagadahoc County, Maine; Merrimack County, New Hampshire; and Newport County, Rhode Island. Under existing § 413.62(f)(iii), a “rural area” means any area outside an urban area. In addition, we note that under section III. of this preamble, which discusses wage areas, we are proposing to no longer recognize NECMAs as a distinct category of wage areas. Thus, for purposes of the amendments made by section 422, we are proposing that any hospital located in an area that is not in a MSA is a rural hospital, regardless of any reclassification under § 412.102 or § 412.103. We note that this definition of “rural” is consistent with our proposal under section III. of this preamble concerning designation of wage index areas.</P>
                    <P>A hospital's bed size is based on its number of available beds, as determined for IME payment purposes under § 412.105 of the regulations. For purposes of determining whether a rural hospital has less than 250 beds, we are proposing to use data from the rural hospital's most recent cost reporting period ending on or before September 30, 2002. (This information may be found on Worksheet S-3, Part I of the Medicare cost report, CMS-2552-96, column 2, the sum of lines 1 and 6 through 10, divided by the number of days in the cost reporting period.) This is the cost reporting period under section 1886(h)(7)(A)(ii)(I) of the Act that is to be used in determining a hospital's reference resident level (the unweighted allopathic and osteopathic FTE resident count) (unless a hospital makes and CMS grants a timely request under section 1886(h)(7)(A)(ii)(II) of the Act). We are proposing that if a rural hospital has less than 250 beds in its most recent cost reporting period ending on or before September 30, 2002, it would not be subject to a possible reduction to its FTE resident cap under section 1886(h)(7)(A) of the Act. However, if a rural hospital has at least 250 beds in its most recent cost reporting period ending on or before September 30, 2002, we are proposing that the rural hospital would be subject to a possible reduction to its FTE resident cap. (Proposed redesignated § 413.79(c)(3)(i)). </P>
                    <HD SOURCE="HD3">e. Determining the Estimated Number of FTE Resident Slots Available for Redistribution</HD>
                    <P>
                        Under section 1886(h)(7)(A) of the Act, we will determine the number of resident positions available for redistribution by estimating possible reductions to hospitals' FTE resident caps. We believe that section 422 allows us to distinguish between the FTE counts that are used to determine the number of FTE resident slots that are available for redistribution (that is, the “resident pool”), and the actual number of FTE residents by which hospitals' FTE resident caps are ultimately reduced. We are proposing to estimate the reduction to a hospital's FTE resident cap under section 1886(h)(7)(A) of the Act for purposes of determining the number of FTEs that a hospital might contribute to the resident pool. This proposed interpretation is based on the language at section 1886(h)(7)(B)(i) of the Act, as added by section 422(a)(3), which states that the “aggregate number of increases in the otherwise applicable 
                        <PRTPAGE P="28294"/>
                        resident limits under this subparagraph may not exceed the Secretary's 
                        <E T="03">estimate</E>
                         of the aggregate reduction in such limits * * *” (emphasis added). We are proposing to interpret this language to mean that we would have complied with the statute as long as the aggregate number of FTE residents by which we 
                        <E T="03">increase</E>
                         the FTE resident caps of qualifying hospitals under section 1886(h)(7)(B) of the Act is not more than the estimate of the aggregate number of FTE residents by which we would reduce the FTE resident caps of hospitals whose reference resident levels are less than their otherwise applicable FTE resident caps. However, we could subsequently perform an audit, as described further in section IV.O.2.f.(3) of this preamble, in order to make a final determination regarding any reductions to a hospital's FTE resident cap.
                    </P>
                    <P>To ensure that we will begin making payments for most hospitals based on the revised FTE resident caps by July 1, 2005, we are proposing to set a date by which we will have estimated a hospital's resident level and compared it to the hospital's otherwise applicable resident cap to estimate whether, and by how much, the hospital's FTE resident cap would be reduced. We are not proposing to commit to make a final determination as to whether, and by how much, a particular hospital's FTE resident cap should be reduced as of this date, nor are we proposing to commit to inform any hospital that it will receive an increase to its FTE resident cap by this date. Rather, we are only proposing to use this date as an internal “deadline” to ensure that we will have sufficient time to distribute the resident pool and begin making payments for most hospitals based on the revised FTE resident caps by July 1, 2005. We are proposing that this date be May 1, 2005, and that date would apply for all hospitals for purposes of determining an estimate of whether and by how much their FTE resident caps should be reduced.</P>
                    <P>Accordingly, in the event that the fiscal intermediaries have not completed an audit (explained further under section IV.O.2.f.(3) of this preamble) by May 1, 2005, we are proposing that CMS may estimate the number of FTE residents by which a hospital's FTE resident cap should be reduced by May 1, 2005. For example, a fiscal intermediary may estimate by May 1, 2005, that Hospital A's FTE resident cap should be reduced by 10 FTEs. Thus, we would place 10 FTEs into the resident pool. It is possible that even after May 1, 2005, the fiscal intermediary may continue to audit Hospital A's relevant cost report(s) to determine if, in fact, 10 FTEs is the appropriate amount by which to reduce Hospital A's FTE resident cap, and could ultimately conclude that Hospital A's FTE resident cap should only be reduced by 8 FTEs. If the fiscal intermediary makes this final determination by May 1, 2005, we would change the number of FTE residents in the resident pool attributable to Hospital A from 10 FTEs to 8 FTEs. If the fiscal intermediary does not make this determination by May 1, 2005, based on the audit, we would only reduce Hospital A's FTE resident cap by 8 FTEs effective July 1, 2005, but the number of FTE residents in the resident pool attributable to Hospital A would remain at 10 FTEs (the estimated number as of May 1, 2005). Similarly, if the fiscal intermediary ultimately concluded that Hospital A's FTE resident cap should be reduced by 12 FTEs, but this final determination is not made by May 1, 2005, Hospital A's FTE resident cap would be reduced by 12 FTEs effective July 1, 2005, but the number of FTE residents in the resident pool attributable to Hospital A would remain at 10 FTEs.</P>
                    <P>As we stated above, because we believe that section 422 allows us to distinguish between the FTE counts that are used to determine the size of the resident pool, and the actual number of FTE residents by which hospitals' FTE resident caps are ultimately reduced, we are proposing, in certain instances, to use estimated information to determine possible reductions to hospitals' FTE resident caps. As described further below, sections 1886(h)(7)(A)(ii) and (h)(7)(A)(iii) of the Act direct CMS to adjust a hospital's reference resident level in certain instances, due to an expansion of an existing program that is not reflected on the most recent settled cost report, or to include the number of residents for which a new program was accredited, or for hospitals that are members of a Medicare GME affiliated group as of July 1, 2003. We note that, in adjusting the reference resident level in these instances, the number of FTE residents by which we adjust the reference resident level for purposes of determining possible reductions to a hospital's FTE resident cap may not be the actual or audited number of FTE residents that we would otherwise use for direct GME or IME payment purposes. For example, for expansions under newly approved programs (as explained in more detail in section IV.O.2.f.(3) of this preamble), we are proposing to adjust the reference resident level to include the number of residents for which a new program was accredited at a hospital, even though at the time the fiscal intermediary is determining possible reductions to a hospital's FTE resident cap, the hospital may not be training the full complement of residents for which the program was accredited. Thus, the number of FTE residents (including those training in the newly accredited program) for purposes of IME and direct GME payment would be dependent upon the actual number of FTEs the hospital is permitted to count in a particular cost reporting period, as determined in accordance with the regulations at § 412.105 for IME and § 413.86 for direct GME.</P>
                    <P>In addition, we realize that there may be instances where a hospital's FTE resident cap or a hospital's FTE resident count for the reference cost reporting period might be under appeal. We believe that appeals related to these issues should be resolved through the normal course of business. In the event that an appeal that may affect determinations made under section 1886(h)(7)(A) of the Act is not resolved by May 1, 2005, we are proposing that we would estimate the number of FTE residents by which a hospital's FTE resident cap should be reduced (or not reduced, as applicable) by May 1, 2005. </P>
                    <HD SOURCE="HD3">f. Determining the Possible Reduction to a Hospital's FTE Resident Cap</HD>
                    <HD SOURCE="HD3">(1) Reference Resident Level—General</HD>
                    <P>
                        In order to determine if a hospital's resident level is less than the hospital's otherwise applicable FTE resident cap, section 1886(h)(7)(A)(ii) of the Act, as added by section 422 of Public Law 108-173, directs the Secretary to use one of two reference cost reporting periods. Section 1886(h)(7)(A)(ii)(I) of the Act directs CMS to use a hospital's most recent cost reporting period ending on or before September 30, 2002, “for which a cost report has been settled (or, if not, submitted (subject to audit)), as determined by the Secretary,” as the reference period, unless we grant the hospital's timely request to use a later cost report under section 1886(h)(7)(A)(ii)(II) of the Act, as described under section IV.O.2.f.(2) of this preamble. Generally, if the hospital's resident level for either direct GME or IME is less than the hospital's otherwise applicable resident cap for direct GME or IME, respectively, for the most recent cost reporting period ending on or before September 30, 2002, the hospital's FTE resident cap for direct GME or IME will be reduced by 75 percent of the difference between the resident level and the otherwise 
                        <PRTPAGE P="28295"/>
                        applicable FTE resident cap. On April 30, 2004, we issued a One-Time Notification (OTN) (Transmittal 77, CR 3247), “Redistribution of Unused Resident Positions, Section 422 of the Medicare Modernization Act of 2003 (MMA), Public Law 108-173, for Purposes of Graduate Medical Education (GME) Payments” that prescribed certain requirements related to the implementation of section 422 and established a deadline by which a hospital must exercise its option to request that we use of later cost report as the reference cost report. If the hospital's cost report for the most recent cost reporting period ending on or before September 30, 2002, is settled by April 30, 2004, the date on which the OTN was issued, we are proposing to use that cost report to determine if, and by how much, a hospital's FTE resident cap should be reduced. We note that the “settled” cost report does not necessarily mean the initial cost report settlement. The fiscal intermediary may have previously settled the cost report, reopened it to audit it, and then settled the cost report again, issuing a revised Notice of Program Reimbursement (NPR). Thus, we would refer to the more recently issued NPR. When a hospital's cost report for the most recent cost reporting period ending on or before September 30, 2002, has been settled by April 30, 2004, we are proposing to use the most recently settled cost report as of April 30, 2004, to determine any reduction to the hospital's FTE resident cap under section 1886(h)(7)(A)(ii)(I) of the Act (unless we grant the hospital's timely request under section 1886(h)(7)(A)(ii)(II) of the Act to use a later cost report, as described in section IV.O.2.f.(2) of this preamble). If the hospital's cost report for the most recent cost reporting period ending on or before September 30, 2002 has not yet been settled as of April 30, 2004, the as-submitted cost report would be used to determine any reduction in the FTE resident cap, subject to audit by the fiscal intermediary. If the cost report was initially settled, but then reopened, and the fiscal intermediary has not issued a revised NPR prior to April 30, 2004, the data from the initially settled cost report will be used to determine the possible reductions to the FTE resident caps.
                    </P>
                    <HD SOURCE="HD3">(2) Expansion of an Existing Program</HD>
                    <P>
                        Section 1886(h)(7)(A)(ii)(II) of the Act, as added by section 422(a) of Public Law 108-173, provides that if a hospital's resident level increased due to an expansion of an existing program, and that expansion is not reflected on the hospital's most recent settled cost report, a hospital may make a timely request to CMS that, rather than using its most recent cost reporting period ending on or before September 30, 2002, to determine if its FTE resident cap should be reduced, CMS should use the cost report for the hospital's cost reporting period that includes July 1, 2003. For example, assume a hospital's most recent settled cost report is September 30, 2000 (that is, no NPRs were issued for subsequent year cost reports). The hospital increased its resident level due to an expansion of an existing program in its fiscal year ending September 30, 2001. The hospital may submit a timely request that CMS use its cost report that includes July 1, 2003 (which would be its cost report for the fiscal year ending September 30, 2003), to determine if and by how much the hospital's FTE resident cap should be reduced. (Proposed redesignated § 413.79(c)(3)(ii)(A)(
                        <E T="03">2</E>
                        )). As explained on page 3 of the OTN, to be considered a timely and proper request, a hospital's request to use its cost reporting period that includes July 1, 2003, must be signed and dated by the hospital's chief financial officer (or equivalent) and submitted to its fiscal intermediary on or before June 4, 2004. In its timely request, the hospital must include the following:
                    </P>
                    <P>(1) The FTE resident caps for direct GME and IME and the number of unweighted allopathic and osteopathic FTE residents for direct GME and IME in its most recently settled cost report (that is, its cost report that is more recently settled as of April 30, 2004).</P>
                    <P>(2) The FTE resident caps for direct GME and IME and the unweighted allopathic and osteopathic FTE residents for direct GME and IME for each cost report after its most recently settled cost report, up to and including its cost reporting period that includes July 1, 2003. If the cost reporting period that includes July 1, 2003, has not ended as of June 4, 2004, the hospital must report the estimated number of unweighted allopathic and osteopathic residents for that cost reporting period.</P>
                    <P>(3) If not already reported in accordance with steps 1 and 2 above, the FTE resident caps for direct GME and IME and the number of unweighted allopathic and osteopathic FTE residents for direct GME and IME in its most recent cost reporting period ending on or before September 30, 2002.</P>
                    <P>In addition, as we stated in the One-Time Notification (OTN), (Transmittal 77, CR 3247), “Redistribution of Unused Resident Positions, Section 422 of the Medicare Modernization Act of 2003 (MMA), Public Law 108-173, for Purposes of Graduate Medical Education a hospital should refer to its most recently settled cost report as of the issuance of the OTN (that is, April 30, 2004) to determine whether the hospital believes it has expanded an existing program in a cost reporting period subsequent to the one for the most recently settled cost report.</P>
                    <P>
                        We also are proposing that, for purposes of this provision, an “expansion of an existing program” means that, except for expansions due to newly approved programs, as described below in section IV.O.2.f.(4) of this preamble, the hospital's total number of unweighted allopathic and osteopathic FTE residents training in existing programs in a cost reporting period up to and including the hospital's cost report that includes July 1, 2003, is greater than the resident level in the hospital's most recent settled cost report. (Proposed redesignated § 413.79(c)(3)(ii)(A)(
                        <E T="03">3</E>
                        )). In other words, generally, as long as a hospital trained more unweighted allopathic and osteopathic FTE residents in a cost reporting period after its most recent settled cost report in programs that were existing during the cost reporting period for the most recently settled cost report, it may submit a timely request that its cost report that includes July 1, 2003, be used for purposes of determining any FTE resident cap reduction under section 1886(h)(7)(A)(i) of the Act. We note that if a hospital expanded an existing program after its most recent settled cost report, and then subsequently reduced its FTE resident count to the extent that it actually trained fewer unweighted allopathic and osteopathic FTE residents in its cost report that includes July 1, 2003, than in its most recent cost reporting period ending on or before September 30, 2002, the hospital would not benefit from, and would likely not make, a timely request that its cost report that includes July 1, 2003, be used for purposes of determining a possible reduction to its FTE resident cap.
                    </P>
                    <HD SOURCE="HD3">(3) Audits of the Reference Cost Reporting Periods</HD>
                    <P>
                        As mentioned under section IV.O.2.f.(1) of this preamble, to determine a possible reduction to a hospital's FTE resident cap, section 1886(h)(7)(A)(ii)(I) of the Act, as added by section 422(a) of Public Law 108-173, directs CMS to use a hospital's most recent cost reporting period ending on or before September 30, 2002, “for which a cost report has been 
                        <E T="03">settled</E>
                         (or, 
                        <E T="03">if not, submitted (subject to audit</E>
                        ), as determined by the Secretary” (emphasis added). We are proposing to interpret 
                        <PRTPAGE P="28296"/>
                        this language to mean that, if a hospital's cost report for the most recent cost reporting period ending on or before September 30, 2002, has been settled, then, unless the hospital submits a timely request to use the cost reporting period that includes July 1, 2003, we would use the hospital's settled cost report without further audit to determine possible reductions to the FTE resident caps. We also are proposing to interpret this language to mean that if a hospital's cost report for the most recent cost reporting period ending on or before September 30, 2002, has not been settled, the hospital's as-submitted cost report for the most recent cost reporting period ending on or before September 30, 2002, would be subject to audit by the fiscal intermediary. In addition, as stated under section 1886(h)(7)(A)(ii)(II) of the Act, use of a hospital's cost report that includes July 1, 2003 is made “after audit and subject to the discretion of the Secretary.” A hospital's cost report that includes July 1, 2003 may be at various stages of settlement, or may not even be submitted at the time this proposed rule is published. For example, if a hospital has a fiscal year end of June 30, its cost reporting period that includes July 1, 2003 would not end until June 30, 2004. This cost report is not required to be submitted until 5 months after the cost reporting period closes, which would be by December 1, 2004. In any case, the fiscal intermediary would need to make a determination as to whether a hospital has actually increased its resident level due to an expansion of an existing program that is not reflected on the most recent settled cost report. Further, the FTE resident counts that are included (or would be included) in the cost report that includes July 1, 2003, are subject to audit by the fiscal intermediary to ensure that an appropriate determination is made as to whether, and by how much, a hospital's FTE resident cap will be reduced. To facilitate these determinations, we are proposing that the fiscal intermediaries may audit the FTE resident counts as necessary in the most recently settled cost reports and in the cost reports up to and including the cost report for the cost reporting period that includes July 1, 2003.
                    </P>
                    <P>Fiscal intermediaries will perform desk or onsite audits related to section 422, using instructions that will be issued in a separate document. As we explained in the OTN, Transmittal No. 77, CR 3247, in the interest of time and the most efficient use of audit resources, we have required that if a hospital would like CMS to use its cost report that includes July 1, 2003, as its reference period due to an expansion of an existing program, the hospital must notify the fiscal intermediary in accordance with the instructions provided in the OTN by June 4, 2004. If a hospital submits a timely request that its cost report that includes July 1, 2003, be used, the fiscal intermediary would audit that cost report and previous cost reports as necessary to determine if the hospital increased its resident level due to an expansion of an existing program that is not reflected on the most recent settled cost report. If a hospital does not submit a timely request to the fiscal intermediary that its cost report that includes July 1, 2003, be used, the fiscal intermediary would use the cost report for the most recent cost reporting period ending on or before September 30, 2002, to determine if, and by how much, a hospital's FTE resident cap should be reduced, as specified under section 1886(h)(7)(A)(ii)(I) of the Act. If the cost report that is used to determine the possible reduction to a hospital's FTE resident count is for a period of less than or more than 12 months, we are proposing that the fiscal intermediary would prorate the FTE resident caps and unweighted FTE residents to equal 12-month counts.</P>
                    <HD SOURCE="HD3">(4) Expansions Under Newly Approved Programs</HD>
                    <P>Under section 1886(h)(7)(ii)(III) of the Act, as added by section 422(a)(3) of Public Law 108-173, a hospital may request that its reference resident level be adjusted to include residents in certain newly approved programs. Specifically, if a hospital's new program was accredited by the appropriate accrediting body (that is, the Accreditation Council on Graduate Medical Education (ACGME) or the American Osteopathic Association (AOA)) before January 1, 2002, but was not in operation during the hospital's reference period, the hospital may submit a timely request that we adjust the reference resident level to include the number of residents for which a new program was accredited at a hospital(s). For a hospital that requests an adjustment due to a newly approved program, we are proposing to determine a hospital's reference period as we otherwise would. If a hospital received accreditation for a new medical residency training program before January 1, 2002, but the program was not in operation (that is, the hospital did not begin training residents in that program) during its reference period (which will be either the most recent cost reporting period ending on or before September 30, 2002, or the cost reporting period that includes July 1, 2003), the hospital may submit a timely request by June 4, 2004, as explained in the OTN, that its resident level for its reference period be adjusted to reflect the number of accredited slots for which that new medical residency training program was approved. We note that section 1886(h)(7)(A)(ii)(III) of the Act does not require that CMS include the number of residents for which the new program is accredited in the hospital's reference cost reporting period for purposes of determining direct GME and IME payment in that reference cost reporting period. Rather, CMS is only required to include the number of residents for which a new program was accredited in the resident level for purposes of determining if, and by how much, a hospital's FTE resident cap should be reduced.</P>
                    <P>
                        For example, assume a hospital that has a fiscal year end of June 30 received accreditation in October 2001 to train 10 residents in a new surgery program. The hospital does not have an expansion of an existing program not reflected on its most recent settled cost report, so its reference period is the most recent cost reporting period ending on or before September 30, 2002. The hospital first begins to train residents in the new surgery program on July 1, 2002. The new surgery residents are not reflected on the hospital's June 30, 2002 cost report, which is the hospital's most recent cost reporting period ending on or before September 30, 2002. Thus, the hospital may submit a timely request that we increase its resident level for the cost report ending June 30, 2002, by 10 FTE residents to reflect the residents approved for the new surgery program for purposes of determining if the hospital's reference resident level is below its otherwise applicable resident cap. However, we note that if the hospital's fiscal year end in this example was September 30, a program accredited in October 2001 and begun on July 1, 2002, would be in operation during the hospital's cost reporting period ending on September 30, 2002, and the hospital could not receive an increase to its resident level for its cost reporting period ending September 30, 2002, to include the total number of accredited resident positions in the new surgery program. If the new program was accredited for a range of residents (for example, a hospital receives accreditation to train 6 to 8 residents in a new internal medicine program), we are proposing that the hospital may request that its resident level for its most recent cost reporting period ending on or before September 30, 2002 be 
                        <PRTPAGE P="28297"/>
                        adjusted to reflect the maximum number of accredited positions (which, in this example, would be 8 internal medicine residents). We also are proposing that at the time the hospital makes the timely request to have its resident level adjusted to include the number of accredited resident positions, the new program need not be training the full complement of residents for which the program was accredited. (Proposed redesignated 413.79(c)(3)(A)(
                        <E T="03">3</E>
                        )(
                        <E T="03">ii</E>
                        )). In addition, if more than one hospital was approved as a training site for the residents in the newly accredited program (that is, more than one hospital sponsors the program or there are other participating institutions that serve as training sites for the residents in the program), we are proposing that the adjustment to a requesting hospital's reference resident level would reflect the appropriate portions of the FTE residents in the new program that would be training at that hospital.
                    </P>
                    <P>
                        Similarly, if, in addition to having accreditation for a new program, a hospital has an expansion of an existing program that is not reflected on the most recent settled cost report, that hospital may submit a timely request that its resident level for the cost reporting period that includes July 1, 2003, be adjusted to include the number of resident positions for which a new program was accredited. We are proposing that a hospital whose reference period is the one that includes July 1, 2003, may only request that its reference resident level be adjusted to include the accredited number of residents for a new program if, in accordance with section 1886(h)(7)(A)(ii)(III) of the Act, the new program was approved by the appropriate accrediting body before January 1, 2002, but was not in operation during the cost reporting period that includes July 1, 2003. This proposal is based on our interpretation of the statutory language, which states that “the Secretary shall adjust the reference resident level 
                        <E T="03">specified under subclause (I) or (II)</E>
                         to include the number of residents that were approved * * * for a medical residency program  * * * but which was not in operation 
                        <E T="03">during the cost reporting period used under subclause (I) or (II)</E>
                         * * *” (emphasis added). Because the statute provides for an adjustment to the reference resident level “specified under subclause I or II,” as mentioned above, for hospitals that request an adjustment under section 1886(h)(7)(A)(ii)(III) of the Act, we are proposing to identify the applicable reference period as we otherwise would under section 1886(h)(7)(A)(ii)(I) and (II) of the Act. That is, we are proposing to use the hospital's most recent cost reporting period ending on or before September 30, 2002, as the reference cost reporting period, unless the hospital submits a timely request to use the cost reporting period that includes July 1, 2003, due to an expansion of an existing program that is not reflected on the most recent settled cost report. We also note that, as mentioned above, subclause (III) requires that the program be accredited before January 1, 2002, but not be in operation during the hospital's reference cost reporting period, or in this case, the period that includes July 1, 2003. This means that, in order for the hospital to receive an adjustment to its reference resident level under section 1886(h)(7)(A)(ii)(III) of the Act for the cost reporting period that includes July 1, 2003, the new program also cannot be in operation in the cost reporting period that includes July 1, 2003. Thus, while we believe it is possible for a hospital to qualify for this adjustment because the hospital started a new program that is not reflected on its most recent cost reporting period ending on or before September 30, 2002, we believe that few, if any, hospitals will qualify for this adjustment for a new program that was not in operation in the cost report that includes July 1, 2003, because it is unlikely that a program would receive its accreditation prior to January 1, 2002, and still not be in operation by July 1, 2003.
                    </P>
                    <HD SOURCE="HD3">(5) Affiliations</HD>
                    <P>Section 1886(h)(7)(A)(iii) of the Act, as added by section 422(a)(3) of Public Law 108-173, directs the Secretary to consider whether a hospital is a member of a Medicare GME affiliated group (as defined under § 413.86(b)) as of July 1, 2003, in determining whether a hospital's FTE resident cap should be reduced. As described above, some hospitals that have reduced their resident levels below their FTE resident caps may have affiliated with other hospitals that would otherwise exceed their FTE resident caps. Thus, while some hospitals were below their FTE resident caps prior to entering into a Medicare GME affiliation agreement, upon affiliating, their FTE resident caps were temporarily reduced because some or all of their excess FTE slots were temporarily added to the FTE caps of other hospitals as part of the affiliation agreement. Under the Medicare GME affiliation agreement, these otherwise “excess” FTE slots have been transferred for use by other hospitals, and, therefore, CMS would take into account the revised caps under the affiliation agreement for both the hospital that would otherwise be below its FTE resident cap and the revised caps of the other hospital(s) that are part of an affiliated group. In determining whether hospitals' FTE resident caps should be reduced under section 1886(h)(7)(A)(i) of the Act, section 1886(h)(7)(A)(iii) of the Act directs CMS to consider hospitals “which are members of the same affiliated group * * * as of July 1, 2003.” We are proposing that hospitals that are affiliated “as of July 1, 2003” means hospitals that have in effect a Medicare GME affiliation agreement, as defined in existing § 413.86(b), for the program year July 1, 2003 through June 30, 2004, and have submitted a Medicare GME affiliation agreement by July 1, 2003 to their fiscal intermediaries with a copy to CMS. These hospitals may have already been affiliated prior to July 1, 2003, or may have affiliated for the first time on July 1, 2003. In either case, in determining possible reductions to a hospital's FTE resident cap, we are proposing to use a hospital's cap as revised by the July 1, 2003 Medicare GME affiliation agreement. We believe this interpretation is consistent with the intent of section 1886(h)(7)(A)(iii) of the Act, as added by section 422(a)(3) of Public Law 108-173, in that a hospital's FTE resident cap should not be reduced if some or all of its excess resident slots have been transferred for use by hospitals with which it is affiliated (that is, the hospital is training at least as many FTE residents as are in its “affiliated” FTE resident cap).</P>
                    <P>
                        Although hospitals in an affiliated group base the FTE cap adjustments on an aggregate FTE resident cap, we are proposing that we would determine whether a hospital's FTE resident cap should be reduced on a hospital-specific basis. Section 1886(h)(7)(A)(iii) of the Act states that “the provisions of 
                        <E T="03">clause (i)</E>
                         shall be applied to hospitals which are members of the same affiliated group * * *” (emphasis added). Clause (i) of section 1886(h)(7)(A), as described above, requires the reduction of hospitals' FTE resident caps under certain circumstances, based on the otherwise applicable FTE resident cap and the resident level in the applicable reference period, as described above (which would be either a hospital's most recent cost reporting period ending on or before September 30, 2002, or the cost reporting period that includes July 1, 2003). We are proposing to interpret this reference to clause (i) to mean that the Secretary is to use a hospital's July 1, 2003 “affiliated” FTE resident cap as 
                        <PRTPAGE P="28298"/>
                        the otherwise applicable FTE resident cap when determining a possible reduction to the FTE resident cap. In other words, if a hospital is affiliated as of July 1, 2003, we are proposing to superimpose the “affiliated” FTE resident cap onto the hospital's reference cost reporting period.
                    </P>
                    <P>Specifically, as we stated under section IV.O.2.f.(1) of this preamble, consistent with section 1886(h)(7)(A)(ii)(I) of the Act, to determine possible reductions to a hospital's FTE resident cap, we would use a hospital's most recent cost reporting period ending on or before September 30, 2002. If a hospital is part of a Medicare affiliated group for the program year beginning July 1, 2003, we are proposing to compare the hospital's July 1, 2003 “affiliated” FTE resident cap to its resident level on the most recent cost report ending on or before September 30, 2002. If the hospital's resident level from its most recent cost report ending on or before September 30, 2002, is below its July 1, 2003 “affiliated” FTE resident cap, we are proposing to permanently reduce the hospital's FTE resident cap, that is, the hospital's FTE resident cap without the temporary adjustment under the July 1, 2003 affiliation agreement, by 75 percent of the difference between the hospital's resident level and the July 1, 2003 “affiliated” FTE resident cap.</P>
                    <P>Alternatively, as stated above under section IV.O.2.f.(2) of this preamble, consistent with section 1886(h)(7)(A)(ii)(II) of the Act, a hospital may submit a timely request to CMS that its cost report that includes July 1, 2003, be used as the reference period to determine possible FTE resident cap reductions because of an expansion of an existing program that is not reflected on the hospital's most recent settled cost report. If a hospital is affiliated for the program year beginning July 1, 2003, and we grant the hospital's timely request to use the cost reporting period that includes July 1, 2003, because its expansion of an existing program(s) is not reflected on the most recent settled cost report, we are proposing to compare the hospital's July 1, 2003 “affiliated” FTE resident cap to its resident level on the cost report that includes July 1, 2003. If the hospital's resident level from its cost report that includes July 1, 2003 is below its July 1, 2003 “affiliated” FTE resident cap, we are proposing to permanently reduce the hospital's FTE resident cap, that is, the hospital's FTE resident cap without the temporary adjustment under the July 1, 2003 affiliation agreement, by 75 percent of the difference between the hospital's resident level and the July 1, 2003 “affiliated” FTE resident cap.</P>
                    <P>For example, Hospital A's most recent cost report ending on or before September 30, 2002 is FYE December 31, 2001. Hospital A has a direct GME FTE resident cap (unadjusted for an affiliation) of 100, and an IME FTE resident cap (unadjusted for an affiliation) of 90. Hospital A did not have an expansion of an existing program that was not reflected on its most recent settled cost report, and therefore, its FYE December 31, 2001 cost report is being used as the reference period for purposes of determining a possible reduction to its FTE resident caps. Hospital A's unweighted direct GME count of allopathic and osteopathic FTE residents on its December 31, 2001 cost report is 60. Hospital A's IME count of allopathic and osteopathic FTE residents on its December 31, 2001 cost report is 55.</P>
                    <P>Hospital B, with a FYE of September 30, expanded an existing program, and that expansion is not reflected on its most recent settled cost report. Hospital B has submitted, and we have granted, a timely request that its cost report that includes July 1, 2003 (that is, its FYE September 30, 2003 cost report) be used for purposes of determining a possible reduction to its FTE resident caps. Hospital B has a direct GME FTE resident cap (unadjusted for an affiliation) of 100, and an IME FTE resident cap (unadjusted for an affiliation) of 95. Hospital B's direct GME unweighted count of allopathic and osteopathic FTE residents on its September 30, 2003 cost report is 120, and its IME count of allopathic and osteopathic FTE residents for the same period is 110.</P>
                    <P>On July 1, 2003, Hospital A and Hospital B entered into a Medicare GME affiliation agreement. Under the affiliation agreement, the hospitals' FTE resident caps are revised as follows:</P>
                    <GPOTABLE COLS="5" OPTS="L2,i1" CDEF="s50,12,12,12,12">
                        <TTITLE>Affiliation Year July 1, 2003 Through June 30, 2004 </TTITLE>
                        <BOXHD>
                            <CHED H="1">  </CHED>
                            <CHED H="1">
                                 Direct GME 
                                <LI>FTE resident</LI>
                                <LI>cap </LI>
                            </CHED>
                            <CHED H="1">
                                Direct GME
                                <LI>affiliated</LI>
                                <LI>cap </LI>
                            </CHED>
                            <CHED H="1">
                                IME FTE
                                <LI>resident</LI>
                                <LI>cap </LI>
                            </CHED>
                            <CHED H="1">
                                IME
                                <LI>affiliated</LI>
                                <LI>cap.</LI>
                            </CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">Hospital A </ENT>
                            <ENT>100 </ENT>
                            <ENT>60 </ENT>
                            <ENT>90 </ENT>
                            <ENT>55</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Hospital B </ENT>
                            <ENT>100 </ENT>
                            <ENT>140 </ENT>
                            <ENT>95 </ENT>
                            <ENT>130 </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>To apply section 1886(h)(7)(A)(i) of the Act, Hospital A's affiliated FTE resident caps as of July 1, 2003, are compared to its direct GME and IME allopathic and osteopathic FTE resident counts from its FYE December 31, 2001 cost report, and Hospital B's affiliated FTE resident caps as of July 1, 2003, are compared to its direct GME and IME allopathic and osteopathic FTE resident counts from its FYE September 30, 2003 cost report, as follows:</P>
                    <GPOTABLE COLS="5" OPTS="L2,tp0,i1" CDEF="s50,14,14,r50,xls96">
                        <TTITLE>  </TTITLE>
                        <BOXHD>
                            <CHED H="1">  </CHED>
                            <CHED H="1">Affiliated direct GME cap </CHED>
                            <CHED H="1">
                                Unweighted 
                                <LI>allopathic and </LI>
                                <LI>osteopathic FTE count </LI>
                            </CHED>
                            <CHED H="1">
                                Unweighted 
                                <LI>count below affiliated cap? </LI>
                            </CHED>
                            <CHED H="1">If yes, reduce actual FTE resident cap by 75 percent of difference between affiliated cap and unweighted count.</CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">Hospital A </ENT>
                            <ENT>60 </ENT>
                            <ENT>
                                <SU>1</SU>
                                 60 
                            </ENT>
                            <ENT>No</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Hospital B </ENT>
                            <ENT>140 </ENT>
                            <ENT>
                                <SU>2</SU>
                                 120 
                            </ENT>
                            <ENT>Yes </ENT>
                            <ENT>100−[.75(140−120)] = 85 </ENT>
                        </ROW>
                        <TNOTE>
                            <SU>1</SU>
                             From FYE 12/31/01. 
                        </TNOTE>
                        <TNOTE>
                            <SU>2</SU>
                             From FYE 9/30/03. 
                        </TNOTE>
                    </GPOTABLE>
                    <PRTPAGE P="28299"/>
                    <GPOTABLE COLS="5" OPTS="L2,tp0,i1" CDEF="s50,14,14,r50,xls96">
                        <TTITLE>  </TTITLE>
                        <BOXHD>
                            <CHED H="1">  </CHED>
                            <CHED H="1">Affiliated IME cap </CHED>
                            <CHED H="1">
                                Allopathic and 
                                <LI>osteopathic FTE count </LI>
                            </CHED>
                            <CHED H="1">Count below affiliated cap? </CHED>
                            <CHED H="1">If yes, reduce actual FTE resident cap by 75 percent of difference between affiliated cap and unweighted count.</CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">Hospital A </ENT>
                            <ENT>55 </ENT>
                            <ENT>
                                <SU>1</SU>
                                 55 
                            </ENT>
                            <ENT>No</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Hospital B </ENT>
                            <ENT>130 </ENT>
                            <ENT>
                                <SU>2</SU>
                                 110 
                            </ENT>
                            <ENT>Yes </ENT>
                            <ENT>95−[.75(130−110)] = 80 </ENT>
                        </ROW>
                        <TNOTE>From FYE 12/31/01. </TNOTE>
                        <TNOTE>From FYE 9/30/03. </TNOTE>
                    </GPOTABLE>
                    <P>Effective for portions of cost reporting periods beginning on or after July 1, 2005, Hospital A's FTE resident caps for direct GME and IME will remain at 100 and 90, respectively, while Hospital B's FTE resident caps for direct GME and IME will be reduced to 85 and 80, respectively.</P>
                    <P>We also note that there are hospitals that may have been members of a Medicare GME affiliated group in program years that coincide with or overlap the reference cost reporting periods, but these hospitals were not affiliated as of July 1, 2003. As such, they are not subject to the proposed policy described above applicable to section 1886(h)(7)(A)(iii) of the Act, as added by section 422(a)(3). For such hospitals, we are proposing to compare the resident level in the applicable reference period to the FTE resident cap as adjusted by the affiliation agreement applicable to that reference period. If a hospital's resident level is below its otherwise applicable FTE resident cap for that reference period cost report, we are proposing to permanently reduce the hospital's FTE resident cap, that is, the hospital's FTE resident cap without the temporary adjustment under the affiliation agreement for that period, by 75 percent of the difference between the hospital's resident level and the otherwise applicable FTE resident cap. (Proposed redesignated § 413.79(c)(3)(iv)(B)). For example, assume a hospital with a June 30 fiscal year end affiliated for one program year from July 1, 2001, through June 30, 2002. On its June 30, 2002 cost report (that is, its most recent cost report ending on or before September 30, 2002), its FTE resident cap is 20, its cap as revised by the affiliation agreement is 25, and its resident level is 21 FTEs. Because this hospital's resident level of 21 is below its otherwise applicable FTE resident cap of 25, the hospital's FTE resident cap of 20 will be reduced as follows: 20−[(.75(25−21)] = 17. We are proposing to apply the same methodology described above in the event that the reference period is a hospital's cost report that includes July 1, 2003 (that is, for a hospital that had an expansion of a program that is not reflected on its most recent settled cost report and that made a timely request to use the period that includes July 1, 2003), if that hospital is not affiliated as of July 1, 2003, but its cost report that includes July 1, 2003 overlaps with a program year for which the hospital was affiliated. In other words, section 1886(h)(7)(A)(i) of the Act will be applied by comparing a hospital's reference resident level to the otherwise applicable FTE resident cap, as adjusted for any affiliation agreement for the reference period. </P>
                    <HD SOURCE="HD3">g. Criteria for Determining Hospitals That Will Receive Increases in Their FTE Resident Caps</HD>
                    <P>Generally, under section 1886(h)(7) of the Act, as added by section 422(a)(3) of Public Law 108-173, CMS is to reduce by 75 percent the “unused” resident slots from hospitals that were below their FTE resident caps in a specific reference period, and “redistribute” the FTE slots for use by other hospitals. Under section 1886(h)(7)(B) of the Act, as added by section 422 of Public Law 108-173, the Secretary is authorized to increase the otherwise applicable FTE resident cap for each qualifying hospital that submits a timely application by a number that the Secretary may approve, for portions of cost reporting periods occurring on or after July 1, 2005. In implementing section 1886(h)(7)(B) of the Act, we note the difficulty in deciding which teaching hospitals are more “deserving” than others to receive the redistributed unused resident slots. Therefore, we are proposing a decision making process that is an objective process. In addition, we note that section 422 does not provide detailed guidance to the Secretary for deciding which hospitals should receive the unused resident slots, but rather gives the Secretary discretion in making the choice of which hospitals should qualify.</P>
                    <P>Section 1886(h)(7)(B) of the Act, as added by section 422, does establish certain parameters in the statutory language for hospitals to qualify to receive increases in their FTE resident caps. First, section 1886(h)(7)(B)(i) of the Act states that the aggregate number of increases in the otherwise applicable resident limits (caps) may not exceed the estimate of the aggregate reduction in the resident limits determined under section 1886(h)(7)(A) of the Act (as specified in section IV.O.2.e. of this preamble). Section 1886(h)(7)(B)(iv) of the Act states that in no case will any hospital receive an FTE cap increase of more than 25 FTE additional residency slots as a result of the redistribution. (Proposed redesignated 413.79(c)(4)). In addition, section 1886(h)(7)(B)(ii) of the Act specifies that in determining which hospitals will receive the increases in their FTE resident caps, the Secretary is required to take into account the demonstrated likelihood that the hospital would be able to fill the position(s) within the first three cost reporting periods beginning on or after July 1, 2005.</P>
                    <P>
                        In setting up an application process for hospitals to apply for the unused resident slots discussed in section IV.O.2.h. of this preamble, we are proposing to implement this “demonstrated likelihood” requirement as an eligibility criterion that a hospital 
                        <E T="03">must</E>
                         meet in order for CMS to further consider the hospital's application for an increase in its FTE resident cap. Thus, we are proposing that, in order to be eligible for consideration for an increase under section 1886(h)(7)(B) of the Act, a hospital must first demonstrate the likelihood that it will able to fill the slots within the first three cost reporting periods beginning on or after July 1, 2005, by meeting at least one of the following four criteria and by providing documentation that it meets that criterion in its application for an increase in its FTE resident cap:
                    </P>
                    <P>
                        <E T="03">Demonstrated Likelihood Criterion 1.</E>
                         The applying hospital intends to use the additional FTEs to establish a new residency program(s) on or after July 1, 2005 (that is, a newly approved program that begins training residents on or after July 1, 2005).
                    </P>
                    <P>The hospital must meet the requirements in provisions (1) and (2) below:</P>
                    <P>
                        (1) In order to demonstrate that the hospital is, in fact, establishing a new residency program, the hospital must—
                        <PRTPAGE P="28300"/>
                    </P>
                    <P>• Submit an application for approval of a new residency program to the ACGME or the AOA by December 1, 2004, and include a copy of that application with the application for an increase in its FTE resident cap; or</P>
                    <P>• Submit an application for approval of a new residency program to the ACGME or the AOA by December 1, 2004, and, if establishing an allopathic program, include a copy of the hospital's institutional review document or program information form concerning the new program with the application for the unused FTE resident slots; or</P>
                    <P>• Submit an application for approval of a new residency program to the ACGME or the AOA by December 1, 2004, and include written correspondence from the ACGME or AOA acknowledging receipt of the application for the new program, or other types of communication from the accrediting bodies concerning the new program approval process (such as notification of site visit).</P>
                    <P>(2) To demonstrate that the hospital will be likely to fill the slots requested, the hospital must comply with one of the following:</P>
                    <P>• If the hospital has other previously established programs, submit documentation that each of the hospital's existing residency programs had a resident fill rate of at least 95 percent in each of program years 2001 through 2003; or</P>
                    <P>• If the hospital has other previously established residency programs, submit copies of the cover page of the hospital's employment contracts with the residents who are or will be participating in the new residency program (resident specific information may be redacted); or</P>
                    <P>• If the hospital is establishing a new residency program in a particular specialty, submit documentation indicating that the specialty has a resident fill rate nationally, across all hospitals, of at least 95 percent.</P>
                    <P>
                        <E T="03">Demonstrated Likelihood Criterion 2.</E>
                         The applying hospital intends to use the additional FTEs to expand an existing residency training program (that is, to increase the number of FTE resident slots in the program) on or after July 1, 2005, and before July 1, 2008.
                    </P>
                    <P>The hospital must comply with the requirements in provisions (1) and (2) below:</P>
                    <P>(1) To demonstrate that the hospital intends to expand an existing program, the hospital must comply with one of the following:</P>
                    <P>• Document that the appropriate accrediting body (the ACGME or the AOA) has approved the hospital's expansion of the number of FTE residents in the program; or</P>
                    <P>• Document that the National Residency Match Program or the American Osteopathic Association Residency Match Program has accepted or will be accepting the hospital's participation in the match for the existing program that will include additional resident slots in that residency training program; or</P>
                    <P>• If expanding an allopathic program, submit a copy of the hospital's institutional review document or program information form for the expansion of the existing residency training program.</P>
                    <P>(2) To demonstrate that the hospital will be likely to fill the slots of the expanded residency program, the hospital must comply with one of the following:</P>
                    <P>• Submit copies of the cover page of the hospital's employment contracts with the residents who are or will be participating in the expanded program (resident specific information may be redacted) and copies of the cover page of the hospital's employment contracts with the residents participating in the program prior to the expansion of the program.</P>
                    <P>• If the hospital has other previously established residency programs, submit documentation that each of the residency programs had a resident fill rate of at least 95 percent in each of program years 2001 through 2003.</P>
                    <P>• If the hospital is expanding an existing program in a particular specialty, submit documentation that the specialty has a resident fill rate nationally, across all hospitals, of at least 95 percent.</P>
                    <P>• If the hospital is expanding a program in order to train residents that need a program because another hospital in the State has closed a similar program, and the applying hospital received a temporary adjustment to its FTE cap(s) (under the requirements of § 413.86(g)(9)), submit documentation of this action.</P>
                    <P>
                        <E T="03">Demonstrated Likelihood Criterion 3.</E>
                         The hospital is applying for an increase in its FTE resident cap because the hospital is already training residents in an existing residency training program(s) in excess of its direct GME FTE cap or IME FTE cap, or both.
                    </P>
                    <P>The hospital must submit, with its application, each of the following:</P>
                    <P>• Copies of the most recent as-submitted Medicare cost reports documenting on Worksheet E, Part A and Worksheet E3, Part IV the resident counts and FTE resident caps for both direct GME and IME for the relevant cost reporting periods.</P>
                    <P>• Copies of the 2004 residency match information concerning the number of residents the hospital intends to have in its existing programs.</P>
                    <P>• Copies of the most recent accreditation letters on all of the hospital's training programs in which the hospital trains and counts FTE residents for direct GME and IME.</P>
                    <P>
                        <E T="03">Demonstrated Likelihood Criterion 4.</E>
                         The hospital is applying for the unused FTE resident slots because the hospital is at risk of losing accreditation of a residency training program if the hospital does not increase the number of FTE residents in the program on or after July 1, 2005.
                    </P>
                    <P>The hospital must submit, with its application for an increase in its FTE resident cap, documentation from the appropriate accrediting body of the hospital's risk of lost accreditation as a result of an insufficient number of residents in the program.</P>
                    <P>
                        We are proposing that 
                        <E T="03">each</E>
                         hospital must meet at least one of the above criteria in order to demonstrate the likelihood that it will be able to fill the additional slots associated with any increase in the hospital's FTE resident cap within the first three cost reporting periods beginning on or after July 1, 2005. In other words, each hospital that wishes to apply for an increase in its FTE resident cap must, as a preliminary matter, meet the eligibility requirement of demonstrating the likelihood that it will fill the additional positions, in order for CMS to further consider the hospital's application for an increase in its FTE resident cap. 
                    </P>
                    <HD SOURCE="HD3">h. Application Process for the Increases in Hospitals' FTE Resident Caps</HD>
                    <P>As stated above, we are proposing an objective decision making process for determining how hospitals will be prioritized when identifying the hospitals that will receive increases in their FTE resident caps. In order for hospitals to be considered for increases in their FTE resident caps, section 1886(h)(7)(B)(i) of the Act, as added by section 422(a)(3) of Public Law 108-173, requires that each “qualifying hospital” submit a “timely application.” We are proposing that each hospital must submit the following information on its application for an increase in its FTE resident cap:</P>
                    <P>• The name and Medicare provider number of the hospital.</P>
                    <P>• The total number of requested FTE resident slots (for all residency programs at the hospital) for direct GME or IME, or both (up to 25 FTEs).</P>
                    <P>
                        • A completed copy of the CMS Evaluation Form (as described below) for each residency program for which 
                        <PRTPAGE P="28301"/>
                        the applicant hospital intends to use the requested increase in the number of FTE residents and source documentation to support the assertions made by the hospital on the Evaluation Form. (For example, if the hospital checks off on the Evaluation Form that the hospital is located in a geographic Health Professions Shortage Area (HPSA), the hospital would include documentation to support that assertion.) A copy of the blank proposed CMS Evaluation Form appears at the end of this section of the preamble.
                    </P>
                    <P>• FTE resident counts for direct GME and IME and FTE resident caps for direct GME and IME reported by the hospital in the most recent as-filed cost report.</P>
                    <P>• An attestation, signed and dated by an officer or administrator of the hospital who signs the hospital's Medicare cost report, of the following information in the hospital's application for an increase in its FTE resident cap:</P>
                    <P>“I hereby certify that I understand that misrepresentation or falsification of any information contained in this application may be punishable by criminal, civil, and administrative action, fine and/or imprisonment under federal law. Furthermore, I understand that if services identified in this application were provided or procured through payment directly or indirectly of a kickback or where otherwise illegal, criminal, civil, and administrative action, fines and/or imprisonment may result. I also certify that, to the best of my knowledge and belief, it is a true, correct, and complete application prepared from the books and records of the hospital in accordance with applicable instructions, except as noted. I further certify that I am familiar with the laws and regulations regarding Medicare payment to hospitals for the training of interns and residents.”</P>
                    <P>We are further proposing that any hospital that wishes to receive an increase in its FTE resident cap(s) must submit a copy of its completed application (as described above) to the CMS Central Office and to the CMS Regional Office for the region in which the applicant hospital is located, and that the application must be received on or before December 1, 2004. (The mailing addresses for the CMS offices are indicated at the end of this section of the preamble.) We note that some hospitals' FTE counts will be subject to audit for purposes of section 1886(h)(7)(B) of the Act, and those audits may not be completed by December 1, 2004. Because the results of such an audit may be a factor in a hospital's decision whether to request an increase in its FTE resident cap under section 1886(h)(7)(B) of the Act, we are proposing to allow a later date for those hospitals to apply for increases in their FTE resident caps. Therefore, if a hospital's resident level is audited for purposes of section 1886(h)(7)(A) of the Act, and that hospital also wishes to apply for an increase in its FTE resident cap(s) available through section 1886(h)(7)(B) of the Act, we are proposing that such a hospital must submit a completed application to CMS and that the application must be received on or before March 1, 2005. We are proposing that all completed applications that are timely received according to the above deadlines will be evaluated by CMS according to the criteria described under section IV.O.2.i. of this preamble for determining the priority distribution of FTE resident slots. Hospitals that satisfy at least one of the “demonstrated likelihood” criteria will be further evaluated by the evaluation criteria described below. Those hospitals that are chosen to receive an increase in their FTE resident caps would be notified by CMS by July 1, 2005. </P>
                    <HD SOURCE="HD3">i. CMS Evaluation of Applications for Increases in FTE Resident Caps</HD>
                    <P>As noted in section IV.O.2.h. of this preamble, we are proposing to require hospitals to submit, with their applications for increases in their FTE resident caps, a completed copy of the CMS Evaluation Form. As we have stated, we are proposing to make the process of evaluating the applications as objective as possible. Therefore, we are proposing to use a CMS Evaluation Form that the hospital must complete and submit as part of its application. The CMS Evaluation Form will ask the hospital to check off which of the “demonstrated likelihood” criteria (described above in section IV.O.2.g. of this preamble) the hospital meets. We also are proposing to require the hospital to provide the documentation that supports the “demonstrated likelihood” criteria it has checked off on the Evaluation Form.</P>
                    <P>Assuming that hospitals interested in applying for the increase in their FTE caps meet the eligibility criterion of “demonstrated likelihood,” we are proposing that applicant hospitals indicate on the CMS Evaluation Form the category(ies) for which it believes it will qualify. CMS will use this indication to prioritize the applications. Such prioritization is derived from section 1886(h)(7)(B) of the Act, as added by section 422 of Public Law 108-173. That section established the following priority order to determine the hospitals that will receive increases in their FTE caps:</P>
                    <P>
                        <E T="03">First, to hospitals that are “located in rural areas, as defined in section 1886(d)(2)(D)(ii) of the Act” (section 1886(h)(7)(B)(iii)(I) of the Act).</E>
                         Section 1886(d)(2)(D)(ii) of the Act defines a rural area as any area outside a Metropolitan Statistical Area (MSA). Under the existing implementing regulations at § 413.62(f)(ii), an “urban area” means (1) a Metropolitan Statistical Area (MSA) or New England County Metropolitan Area (NECMA); or (2) the following New England counties: Litchfield County, Connecticut; York County, Maine; Sagadahoc County, Maine; Merrimack County, New Hampshire; and Newport County, Rhode Island. Under existing § 413.62(f)(iii), a “rural area” means any area outside an urban area. However, we note that under section III. of this preamble, which discusses proposed changes in wage areas for FY 2005, we are proposing to no longer recognize NECMAs as a distinct category of wage areas. Thus, for purposes of the amendments made by section 422, we are proposing that any hospital located in an area that is not in a MSA is a rural hospital, regardless of any reclassification under § 412.102 or § 412.103. We note that this definition of “rural” is consistent with our proposal under section III. of this preamble concerning designation of wage index areas.
                    </P>
                    <P>
                        <E T="03">Second, to hospitals that are located in urban areas that are not large urban areas, as defined for purposes of section 1886(d) of the Act (section 1886(h)(7)(B)(iii)(II) of the Act).</E>
                         Section 1886(d)(2)(D) of the Act defines “
                        <E T="03">large</E>
                         urban area” as an “urban area which the Secretary determines * * * has a population of more than 1,000,000.” Existing implementing regulations at § 412.63(c)(6) state generally that the term “large urban area” means an MSA with a population of more than 1,000,000. Again, we note that we are proposing changes to the definition of “urban area” to reflect the new geographic areas designated by the Office of Management and Budget under section III. of the preamble of this proposed rule. Therefore, if the eligible hospital applying for an increase in its FTE resident cap is an urban hospital that is located in the proposed redefined MSA area with a population of less than 1,000,000, CMS will give such a hospital second priority (after all rural hospitals in the first priority category under the statute) in deciding which hospitals should receive an increase in their FTE resident caps.
                        <PRTPAGE P="28302"/>
                    </P>
                    <P>
                        <E T="03">Third, hospitals that currently operate, or will operate, a residency training program in a specialty for which there are not other residency training programs in the State (section 1886(h)(7)(B)(iii)(III) of the Act).</E>
                         We are proposing to interpret “a specialty for which there are not other residency training programs in the State” to mean the only specialty in either allopathy or osteopathy in a particular State. For example, if in State X, Hospital A would like to use the additional FTE residents in order to establish a new osteopathic emergency medicine program (which would be the first osteopathic emergency medicine program in State X), and Hospital B has already established an allopathic emergency medicine program in State X, Hospital A's application for an increase in its FTE resident cap(s) would be put in the third priority category because Hospital A would be establishing a new osteopathic emergency medicine program, a specialty for which there are not other osteopathic emergency medicine programs in the State. We believe that a more “expansive” interpretation of “a specialty for which there are not other residency programs” allows more hospitals to fit into this third priority category. In addition, it is our understanding that allopathic and osteopathic programs are, at least, nominally different disciplines in medicine. As a result, we believe that this more “expansive” interpretation for “a specialty for which there are not other residency programs” is the more appropriate interpretation.
                    </P>
                    <P>As we described above, we are proposing that applicant hospitals indicate on the CMS Evaluation Form the category(ies) for which it believes it will qualify; we will use this indication to prioritize the applications. Each of the categories (described below) is derived from the priorities established by section 1886(h)(7)(B) of the Act, as added by section 422 of Public Law 108-173. We would use the following categories to determine the order in which hospitals would be eligible to receive increases in their FTE resident caps:</P>
                    <P>
                        <E T="03">First Level Priority Category:</E>
                         The hospital is a rural hospital and has the only specialty training program in the State.
                    </P>
                    <P>
                        <E T="03">Second Level Priority Category:</E>
                         The hospital is a rural hospital only.
                    </P>
                    <P>
                        <E T="03">Third Level Priority Category:</E>
                         The hospital is a “small” urban hospital (that is, an urban hospital that is located in a “not large urban area”) and has the only specialty program in the State.
                    </P>
                    <P>
                        <E T="03">Fourth Level Priority Category:</E>
                         The hospital is a “small” urban hospital only.
                    </P>
                    <P>
                        <E T="03">Fifth Level Priority Category:</E>
                         The hospital has the only specialty training program in the State.
                    </P>
                    <P>
                        <E T="03">Sixth Level Priority Category:</E>
                         The hospital meets none of the statutory priority criteria.
                    </P>
                    <P>We believe the proposed first and third level categories are appropriate for CMS evaluation purposes (which is explained further below) because some hospitals that apply for the additional resident slots may fit into more than one of the three statutory priority categories listed in section 1886(h)(7)(B) of the Act. In addition, we are proposing to give consideration first to those hospitals that meet more than one of the statutory priority categories over those hospitals that meet only one of the statutory priorities (see second, fourth, and fifth level priority categories.) We also are proposing a sixth level priority category to identify those section 1886(d) hospitals that apply for additional resident slots, but do not fit into any of the priority categories listed in section 1886(h)(7)(B) of the Act (for example, hospitals in large urban areas).</P>
                    <P>As specified by the statute, we are proposing to put each hospital's application for an increase in its FTE resident cap (based on how the hospital describes itself on the CMS Evaluation Form) into one of the “level priority categories” for evaluation purposes, giving first and second priority to the rural hospitals, as defined above. In addition, we note that we are proposing that hospital applicants provide residency specialty program information as part of the application for the increase to the cap(s), as well as a CMS Evaluation Form for each residency program for which the applicant hospital intends to use the increased FTE resident slots. Our intention in proposing these requirements is for CMS to be able to discern within which level priority category the applicant hospital's application should be placed based on the residency specialty program for which the FTE cap increase is being requested. In other words, it is possible that a hospital will apply for an increase in its FTE caps for more than one residency program at the hospital. It is possible that applications for the programs would fall within different level priority categories, for example, if a hospital is applying for an increase in its cap(s) for one program that is the “only specialty training program in the State” (which would place the hospital's application in the fifth level priority category on the CMS Evaluation Form) and for another program that is NOT the only program in the State (which, assuming the hospital is an urban hospital, would place the hospital on that Evaluation Form in the sixth level priority category). Therefore, we are proposing that hospitals complete an Evaluation Form for each residency program for which it is requesting an increase in its FTE resident cap.</P>
                    <P>We note that section 1886(h)(7)(B)(iii) of the Act states that “increases of residency limits within the same priority category * * * shall be determined by the Secretary.” Therefore, we are proposing to use the following criteria for evaluating the applications for increases in hospitals' FTE resident caps within each of the six level priority categories described above:</P>
                    <P>
                        <E T="03">Evaluation Criterion One.</E>
                         The hospital that is requesting the increase in its FTE resident cap(s) has a Medicare inpatient utilization over 60 percent, as reflected in at least two of the hospital's last three most recent audited cost reporting periods for which there is a settled cost report. We have selected 60 percent utilization because it will identify hospitals where Medicare beneficiaries will benefit the most from the presence of a residency program, and it is consistent with the utilization percentage required for Medicare-dependent, small rural hospitals (MDHs) as specified in § 412.108. In addition, it identifies a type of hospital that warrants atypical treatment by the Medicare program because it is so reliant on Medicare funding.
                    </P>
                    <P>
                        <E T="03">Evaluation Criterion Two.</E>
                         The hospital will use the additional slots to establish a new geriatrics residency program, or to add residents to an existing geriatrics program. We believe that, of all the medical specialties, geriatrics is the one specialty that is devoted primarily to the care of Medicare beneficiaries. In addition, we note that encouraging residency training in geriatrics is consistent with Congressional intent as expressed, among other places, in section 712 of Public Law 108-173.
                    </P>
                    <P>
                        <E T="03">Evaluation Criterion Three.</E>
                         The hospital does not qualify for an adjustment to its FTE caps under existing § 413.86(g)(12) (proposed to be redesignated as § 413.79(k) in this proposed rule) for a rural track residency program, but is applying for an increase in its FTE resident cap(s) under section 1886(h)(7)(B) of the Act because it rotates (or in the case of a new program, will rotate) residents for at least 25 percent of the duration of the residency program to any combination of the following: A rural area, as defined in section 1886(d)(2)(D)(ii) of the Act 
                        <PRTPAGE P="28303"/>
                        and § 412.62(f)(1)(iii) of the regulations; a rural health clinic (RHC), as defined in section 1861(aa)(1) of the Act and § 491.2 of the regulations; or a Federally Qualified Health Center (FQHC), as defined in section 1861(aa)(3) of the Act and § 405.2401(b) of the regulations. We believe that Congress intended that the Secretary use section 422 to encourage resident training in rural areas, and we believe this criterion furthers this intention. We are proposing to include residency training in FQHCs in this criterion because we understand that some FQHCs are located in rural areas. In addition, we would like to encourage residency training at FQHCs because we believe that, similar to rural providers and RHCs, FQHCs provide services for medically underserved areas or populations, or both.
                    </P>
                    <P>
                        <E T="03">Evaluation Criterion Four.</E>
                         In portions of cost reporting periods prior to July 1, 2005, the hospital qualified for a temporary adjustment to its FTE cap under existing § 413.86(g)(9) (proposed to be redesignated as § 413.79(h) in this proposed rule) because it was training displaced residents from either a closed program or a closed hospital, and, even after the temporary adjustment, the hospital continues to train residents in the specialty(ies) of the displaced residents and is training residents in excess of the hospital's direct GME FTE cap or IME FTE cap, or both, for that reason. We believe this criterion is appropriate because it will help to sustain the level of residency training in the community.
                    </P>
                    <P>
                        <E T="03">Evaluation Criterion Five.</E>
                         The hospital is above its FTE caps because it was awaiting accreditation of a new program from the ACGME or the AOA during the base period for its FTE cap(s), but was not eligible to receive a new program adjustment as stated under existing § 413.86(g)(6)(ii) (proposed to be redesignated as § 413.79(e)(2) in this proposed rule). Under existing § 413.86(g)(6)(ii) and § 413 .86(g)(13) (proposed to be redesignated as § 413.79(l) in this proposed rule), a hospital that had allopathic or osteopathic residents in its most recent cost reporting period ending on or before December 31, 1996 could receive an adjustment to its unweighted FTE cap for a new medical residency training program that either received its initial accreditation or began training residents on or after January 1, 1995 and on or before August 5, 1997. If a hospital failed to meet those deadlines, it was not eligible to have its cap(s) adjusted to include residents in a new program. Under this proposed criterion, a hospital would apply for additional FTE residents if the hospital had submitted its application for a new program to the accrediting body before August 5, 1997, and received its accreditation after August 5, 1997 but before August 5, 1998. This would allow some hospitals to receive increases in their FTE resident caps in cases in which, in good faith, the hospital had submitted an application for accreditation for a new program prior to the date of enactment of FTE resident caps under the BBA, but because of the timing of the implementation of the FTE resident cap(s), had not yet received direct GME and IME payment for residents in the newly accredited program during the base period for the hospital's FTE resident cap(s).
                    </P>
                    <P>
                        <E T="03">Evaluation Criterion Six.</E>
                         The hospital is training residents in excess of its FTE resident caps because, despite qualifying for an FTE cap adjustment for a new program under § 413.86(g)(6)(i) or (g)(6)(ii) (proposed to be redesignated as § 413.79(e)(1) and (e)(2) in this proposed rule), it was unable to “grow” its program to the full complement of residents for which the program was accredited before the hospital's FTE resident cap was permanently set beginning with the fourth program year of the new program. Similar to evaluation criterion five above, this criterion would allow some hospitals that had, in good faith, started up a new residency program as required in the regulations but could not completely fill the new program within the allowed regulatory period, to receive increases in their FTE resident caps. For instance, this could have occurred because the program was a program of long duration (such as a 5-year general surgery program), and the hospital did not have the opportunity to “grow” the program to its full complement of residents because the regulations at §§ 413.86(g)(6)(i) or (g)(6)(ii) allow a program to grow for only 3 years before the hospital's FTE resident cap is permanently adjusted for the new program.
                    </P>
                    <P>
                        <E T="03">Evaluation Criterion Seven.</E>
                         The hospital is located in any one (or a combination) of the following: a geographic HPSA, as defined in 42 CFR 5.2; a population HPSA, (also defined at 42 CFR 5.2); or a Medicare physician scarcity county, as defined under section 413 of Public Law 108-173. We are proposing to use this 3-part criterion in order to capture, as objectively as possible, medically underserved areas or patient populations (many of which are Medicare beneficiaries), or both. We understand that if a particular community has been designated a HPSA (either a geographic or population HPSA), the designation information is available to hospitals from the Health Resources and Services Administration (HRSA) HPSA database at the Web site: 
                        <E T="03">http://belize.hrsa.gov/newhpsa/newhpsa.cfm.</E>
                         In addition, hospitals will be able to determine whether they are located in a Medicare physician scarcity county (consistent with section 413 of Pub. L. 108-173) on the CMS Internet Web site at 
                        <E T="03">www.cms.hhs.gov</E>
                         or upon publication of the annual final rule setting forth the Medicare physician fee schedule (which is generally published by November 1 of each year). We note that if Medicare does not publish the final rule setting forth the Medicare physician fee schedule in time for the application deadline for increases in FTE resident caps (December 1, 2004, or March 1, 2005, depending on the hospital), we are proposing that we will not use the Medicare physician scarcity county designations (as defined under section 413 of Pub. L. 108-173) for purposes of this criterion.
                    </P>
                    <P>
                        <E T="03">Evaluation Criterion Eight.</E>
                         The hospital is in a rural area (as defined under section 1886(d)(2)(D)(ii) of the Act) and is a training site for a rural track residency program (as specified under § 413.86(g)(12) (proposed to be redesignated as § 413.79(k) in this proposed rule)), but is unable to count all of the FTE residents training at the rural hospital in the rural track because the rural hospital's FTE cap is lower than the hospital's unweighted count of allopathic or osteopathic FTE residents beginning with portions of cost reporting periods on or after July 1, 2005.
                    </P>
                    <P>
                        <E T="03">Evaluation Criterion Nine.</E>
                         The hospital is affiliated with a historically Black medical college. According to the language in the Conference Report for Public Law 108-173 (pages 204-205), the Conference agreement on section 422 generally restated the three statutory priority categories described above (rural, “small” urban, and only specialty program in the State) in terms of giving guidance to the Secretary for deciding which hospitals should receive the redistributed FTE resident slots. However, there was one additional cited criterion that the Conference indicated the Secretary should use in evaluating the hospital applications. Specifically, the Conference agreement states that the Secretary should consider whether the hospital is a “historically 
                        <E T="03">large</E>
                         medical college” (emphasis added). Upon consideration of this particular terminology, which, on its face, seems to contradict the three statutory priority categories (that is, rural, “small” urban, and only specialty program in the State), we are proposing to view the reference to “historically 
                        <E T="03">large</E>
                         medical colleges” 
                        <PRTPAGE P="28304"/>
                        as a scrivener's error, and to read this language to refer to “historically 
                        <E T="03">Black</E>
                         medical colleges.” This proposed interpretation accomplishes two goals: first, we believe this interpretation serves the greater policy goal of encouraging residency training for the benefit of medically underserved populations. Second, we believe that this interpretation reflects the Conferees' intent in the language in the Conference Report. In addition, we are proposing to identify “historically Black medical colleges” as Howard University College of Medicine, Morehouse School of Medicine, Meharry Medical College, and Charles R. Drew University of Medicine and Science. These four medical schools are identified as “historically Black medical colleges” by the American Medical Association (see 
                        <E T="03">http://www.ama-assn.org/ama/pub/category/7952.html).</E>
                         We are proposing that the hospital will meet this criterion if it intends to use an increase in its FTE resident cap(s) under section 1886(h)(7)(B) of the Act to count residents in residency programs sponsored by a historically Black medical college listed above.
                    </P>
                    <P>
                        <E T="03">Evaluation Criterion Ten.</E>
                         The hospital is training residents in residency program(s) sponsored by a medical school(s) that is designated as a Center of Excellence for Underserved Minorities (COE) under section 736 of the Public Health Service Act in FY 2003. We understand that the COE program was established to be a catalyst for institutionalizing a commitment to underserved students and faculty, and to serve as a national resource and educational center for diversity and minority health issues. Therefore, we believe that it is appropriate to encourage hospitals to train residents in residency programs sponsored by medical schools that are designated as COEs. A hospital can verify whether it is training residents in programs sponsored by a medical school that is a COE. Medical schools that are COEs in FY 2003 are listed at the following Web site: 
                        <E T="03">http://bhpr.hrsa.gov/diversity/coe/grantees2003.htm.</E>
                         We note that, in FY 2003, there were 28 medical schools that were designated to be COEs.
                    </P>
                    <P>We are proposing to use the above set of criteria to evaluate the applications by hospitals for increases in their FTE resident caps that fall within each of the six level priority categories. We would place each application in the appropriate priority level category based on the information the hospitals check off on the proposed CMS Evaluation Form for each allopathic and osteopathic specialty program requested by the applicant hospital, and the corresponding requested FTE cap increase (see the proposed form below). We are proposing to place all of these evaluation criteria on the Evaluation Form and to ask the hospital to check off on the form which criteria apply for each specialty program for which an FTE cap increase is requested. Based on the assertions checked off on the form, CMS would score each CMS Evaluation Form (one point per criterion checked off). The higher scoring CMS Evaluation Form(s) for each applicant hospital within each level priority category would be awarded the FTE resident cap increases first. As we described above, we are proposing to award the cap increases in the order of the six specified level priority categories because, as a general rule, we believe hospitals that meet more than one of the statutory priorities should be awarded the increases in their FTE resident caps first before other hospitals. However, we also believe that hospitals that meet a higher statutory priority category should receive first consideration by CMS over hospitals that meet lower statutory priorities. That is the reason, for instance, we are proposing the first level (rural hospital + only specialty program in the State) and second level (rural only) priority categories to give all rural hospitals first consideration by CMS before any small urban hospital, as required by the statute.</P>
                    <P>Thus, first level priority category hospitals that score highest on the evaluation criteria on the CMS Evaluation Form for a particular specialty program would receive the increases in their FTE resident caps first. For example, if Hospital D is a rural hospital and is establishing the first osteopathic internal medicine residency program in State Y, thereby falling within the first level priority category, and Hospital D checks off on the CMS Evaluation Form that it has a Medicare utilization of 60 percent, is located in a geographic HPSA, and is affiliated with a historically Black medical college, Hospital D would receive a score of 3 points on the completed CMS Evaluation Form for the osteopathic internal medicine residency program and accompanying application. We are proposing that we would first award FTE cap increases to hospitals whose CMS Evaluation Forms for a particular program receive 10 points based on the number of evaluation criteria checked off by the hospital for the program (if there are any) and then to those with successively fewer points within the level priority category. Hospital D would receive the increase in its FTE resident cap(s) requested on its application after all the hospitals in the first level priority category whose applications receive 10 through 4 points are awarded their requests first.</P>
                    <P>We are proposing that we would award the increases in FTE resident caps to all those hospitals that are in the first level priority category (rural hospitals + only specialty program in the State) before evaluating those hospitals in the second level priority category (rural hospital), and would award the FTE resident slots to all those hospitals in the second level priority category before evaluating those hospitals in the third level priority category (“small” urban hospital + only specialty in the State), and so on. Once we reach an aggregate number of FTE resident cap increases from the aggregate estimated pool of FTE resident positions under section 1886(h)(7)(A) of the Act, but are unable, based on the number of remaining slots, to meet all of the requests at the next level priority category at the next score level, we are proposing to prorate any remaining estimated FTE resident slots among all the applicant hospitals within that level priority category and with the same score on the hospital's application.</P>
                    <P>
                        For example, assume all applicant hospitals in the first through fourth level priority categories receive the requested increases in their FTE resident caps by CMS, and CMS next evaluates hospital applications and accompanying CMS Evaluation Forms in the fifth level priority category (only specialty program in the State). At the point that CMS has awarded cap increases for all the fourth level priority category hospitals that scored 5 or above on their CMS Evaluation Forms for each residency program, CMS finds that there is only a sufficient number of resident slots remaining in the estimated pool to grant half of the requests for slots from hospitals that scored 4 points. We are proposing that we would prorate all of the remaining FTEs among the 4-point CMS Evaluation Forms and accompanying applications in the fourth level priority category. Thus, if CMS could have awarded a total of 200 FTE slots for direct GME and 185 FTE slots for IME to only the first 50 percent of the 4-point CMS Evaluation Forms in the fourth level priority category at the point that the estimated pool of FTE slots is spent, we are proposing to prorate all of the 200 FTE slots for direct GME and 185 FTE slots for IME among all of the 4-point CMS Evaluation Forms and accompanying applications in that fourth priority category, no matter what level of FTE resident cap increase was requested on the individual hospital's application.
                        <PRTPAGE P="28305"/>
                    </P>
                    <P>We recognize the complexity of this proposed evaluation process for the award of increases in hospital's FTE resident caps under section 1886(h)(7)(B) of the Act. Therefore, we are including some further examples depicting the proposed procedures:</P>
                    <EXAMPLE>
                        <HD SOURCE="HED">Example 1:</HD>
                        <P>Hospital M in State Z is an urban hospital located in an MSA that has a population of less than 1 million. Hospital M can demonstrate the likelihood that it will fill the requested five FTEs resident slots for direct GME and IME because it is currently training a number of FTE residents in geriatrics that exceeds both of its FTE caps, and has attached to its application for an increase in its FTE resident caps a copy of Hospital M's past three Medicare cost reports (as filed or audited, whichever is most recent and available), which documents on Worksheet E, Part A and Worksheet E3, Part IV that, according to the resident counts and the FTE resident caps, Hospital M is training residents in excess of its caps. Hospital M has taken on residents from a teaching hospital in the community that closed, and is also located in a Medicare physician scarcity county.</P>
                        <P>Hospital M's application would be evaluated by CMS accordingly: Fourth level priority category (“small” urban hospital); score of 3 (expanding geriatrics program, Medicare physician scarcity area, residents from a closed hospital).</P>
                    </EXAMPLE>
                    <EXAMPLE>
                        <HD SOURCE="HED">Example 2:</HD>
                        <P>Hospital K is a large academic medical center located in an MSA with a population of greater than 1,000,000 and is in a population HPSA. Hospital K regularly trains residents in programs sponsored by Meharry Medical College, and wishes to add more residents from Meharry, and therefore, has requested accreditation from the ACGME to expand the number of Meharry residents training in both allopathic surgery and osteopathic pediatrics programs. Hospital K is above both its direct GME and IME FTE caps.</P>
                        <P>Hospital K's CMS Evaluation Forms for allopathic surgery and osteopathic pediatrics would be evaluated (separately) by CMS accordingly: Sixth level priority category (large urban hospital); can demonstrate likelihood of filling the slots (because Hospital K can document both that the hospital is above its caps and that it has requested ACGME accreditation to expand the programs); and a score of 2 (population HPSA, historically Black medical college).</P>
                    </EXAMPLE>
                    <EXAMPLE>
                        <HD SOURCE="HED">Example 3:</HD>
                        <P>Hospital E is a rural hospital located in a Medicare physician scarcity area and a geographic HPSA. It is a rural training site for a rural track residency program that has only been a training site since 2002. Therefore, Hospital E has an FTE resident cap of zero FTEs for direct GME and IME.</P>
                        <P>Hospital E's CMS Evaluation Form for the rural track family practice program and accompanying application would be evaluated CMS accordingly: Second level priority category (rural hospital); can demonstrate the likelihood of filling slots (because Hospital E can document that it is both over its cap of zero FTEs, and that it is a training site for an accredited rural track residency program; and a score of 2 (a training site for a rural track, and a Medicare physician scarcity area, and a geographic HPSA).</P>
                    </EXAMPLE>
                    <EXAMPLE>
                        <HD SOURCE="HED">Example 4:</HD>
                        <P>Hospital W is a rural hospital that has FTE caps of 15 FTEs for both direct GME and IME. Hospital W requests an FTE cap adjustment of 25 FTEs for both direct GME and IME; 5 FTEs to expand an existing geriatric fellowship; 20 FTEs to establish the first osteopathic emergency medicine program in State K, in which Hospital W is located. Hospital W can document that it is at its FTE caps with existing residency programs. CMS would make the following assessment for Hospital W's Evaluation Form for the geriatric fellowship: Hospital W falls into the second level priority category for being a rural hospital; can demonstrate the likelihood that it will fill the 5 FTE slots of the geriatric program by documenting that it has requested additional slots in the accreditation of the geriatrics program and that Hospital W is above its caps. Hospital W would receive a score of 1 on its CMS Evaluation Form for the geriatrics program. CMS would make the following assessment for Hospital W's CMS Evaluation Form for the new osteopathic emergency medicine program: Hospital W would meet the first level priority category for this Evaluation Form because, not only is it a rural hospital, but it is also requesting 20 FTEs for the only osteopathic emergency medicine program in the State; can demonstrate the likelihood that it will fill the 20 osteopathic emergency medicine FTEs by documenting the accreditation request and that it is over its FTE caps. Hospital W would receive a score of zero, because it did not meet any of the 10 evaluation criteria on the CMS Evaluation Form.</P>
                    </EXAMPLE>
                    <HD SOURCE="HD3">j. Application of Locality-Adjusted National Average Per Resident Amount (PRA)</HD>
                    <P>Section 1886(h)(7)(B)(v) of the Act, as added by section 422 of Public Law 108-173, provides that, with respect to additional residency slots attributable to the increase in the hospital's FTE resident cap as a result of redistribution of resident positions, the approved FTE resident amount, or PRA, is deemed to be equal to the locality-adjusted national average per resident amount computed for that hospital. In other words, section 1886(h)(7)(B)(v) of the Act requires that, for purposes of determining direct GME payments for portions of cost reporting periods occurring on or after July 1, 2005, a hospital that receives an increase in its direct GME FTE resident cap under section 1886(h)(7)(B) of the Act will receive direct GME payments with respect to those additional FTE residents using the locality-adjusted national average PRA. Thus, we are proposing that a hospital that receives an increase in its FTE resident cap under section 1886(h)(7)(B) of the Act would receive direct GME payments based on the sum of two different direct GME calculations: one that is calculated using the hospital's actual PRAs (primary care PRA or nonprimary care PRA) applicable under existing § 413.86(e)(4) (proposed to be redesignated as § 413.77(d) in this proposed rule) and the hospital's number of FTE residents not attributable to an FTE cap increase under section 1886(h)(7)(B) of the Act; and another that is calculated using the locality-adjusted national average PRA under existing § 413.86(e)(4)(ii)(B) (proposed to be redesignated as § 413.77(d)(2)(ii) in this proposed rule) inflated to a hospital's current cost reporting period, and the hospital's number of FTE residents that is attributable to the increase in the hospital's FTE resident cap under section 1886(h)(7)(B).</P>
                    <P>Section 422(a) of Public Law 108-173 contains a cross-reference in the new section 1886(h)(7)(B)(v) of the Act to the locality adjusted national average PRA “computed under paragraph (4)(E).” However, section 1886(h)(4)(E) of the Act does not relate to the locality-adjusted national average PRA. Rather, it relates to the circumstances under which a hospital may count FTE resident time spent training in nonhospital sites.</P>
                    <P>We have concluded that the cross-reference to section 1886(h)(4)(E) of the Act is a legislative drafting error, or scrivener's error. Instead, we believe Congress intended to refer to section 1886(h)(2)(E), which explicitly provides for the determination of locality-adjusted national average PRAs. Because the drafting error is apparent, and a literal reading of the cross-reference as specified in the statute would produce absurd results, we are proposing to interpret the cross-reference to section 1886(h)(4)(E) of the Act in the new section 1886(h)(7)(B)(v) of the Act as if the reference were to section 1886(h)(2)(E) of the Act.</P>
                    <P>
                        We note that section 1886(h)(7)(B)(v) of the Act, which addresses the applicability of the locality-adjusted national average PRAs with respect to redistributed slots for the direct GME payment, makes no reference to section 1886(h)(4)(G) of the Act, which is the provision concerning the rolling average count of FTE residents. That is, the statute does not provide for an exclusion from application of the rolling average for residents counted as a result of FTE cap increases under section 1886(h)(7)(B) of the Act. In light of the absence of a specific pronouncement in section 1886(h)(7)(B) of the Act exempting those residents from application of the rolling average, and with no apparent reason to treat residents counted as a result of the FTE 
                        <PRTPAGE P="28306"/>
                        cap increases under section 1886(h)(7)(B) of the Act differently for purposes of the rolling average, we are proposing to require that if a hospital increases its direct GME FTE count of residents as a result of an FTE resident cap increase under section 1886(h)(7)(B) of the Act, those FTE residents are immediately subject to the rolling average calculation. Furthermore, we believe that, given potentially significant shifts of FTE slots among hospitals as a result of section 1886(h)(7) of the Act, the inclusion of FTE residents counted as a result of section 1886(h)(7)(B) of the Act in the rolling average introduces a measure of stability and predictability, and mitigates radical shifts in direct GME payments from period to period. Thus, any increase in a hospital's direct GME payment relating to an FTE cap increase under section 1886(h)(7)(B) of the Act will be phased-in over a 3-year period because the additional FTE residents are immediately included in the rolling average calculation and would only gradually be included in the hospital's FTE count.
                    </P>
                    <P>Following is an example of how direct GME payment would be determined for a hospital that received an increase in its direct GME FTE cap under section 1886(h)(7)(B) of the Act. Hospital A has a fiscal year end (FYE) of June 30, and a direct GME FTE resident cap of 20 FTEs. During its FYEs June 30, 2004 and June 30, 2005, Hospital A trained 20 nonprimary care residents. During FYE June 30, 2006, Hospital A trains 25 nonprimary care FTE residents. Hospital A's FYE June 30, 2006 nonprimary care PRA is $100,000. The FYE June 30, 2006 locality-adjusted national average PRA for Hospital A is $84,000. Hospital A's Medicare utilization is 35 percent. Effective July 1, 2005, under section 1886(h)(7)(B) of the Act, Hospital A receives an increase to its direct GME FTE resident cap of 5 FTEs, for a total adjusted direct GME FTE resident cap of 25 FTEs. For the FYE June 30, 2006 cost report, the direct GME payment is calculated as follows:</P>
                    <P>
                        <E T="03">Step 1.</E>
                         For residents NOT counted pursuant to section 1886(h)(7)(B) of the Act—
                    </P>
                    <FP SOURCE="FP-2">
                        <E T="03">For July 1, 2005 through June 30 2006:</E>
                    </FP>
                    <FP SOURCE="FP1-2"/>
                    <P>• Rolling average count: 20 + 20 + 20/3 = 20.</P>
                    <FP SOURCE="FP1-2"/>
                    <P>• Direct GME computation: $100,000 × 20 × .35 = $700,000.</P>
                    <P>
                        <E T="03">Step 2.</E>
                         For residents counted pursuant to section 1886(h)(7)(B) of the Act—
                    </P>
                    <FP SOURCE="FP-2">
                        <E T="03">For July 1, 2005 through June 30, 2006:</E>
                    </FP>
                    <FP SOURCE="FP1-2">• Rolling average count: 25 + 20 + 20/3 = 21.7</FP>
                    <FP SOURCE="FP1-2">• Difference between rolling average count for residents counted pursuant to section 1886(h)(7)(B) of the Act and rolling average count for residents counted not pursuant to section 1886(h)(7)(B) of the Act (rolling average count under step 2 minus rolling average count under step 1): 21.7 − 20 = 1.7.</FP>
                    <FP SOURCE="FP1-2">• Direct GME computation: $84,000 × 1.7 × .35 = $49,980.</FP>
                    <P>
                        <E T="03">Step 3</E>
                        . Direct GME payment for FYE June 30, 2006: $700,000 + $49,980 = $749,980.
                    </P>
                    <HD SOURCE="HD3">k. Application of Section 422 to Hospitals That Participate in Demonstration Projects or Voluntary Reduction Programs</HD>
                    <P>Section 1886(h)(7)(B)(vi) of the Act, as amended by section 422(a)(3) of Public Law 108-173, states that “Nothing in this subparagraph shall be construed as permitting the redistribution of reductions in residency positions attributable to voluntary reduction programs * * * under a demonstration project approved as of October 31, 2003.” This language is referring to the New York Medicare GME Demonstration Project and the Voluntary Resident Reduction Project (VRRP) under section 402 of Public Law 90-248. In July 1997, 42 New York teaching hospitals participated in the demonstration project. As there were two entry points for this demonstration, an additional seven hospitals joined the program in July 1998. The purpose of the demonstration project was to test reimbursement changes associated with residency training to determine whether hospitals could use time-limited transition funding to replace and reengineer the services provided by a portion of their residency trainees. In exchange for reducing its count of residents by 20 to 25 percent over a 5-year period, while maintaining or increasing its primary care-to-specialty ratio of residents, a participating hospital (or consortium of hospitals) would receive “hold harmless payments” for 6 years. These payments represented a declining percentage of the Medicare GME reimbursement the participating hospitals would have received had their number of residents not been reduced.</P>
                    <P>For hospitals that successfully completed the demonstration project, the Balanced Budget Act of 1997 states that if a hospital increases the number of full-time equivalent residents permitted under its reduction plan as of the completion of the plan, it is liable for repayment of the total amounts paid under the demonstration. Following the demonstration's period of performance, which ended June 30, 2003, if a hospital exceeds its post-demonstration cap and trains residents in excess of the FTE levels achieved under the demonstration, the hospital is not permitted to count those excess residents for purposes of Medicare GME payments until such time as the hold harmless funds paid under the demonstration project have been repaid in full.</P>
                    <P>Similarly, with the VRPP, hospitals could use time-limited transition funding to replace the services provided by a portion of their residents. In exchange for reducing its count of residents by 20 to 25 percent over a 5-year period, while maintaining or increasing its primary care-to-specialty ratio of residents, a VRRP participating hospital would receive “hold harmless payments” for 5 years. These payments represented a declining percentage of the Medicare GME reimbursement the VRRP participating hospital would have received had its number of residents not been reduced.</P>
                    <P>
                        We believe that the language of section 1886(h)(7)(B)(vi) of the Act precludes the Secretary from redistributing residency positions that are unused due to a hospital's participation in a demonstration project or the VRRP to other hospitals that seek to increase their FTE resident caps under section 1886(h)(7)(B)(i) of the Act. That is, if we were to propose that hospitals that participated in a demonstration project or the VRRP are subject to possible reductions to their FTE resident caps under section 1886(h)(7)(A)(i) of the Act, any excess slots resulting from reductions made under section 1886(h)(7)(A)(i) of the Act attributable to the demonstration or the voluntary reduction program at these hospitals would not be allocated to the resident pool and redistributed to other hospitals. We also believe that section 1886(h)(7)(B)(vi) of the Act is silent as to whether the Secretary should apply the possible reductions under section 1886(h)(7)(A)(i) of the Act to the FTE resident caps of these hospitals. Congress recognized the unique status of reductions in FTE resident counts made by these hospitals that participated in a demonstration project under the authority of section 402 of Public Law 90-248, or a VRRP under section 1886(h)(6) of the Act, in which these hospitals received hold-harmless payments from Medicare for reducing the number of residents that they were training. Accordingly, we are proposing to recognize the unique status of FTE reductions made by these hospitals, and 
                        <PRTPAGE P="28307"/>
                        are applying the discretion that Congress has granted the Secretary under section 1886(h)(7)(A)(ii) of the Act in determining the reference resident level applicable to these hospitals, to determine the extent to which section 1886(h)(7)(A)(i) of the Act applies to these hospitals.
                    </P>
                    <P>
                        We note that section 1886(h)(7)(B)(vi) of the Act only applies to these hospitals to the extent that a hospital's “reductions in residency positions” were “
                        <E T="03">attributable</E>
                        ” to its participation in the demonstration project or the VRRP. In determining the reference resident level for these hospitals, we are proposing to adjust the reference resident level for “reductions in residency positions attributable” to participation in the demonstration project or the VRRP. We are proposing to define “reductions in residency positions attributable” to participation in the demonstration project or the VRRP as the difference between the number of unweighted allopathic and osteopathic residents training at the hospital at the start of a hospital's participation in the demonstration project or the VRRP, (that is, the base number of residents as defined by the terms of the demonstration project and the VRRP,) and the number of such residents training at the hospital in the hospital's most recent cost reporting period ending on or before September 30, 2002. We are proposing that, in determining any possible adjustments to the reference resident level for hospitals that participated in the demonstration project or the VRRP, we would differentiate between hospitals that withdrew from participation 
                        <E T="03">prior</E>
                         to the beginning of the most recent cost reporting period ending on or before September 30, 2002, and hospitals that either have not withdrawn from participation, or withdrew sometime during or after the most recent cost reporting period ending on or before September 30, 2002.
                    </P>
                    <P>Specifically, we are proposing that, if a hospital was participating in the demonstration project or the VRRP at any time during the hospital's most recent cost reporting period ending on or before September 30, 2002, for purposes of determining possible reductions to the FTE resident caps, we would compare the higher of the hospital's base number of residents, and the resident level in the hospital's most recent cost reporting period ending on or before September 30, 2002, to the hospital's otherwise applicable FTE resident cap. If the higher of the base number of residents or the resident level in the hospital's most recent cost reporting period ending on or before September 30, 2002, is still less than the otherwise applicable FTE resident cap, we are proposing to reduce the hospital's FTE resident cap amount by 75 percent of the difference, effective July 1, 2005. We would also use those slots in the redistribution process under section 1886(h)(7)(B) of the Act since those slots are not “attributable” to participation in the demonstration project or the VRRP.</P>
                    <P>Under section 1886(h)(7)(A)(ii)(II) of the Act, a hospital may submit a timely request to use its cost report that includes July 1, 2003, for purposes of determining the reference resident level if the hospital has an expansion of an existing program that is not reflected on the hospital's most recent settled cost report. If a hospital that was still participating in the demonstration project or the VRRP at some time during its most recent cost reporting period ending on or before September 30, 2002, had an expansion of an existing program that is not reflected on its most recent settled cost report, and the resident level for its cost reporting period that includes July 1, 2003, is higher than the resident level for the most recent cost reporting period ending on or before September 30, 2002, and is higher than the base number of residents, we anticipate that the hospital would submit a timely request that its resident level from its cost reporting period that includes July 1, 2003, be compared to its otherwise applicable FTE resident cap, for purposes of determining a possible reduction to the hospital's FTE resident cap. We believe that under the proposed policy discussed above, a hospital would only request that we utilize its cost reporting period that includes July 1, 2003, if the number of allopathic and osteopathic residents it trained in that cost reporting period is higher than its base number of residents and its base number of residents is less than its FTE resident cap. If we grant the hospital's request that we utilize its cost reporting period that includes July 1, 2003, and the resident level for that period is less than the FTE resident cap, we would reduce the FTE resident cap by 75 percent of the difference between the two numbers. We would also use those slots in the redistribution process under section 1886(h)(7)(B) of the Act, since those slots are not “attributable” to participation in the demonstration project or the VRRP.</P>
                    <P>If a hospital withdrew from participation in the demonstration project or the VRRP prior to its most recent cost reporting period ending on or before September 30, 2002, we are proposing that such a hospital would be subject to the procedures applicable to all other hospitals for determining possible reductions to the FTE resident caps. However, we note that such a hospital may still apply for an increase to its FTE caps as specified under section 1886(h)(7)(B) of the Act (the proposals for applying for the increase are described above).</P>
                    <HD SOURCE="HD3">l. Application of Section 422 to Hospitals That File Low Utilization Medicare Cost Reports</HD>
                    <P>In general, section 422 of Public Law 108-173 applies to hospitals that are Medicare-participating providers and that train residents in approved residency programs. However, because Medicare-participating children's hospitals primarily serve a non-Medicare population and, therefore, receive minimal Medicare payments relative to other Medicare-participating hospitals, some children's hospitals choose (with approval from their fiscal intermediaries) to submit low utilization (abbreviated) Medicare cost reports. Typically, such low utilization cost reports do not include the information that would be necessary for us to calculate Medicare GME payments, such as FTE resident counts and caps. Thus, children's hospitals that submit these low utilization cost reports do not receive Medicare GME payments.</P>
                    <P>
                        Under section 1886(h)(7)(A) of the Act, as added by section 422(a) of Public Law 108-173, we are proposing that determinations as to whether, and by how much, a children's hospital's FTE resident cap will be reduced will be made using the same methodology (that is, utilizing the same reference cost reporting periods and the same reference resident levels) that we are proposing for other Medicare-participating teaching hospitals. We note that the low utilization cost reports may be filed with or without Worksheet E-3, Part IV (the worksheet on which the Medicare direct GME payment is calculated). If a children's hospital files a low utilization cost report in a given cost reporting period, and does not file the Worksheet E-3, Part IV, for Medicare purposes, that hospital is not considered by Medicare to be a teaching hospital in that cost reporting period. (We realize that a children's hospital that files a low utilization cost report may have a “resident cap” that is applicable for payment purposes under the Children's Hospital Graduate Medical Education (CHGME) Payment Program, administered by the Health Resources and Services Administration (HRSA), but this resident cap is not the Medicare FTE resident cap.) As stated in the One-Time Notification published on April 30, 2004 (Transmittal 77, CR 
                        <PRTPAGE P="28308"/>
                        3247), if a children's hospital filed a low utilization cost report in its most recent cost reporting period ending on or before September 30, 2002, and did not file the Worksheet E-3, Part IV, there could be no reduction under section 1886(h)(7)(A) of the Act because there is no reference resident level for such a hospital. This would be the case even in instances where such a children's hospital has a FTE resident cap (for example, from 1996) that is recognized for Medicare purposes, because there would still be no reference resident level for its most recent cost reporting period ending on or before September 30, 2002, on which to determine a possible reduction to the children's hospital FTE resident cap.
                    </P>
                    <P>Although section 1886(h)(7)(A) of the Act does not apply to children's hospitals that filed a low utilization cost report (and no Worksheet E-3, Part IV) for the most recent cost reporting period ending on or before September 30, 2002, we are proposing that, regardless of how a children's hospital has previously filed its Medicare cost report (that is, a full cost report or an abbreviated one), or how it is treated for CHGME payment purposes, a children's hospital would be eligible to apply for an increase in its FTE resident cap under section 1886(h)(7)(B) of the Act, subject to the same demonstrated likelihood and evaluation criteria proposed above for all hospitals. However, we are proposing that, in order to receive an increase in its FTE resident cap under section 1886(h)(7)(B) of the Act, effective July 1, 2005, in addition to complying with the proposed application requirements described above, the hospital must file Worksheet E-3, Part IV, with its Medicare cost report for its cost reporting period that includes July 1, 2005. We are proposing that the children's hospital comply with this requirement because section 422 is intended to allow a hospital to increase its FTE counts for purposes of Medicare GME payments. We do not believe it would be appropriate to grant an increase in a hospital's FTE resident cap under section 1886(h)(7)(B) of the Act if the hospital does not use the slots for Medicare purposes (but only for purposes of the CHGME Payment Program) as would be evidenced by not filing a Worksheet E-3, Part IV.</P>
                    <HD SOURCE="HD3">m. Specific Solicitation for Public Comment on the Proposals</HD>
                    <P>We specifically solicit public comment on the proposals in this section IV.O.2. In particular, in section IV.O.2.g. of this preamble on the determination of the hospitals that will receive increases in their FTE resident caps, we have considered many possible alternatives to evaluate hospital applications. We specifically solicit public comments on how hospitals should “demonstrate the likelihood” of filling the additional residency slots, and in a way that is documentable for all hospitals and verifiable by CMS. We also specifically solicit public comments on the criteria we have proposed for evaluating the hospital applications and are open to suggestions from the public on what other criteria we should use to determine which hospitals should receive the increases in their FTE resident caps. We ask the public to keep in mind that criteria should be documentable for all hospitals and verifiable by CMS.</P>
                    <HD SOURCE="HD3">n. CMS Evaluation Form</HD>
                    <EXTRACT>
                        <HD SOURCE="HD1">CMS Evaluation Form as Part of the Application for the Increase in a Hospital's FTE Cap(s) Under Section 422 of the Medicare Modernization Act of 2003</HD>
                        <P>
                            <E T="03">Directions:</E>
                             Please fill out the information below for each residency program for which the applicant hospital intends to use the increase in its FTE cap(s). CMS notes that the applicant hospital is responsible for complying with the other requirements listed in the FY 2005 hospital inpatient prospective payment system proposed rule in order to complete its application for the increase in its FTE cap(s) under section 422 of Public Law 108-173.
                        </P>
                        <FP SOURCE="FP-DASH">NAME OF HOSPITAL:</FP>
                        <FP SOURCE="FP-DASH">MEDICARE PROVIDER NUMBER:</FP>
                        <FP SOURCE="FP-DASH">NAME OF SPECIALTY TRAINING PROGRAM:</FP>
                        <FP>(Check one): ☐ Allopathic Program   ☐ Osteopathic Program</FP>
                        <HD SOURCE="HD1">NUMBER OF FTE SLOTS REQUESTED FOR PROGRAM:</HD>
                        <FP>Direct GME:_____  IME:_____</FP>
                        <FP SOURCE="FP-DASH"/>
                        <HD SOURCE="HD2">Section A: Demonstrated Likelihood of Filling the FTE Slots</HD>
                        <FP>(Place an “X” in the box for the applicable criterion and subcriteria.)</FP>
                        <FP>
                            ☐ A1: 
                            <E T="03">Demonstrated Likelihood Criterion 1.</E>
                             The hospital intends to use the additional FTEs to establish a new residency program (listed above) on or after July 1, 2005 (that is, a newly approved program that begins training residents on or after July 1, 2005).
                        </FP>
                        <FP>☐ (1) Hospital is establishing this newly approved residency program. (Check one of the following.)</FP>
                        <FP>☐ Application for approval of the new residency program has been submitted to the ACGME or the AOA by December 1, 2004. (Copy attached.)</FP>
                        <FP>☐ The hospital has submitted an institutional review document or program information form concerning the new program in an application for approval of the new program by December 1, 2004. (Copy attached.)</FP>
                        <FP>☐ The hospital has received written correspondence from the ACGME or AOA acknowledging receipt of the application for the new program, or other types of communication from the accrediting bodies concerning the new program approval process (such as notification of site visit). (Copy attached.)</FP>
                        <FP>☐ (2) Hospital will likely fill the slots requested. (Check one of the following.)</FP>
                        <FP>☐ The hospital s existing residency programs had a resident fill rate of at least 95 percent in each of program years 2001 through 2003. (Documentation attached.)</FP>
                        <FP>☐ The hospital has the cover page of its employment contracts with the residents who are or will be participating in the new residency program (resident specific information may be redacted). (Copies attached.)</FP>
                        <FP>☐ The specialty program (listed above) has a resident fill rate nationally, across all hospitals, of at least 95 percent. (Documentation attached.)</FP>
                        <FP>
                            ☐ A2: 
                            <E T="03">Demonstrated Likelihood Criterion 2.</E>
                             The applying hospital intends to use the additional FTEs to expand an existing residency training program that is listed above (that is, to increase the number of FTE resident slots in the program) on or after July 1, 2005, and before July 1, 2008.
                        </FP>
                        <FP>☐ (1) Hospital intends to expand an existing program. (Check one of the following.)</FP>
                        <PRTPAGE P="28309"/>
                        <FP>☐ The appropriate accrediting body (the ACGME or the AOA) has approved the hospital s expansion of the number of FTE residents in the program. (Documentation attached.)</FP>
                        <FP>☐ The National Residency Match Program or the American Osteopathic Association Residency Match Program has accepted or will be accepting the hospital s participation in the match for the existing program that will include additional resident slots in that residency training program. (Documentation attached.)</FP>
                        <FP>☐ The hospital has institutional review document or program information form for the expansion of the existing residency training program. (Copy attached.)</FP>
                        <FP>☐ (2) Hospital will likely fill the slots of the expanded residency program. (Check one of the following.)</FP>
                        <FP>☐ Hospital has employment contracts with the residents who are or will be participating in the expanded program (resident specific information may be redacted) and employment contracts with the residents participating in the program prior to the expansion of the program. (Copy of the cover page of both documents attached.)</FP>
                        <FP>☐ Hospital has other previously established residency programs. (Documentation attached evidencing that each of the residency programs had a resident fill rate of at least 95 percent in each of program years 2001 through 2003.)</FP>
                        <FP>☐ Hospital is expanding an existing program in a particular specialty. (Documentation attached evidencing that the specialty has a resident fill rate nationally, across all hospitals, of at least 95 percent.)</FP>
                        <FP>☐ Hospital is expanding a program in order to train residents that need a program because another hospital in the State has closed a similar program, and the applying hospital received a temporary adjustment to its FTE cap(s) (under the requirements of § 413.86(g)(9)). (Documentation attached.)</FP>
                        <FP>
                            ☐ A3: 
                            <E T="03">Demonstrated Likelihood Criterion 3.</E>
                             Hospital is applying for an increase in its FTE resident cap because the hospital is already training residents in an existing residency training program(s) in excess of its direct GME FTE cap or IME FTE cap, or both. (Copies of 
                            <E T="03">EACH</E>
                             of the following attached.)
                        </FP>
                        <P>• Copies of the most recent as-submitted Medicare cost reports documenting on Worksheet E, Part A and Worksheet E3, Part IV the resident counts and FTE resident caps for both direct GME and IME for the relevant cost reporting periods.</P>
                        <P>• Copies of the 2004 residency match information concerning the number of residents the hospital intends to have in its existing programs.</P>
                    </EXTRACT>
                    <EXTRACT>
                        <P>• Copies of the most recent accreditation letters on all of the hospital s training programs in which the hospital trains and counts FTE residents for direct GME and IME.</P>
                        <FP>
                            ☐ A4: 
                            <E T="03">Demonstrated Likelihood Criterion 4.</E>
                             The hospital is applying for the unused FTE resident slots because the hospital is at risk of losing accreditation of a residency training program if the hospital does not increase the number of FTE residents in the program on or after July 1, 2005. (Documentation attached from the appropriate accrediting body of the hospital's risk of lost accreditation as a result of an insufficient number of residents in the program.)
                        </FP>
                        <HD SOURCE="HD2">Section B. Level Priority Category</HD>
                        <FP>☐ (Place an “X” in the appropriate box that is applicable to the level priority category that describes the applicant hospital.)</FP>
                        <FP>
                            ☐ B1: 
                            <E T="03">First Level Priority Category:</E>
                             The hospital is a rural hospital and has the only specialty training program in the State (for the program requested on page 1 of this CMS Evaluation Form).
                        </FP>
                        <FP>
                            ☐ B2: 
                            <E T="03">Second Level Priority Category:</E>
                             The hospital is a rural hospital only.
                        </FP>
                        <FP>
                            ☐ B3: 
                            <E T="03">Third Level Priority Category:</E>
                             The hospital is a small urban hospital (that is, an urban hospital that is located in a “not large urban area” ) and has the only specialty program in the State (for the program requested on this CMS Evaluation Form).
                        </FP>
                        <FP>
                            ☐ B4: 
                            <E T="03">Fourth Level Priority Category:</E>
                             The hospital is a “small” urban hospital only.
                        </FP>
                        <FP>
                            ☐ B5: 
                            <E T="03">Fifth Level Priority Category:</E>
                             The hospital has the only specialty training program in the State (for the program requested on page 1 of this CMS Evaluation Form).
                        </FP>
                        <FP>
                            ☐ B6: 
                            <E T="03">Sixth Level Priority Category:</E>
                             The hospital meets none of the statutory priority criteria.
                        </FP>
                        <HD SOURCE="HD2">Section C. Evaluation Criteria</HD>
                        <FP>(Place an X in the box for each criterion that is appropriate for the applicant hospital and for the program for which the increase in the FTE cap is requested.)</FP>
                        <FP>
                            ☐ C1: 
                            <E T="03">Evaluation Criterion One.</E>
                             The hospital that is requesting the increase in its FTE resident cap(s) has a Medicare inpatient utilization over 60 percent, as reflected in at least two of the hospital s last three most recent audited cost reporting periods for which there is a settled cost report.
                        </FP>
                        <FP>
                            ☐ C2: 
                            <E T="03">Evaluation Criterion Two.</E>
                             The hospital needs the additional slots to establish a new geriatrics residency program, or adding residents to an existing geriatrics program.
                        </FP>
                        <FP>
                            ☐ C3: 
                            <E T="03">Evaluation Criterion Three.</E>
                             The hospital does not qualify for an adjustment to its FTE caps under existing § 413.86(g)(12) for a rural track residency program, but is applying for an increase in its FTE resident cap(s) under section 1886(h)(7)(B) of the Act because it rotates (or in the case of a new program, will rotate) residents for at least 25 percent of the duration of the residency program to any one (or in combination thereof) of the following: a rural area, as defined in section 1886(d)(2)(D)(ii) of the Act and § 412.62(f)(1)(iii) of the regulations; a rural health clinic (RHC), as defined in section 1861(aa)(1) of the Act and § 491.2 of the regulations; or a Federally Qualified Health Center (FQHC), as defined in section 1861(a)(3) of the Act and § 405.2401(b) of the regulations.
                        </FP>
                        <FP>
                            ☐ C4: 
                            <E T="03">Evaluation Criterion Four.</E>
                             In portions of cost reporting periods prior to July 1, 2005, the hospital qualified for a temporary adjustment to its FTE cap under existing § 413.86(g)(9) because it was training displaced residents from either a closed program or a closed hospital, and, even after the temporary adjustment, the hospital continues to train residents in the specialty(ies) of the displaced residents and is above the hospital's direct GME FTE cap or IME FTE cap, or both, for that reason.
                        </FP>
                        <FP>
                            ☐ C5: 
                            <E T="03">Evaluation Criterion Five.</E>
                             The hospital is above its FTE caps because it was awaiting accreditation of a new program from the ACGME or the AOA during the base period for its FTE cap(s) but was not eligible to receive a new program adjustment as stated under existing § 413.86(g)(6)(ii).
                        </FP>
                        <FP>
                            ☐ C6: 
                            <E T="03">Evaluation Criterion Six.</E>
                             The hospital is above its FTE resident caps because, despite qualifying for an FTE cap adjustment for a new program under § 413.86(g)(6)(i) or (g)(6)(ii), it was unable to “grow” its program to the full complement of residents for which the program was accredited before the hospital's FTE resident cap was permanently set beginning with the fourth program year of the new program.
                        </FP>
                        <FP>
                            ☐ C7: 
                            <E T="03">Evaluation Criterion Seven.</E>
                             The hospital is located in any one (or in combination thereof) of the following: a geographic HPSA, as defined in 42 CFR 5.2; a population HPSA (also defined at 42 CFR 5.2); or a Medicare physician scarcity county, as defined under section 413 of Public Law 108-173.
                        </FP>
                        <PRTPAGE P="28310"/>
                        <FP>
                            ☐ C8: 
                            <E T="03">Evaluation Criterion Eight.</E>
                             The hospital is in a rural area (as defined under section 1886(d)(2)(D)(ii) of the Act) and is a training site for a rural track residency program (as specified under § 413.86(g)(12), but is unable to count all of the FTE residents training at the rural hospital in the rural track because the rural hospital's FTE cap is lower than the hospital's unweighted count of allopathic or osteopathic FTE residents beginning with portions of cost reporting periods on or after July 1, 2005.
                        </FP>
                        <FP>
                            ☐ C9: 
                            <E T="03">Evaluation Criterion Nine.</E>
                             The hospital is affiliated with a historically Black medical college.
                        </FP>
                        <FP>
                            ☐ C10: 
                            <E T="03">Evaluation Criterion Ten:</E>
                             The hospital is training residents in residency program(s) sponsored by a medical school(s) that is designated as a Center of Excellence for Underserved Minorities (COE) under section 736 of the Public Health Service Act in FY 2003.
                        </FP>
                    </EXTRACT>
                    <HD SOURCE="HD3">o. CMS Central and CMS Regional Office Mailing Addresses for Applications for Increases in FTE Resident Caps</HD>
                    <EXTRACT>
                        <HD SOURCE="HD1">Central Office</HD>
                        <FP SOURCE="FP-1">Centers for Medicare and Medicaid Services (CMS), Director, Division of Acute Care, 7500 Security Boulevard, Mail Stop C4-08-06, Baltimore, Maryland 21244.</FP>
                        <HD SOURCE="HD2">Region I (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont)</HD>
                        <FP SOURCE="FP-1">Centers for Medicare and Medicaid Services (CMS), Associate Regional Administrator, Division of Medicare Financial Management, Region I, JFK Federal Building, Room 2325, Boston, MA 02203, Phone: (617) 565-1185.</FP>
                        <HD SOURCE="HD2">Region II (New York, New Jersey, U.S. Virgin Islands, and Puerto Rico)</HD>
                        <FP SOURCE="FP-1">Centers for Medicare and Medicaid Services (CMS), Associate Regional Administrator, Division of Medicare Financial Management, Region II, 26 Federal Plaza, 38th Floor, New York, NY 10278, Phone: (212) 264-3657.</FP>
                        <HD SOURCE="HD2">Region III (Delaware, Maryland, Pennsylvania, Virginia and West Virginia, and the District of Columbia)</HD>
                        <FP SOURCE="FP-1">Centers for Medicare and Medicaid Services (CMS), Associate Regional Administrator, Division of Medicare Financial Management, Region III, Public Ledger Building, Suite 216, 150 South Independence Mall West, Philadelphia, PA 19106, Phone: (215) 861-4140.</FP>
                        <HD SOURCE="HD2">Region IV (Alabama, North Carolina, South Carolina, Florida, Georgia, Kentucky, Mississippi, and Tennessee)</HD>
                        <FP SOURCE="FP-1">Centers for Medicare and Medicaid Services (CMS), Associate Regional Administrator, Division of Medicare Financial Management, Region IV, Atlanta Federal Center, 61 Forsyth Street, SW., Suite 4T20, Atlanta, GA 30303-8909, Phone: (404) 562-7500.</FP>
                        <HD SOURCE="HD2">Region V (Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin)</HD>
                        <FP SOURCE="FP-1">Centers for Medicare and Medicaid Services (CMS), Associate Regional Administrator, Division of Medicare Financial Management, Region V, 233 North Michigan Avenue, Suite 600, Chicago, IL 60601, Phone: (312) 886-6432.</FP>
                        <HD SOURCE="HD2">Region VI (Arkansas, Louisiana, New Mexico, Oklahoma, and Texas)</HD>
                        <FP SOURCE="FP-1">Centers for Medicare and Medicaid Services (CMS), Associate Regional Administrator, Division of Medicare Financial Management, Region VI, 1301 Young Street, Suite 714, Dallas, TX 75202, Phone: (214) 767-6423.</FP>
                        <HD SOURCE="HD2">Region VII (Iowa, Kansas, Missouri, and Nebraska)</HD>
                        <FP SOURCE="FP-1">Centers for Medicare and Medicaid Services (CMS), Associate Regional Administrator, Division of Medicare Financial Management, Region VII, Richard Bolling Federal Building, Room 235, 601 East 12th Street, Kansas City, MO 64106.</FP>
                        <HD SOURCE="HD2">Region VIII (Colorado, Montana, North Dakota, South Dakota, Utah and Wyoming)</HD>
                        <FP SOURCE="FP-1">Centers for Medicare and Medicaid Services (CMS), Associate Regional Administrator, Division of Medicare Financial Managment, Region VIII, Colorado State Bank Building, 1600 Broadway, Suite 700, Denver, CO 80202, Phone: (303) 844-2111.</FP>
                        <HD SOURCE="HD2">Region IX (Arizona, California, Hawaii, and Nevada and Territories of American Samoa, Guam and the Commonwealth of the Northern Mariana Islands)</HD>
                        <FP SOURCE="FP-1">Centers for Medicare and Medicaid Services (CMS), Associate Regional Administrator, Division of Medicare Financial Management, Region IX, 75 Hawthorne St., Suite 408, San Francisco, CA 94105, Phone: (415) 744-3501.</FP>
                        <HD SOURCE="HD2">Region X (Alaska, Idaho, Oregon, and Washington)</HD>
                        <FP SOURCE="FP-1">Centers for Medicare and Medicaid Services (CMS), Associate Regional Administrator, Division of Medicare Financial Management, Region X, 2201 Sixth Avenue, MS-40, Seattle, WA 98121, Phone: (206) 615-2306.</FP>
                    </EXTRACT>
                    <HD SOURCE="HD3">3. Direct GME Initial Residency Period (Proposed New § 413.79, a Proposed Redesignation of Existing § 413.86(g))</HD>
                    <HD SOURCE="HD3">a. Background</HD>
                    <P>As we have generally described above, the amount of direct GME payment to a hospital is based in part on the number of FTE residents who are training at the hospital during a year. The number of FTE residents training at a hospital, and thus the amount of direct GME payment to a hospital, is directly affected by CMS policy on how “initial residency periods” are determined for residents.</P>
                    <P>Section 1886(h)(5)(A) of the Act defines “approved medical residency training program” as “a residency or other postgraduate medical training program, participation in which may be counted toward certification in a specialty or subspecialty.” This provision is implemented in regulations at existing § 413.86(b). In accordance with section 1886(h)(5)(I) of the Act, the term “resident” is defined to include “an intern or other participant in an approved medical residency training program.” Existing § 413.86(b) defines “resident” as an “intern, resident, or fellow who participates in an approved medical residency training program * * * as required in order to become certified by the appropriate specialty board.”</P>
                    <P>Section 1886(h)(4)(C)(ii) of the Act provides that while a resident is in the “initial residency period,” the resident is weighted at 1.00 (existing § 413.86(g)(2) of the regulations). Section 1886(h)(4)(C)(iii) of the Act requires that if a resident is “not in the resident's initial residency period,” the resident is weighted as .50 FTE resident (existing § 413.86(g)(3) of the regulations).</P>
                    <P>Section 1886(h)(5)(F) of the Act defines “initial residency period” as the “period of board eligibility,” and, subject to specific exceptions, limits the initial residency period to an “aggregate period of formal training” of no more than 5 years for any individual. Section 1886(h)(5)(G) of the Act generally defines “period of board eligibility” for a resident as “the minimum number of years of formal training necessary to satisfy the requirements for initial board eligibility in the particular specialty for which the resident is training.” Existing § 413.86(g)(1) of the regulations generally defines “initial residency period” as the “minimum number of years required for board eligibility.”Existing § 413.86(g)(1)(iv) provides that “time spent in residency programs that do not lead to certification in a specialty or subspecialty, but that otherwise meet the definition of approved programs . . . is counted toward the initial residency period limitation.” Section 1886(h)(5)(F) of the Act further provides that “the initial residency period shall be determined, with respect to a resident, as of the time the resident enters the residency training program.”</P>
                    <P>
                        The initial residency period is determined as of the time the resident enters the “initial” or first residency training program and is based on the period of board eligibility associated with that medical specialty. Thus, this 
                        <PRTPAGE P="28311"/>
                        provision limits the amount of direct GME that Medicare pays a hospital for a resident who switches specialties to a program with a longer period of board eligibility or completes training in a specialty and then continues training in a subspecialty (for example, cardiology and gastroenterology are subspecialties of internal medicine). 
                    </P>
                    <HD SOURCE="HD3">b. Direct GME Initial Residency Period Limitation: Simultaneous Match Issue</HD>
                    <P>CMS understands there are numerous programs, including anesthesiology, dermatology, psychiatry, and radiology, that require a year of generalized clinical training to be used as a prerequisite for the subsequent training in the particular specialty. For example, in order to become board eligible in anesthesiology, a resident must first complete a generalized training year and then complete 3 years of training in anesthesiology. This first year of generalized residency training is commonly known as the “clinical base year.” Commonly, the clinical base year requirement is fulfilled by completing either a preliminary year in internal medicine (although the preliminary year can also be in other specialties such as general surgery or family practice), or a transitional year program (which is not associated with any particular medical specialty).</P>
                    <P>In many cases, during the final year of medical school, medical students apply for training in specialty programs. Typically, a medical student who wants to train to become a specialist is “matched” to both the clinical base year program and the residency training specialty program at the same time. For example, the medical student who wants to become an anesthesiologist will apply and “match” simultaneously for a clinical base year in an internal medicine program for year 1 and for an anesthesiology training program in years 2, 3, and 4.</P>
                    <P>Based on our interpretation of the statute, CMS’ policy is that the initial residency period is determined for a resident based on the program in which he or she participates in the resident's first year of training, without regard to the specialty in which the resident ultimately seeks board certification. Therefore, for example, a resident that chooses to fulfill the clinical base year requirement for an anesthesiology program with a preliminary year in an internal medicine program will be “labeled” with the initial residency period associated with internal medicine, or 3 years (3 years of training are required to become board eligible in internal medicine), even though the resident may seek board certification in anesthesiology, which requires a minimum of 4 years of training to become board eligible. As a result, this resident would be weighted at 0.5 FTE in his or her fourth year of training for purposes of direct GME payment.</P>
                    <P>We understand that some hospitals have been assigning residents that complete a clinical base year in a different specialty from the one in which they ultimately train an initial residency period and a weighting factor based on the specialty associated with second program year in which the residents train. As a result, some residents have been assigned a weighting factor of 1.0 FTE for years beyond their initial residency periods, rather than the applicable 0.5 FTE weighting factor. This error results in Medicare overpayments, the size of which is dependent upon the hospital's direct GME PRA and its Medicare utilization. In addition, we have received numerous requests from the health care industry to revise our policy concerning the initial residency period for residency programs that require a clinical base year because some entities in the industry believe that our current policy is unfair to those individuals who “match” simultaneously for both a preliminary year (for example, the clinical base year in internal medicine) and the longer specialty residency program (for example, anesthesiology, dermatology, or radiology).</P>
                    <P>To address these concerns, we are considering making a change in policy that addresses these “simultaneous match” residents. Specifically, we are considering a policy that, if a hospital can document that a particular resident matches simultaneously for a first year of training in a clinical base year in one medical specialty, and for additional year(s) of training in a different specialty program, the resident's initial residency period would be based on the period of board eligibility associated with the specialty program in which the resident matches for the subsequent year(s) of training and not on the period of board eligibility associated with the clinical base year program, for purposes of direct GME payment. In addition, we are considering a new definition of “residency match” to mean, for purposes of direct GME, a national process by which applicants to approved medical residency programs are paired with programs on the basis of preferences expressed by both the applicants and the program directors.</P>
                    <P>This policy could apply regardless of whether the resident completes the first year of training in a separately accredited transitional year program or in a preliminary (or first) year in another residency training program such as internal medicine.</P>
                    <P>
                        Under such a policy, hospitals would apply a weight of 1.0 FTE (instead of 0.5) for an additional year or two to some residents who, as a prerequisite for training in a specialty program, complete a first year of training in a different specialty program. This would probably cause an increase in direct GME payments. This provision would apply to such programs as anesthesiology, dermatology, radiology, and physical medicine and rehabilitation. In 2004, there were approximately 1,840 residents in these specialties that would be affected by this proposal, as compared to the approximately 83,000 residents in total for whom Medicare makes direct GME payments. Under current policy, these 1,840 residents would be weighted at 0.5 FTE in their 4th year (and 5th year, if applicable) of training. Therefore, direct GME spending for these 1,840 residents should currently be $26.5 million (1,840 × 0.5 ×  82,249 
                        <SU>5</SU>
                        <FTREF/>
                         × .35 
                        <SU>6</SU>
                        <FTREF/>
                        ). Under the policy CMS is considering, direct GME spending would be twice that amount at $53 million (1,840 × $82,249 × .35). However, because we believe a number of fiscal intermediaries may have been applying current policy incorrectly and instead have been weighting approximately 920 residents at 1.0 in their 4th year (and 5th year, if applicable) of training, the cost of this change would be expected to be closer to $13.25 million (920 × 0.5 × $82,249 × .35). We are providing this cost impact analysis to the public for its information in consideration of any such proposed change. 
                    </P>
                    <FTNT>
                        <P>
                            <SU>5</SU>
                             $82,249 is the estimated national average per resident amount for FY 2005.
                        </P>
                    </FTNT>
                    <FTNT>
                        <P>
                            <SU>6</SU>
                             .35 is the estimated average Medicare utilization.
                        </P>
                    </FTNT>
                    <P>
                        We note that in the Conference Committee report that accompanied Public Law 108-173, the Committee stated: “The conferees also clarify that under section 1886 (h)(5)(F), the initial residency period for any residency for which the ACGME requires a preliminary or general clinical year of training is to be determined in the resident's second year of training.” (Conference Committee Agreement Accompanying Public Law 108-173, 108 Cong., 2d Sess., 276 (2003)) The Conference Committee included this language as part of its explanation of section 712 of Public Law 108-173, which clarifies an exception to the initial residency period for geriatric fellowship programs (see section IV.O.3.c. of this preamble). We are 
                        <PRTPAGE P="28312"/>
                        considering making a policy change for determining the initial residency period for a resident who participates in a clinical base year program based on the resident's second year of training, as the Conference Committee suggests. However, we understand that not all residents who participate in the clinical base year programs simultaneously match in specialty training programs before the residents' first year of training. Thus, if we were to propose a “second year” policy, there would be no way to distinguish in the second year of training among those residents who simultaneously matched in a specialty program prior to their first year of training; those residents who did not match simultaneously, but participated in a clinical base year and then continued on to train in a different specialty; and those residents who simply switched specialties in their second year. As we have stated earlier, the initial residency period is to be determined based on the “initial” or first program in which a resident trains. Section 1886(h)(5)(F) of the Act provides that “the initial residency period shall be determined, with respect to a resident, as of the time the resident 
                        <E T="03">enters</E>
                         the residency training program.” (Emphasis added.)
                    </P>
                    <P>Therefore, we believe it is appropriate for us to consider changes to the “simultaneous match” policy that would allow for documentation that the residents' training program is arranged to continue in another medical specialty after the resident completes the clinical base year. However, we also specifically solicit comments concerning the issue of how to establish the initial residency period for a resident who does not match simultaneously for the first and second year, completes the first year in a preliminary program in one specialty, and then continues his or her training in a different specialty program that requires completion of a clinical base year.</P>
                    <P>We note that if we were to propose such a change in the initial residency period policy, the change, if finalized, could result in an adjustment to the PRA applicable for the direct GME payments made to the hospital for a resident in a clinical base year. By treating the first year as part of a nonprimary care specialty program (for example, anesthesiology), the hospital would be paid at the lower nonprimary care PRA rather than the higher primary care PRA, which would be used for residents training in a clinical base year in a primary care program (for example, internal medicine). We note in conjunction with our proposal that the initial residency period would be established based upon the period of board eligibility for the specialty program for residents who simultaneously match with a clinical base year and a specialty program that we believe all of the programs that require a clinical base year are nonprimary care specialties. Because we are considering a policy change that the initial residency period would be based upon the period of board eligibility for the specialty program rather than the clinical base year, we would also consider a policy change that the nonprimary care PRA would apply for the duration of their initial residency period.</P>
                    <P>Thus, we are considering making the above policy changes to address the clinical base year initial residency period issue. We specifically solicit comments on the changes we are considering to the existing initial residency period policy and other approaches to address this issue, particularly those that do not increase Medicare expenditures. </P>
                    <HD SOURCE="HD3">c. Exception to Initial Residency Period for Geriatric Residency or Fellowship Programs (Section 712 of Public Law 108-173 and Proposed Redesignated § 413.79(a) (a proposed redesignation of existing § 413.86(g)(1))</HD>
                    <P>As explained further below, under Medicare direct GME payment rules, the initial residency period is generally defined as the minimum number of years of training required for a resident to become board eligible in a specialty (not to exceed 5 years) and is established at the time the resident enters his or her first training program. For purposes of direct GME payments, a resident's full-time equivalent (FTE) training time is weighted at 1.0 during the initial residency period and 0.5 for training that continues beyond the initial residency period. Section 1886(h)(5)(F) of the Act generally limits a resident's initial residency period to no longer than 5 years. That section also provides an exception that allows FTE training time spent by residents in an approved geriatric residency program to be treated as part of the resident's initial residency period, that is, weighted at 1.0 FTE for up to an additional 2 years after conclusion of the otherwise applicable initial residency period.</P>
                    <P>We understand, based on information provided by the American Geriatric Society (AGS), that in 1998, the American Board of Internal Medicine and the American Board of Family Physicians (hereinafter “the Boards”) reduced the minimum number of years of formal training required for residents to become board eligible in geriatrics from 2 years to 1 year. As a result, the initial residency period, and full direct GME funding for residents in geriatric training programs, would be limited to 1 year.</P>
                    <P>However, we understand that many teaching hospitals continue to run geriatric residency or fellowship programs of at least 2 years in length (some are even 3 years). We also understand that, despite the decrease in the minimum requirements for board eligibility, the Accreditation Council for Graduate Medicare Education (ACGME) continues to accredit some geriatric training programs for the full duration of the fellowships. For example, if a hospital's geriatric fellowship is 3 years in length, the program may continue to be accredited by the ACGME for the full 3 years, but the FTE time spent by a resident training in the geriatric program would be weighted at 1.0 for the first year of the resident's training and at 0.50 for the second and third year of the fellowship. (However, we note that FTE residents' time is not weighted for purposes of IME payments.)</P>
                    <P>
                        Effective October 1, 2003, section 712 (a) of Public Law 108-173 clarified that Congress intended to provide an exception to the initial residency period for purposes of direct GME payments for geriatric residency or fellowship programs such that “where a particular approved geriatric training program requires a resident to complete 2 years of training to initially become board eligible in the geriatric specialty, the 2 years spent in the geriatric training program are treated as part of the resident's initial residency period, but are not counted against any limitation on the initial residency period.” Therefore, we are proposing that, effective for cost reporting periods beginning on or after October 1, 2003, if a resident is training in an accredited geriatric residency or fellowship program of 2 (or more) years in duration, hospitals may treat training time spent during the first 2 years of the program as part of the resident's initial residency period and weight the resident's FTE time at 1.0 during that period, regardless of the fact that the minimum number of years of training required for board eligibility in geriatrics is only 1 year. We note that the statutory language quoted above does not allow a hospital to treat time spent by a resident in the second year of geriatric training as part of the resident's initial residency period in the case where the resident trained in a geriatric residency or fellowship program that is accredited as a 1-year program because, in that case, the 
                        <PRTPAGE P="28313"/>
                        resident could be board eligible after only 1 year of training.
                    </P>
                    <P>Even though Congress gave the Secretary authority to implement section 712 of Public Law 108-173 through an interim final rule with comment period, we chose to provide instructions in a One-Time Notification (OTN) to fiscal intermediaries and providers (Transmittal 61, CR 3071), “Changes to the FY 2004 Graduate Medical Education (GME) Payments as Required by the Medicare Modernization Act of 2003 (MMA), P.L. 108-173,” issued on March 12, 2004, and are implementing the statutory provision in our regulations through this notice and comment rulemaking process. We are proposing to revise proposed redesignated § 413.79(a) (a proposed redesignation of § 413.86(g)(1)) to incorporate the provision of section 712(a) of Public Law 108-173.</P>
                    <HD SOURCE="HD3">4. Per Resident Amount: Extension of Update Limitation on High-Cost Programs </HD>
                    <P>
                        (Section 711 of Public Law 108-173 and § 413.77(d)(
                        <E T="03">2</E>
                        )(iii)(B)(
                        <E T="03">3</E>
                        ) (a proposed redesignation of existing § 413.86(e)(4)(ii)(C)(
                        <E T="03">2</E>
                        )(
                        <E T="03">iii</E>
                        )))
                    </P>
                    <P>Section 1886(h)(2) of the Act, as amended by section 311 of the Balanced Budget Refinement Act (BBRA) of 1999 (Pub. L. 106-113), establishes a methodology for the use of a national average per resident amount (PRA) in computing direct GME payments for cost reporting periods beginning on or after October 1, 2000, and on or before September 30, 2005. Generally, section 1886(h)(2)(D)(ii) of the Act establishes a “floor” for hospital-specific PRAs at 70 percent of the locality-adjusted national average PRA. In addition, section 1886(h)(2)(D)(iv) of the Act establishes a “ceiling” that limits the annual adjustment of a hospital-specific PRA if the PRA exceeded 140 percent of the locality-adjusted national average PRA. Section 511 of the Benefits Improvement and Protection Act (BIPA) of 2000 (Pub. L. 106-554) further amended section 1886 (h)(2) of the Act to increase the floor that was established by the BBRA to 85 percent of the locality-adjusted national average PRA. For purposes of calculating direct GME payments, each hospital-specific PRA is compared to the floor and ceiling to determine whether the hospital-specific PRA should be revised. (We direct readers to Program Memorandum A-01-38, March 21, 2001 for historical reference on calculating the floor and ceiling.)</P>
                    <P>Section 711 of Public Law 108-173 amended section 1886 (h)(2)(D)(iv) of the Act to freeze the annual CPI-U updates to hospital-specific PRAs for those PRAs that exceed the ceiling for FYs 2004 through 2013. Therefore, we are proposing that, for cost reporting periods beginning during FY 2004 through FY 2013, we would calculate a ceiling that is equal to 140 percent of the locality-adjusted national average PRA for each hospital and compare it to each hospital-specific PRA. If the hospital-specific PRA for the preceding year is greater than 140 percent of the locality-adjusted national average PRA “ceiling” in the current fiscal year, the hospital-specific PRA for the current year is frozen at the preceding fiscal year's hospital-specific PRA and is not updated by the CPI-U factor. We note that a hospital may have more than one PRA. Each of a hospital's PRAs must be separately compared to the “ceiling” PRA to determine whether that PRA should be frozen at the level for the previous year or updated by the CPI-U factor.</P>
                    <P>For example, to determine the applicable PRA for a cost reporting period beginning during FY 2004, we would compare the hospital-specific PRA from the cost reporting period that began during FY 2003 to the FY 2004 locality-adjusted national average PRA for that hospital. If the FY 2003 hospital-specific PRA exceeds 140 percent of the FY 2004 locality-adjusted national average PRA, the FY 2004 hospital-specific PRA is frozen at the level of the FY 2003 hospital-specific PRA and is not updated by the CPI-U factor for FY 2004.</P>
                    <P>
                        Due to the effective date of the statutory provision of section 711 of Public Law 108-173, we issued a notification to fiscal intermediaries and providers regarding the provision in the OTN issued on March 12, 2004 (Transmittal 61, CR 3071). In this proposed rule, to incorporate the changes made by section 711 of Public Law 108-173 in our regulations regarding the determination of PRAs, we are proposing to: (1) revise proposed redesignated § 413.77(d)(2)(iii)(B)(
                        <E T="03">3</E>
                        ) (a proposed redesignation of existing § 413.86(e)(4)(ii)(C)(
                        <E T="03">2</E>
                        )(
                        <E T="03">iii</E>
                        )) to make it applicable only to FY 2003; (2) further redesignate proposed newly redesignated § 413.77(d)(2)(iii)(B)(
                        <E T="03">4</E>
                        ) (the proposed redesignation of existing § 413.86(e)(4)(ii)(C)(
                        <E T="03">2</E>
                        )(
                        <E T="03">iv</E>
                        )) as § 413.77(d)(2)(iii)(B)(
                        <E T="03">4</E>
                        ); and (3) add a proposed new § 413.77(d)(2)(iii)(B)(
                        <E T="03">4</E>
                        ).
                    </P>
                    <HD SOURCE="HD3">5. Residents Training in Nonhospital Settings</HD>
                    <HD SOURCE="HD3">a. Background</HD>
                    <P>With respect to reimbursement of direct GME costs, since July 1, 1987, hospitals have been allowed to count the time residents spend training in sites that are not part of the hospital (referred to as “nonprovider” or “nonhospital sites”) under certain conditions. Section 1886(h)(4)(E) of the Act requires that the Secretary's rules concerning computation of FTE residents for purposes of direct GME payments “provide that only time spent in activities relating to patient care shall be counted and that all the time so spent by a resident under an approved medical residency training program shall be counted towards the determination of full-time equivalency, without regard to the setting in which the activities are performed, if the hospital incurs all, or substantially all, of the costs for the training program in that setting.” (Section 1886(h)(4)(E) of the Act, as added by section of 9314 of the Omnibus Budget Reconciliation Act of 1986, Pub. L. 99-509.)</P>
                    <P>Regulations regarding time spent by residents training in nonhospital sites for purposes of direct GME payment were first implemented in the September 29, 1989 final rule (54 FR 40286). We stated in that rule (under § 413.86(f)(3)) that a hospital may count the time residents spend in nonprovider settings for purposes of direct GME payment if the residents spend their time in patient care activities and there is a written agreement between the hospital and the nonprovider entity stating that the hospital will incur all or substantially all of the costs of the program. The regulations at that time defined “all or substantially all” of the costs to include the residents’ compensation for the time spent at the nonprovider setting.</P>
                    <P>Prior to October 1, 1997, for IME payment purposes, hospitals could only count the time residents spend training in areas subject to the IPPS and outpatient areas of the hospital. Section 4621(b)(2) of the Balanced Budget Act of 1997 (Pub. L. 105-33) revised section 1886(d)(5)(B) of the Act to allow providers to count time residents spend training in nonprovider sites for IME purposes, effective for discharges occurring on or after October 1, 1997. Specifically, section 1886(d)(5)(B)(iv) of the Act was amended to provide that “all the time spent by an intern or resident in patient care activities under an approved medical residency program at an entity in a nonhospital setting shall be counted towards the determination of full-time equivalency if the hospital incurs all, or substantially all, of the costs for the training program in that setting.”</P>
                    <P>
                        In the regulations at §§ 412.105(f)(1)(ii)(c) and 413.86(f)(4) 
                        <PRTPAGE P="28314"/>
                        (as issued in the July 31, 1998 
                        <E T="04">Federal Register</E>
                        ), we specify the requirements a hospital must meet in order to include the time spent by a resident training in a nonhospital site in its FTE count for Medicare reimbursement for portions of cost reporting periods occurring on or after January 1, 1999 for both direct GME and for IME payments. The regulations at § 413.86(b) redefine “all or substantially all of the costs for the training program in the nonhospital setting” as the residents' salaries and fringe benefits (including travel and lodging where applicable), and the portion of the cost of teaching physicians' salaries and fringe benefits attributable to direct GME. A written agreement between the hospital and the nonhospital site is required before the hospital may begin to count residents training at the nonhospital site; the agreement must provide that the hospital will incur the costs of the resident's salary and fringe benefits while the resident is training in the nonhospital site. The hospital must also provide reasonable compensation to the nonhospital site for supervisory teaching activities, and the written agreement must specify that compensation amount. 
                    </P>
                    <HD SOURCE="HD3">b. Moratorium on Disallowances of Allopathic or Osteopathic Family Practice Residents Training Time in Nonhospital Settings (Section 713 of Pub. L. 108-173 and Proposed Redesignated § 413.78 (a proposed redesignation of existing § 413.86(f))</HD>
                    <P>As we mentioned above, under existing § 413.86(f)(4), for portions of cost reporting periods occurring on or after January 1, 1999, the time residents spend in nonhospital settings such as freestanding clinics, nursing homes, and physicians' offices in connection with approved programs may be included in determining the hospital's number of FTE residents for purposes of calculating both direct GME and IME payments, if the following conditions are met:</P>
                    <P>(1) The resident spends his or her time in patient care activities.</P>
                    <P>(2) There is a written agreement between the hospital and the nonhospital site that indicates that the hospital will incur the costs of the resident's salary and fringe benefits while the resident is training in the nonhospital site, and the hospital is providing reasonable compensation to the nonhospital site for supervisory teaching activities. The agreement must indicate the compensation the hospital is providing to the nonhospital site for supervisory teaching activities.</P>
                    <P>(3) The hospital incurs “all or substantially all” of the costs for the training program in the nonhospital setting. “All or substantially all” means the residents” salaries and fringe benefits (including travel and lodging where applicable) and the portion of teaching physicians' salaries and fringe benefits attributable to direct graduate medical education.</P>
                    <P>In order for the hospital to incur “all or substantially all” of the costs in accordance with the regulations, the actual cost of the time spent by teaching physicians in supervising residents in the nonhospital setting must be compensated by the hospital. The amount of supervisory GME costs is dependent upon the teaching physician's salary and the percentage of time that he or she devotes to activities related to the residency program at the nonhospital site. As long as there are supervisory costs associated with the nonhospital training, the hospital must reimburse the nonhospital setting for those costs in order to count FTE resident time spent in the nonhospital site for purposes of IME and direct GME payments.</P>
                    <P>Many hospitals have entered into written agreements with teaching physicians that state that the teaching physician is “volunteering” his or her time in the nonhospital site, and, therefore, the hospital is not providing any compensation to the teaching physician. Other hospitals have paid only a nominal amount of compensation for the supervisory teaching physicians' time in the nonhospital setting. Because the existing regulations at § 413.86(f)(4) state that the hospital must incur all or substantially all of the direct GME costs, including those costs associated with the teaching physician, regardless of whether the written agreement states that the teaching physician is “volunteering,” we have required that the hospital must pay these costs in order to count FTE residents training in the nonhospital site, as long as these teaching physician costs exist.</P>
                    <P>However, during the 1-year period from January 1, 2004 through December 31, 2004, section 713 of Public Law 108-173, through a moratorium, allows hospitals to count allopathic or osteopathic family practice residents training in nonhospital settings for IME and direct GME purposes, without regard to the financial arrangement between the hospital and the teaching physician practicing in the nonhospital setting to which the resident is assigned. We implemented section 713 in the One-Time Notification (OTN), “Changes to the FY 2004 Graduate Medical Education (GME) Payments as Required by the Medicare Modernization Act of 2003 (MMA)” (CR 3071, Transmittal 61, issued on March 12, 2004). Generally, to implement the provisions of section 713, we stated in the OTN that, when settling prior year cost reports during this 1-year period, or for family practice residents actually training in nonhospital settings during this 1-year period, the fiscal intermediaries should allow the hospitals to count allopathic and osteopathic family practice residents training in the nonhospital setting for direct GME and IME payment purposes without regard to the financial arrangement between the hospital and the nonhospital site pertaining to the teaching physicians' costs associated with the residency program.</P>
                    <P>(1) Cost Reports That Are Settled Between January 1, 2004 and December 31, 2004.</P>
                    <P>When fiscal intermediaries settle cost reports during January 1, 2004 through December 31, 2004 (Calendar Year (CY) 2004), a hospital that seeks to count allopathic or osteopathic family practice FTE residents training in a nonhospital setting(s) is allowed to count those FTEs for IME and direct GME purposes, even in instances where the written agreement between the hospital and a teaching physician or a nonhospital site does not mention teaching physician compensation, specifies only a nominal amount of compensation, or states that the teaching physician is “volunteering” his or her time training the residents. For example, when a fiscal intermediary is settling a cost report during CY 2004 that has a fiscal year end of June 30, 2001, the fiscal intermediary will allow the hospital to count family practice FTE residents that trained in a nonhospital setting during the period covered by the June 30, 2001 cost report, regardless of the financial arrangement in place between the hospital and the teaching physician at the nonhospital site during the period covered by the June 30, 2001 cost report.</P>
                    <P>
                        We note that this moratorium does not apply to cost reports that are 
                        <E T="03">not</E>
                         settled during January 1 through December 31, 2004, that do not coincide with, or overlap, the January 1 through December 31, 2004 period. For example, if a cost report for fiscal year ended December 31, 2003 (or June 30, 2003, or others) is not settled during the January 1 through December 31, 2004 period, the moratorium would not apply.
                    </P>
                    <P>(2) Family Practice Residents That Are Training in Nonhospital Settings Between January 1, 2004 and December 31, 2004.</P>
                    <P>
                        In addition to allowing family practice residents that trained in nonhospital settings to be counted in 
                        <PRTPAGE P="28315"/>
                        cost reports that the fiscal intermediaries settle during the period of January 1, 2004 through December 31, 2004, without regard to the financial arrangements between the hospital and the teaching physician at the nonhospital site, the fiscal intermediaries are to allow family practice residents that actually are or will be training in nonhospital settings during January 1, 2004 through December 31, 2004, without regard to the financial arrangements between the hospital and the teaching physician at the nonhospital site. That is, when fiscal intermediaries settle cost reports that cover service periods of January 1, 2004 through December 31, 2004, a hospital that seeks to count allopathic or osteopathic family practice FTE residents training in a nonhospital setting(s) would be allowed to count those FTEs, even in instances where the written agreement between the hospital and a teaching physician or a nonhospital site does not mention teaching physician compensation, specifies only a nominal amount of compensation, or states that the teaching physician is “volunteering” his or her time training the residents. If a hospital has a fiscal year that is other than a calendar year, the hospital may count the family practice residents training in the nonhospital setting during those portions of its fiscal years that fall within the January 1, 2004 and December 31, 2004 period. For example, when a fiscal intermediary is settling a hospital's June 30, 2004 cost report, the hospital would be allowed to count family practice FTE residents that trained in a nonhospital setting during the period of January 1, 2004 through June 30, 2004, regardless of the financial arrangement between the hospital and the teaching physician at the nonhospital site from January 1 through June 30, 2004. Similarly, when a fiscal intermediary settles the hospital's June 30, 2005 cost report, the hospital would be allowed to count family practice FTE residents that trained in a nonhospital setting during the period of July 1, 2004 through December 31, 2004, regardless of the financial arrangement between the hospital and the teaching physician at the nonhospital site from July 1 through December 31, 2004. (However, we note that family practice residents that train in nonhospital settings beginning January 1, 2005, and after are not subject to the moratorium provided under section 713 of Pub. L. 108-173.)
                    </P>
                    <P>Because we are interpreting this moratorium to apply to prior period cost reports that are settled during calendar year (CY) 2004, and to cost reports that are settled after CY 2004 that cover training that occurred during the period of January 1, 2004 through December 31, 2004, a gap in applicability of the moratorium may result for family practice residents training in nonhospital settings. For example, a hospital might be permitted to count certain FTE family practice residents that are included in its FY 2001 cost report in accordance with the moratorium because that cost report is settled during CY 2004. However, the hospital might not be permitted to count certain FTE family practice residents in its FY 2002 and FY 2003 cost reports because these cost reports would not be settled during CY 2004 and the moratorium would not apply. The hospital then could be permitted to count certain FTE family practice residents in its FY 2004 cost report in accordance with the moratorium, because the FY 2004 cost report would contain family practice residents who actually trained in a nonhospital setting during CY 2004.</P>
                    <P>Regardless of whether the fiscal intermediaries are settling prior period cost reports during CY 2004, or settling cost reports after CY 2004 that cover training during the period of January 1, 2004 through December 31, 2004, we emphasize that the moratorium provided in section 713 of Public Law 108-173 only applies for purposes of counting FTE residents in  allopathic and osteopathic general family practice programs that were in existence (that is, training residents) as of January 1, 2002 and where the requirement to incur the teaching physician compensation related to direct GME may not have been met. Therefore, for residents training in nonhospital settings, we are proposing that the moratorium applies only: (1) To FTE residents in general family practice programs (and not to dental, podiatric, or other allopathic or osteopathic specialty programs); (2) to family practice programs that were in existence as of January 1, 2002; and (3) with the exception of teaching physician compensation, to training in nonhospital settings that meet the requirements in the existing regulations at § 413.86(f)(4) (proposed to be redesignated as § 413.78(d)).</P>
                    <P>We are not proposing any regulation text changes to address this provision at this time. We note that section 713(b) of Public Law 108-173 directs the Inspector General of the Department of Health and Human Services to conduct a study of the appropriateness of alternative methodologies for payment of residency training in nonhospital settings and to submit a report to Congress on the results of the study, along with recommendations, as appropriate, by December 8, 2004. We will await the release of the Inspector General's report and may consider additional policy and regulation changes at that time if they are warranted. </P>
                    <HD SOURCE="HD3">c. Requirements for Written Agreements for Residency Training in Nonhospital Settings (Proposed redesignated § 413.78 (a proposed redesignation of existing § 413.86(f)).</HD>
                    <P>As mentioned above, under section 1886(h)(4)(E) of the Act, a hospital may count residents training in nonhospital settings for direct GME purposes (and under section 1886(d)(5)(B)(iv) of the Act, for IME purposes), if the residents spend their time in patient care activities and if “* * * the hospital incurs all, or substantially all, of the costs for the training program in that setting.” We believe Congress intended to facilitate residency training in nonhospital settings by requiring hospitals to commit to incur, and actually incur, all or substantially all of the costs of the training programs in the nonhospital sites. Accordingly, in implementing section 1886(h)(4)(E) of the Act, first in the regulations at § 413.86(f)(3), effective July 1, 1987, and later at § 413.86(f)(4), effective January 1, 1999, we required that, in addition to incurring all or substantially all of the costs of the program at the nonhospital setting, there must be a written agreement between the hospital and the nonhospital site stating that the hospital will incur all or substantially all of the costs of training in the nonhospital setting. The later regulations further specify that the written agreement must indicate the amount of compensation provided by the hospital to the nonhospital site for supervisory teaching activities. (We note that, in this proposed rule, § 413.86(f)(3) is proposed to be redesignated as § 413.78(c), and § 413.86(f)(4) is proposed to be redesignated as § 413.78(d).)</P>
                    <P>
                        We required the written agreements in regulations in order to provide an administrative tool for use by the fiscal intermediaries to assist in determining whether hospitals would incur all or substantially all of the costs of the training in the nonhospital setting in accordance with Congressional intent. Furthermore, CMS policy has required that the written agreement between the hospital and the nonhospital site be in place 
                        <E T="03">prior</E>
                         to the time that the hospital begins to count the FTE residents training in the nonhospital site. A written agreement signed before the time the residents begin training at the nonhospital site that states that the 
                        <PRTPAGE P="28316"/>
                        hospital will incur the costs of the training program at the nonhospital site indicates the hospital's ongoing commitment to incur the costs of training at that site.
                    </P>
                    <P>In settling cost reports where hospitals have included residents training at nonhospital sites in their FTE count, the fiscal intermediaries have encountered numerous situations where hospitals have complied with the requirement to incur all or substantially all of the costs of training in nonhospital settings. However, despite our longstanding regulations that state the requirement for a written agreement, these hospitals have not met the regulatory requirements related to written agreements. For example, some hospitals had no written agreement in place during the training in the nonhospital setting, or written agreements were not timely (that is, they were prepared after the residents began or, in some cases, finished training at the nonhospital site), or the agreements did not include a specific amount of compensation to be provided by the hospital to the nonhospital site for supervisory teaching activities. As a result, hospitals have faced disallowances of direct GME and IME payments relating to FTE residents training in nonhospital settings because the hospitals did not comply with the regulatory requirements concerning written agreements.</P>
                    <P>In retrospect, we believe the regulatory requirements concerning the written agreements may not have been the most efficient aid to fiscal intermediaries in determining whether hospitals would actually incur all or substantially all of the costs of the training programs in nonhospital settings. The fiscal intermediaries have been required to ensure that hospitals are complying with the regulations regarding written agreements, in addition to determining whether a hospital actually incurred the appropriate costs. We believe it would be more appropriate and less burdensome for both fiscal intermediaries and hospitals if we instead focus the fiscal intermediaries' reviews on the statutory requirement that hospitals must incur all or substantially all of the costs of the program in the nonhospital setting. Therefore, we are proposing to revise the regulations under proposed new § 413.78 (a proposed redesignation of existing § 413.86(f)) to remove the requirement for a written agreement between the hospital and the nonhospital setting as a precondition for a hospital to count residents training in nonhospital settings for purposes of direct GME and IME payments. However, consistent with our belief that Congress intended that hospitals commit to incur, and actually incur, all or substantially all of the costs of the training programs in the nonhospital sites in order to facilitate training at nonhospital sites, we are also proposing that, in order for the hospital to count residents training in a nonhospital setting, the hospital must pay for the nonhospital site training costs concurrently with the training that occurs during the cost reporting period.</P>
                    <P>We understand that residents' rotations, including those to nonhospital settings, are generally in discrete blocks of time (for example, 4-week or 6-week rotations). Therefore, to account for various rotation lengths, we are proposing under the new proposed § 413.78(e) that, in order to count residents training in a nonhospital setting, a hospital must pay all or substantially all of the costs of the training in a nonhospital setting(s) by the end of the month following a month in which the training in the nonhospital site occurred. If a hospital is counting residents training in a nonhospital setting for direct GME and IME purposes in any month of its cost reporting period, the hospital must make payment by the end of the following month to cover all or substantially all of the costs of training in that setting attributable to the preceding month. If the residents are employed by the hospital, and receive their salary payments (and fringe benefits) every 2 weeks, the hospital may continue to pay the residents' salaries every 2 weeks during the residents' rotation to the nonhospital setting. This should still result in payment being made for residents' time spent in nonhospital settings by the end of the following month. (We also note that the hospital must pay travel and lodging expenses, if applicable.) We are proposing that the hospital would be required to pay the nonhospital site for the portion of the cost of teaching physicians' salaries and fringe benefits attributable to direct GME by the end of the month following the month in which the training in the nonhospital setting occurred. We are proposing that if a hospital does not pay for all or substantially all of the costs of the program in the nonhospital setting by the end of the month following the month in which the training occurred, the hospital could not count those FTE residents in the month that the training occurred. Therefore, we are proposing to determine if residents training in nonhospital sites should be counted on a month-to-month basis, depending on whether a hospital paid for the training costs of those residents by the end of the month following the month in which the training occurred.</P>
                    <P>Following are examples of how a hospital that sends residents to train in nonhospital sites would make payments concurrently with the nonhospital site training:</P>
                    <EXAMPLE>
                        <HD SOURCE="HED">Example 1.</HD>
                        <P>Hospital A, with a fiscal year end (FYE) of December 31, trains 10 internal medicine residents and 6 family practice residents. Each January, April, July, and October, Hospital A sends 5 internal medicine FTE residents to the Physicians' Clinic for 4 weeks. Each month, Hospital A sends 2 family practice FTE residents to the Family Clinic. The residents are employed by Hospital A, and the residents receive fringe benefits from and are paid every 2 weeks by Hospital A, regardless of whether they are training in Hospital A or at a nonhospital site. In order to make payments concurrently with the training that is occurring in the nonhospital sites, Hospital A must pay the Physicians' Clinic by the end of February, May, August, and November, respectively, of each cost reporting year, to cover the costs of teaching physician compensation and fringe benefits attributable to direct GME. Similarly, because residents are training at the Family clinic each month, Hospital A must pay the Family Clinic by the end of each month for the previous month's costs of teaching physician compensation and fringe benefits attributable to direct GME. There are no travel and lodging costs associated with these rotations to nonhospital sites.</P>
                    </EXAMPLE>
                    <EXAMPLE>
                        <HD SOURCE="HED">Example 2.</HD>
                        <P>University A will sponsor an ophthalmology program with eight residents beginning on July 1, 2005. The residents will be on the payroll of the University, but they will train at Hospital B and at the University's Eye Clinic, which is a nonhospital setting. Hospital B has a June 30 FYE. Four of the residents will train in the Eye Clinic from August 1 to October 15, and the other four residents will train in the Eye Clinic from February 15 to April 30. Thus, residents are training in the Eye Clinic during the months of August, September, October, February, March, and April. If Hospital B wishes to count these FTE residents for IME and direct GME purposes in its cost reporting year ending June 30, 2006, and onward, it must pay the Eye Clinic at the end of September, October, November, March, April, and May, respectively, for the previous month's cost of the residents' salaries and fringe benefits, and the teaching physician compensation and fringe benefits attributable to direct GME.</P>
                    </EXAMPLE>
                    <EXAMPLE>
                        <HD SOURCE="HED">Example 3.</HD>
                        <P>
                            Hospital C sends a resident to train at a nonhospital site from January 28 to February 20. The resident was employed by the nonhospital site during this time. Hospital C paid the nonhospital site for the cost of the resident's salary and fringe benefits and the teaching physician compensation and fringe benefits attributable to direct GME by February 28 to account for the training that occurred from January 28 through January 31. However, Hospital C did not pay the nonhospital site by March 31 to 
                            <PRTPAGE P="28317"/>
                            account for the training that occurred in February. Therefore, Hospital C could not count the resident's time in the nonhospital setting from February 1 through February 20 for direct GME and IME purposes.
                        </P>
                    </EXAMPLE>
                    <P>We note that our proposal to require hospitals to pay for the nonhospital site training costs concurrently with the training that occurs in the nonhospital site is a departure from our current policy concerning the timeframe in which a hospital must make payment for the training costs. Currently, we apply the existing regulations at § 413.100(c)(2)(i), which state that a short-term liability (such as the hospital's obligation to pay the nonhospital site for the residency training costs) must be liquidated within 1 year after the end of the cost reporting period in which the liability is incurred. However, because we are proposing to no longer require that a written agreement between the hospital and the nonhospital site be in place prior to the time that the hospital begins to count the FTE residents training in the nonhospital site, we believe that a reasonable alternative to ensure that a hospital is facilitating the training at the nonhospital site through its ongoing commitment to incur all or substantially all of the costs is to require the hospital to make payments concurrently with the training that occurs in the nonhospital site in order to count the FTE residents for purposes of direct GME and IME payments.</P>
                    <P>We are aware that there are situations where, rather than providing direct financial compensation to the nonhospital site for supervisory teaching activities, the hospital is incurring all or substantially all of the teaching physician costs through nonmonetary, in-kind arrangements. We are proposing that, in order to be considered concurrent with the nonhospital site training, in-kind arrangements must be provided or made available to the teaching physician at least quarterly, to the extent that there are residents training in a nonhospital setting(s) in a quarter.</P>
                    <P>We are proposing to revise § 413.86(f) (proposed to be redesignated as § 413.78 in this proposed rule) to add a new paragraph (§ 413.78 (e)) to state that a hospital must incur all or substantially all of the costs of training in a nonhospital setting by the end of the month following a month in which the training in the nonhospital site occurred, to the extent that there are residents training in a nonhospital setting in a month. This proposed change would be effective for portions of cost reporting periods occurring on or after October 1, 2004. We would revise paragraph (d) of the proposed redesignated § 413.78 to reflect the effective cost reporting periods of the provisions under the new paragraph (e).</P>
                    <HD SOURCE="HD2">P. Rural Community Hospital Demonstration Program</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Rural Community Hospital Demonstration” at the beginning of your comment.]</FP>
                    <FP>Section 410A(a) of Public Law 108-173 requires the Secretary to establish a demonstration to test the feasibility and advisability of establishing “rural community hospitals” for Medicare payment purposes for covered inpatient hospital services furnished to Medicare beneficiaries. A rural community hospital, as defined in section 410A(f)(1), is a hospital that—</FP>
                    <P>• Is located in a rural area (as defined in section 1886(d)(8)(E) of the Act) or treated as being so located under section 1886(d)(5)(F) of the Act;</P>
                    <P>• Has fewer than 51 beds (excluding beds in a distinct part psychiatric or rehabilitation unit) as reported in its most recent cost report;</P>
                    <P>• Provides 24-hour emergency care services; and</P>
                    <P>• Is not designated or eligible for designation as a CAH.</P>
                    <P>Section 410A(a)(3) of Public Law 108-173 specifies that the Secretary is to select for participation not more than 15 rural community hospitals in rural areas of States that the Secretary identifies as having low population densities. Using 2003 data from the U.S. Census Bureau, we have identified 10 States with the lowest population density in which rural community hospitals must be located to participate in the demonstration: Alaska, Idaho, Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota, Utah, and Wyoming. (Source: U.S. Census Bureau Statistical Abstract of the United States: 2003)</P>
                    <P>Under the demonstration, participating hospitals will be paid the reasonable costs of providing covered inpatient hospital services (other than services furnished by a psychiatric or rehabilitation unit of a hospital that is a distinct part), applicable for discharges occurring in the first cost reporting period beginning on or after implementation of the demonstration program. For discharges occurring in subsequent cost reporting periods, payment is the lesser of reasonable cost or a target amount, which is the prior year's cost or, after the second cost reporting period, the prior year's target amount, adjusted by the inpatient prospective payment update factor. Covered inpatient hospital services means inpatient hospital services (defined in section 1861(b) of the Act) and includes extended care services furnished under an agreement under section 1883 of the Act.</P>
                    <P>Sections 410A(a)(5) and (a)(6) require the demonstration to be implemented not later than January 1, 2005, but not before October 1, 2004. The demonstration is to operate for 5 years. We intend to implement the payment change for a participating hospital under this demonstration with the hospital's first cost reporting period beginning on or after October 1, 2004.</P>
                    <P>Section 410A of Public Law 108-173 requires that “in conducting the demonstration program under this section, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount which the Secretary would have paid if the demonstration program under this section was not implemented.” Generally, when CMS implements a demonstration on a budget neutral basis, the demonstration is budget neutral in its own terms; in other words, aggregate payments to the participating providers do not exceed the amount that would be paid to those same providers in the absence of the demonstration. This form of budget neutrality is viable when, by changing payments or aligning incentives to improve overall efficiency, or both, a demonstration may reduce the use of some services or eliminate the need for others, resulting in reduced expenditures for the demonstration participants. These reduced expenditures offset increased payments elsewhere under the demonstration, thus ensuring that the demonstration as a whole is budget neutral or yields savings. However, the small scale of this demonstration, in conjunction with the payment methodology, makes it extremely unlikely that this demonstration could be viable under the usual form of budget neutrality. Specifically, cost-based payments to 15 small rural hospitals is likely to increase Medicare outlays without producing any offsetting reduction in Medicare expenditures elsewhere. Therefore, a rural community hospital's participation in this demonstration is unlikely to yield benefits to the participant if budget neutrality were to be implemented by reducing other payments for these providers.</P>
                    <P>
                        In order to achieve budget neutrality, we are proposing to adjust national inpatient PPS rates by an amount sufficient to account for the added costs of this demonstration. In other words, we are proposing to apply budget neutrality across the payment system as 
                        <PRTPAGE P="28318"/>
                        a whole rather than merely across the participants of this demonstration. We believe that the language of the statutory budget neutrality requirement permits the agency to implement the budget neutrality provision in this manner. This is because the statutory language refers merely to ensuring that “aggregate payments made by the Secretary do not exceed the amount which the Secretary would have paid if the demonstration * * * was not implemented,” and does not identify the range across which aggregate payments must be held equal. We invite public comment on this proposal. We discuss the payment rate adjustment that would be required to ensure the budget neutrality of this demonstration in the Addendum of this proposed rule.
                    </P>
                    <P>
                        To participate in this demonstration, a hospital must be located in one of the identified States and meet the criteria for a rural community hospital. Eligible hospitals that desire to participate in the demonstration must submit an application to CMS. Information about the demonstration and details on how to apply can be found on the CMS Web site: 
                        <E T="03">www.cms.hhs.gov/researchers/demos/rch.asp.</E>
                    </P>
                    <P>This demonstration has been approved by OMB under the title “Medicare Waiver Demonstration Application,” under OMB approval number 0938-0880, with a current expiration date of July 30, 2006.</P>
                    <HD SOURCE="HD2">Q. Special Circumstances of Hospitals Facing High Malpractice Insurance Rate Increases</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Malpractice Insurance” at the beginning of your comment.]</FP>
                    <P>We have received comments from several hospitals about the effects of rapidly escalating malpractice insurance premiums on hospital financial performance and continued access for Medicare beneficiaries to high quality inpatient hospital services. We are aware that malpractice insurance premiums have increased at a high rate in some areas of the country during the last few years. While we are not aware of any specific situations in which malpractice premiums have created issues of access to inpatient hospital services for Medicare beneficiaries, some hospitals have expressed concern that they may be compelled to curtail their current operations by the rate of increase in their malpractice premiums. Therefore, we are inviting comments on the effect of increases in malpractice insurance premiums on hospitals participating in the Medicare program, and whether increasing malpractice costs may pose access problems for Medicare beneficiaries.</P>
                    <HD SOURCE="HD1">V. Proposed Changes to the PPS for Capital-Related Costs</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Capital PPS” at the beginning of your comment.]</FP>
                    <HD SOURCE="HD2">A. Background</HD>
                    <P>Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient acute hospital services “in accordance with a PPS established by the Secretary.” Under the statute, the Secretary has broad authority in establishing and implementing the PPS for capital-related costs. We initially implemented the PPS for capital-related costs in the August 30, 1991 IPPS final rule (56 FR 43358), in which we established a 10-year transition period to change the payment methodology for Medicare hospital inpatient capital-related costs from a reasonable cost-based methodology to a prospective methodology (based fully on the Federal rate).</P>
                    <P>Federal fiscal year (FY) 2001 was the last year of the 10-year transition period established to phase in the PPS for hospital inpatient capital-related costs. For cost reporting periods beginning in FY 2002, capital PPS payments are based solely on the Federal rate for the acute care hospitals (other than certain new hospitals and hospitals receiving certain exception payments). The basic methodology for determining capital prospective payments using the Federal rate is set forth in § 412.312. For the purpose of calculating payments for each discharge, the standard Federal rate is adjusted as follows:</P>
                    <P>(Standard Federal Rate) × (DRG Weight) x (Geographic Adjustment Factor (GAF)) × (Large Urban Add-on, if applicable) × (COLA Adjustment for hospitals located in Alaska and Hawaii) × (1 + Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if applicable)</P>
                    <P>Hospitals also may receive outlier payments for those cases that qualify under the thresholds established for each fiscal year as specified in § 412.312(c) of the existing regulations.</P>
                    <P>The regulations at § 412.348(f) provide that a hospital may request an additional payment if the hospital incurs unanticipated capital expenditures in excess of $5 million due to extraordinary circumstances beyond the hospital's control. This policy was originally established for hospitals during the 10-year transition period, but as we discussed in the August 1, 2002 IPPS final rule (67 FR 50102), we revised the regulations at § 412.312 to specify that payments for extraordinary circumstances are also made for cost reporting periods after the transition period (that is, cost reporting periods beginning on or after October 1, 2001).</P>
                    <P>During the transition period, under §§ 412.348(b) through (e), eligible hospitals could receive regular exception payments. These exception payments guaranteed a hospital a minimum payment percentage of its Medicare allowable capital-related costs depending on the class of hospital (§ 412.348(c)), but were available only during the transition period. After the end of the transition period, eligible hospitals can no longer receive this exception payment. However, even after the transition period, hospitals receive additional payments under the special exceptions provisions at § 412.348(g), which guarantees all eligible hospitals a minimum payment of 70 percent of its Medicare allowable capital-related costs provided that special exceptions payments do not exceed 10 percent of total capital IPPS payments. Special exceptions payments may be made only for the 10 years from the cost reporting year in which the hospital completes its qualifying project, and the hospital must have completed the project no later than the hospital's cost reporting period beginning before October 1, 2001. Thus, an eligible hospital may receive special exceptions payments for up to 10 years beyond the end of the capital PPS transition period. Hospitals eligible for special exceptions payments were required to submit documentation to the intermediary indicating the completion date of their project. (For more detailed information regarding the special exceptions policy under § 412.348(g), refer to the August 1, 2001 IPPS final rule (66 FR 39911 through 39914) and the August 1, 2002 IPPS final rule (67 FR 50102).)</P>
                    <P>
                        Under the PPS for capital-related costs, § 412.300(b) of the regulations defines a new hospital as a hospital that has operated (under current or previous ownership) for less than 2 years (56 FR 43418, August 30, 1991). During the 10-year transition period, a new hospital was exempt from the capital PPS for its first 2 years of operation and was paid 85 percent of its reasonable costs during that period. Originally, this provision was effective only through the transition period and, therefore, ended with cost reporting periods beginning in FY 2002. Because we believe that special protection to new hospitals is also appropriate even after the transition period, as discussed in the August 1, 2002 IPPS final rule (67 FR 50101), we revised the regulations at § 412.304(c)(2) 
                        <PRTPAGE P="28319"/>
                        to provide that, for cost reporting periods beginning on or after October 1, 2002, a new hospital (defined under § 412.300(b)) is paid 85 percent of its allowable Medicare inpatient hospital capital-related costs through its first 2 years of operation, unless the new hospital elects to receive fully prospective payment based on 100 percent of the Federal rate. (Refer to the August 1, 2001 IPPS final rule (66 FR 39910) for a detailed discussion of the statutory basis for the system, the development and evolution of the system, the methodology used to determine capital-related payments to hospitals both during and after the transition period, and the policy for providing exception payments.)
                    </P>
                    <HD SOURCE="HD2">B. Payments to Hospitals Located in Puerto Rico</HD>
                    <P>As explained in section III.G. of this preamble, operating PPS and capital PPS payments to hospitals located in Puerto Rico are currently paid based on a blend of 50 percent of the Federal rate and 50 percent of the Puerto Rico rate. The Puerto Rico capital rate is derived from the costs of Puerto Rico hospitals only, while the capital Federal rate is derived from the costs of all acute care hospitals participating in the IPPS (including Puerto Rico). As also described in the section III.G. of this preamble, section 504 of Public Law 108-173 increases the national portion of the operating IPPS payment for Puerto Rico hospitals from 50 percent to 75 percent and decreases the Puerto Rico portion of the operating IPPS payments from 50 percent to 25 percent for discharges occurring on or after October 1, 2004. Under the broad authority of section 1886(g) of the Act, for the PPS, for capital-related costs we are proposing to revise the calculations of capital IPPS payments to hospitals located in Puerto Rico, as well, to parallel the change in operating IPPS payments to hospitals located in Puerto Rico, for discharges occurring on or after October 1, 2004. Accordingly, we are proposing to revise § 412.374 of the regulations to provide that, for discharges occurring on or after October 1, 2004, payments under the PPS for capital-related costs to hospitals located in Puerto Rico would be based on a blend of 25 percent of the Puerto Rico capital rate and 75 percent of the capital Federal rate. This proposed change would increase capital IPPS payments to hospitals located in Puerto Rico because the proposed Federal capital rate is higher than the proposed Puerto Rico capital rate. In addition, we note that this proposed change is similar to the change in capital IPPS payments made to hospitals located in Puerto Rico beginning in FY 1998 that had paralleled the statutory change in the Puerto Rico blended payment amount required for operating IPPS payments to hospitals located in Puerto Rico as mandated by section 4406 of Public Law 105-33 (62 FR 46012 and 46048, August 29, 1997).</P>
                    <HD SOURCE="HD2">C. Exception Payment for Extraordinary Circumstances</HD>
                    <P>During the transition period, hospitals were guaranteed a minimum payment of a percentage of their Medicare allowable capital-related costs, depending on the class of hospital; that is, the minimum payment level for sole community hospitals was no greater than 90 percent, for urban hospitals with at least 100 beds meeting particular disproportionate share criteria, the minimum payment level was 80 percent, and for all other hospitals, the minimum payment level was 70 percent (§§ 412.348(c)(i) through (iii)). Regular exception payments provided the means to ensure that hospitals received the minimum levels of capital payment. However, any amount by which a hospital's cumulative capital payments exceeded its cumulative minimum payment levels was deducted from the additional exception payment the hospital was eligible to receive (§ 412.348(e)). This type of exception payment ended with the end of the transition period.</P>
                    <P>In the August 1, 2002 IPPS final rule (67 FR 50102), we specified that payments to hospitals that incur capital expenditures in excess of $5 million due to extraordinary circumstances beyond the hospital's control would be made for cost reporting periods after the transition period, that is, cost reporting periods beginning on or after October 1, 2001, as established at § 412.312(e). Generally, the exception payments for extraordinary circumstances are 85 percent of Medicare's share of allowable capital-related costs attributed to the extraordinary circumstances (100 percent for sole community hospitals). This amount is offset by any amount by which a hospital's cumulative payments exceed its cumulative minimum payment levels (adjusted for the extraordinary circumstances) under the PPS for capital-related costs. The minimum payment levels and the offsetting amounts were the same as those established for regular exceptions as indicated at § 412.348(f)(4). The regulation refers to the regular exception minimum payment levels at § 412.348(c)(1) and the offsetting amounts at § 412.348(e)(2).</P>
                    <P>Because the regulations governing the regular exception payments, which include the minimum payment levels regulations at § 412.348(c) and the offsetting amounts at § 412.348(e), were effective during the transition period only, we had not previously addressed whether or not the minimum payment levels under § 412.348(c) and the offsetting amounts at § 412.348(e) remain applicable for extraordinary circumstances exceptions in the post-transition period. In the August 1, 2002 IPPS final rule (67 FR 50102), we clarified our policy at a new § 412.312(e) that exception payments for extraordinary circumstances continued to apply to periods beginning on or after October 1, 2001. When we added § 412.312(e), we did not believe it was necessary to explain in the preamble that the minimum payment levels in § 412.348(c) or the offsetting amounts in § 412.348(e) were incorporated into § 412.312(e). However, in order to avoid any confusion, in this proposed rule, we are clarifying our current policy that although the minimum payment levels established at § 412.348(c)(1) are no longer in effect, they continue to be relevant in order to calculate the extraordinary circumstances exception payments after the end of the transition period. The extraordinary exception payment calculation incorporates the minimum payment levels as well as the offsetting deduction for cumulative payments. Thus, although the regular exception payments themselves have expired, it has always been our policy that the minimum payment levels will continue to be part of the formula for calculating extraordinary exception payments after the end of the transition period. In this proposed rule, we are proposing to amend § 412.312(e) to reflect our current policy that, for cost reporting periods beginning on or after October 1, 2001, the minimum payment levels established at § 412.348(c)(1) are part of the formula for calculating extraordinary circumstances exception payments.</P>
                    <P>
                        Similarly, in this proposed rule, we clarify our current policy that the offsetting amounts established at § 412.348(e)(2) also are part of the formula for determining extraordinary circumstances exception payments after the end of the transition period, in spite of the fact that the regular exception payment provision that included the offsetting amounts at § 412.348(e)(2) expired at the end of the transition period. Accordingly, we are proposing to revise § 412.348(e) to clarify that, for cost reporting periods beginning on or after October 1, 2001, the offsetting 
                        <PRTPAGE P="28320"/>
                        amounts established at § 412.348(e)(2) remain in effect for extraordinary circumstances exception payments.
                    </P>
                    <P>In addition, we also are proposing to revise the period of time used to determine the offsetting amounts in § 412.348(e)(2). Under existing regulations, the additional payment for extraordinary circumstances is offset by any amount by which a hospital's cumulative payments exceed its cumulative minimum payment levels under the PPS for capital-related costs. In order to determine this offsetting amount, a hospital must keep a record of the difference between its cumulative capital payments and its cumulative minimum payment levels since it became subject to the PPS for capital-related costs. For instance, under existing regulations, if a hospital would be eligible for an additional payment for extraordinary circumstances in FY 2005 and the hospital had been subject to the PPS for capital-related cost since that PPS was implemented in FY 1992, the offsetting amount would be the difference in the hospital's cumulative capital payments and its cumulative minimum payment levels for the past 13 years. Similarly, under existing regulations, if a hospital would be eligible for an additional payment for extraordinary circumstances in FY 2012 and the hospital had been subject to the capital PPS since it was implemented in FY 1992, the offsetting amount would be the difference in the hospital's cumulative capital payments and its cumulative minimum payment levels for the past 20 years.</P>
                    <P>We believe that when the provisions for exception payments were originally implemented with the start of capital IPPS in FY 1992, it was anticipated that the offsetting amounts at § 412.348(e)(2) would be determined based on a period of no longer than 10 years. However, under existing regulations, exception payments for extraordinary circumstances are offset by the difference in the hospital's cumulative payments and its cumulative minimum payment levels since it became subject to the PPS for capital-related-costs, which for most hospitals is over 13 years. Therefore, in this proposed rule, for cost reporting periods beginning during FY 2005 and thereafter, we are proposing to revise § 412.312(e) to specify that the offsetting amounts in § 412.348(e)(2) would be based on the hospital's capital payments and minimum payment levels from the most recent 10 years rather than from the entire period of time the hospital has been subject to the PPS for capital-related costs. If a hospital has been paid under the PPS for capital-related costs for less than 10 years, the offsetting amounts would be based on the hospital's capital payments and minimum payment levels beginning with the date the hospital became subject to the PPS for capital-related costs. For example, if a hospital would be eligible for an additional payment for extraordinary circumstances in FY 2005 and the hospital had been subject to the PPS for capital-related costs since FY 1992 (13 years), the offsetting amounts used in the calculation of the extraordinary circumstances exception payment would be based on the hospital's cumulative capital PPS payments and cumulative minimum payment levels for the hospital's cost reporting period beginning during FY 1995 through FY 2004. Similarly, if a hospital would be eligible for an additional payment for extraordinary circumstances in FY 2005 and the hospital had only been subject to the PPS for capital-related costs since FY 2000 (5 years), the offsetting amounts used in the calculation of the extraordinary circumstances exception payment would be based on the hospital's cumulative capital PPS payments and cumulative minimum payment levels for the hospital's cost reporting periods beginning during FY 2000 through FY 2004.</P>
                    <HD SOURCE="HD2">D. Treatment of Hospitals Previously Reclassified for the Operating PPS Standardized Amounts</HD>
                    <P>As we discussed in section IV.C. of this preamble, prior to April 1, 2003, the standardized amounts varied under the operating IPPS based on a hospital's geographic location (large urban versus other urban and rural areas). Furthermore, previously, a hospital could be reclassified to a large urban area by the MGCRB for the purpose of the standardized amount if certain criteria were met (as described in Part 412, Subpart L of the Medicare regulations).</P>
                    <P>Similarly, the standard capital Federal rate under the PPS for capital-related costs is adjusted to reflect the higher costs incurred by hospitals located in large urban areas (large urban add-on at § 412.316), as well as for hospitals in urban areas with at least 100 beds serving low-income patients (capital disproportionate share (DSH) adjustment at § 412.320). In the past, if a rural or other urban hospital was reclassified to a large urban area for purposes of the operating IPPS standardized amount under § 412.63, the hospital also was then eligible for a large urban add-on payment, as well as a DSH payment, under the PPS for capital-related costs.</P>
                    <P>Section 402(b) of the Consolidated Appropriations Resolution, 2003, Public Law 108-7, and section 402 of Public Law 108-89, (a Welfare Reform Act), provide that, for discharges occurring on or after April 1, 2003 and before March 31, 2004, under the operating IPPS, all hospitals are paid based on the large urban standardized amount, regardless of geographic location or MGCRB redesignation. Section 401(a) of Public Law 108-173 amended section 1886(d)(5)(A)(iv) by adding a subsection (II) that permanently equalizes the standardized amounts for large urban areas and for other urban and rural areas for discharges occurring on or after April 1, 2004.</P>
                    <P>In addition, under section 1886(d) of the Act, a hospital may reclassify under the operating IPPS only for the purpose of either its standardized amount or its wage index adjustment, or both. As further specified in regulations at § 412.230, a hospital may be reclassified for purposes of the standardized amount only if the area to which the hospital seeks redesignation has a higher standardized amount than the hospital currently receives. Because there are no longer differences in standardized amounts due to geographic classification as a result of the section 401 amendment, hospitals are no longer eligible to reclassify solely for standardized amount purposes. Accordingly, the MGCRB has denied all FY 2005 standardized amount reclassification requests. We note that although Public Law 108-7 and Public Law 108-89 also equalized the standardized amounts for all hospitals in FY 2004, because these laws were not enacted until after the MGCRB had already made its reclassification determinations for FY 2004, eligible hospitals received reclassification approval for the purposes of the standardized amount for FY 2004. However, in this case, Public Law 108-173 was enacted before the MGCRB issued its reclassification decisions for FY 2005. Therefore, no hospitals will be reclassified for the purpose of the standardized amounts in FY 2005.</P>
                    <P>
                        The changes to the operating IPPS described above, has an effect on payments under the PPS for capital-related costs. Rural and other urban hospitals that were previously eligible to receive the large urban add-on and DSH payments under the PPS for capital-related costs if they reclassified to a large urban area for the purpose of the standardized amount under the operating IPPS, will no longer be reclassified, and therefore, will not be eligible to receive those additional 
                        <PRTPAGE P="28321"/>
                        payments under the PPS for capital-related costs.
                    </P>
                    <P>Our analysis indicates that rural and other urban hospitals will gain approximately $0.5 billion in FY 2005 in operating PPS payments due to the equalization of the standardized amounts compared to a relatively small adjustment to payments for capital-related costs under the IPPS. We understand that Congress was aware of the effect of the equalization of the standardized amounts on the rural and other urban hospitals' adjustments under the PPS for capital-related costs. This approach is consistent with section 4203 of the BBA, which prevented hospitals from reclassifying to a different area to get an additional payment solely for DSH purposes under the operating IPPS. The restriction at section 4203 clearly indicates Congress' intent to maintain the principle that reclassifications under section 1886(d) of the Act are only intended to be made for purposes of either the standardized amount or the wage index adjustment.</P>
                    <P>Therefore, in this proposed rule, we are clarifying that, beginning in FY 2005, only hospitals geographically located in a large urban area (as defined in proposed revised § 412.63(c)(6)) would be eligible for large urban add-on payments under the PPS for capital-related costs under § 412.312(b)(2)(ii) and § 412.316(b). Beginning in FY 2005, only hospitals serving low-income patients that are geographically located in an urban area (as defined in proposed new § 412.64 and discussed in section IV.D. of this preamble) with 100 or more beds (or that meet the criteria in § 412.106(c)(2)) would be eligible for DSH payments under the PPS for capital-related costs under § 412.320.</P>
                    <HD SOURCE="HD2">E. Geographic Classification and Definition of Large Urban Area</HD>
                    <HD SOURCE="HD3">1. Core-Based Statistical Areas</HD>
                    <P>As we discuss in greater detail in section III.B. of this preamble, we are proposing to adopt changes to the MSA criteria used to define hospital labor market areas based on the new Core-Based Statistical Areas (CBSA) definitions announced by OMB on June 6, 2003, which are based on 2000 Census data. We currently define hospital labor market areas based on the definitions of Metropolitan Statistical Areas (MSAs), Primary MSAs (PMSAs), and New England County Metropolitan Areas (NECMAs) under standards issued by OMB in 1990. In addition, OMB designates Consolidated MSAs (CMSAs). A CMSA is a metropolitan area with a population of one million or more, comprised of two or more PMSAs (identified by their separate economic and social character). Under the operating PPS, the wage index is calculated and assigned to hospitals on the basis of the labor market area in which the hospital is located. For purposes of the hospital wage index, we use the PMSAs rather than CMSAs because they allow a more precise breakdown of labor costs. However, if a metropolitan area is not designated as part of a PMSA, we use the applicable MSA.</P>
                    <P>As we discuss in sections III.B.3. and IV.C. of this preamble, we are proposing to adopt OMB's new CBSA designations to define labor market areas for discharges occurring on or after October 1, 2004, which would be set forth in regulations under a proposed new § 412.64. Currently, the large urban location adjustment under § 412.316(b) and the DSH adjustment for certain urban hospitals under § 412.320 for payments for capital related costs rely on the existing geographic classifications set forth at § 412.63. Because we are proposing to adopt OMB's new CBSA designations for FY 2005 and thereafter under proposed new § 412.64, we are proposing to revise § 412.316(b) and § 412.320(a)(1) to specify that, for discharges on or after October 1, 2004, the payment adjustments under these sections, respectively, would be based on the geographic classifications at proposed new § 412.64.</P>
                    <HD SOURCE="HD3">2. Metropolitan Divisions</HD>
                    <P>Under the revised MSA criteria based on CBSAs, a Metropolitan Division is a county or group of counties located within an MSA with a core population of at least 2.5 million, representing an employment center, plus adjacent counties associated with the main county or counties through commuting ties (see section III.B.3.b. of this preamble for further details). Under the proposed changes to the MSA criteria discussed in section III.B. of this preamble, we are proposing to use the Metropolitan Divisions where applicable under the CBSA definitions. Thus, similar to our treatment of PMSAs as labor market areas where applicable, we would use the Metropolitan Divisions rather than MSAs to define labor market areas.</P>
                    <P>Currently, under the existing MSA criteria, a large urban area is defined at existing § 412.63(c)(6) as an MSA with a population of more than 1.000,000 or a NECMA with a population of more than 970,000 based on the most recent available population data published by the Bureau of the Census. As noted above, we currently use the PMSAs rather than CMSAs to define labor market areas. Accordingly, we currently determine large urban areas under existing § 412.63(c)(6) based on the most recent available population data for each PMSA rather than the CMSA. Similarly, because we are proposing to treat Metropolitan Divisions of MSAs as labor market areas, under the proposed changes based on CBSA designations, we would designate large urban areas based on the most recent available population data for each Metropolitan Division, rather than the MSA.</P>
                    <P>As discussed in section III.B.3.b., under the CBSA definitions, there are 11 MSAs containing Metropolitan Divisions: Boston; Chicago; Dallas; Detroit; Los Angeles; Miami; New York; Philadelphia; San Francisco; Seattle; and Washington, D.C. There are a total of 29 Metropolitan Divisions, which would be treated as MSAs. Of those 29 MSAs, 23 meet the definition of large urban area under § 412.63(c)(6) (as denoted in Tables 4A and 4B in the Addendum to this proposed rule). Under the proposed changes to the MSA criteria, there are a total of 62 large urban areas, including those 23 Metropolitan Divisions, as denoted in Tables 4A and 4B in the Addendum to this proposed rule.</P>
                    <P>
                        In this section, we are proposing to clarify that the current definition of large urban area at existing § 412.63(c)(6) would remain in effect for the purpose of the large urban add-on adjustment to the Federal rate under the PPS for capital-related costs under §§ 412.312(b)(2)(ii) and 412.316(b). With the equalization of the operating standardized amounts (as discussed in section IV.D. of this preamble), we are proposing to revise the regulations under § 412.63(c), and making them effective for FYs 1984 through 2004, and to add a new § 412.64 that would be applicable for FYs 2005 and thereafter. Because CMS would compute a single standardized amount for hospitals located in all areas beginning in FY 2005, the term “large urban area” is no longer applicable under the operating PPS and therefore, a definition of large urban area would not be included under the proposed new § 412.64. However, the term “large urban area” continues to be applicable under the capital PPS for the large urban add-on adjustment at §§ 412.312(b)(2)(ii) and 412.316(b). Therefore, we are proposing to revise §§ 412.312(b)(2)(ii) and 412.316(b) to state that the definition of large urban area set forth at § 412.63(c)(6) would continue to be in effect under the capital PPS for discharges occurring on or after September 30, 2004.
                        <PRTPAGE P="28322"/>
                    </P>
                    <HD SOURCE="HD1">VI. Proposed Changes for Hospitals and Hospital Units Excluded From the IPPS</HD>
                    <HD SOURCE="HD2">A. Payments to Excluded Hospitals and Hospital Units (§§ 413.40(c), (d), and (f))</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Excluded Hospitals and Units” at the beginning of your comment.]</FP>
                    <HD SOURCE="HD3">1. Payments to Existing Excluded Hospitals and Hospital Units</HD>
                    <P>Section 1886(b)(3)(H) of the Act (as amended by section 4414 of Public Law 105-33) established caps on the target amounts for certain existing hospitals and hospital units excluded from the IPPS for cost reporting periods beginning on or after October 1, 1997 through September 30, 2002. For this period, the caps on the target amounts applied to the following three classes of excluded hospitals or units: psychiatric hospitals and units, rehabilitation hospitals and units, and LTCHs. In accordance with section 1886(b)(3)(H)(i) of the Act and effective for cost reporting periods beginning on or after October 1, 2002, payments to these classes of existing excluded hospitals or hospital units are no longer subject to caps on the target amounts.</P>
                    <P>In accordance with existing §§ 413.40(c)(4)(ii) and (d)(1)(i) and (ii), where applicable, excluded psychiatric hospitals and units continue to be paid on a reasonable cost basis, and payments are based on their Medicare inpatient operating costs, not to exceed the ceiling, up to the date that the inpatient psychiatric facility PPS described in section VII.A. of this preamble becomes effective. The ceiling is computed using the hospital's or unit's target amount from the previous cost reporting period, updated by the rate-of-increase specified in § 413.40(c)(3)(viii) of the regulations, and then multiplying this figure by the number of Medicare discharges.</P>
                    <P>Effective for cost reporting periods beginning on or after October 1, 2002, rehabilitation hospitals and units are paid in accordance with the IRF PPS at 100 percent of the Federal rate. In addition, effective for cost reporting periods beginning on or after October 1, 2002, LTCHs are no longer paid on a reasonable cost basis, but are paid under a DRG-based PPS. However, as part of the PPS for LTCHs, we have established a 5-year transition period from reasonable cost-based reimbursement to a fully Federal PPS. Under the LTCH PPS, a LTCH that is subject to the blend methodology may elect to be paid based on a 100 percent of the Federal prospective rate. We have proposed, but not finalized, an inpatient psychiatric facility (IPF) prospective payment system under which psychiatric hospitals and psychiatric units would no longer be paid on a reasonable cost basis but would be paid on a prospective per diem basis. (Sections VI.A.3, 4, and 5 of this preamble contain a more detailed discussion of the IRF PPS and the LTCH PPS and the proposed IPF PPS.)</P>
                    <HD SOURCE="HD3">2. Updated Caps for New Excluded Hospitals and Units</HD>
                    <P>Section 1886(b)(7) of the Act established a payment limitation for new hospitals and units that fell within one of three classes of hospitals or units-psychiatric, rehabilitation, and long-term care that first receives payment as a hospital or unit excluded from the IPPS on or after October 1, 1997. A discussion of how the payment limitation was calculated can be found in the August 29, 1997 final rule with comment period (62 FR 46019); the May 12, 1998 final rule (63 FR 26344); the July 31, 1998 final rule (63 FR 41000); and the July 30, 1999 final rule (64 FR 41529). Under the statute, a “new” hospital or unit is a hospital or unit that falls within one of the three classes of hospitals or units (psychiatric, rehabilitation or long-term care) that first receives payment as a hospital or unit excluded from the IPPS on or after October 1, 1997.</P>
                    <P>The amount of payment for a “new” psychiatric hospital or unit (as defined at 42 CFR 413.40(f)(2)(ii) would be determined as follows:</P>
                    <P>• Under existing § 413.40(f)(2)(ii), for the first two 12-month cost reporting periods, the amount of payment is the lesser of: (1) The operating costs per case; or (2) 110 percent of the national median (as estimated by the Secretary) of the target amounts for the same class of hospital or unit for cost reporting periods ending during FY 1996, updated by the hospital market basket increase percentage to the fiscal year in which the hospital or unit first receives payments under section 1886 of the Act, as adjusted for differences in area wage levels.</P>
                    <P>• Under existing § 413.40(c)(4)(v), for cost reporting periods following the hospital's or unit's first two 12-month cost reporting periods, the target amount is equal to the amount determined under section 1886(b)(7)(A)(i) of the Act for the preceding cost reporting period, updated by the applicable hospital market basket increase percentage to the third cost reporting period.</P>
                    <P>The proposed amounts included in the following table reflect the proposed updated 110 percent of the national median target amounts of new excluded psychiatric hospitals and units for cost reporting periods beginning during FY 2005. These figures are updated with the most recent data available to reflect the proposed projected market basket increase percentage of 3.3 percent. This projected percentage change in the market basket reflects the average change in the price of goods and services purchased by hospitals to furnish inpatient hospital services (as projected by the Office of the Actuary of CMS based on its historical experience with the IPPS). For a new provider, the labor-related share of the target amount is multiplied by the appropriate geographic area wage index, without regard to IPPS reclassifications, and added to the nonlabor-related share in order to determine the per case limit on payment under the statutory payment methodology for new providers.</P>
                    <GPOTABLE COLS="3" OPTS="L2,tp0,i1" CDEF="s50,14C,14C">
                        <TTITLE>  </TTITLE>
                        <BOXHD>
                            <CHED H="1">Class of excluded hospital or unit </CHED>
                            <CHED H="1">
                                Proposed 
                                <LI>FY 2005 </LI>
                                <LI>labor-related share </LI>
                            </CHED>
                            <CHED H="1">
                                Proposed FY 2005 
                                <LI>nonlabor-related share.</LI>
                            </CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">Psychiatric </ENT>
                            <ENT>$7,534.70 </ENT>
                            <ENT>$2,994.67 </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>Effective for cost reporting periods beginning on or after October 1, 2002, this payment limitation was no longer applicable to new LTCHs because they are paid 100 percent of the Federal rate. Accordingly, it is no longer necessary to publish an updated cap for new LTCHs.</P>
                    <P>
                        Effective for cost reporting periods beginning on or after October 1, 2002, this payment limitation is also no longer applicable to new rehabilitation hospitals and units because they are paid 100 percent of the Federal prospective rate under the IRF PPS. Therefore, it is also no longer necessary to update the payment limitation for new rehabilitation hospitals or units.
                        <PRTPAGE P="28323"/>
                    </P>
                    <HD SOURCE="HD3">3. Implementation of a PPS for IRFs</HD>
                    <P>Section 1886(j) of the Act, as added by section 4421(a) of Public Law 105-33, provided for the phase-in of a case-mix adjusted PPS for inpatient hospital services furnished by a rehabilitation hospital or a rehabilitation hospital unit (referred to in the statute as rehabilitation facilities) for cost reporting periods beginning on or after October 1, 2000, and before October 1, 2002, with a fully implemented PPS for cost reporting periods beginning on or after October 1, 2002. Section 1886(j) of the Act was amended by section 125 of Public Law 106-113 to require the Secretary to use a discharge as the payment unit under the PPS for inpatient hospital services furnished by rehabilitation facilities and to establish classes of patient discharges by functional-related groups. Section 305 of Public Law 106-554 further amended section 1886(j) of the Act to allow rehabilitation facilities, subject to the blend methodology, to elect to be paid the full Federal prospective payment rather than the transitional period payments specified in the Act.</P>
                    <P>
                        On August 7, 2001, we issued a final rule in the 
                        <E T="04">Federal Register</E>
                         (66 FR 41316) establishing the PPS for inpatient rehabilitation facilities, effective for cost reporting periods beginning on or after January 1, 2002. There was a transition period for cost reporting periods beginning on or after January 1, 2002 and ending before October 1, 2002. For cost reporting periods beginning on or after October 1, 2002, payments are based entirely on the Federal prospective payment rate determined under the IRF PPS.
                    </P>
                    <HD SOURCE="HD3">4. Implementation of a PPS for LTCHs</HD>
                    <P>In accordance with the requirements of section 123 of Public Law 106-113, as modified by section 307(b) of Public Law 106-554, we established a per discharge, DRG-based PPS for LTCHs as described in section 1886(d)(1)(B)(iv) of the Act for cost reporting periods beginning on or after October 1, 2002, in a final rule issued on August 30, 2002 (67 FR 55954). The LTCH PPS uses information from LTCH hospital patient records to classify patients into distinct LTC-DRGs based on clinical characteristics and expected resource needs. Separate payments are calculated for each LTC-DRG with additional adjustments applied.</P>
                    <P>
                        We published in the 
                        <E T="04">Federal Register</E>
                         on May 7, 2004, a final rule (69 FR 25673) that updated the payment rates for the LTCH PPS and made policy changes effective for a new LTCH PPS rate year of July l, 2004 through June 30, 2005. The 5-year transition period from reasonable cost-based reimbursement to the fully Federal prospective rate will end with cost reporting periods beginning on or after October 1, 2005 and before October 1, 2006.
                    </P>
                    <HD SOURCE="HD3">5. Development of a PPS for IPFs</HD>
                    <P>Section 124 of the Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999 (BBRA) requires the development of a per diem prospective payment system (PPS) for payment of inpatient hospital services furnished in psychiatric hospitals and psychiatric units of acute care hospitals (inpatient psychiatric facilities (IPFs)). We published a proposed rule to implement the IPF PPS on November 28, 2003 (68 FR 66920). On January 30, 2004, we published a proposed rule to implement the IPF PPS on November 28, 2003 (68 FR 66920). On January 30, 2004, we published a notice to extend the comment period for 30 additional days (69 FR 4464). The comment period closed on March 26, 2004.</P>
                    <P>Under the proposed rule, we would compute a Federal per diem base rate to be paid to all IPFs based on the sum of the average routine operating, ancillary, and capital costs for each patient day of psychiatric care in an IPF adjusted for budget neutraility. The Federal per diem base rate would be adjusted to reflect certain characteristics such as age, specified DRGs, and selected high-cost comorbidities, and certain facility characteristics such as wage index adjustment, rural location, and indirect teaching costs.</P>
                    <P>The November 28, 2003 proposed rule assumed an April 1, 2004 effective date for the purpose of ratesetting and calculating impacts. However, we are still in the process of analyzing public comments and developing a final rule for publication. The effective date of the IPF PPS would occur 5 months following publication of the final rule.</P>
                    <HD SOURCE="HD3">6. Technical Changes Related to Establishment of Payments for Excluded Hospitals</HD>
                    <P>
                        We have become aware of a number of technical errors in the existing regulations governing how we determine payments to hospitals that are excluded from the IPPS. The existing regulations under § 413.40 set forth requirements for establishing the ceiling on the rate of increase in operating costs per case for hospital inpatient services furnished to Medicare beneficiaries that will be recognized as reasonable for purposes of determining the amount of Medicare payments. The rate-of-increase ceiling applicable to cost reporting periods has been adjusted a number of times since it was first applied for hospital cost reporting periods beginning on or after October 1, 1982. In revising the regulations over the years to reflect the different applicable adjustments for cost reporting periods for specific providers, we have inadvertently overlooked updating or conforming § 413.40 to reflect various statutory changes. We note that, although we erroneously omitted the technical changes in the regulation text, we did, in fact comply with the changes required by the statute when determining the rate-of-increase ceiling. Therefore, we are proposing to make several changes to § 413.40(c)(4)(iii) in order to conform it to section 1886(b)(3)(J) of the Act. These proposed changes are as follows: (1) In § 413.40(c)(4)(iii)(A)(
                        <E T="03">1</E>
                        ) and (c)(4)(iii)(B)(
                        <E T="03">4</E>
                        )(
                        <E T="03">i</E>
                        ), the phrase “on or after October 1, 2001”, should read “during FY 2001”; and in § 413.40(c)(4)(iii)(A)(
                        <E T="03">2</E>
                        ), the phrase “on or after October 1, 2000” should read “during FY 2001”. In order to include pertinent changes that were erroneously omitted from the regulatory text and to conform the text to section 1886(b)(
                        <E T="03">2</E>
                        )(A) of the Act, we are proposing to delete the phrase “and ending before October 1, 2000” in § 413.40(d)(4)(i) because, in section 1886(b)(2)(A) of the Act, there is no ending date for the continuous improvement bonus payment. In addition, at § 413.40(d)(4)(ii), we propose to delete the word “ending” from the introductory phrase so that the phrase would read, “For cost reporting periods beginning on or after October 1, 2000 and before September 30, 2001.” The word “ending” in the existing language at best limits the provision to cost reporting periods beginning on October 1, 2000. The provision was intended to apply to cost reporting periods beginning during all of FY 2001.
                    </P>
                    <HD SOURCE="HD2">B. Criteria for Classification of Hospitals-Within-Hospitals</HD>
                    <FP>[If you choose to comment on the issues in this section, please include the caption “Hospitals-Within-Hospitals” at the beginning of your comment.]</FP>
                    <P>Existing regulations at § 412.22(e) define a hospital-within-a-hospital as a hospital that occupies space in a building as another hospital, or in one or more separate buildings located on the same campus as buildings used by another hospital. Moreover, existing § 412.22(f) provides for the grandfathering of hospitals-within-hospitals that were in existence on or before September 30, 1995.</P>
                    <P>
                        One of the goals of our hospital-within-hospital regulations at § 412.22(e) has been to prevent a LTCH 
                        <PRTPAGE P="28324"/>
                        co-located with an acute care hospital to function as a unit of that hospital, a situation precluded under section 1886(d)(1)(B) of the Act. This policy protects the integrity of the IPPS by ensuring that costly, long-stay patients who could reasonably continue treatment in that setting would not be unnecessarily discharged to an onsite LTCH, a behavior that would skew and undermine the Medicare IPPS DRG system. Further, there is concern that the hospital-within-hospital configuration could result in patient admission, treatment, and discharge patterns that are guided more by attempts to maximize Medicare payments than by patient welfare. We believe that the unregulated linking of an IPPS hospital and a hospital excluded from the IPPS could lead to two Medicare payments for what was essentially one episode of patient care.
                    </P>
                    <P>In the September 1, 1994 IPPS final rule (59 FR 45389), we first discussed hospitals-within-hospitals, describing them as entities that were manipulating the conditions of participation (COPs) for hospitals under Medicare, set forth in regulations at 42 CFR Part 482, to permit them to receive exclusion from the prospective payment systems. Specifically, these hospitals have begun to organize what they themselves refer to as the “hospital-within-a-hospital” model. Under this model, an entity may operate in space leased from a hospital, and have most or all services furnished under arrangements by employees of the lessor hospital. The newly organized entity may be operated by a corporation formed and controlled by the lessor hospital, or by a third entity that controls both. In either case, the new entity seeks State licensure and Medicare participation as a hospital, demonstrates that it has an average length of stay of over 25 days, and obtains an exclusion from the IPPS. The effect of this process is to extend the long-term care hospital exclusion to what is, for all practical purposes, a “long-term care unit.” We noted that the averaging concept that underlies the IPPS recognizes that some patients will stay longer and consume more resources than expected, while others will have shorter, less costly stays. We envisioned that abuse of the PPSs could result if an acute care hospital under the IPPS “diverted all long-stay cases to the excluded unit, leaving only shorter, less costly cases to be paid for under the IPPS. In such cases, hospitals would profit inappropriately from prospective payments.” Further, we stated that we believed that the “exclusion of long-term care ‘units’ was inconsistent with the statutory scheme.” Section 1886(d)(1)(B) of the Act clearly provides for an exclusion of LTCHs from the acute care IPPS. While the statute also provides for an exclusion for psychiatric units and rehabilitation units, it does not provide for an exclusion of long-term care units. (59 FR 45389)</P>
                    <P>In addition, in that September 1, 1994 final rule, we proceeded to establish “separateness and control” regulations at (then) § 412.23(e) that required the two hospitals to have separate medical and administrative governance and decisionmaking and also ensured that each hospital operated as a separate facility. We believed at that time that such rules were sufficient solutions to our concerns about these new entities and, therefore, we did not preclude common ownership of the host and the LTCH at that time.</P>
                    <P>In the ensuing decade, we have revisited the issue of hospitals-within-hospitals several times (for example, 60 FR 45836, September 1, 1995; 62 FR 46012, August 29, 1997; 67 FR 56010, August 30, 2002; 67 FR 45463, August 1, 2003) during which we clarified and amplified the separateness and control requirements. In the August 29, 1997 IPPS final rule, we extended the application of these rules beyond LTCHs to include other classes of facilities that might seek exclusion from the IPPS as hospitals-within-hospitals, such as IRFs. In addition, in the August 29, 1997 final rule, we also established a “grandfathering” provision for hospitals-within-hospitals in existence prior to September 30, 1995, at § 412.22(f), and in the August 1, 2003 IPPS final rule, we clarified and codified the requirements for “grandfathered” hospitals-within-hospitals (68 FR 45463).</P>
                    <P>As stated earlier, presently, a hospital-within-a-hospital must meet the separateness and control criteria set forth at § 412.22(a). In order to be excluded from the IPPS, the hospital-within-a-hospital must have a separate governing body, a separate chief medical officer, a separate medical staff, and a separate chief executive officer. Regarding the performance of basic hospital functions (§ 412.22(e)(5)), currently, the hospital must meet at least one of the following criteria: (i) The hospital performs the basic functions through the use of employees or under contracts or other agreements with entities other than the hospital occupying space in the same building or on the same campus, or a third entity that controls both hospitals; (ii) for the same period of at least 6 months immediately preceding the first cost reporting period for which exclusion is sought, the cost of the services that the hospital obtained under contracts or other agreements with the hospital occupying space in the same building or on the same campus, or with a third entity that controls both hospitals, is no more than 15 percent of the hospital's total inpatient operating costs, as defined in § 412.2(c) (that is, inpatient operating costs include operating costs for routine services, such as costs of room, board, and routine nursing services; operating costs for ancillary services such as laboratory or radiology; special care unit operating costs; malpractice insurance costs related to serving inpatients; and preadmission services); or (iii) for the same period of at least 6 months immediately preceding the first cost reporting period for which exclusion is sought, the hospital has an inpatient population of whom at least 75 percent were referred to the hospital from a source other than another hospital occupying space in the same building or on the same campus or with a third entity that controls both hospitals.</P>
                    <P>It is our experience that the vast majority of hospitals-within-hospitals have elected to meet the second of the three criteria at § 412.22(e)(5), that is, the cost of the services that the hospital obtained from the co-located hospital or with a third entity that controls both hospitals is no more than 15 percent of its total inpatient operating costs. In establishing the 15-percent rule, we originally believed that we would be able to detect a true corporate identity and actual function and to guard against an arrangement that could undermine the statutory preclusion of long-term care units. We sought to distinguish admissions to independently operating facilities from what were, in effect, transfers of patients from one unit of the corporation to another unit of the corporation without a truly distinct and separate corporate identity. Our underlying policy rationale was that, if an entity could not be separately identified, it effectively would be functioning as a mere unit of the parent entity in violation of the statutory prohibition on long-term care units. We explained in the September 1, 1994 rule (59 FR 45390) that “if an entity is effectively part of another hospital and the principles of the prospective payment system do apply well to the organization as a whole, then it would not be appropriate to exclude part of that organization from the prospective payment system.”</P>
                    <P>
                        Although we have periodically revisited the phenomenon of hospitals-within-hospitals in our rules and we have revised or clarified some related 
                        <PRTPAGE P="28325"/>
                        issues, we have not proposed significant changes in our policies in this area for some time. This is despite the significant changes that have been made in the payment systems for Medicare-certified, excluded hospitals and units. Medicare payments to two types of IPPS-excluded hospitals, LTCHs and IRFs, are now made on a prospective basis. We believe that, in part, the new LTCH PPS is one of the reasons for the rapidly increasing number of LTCH hospitals-within-hospitals. In its June 2003 Report to the Congress, MedPAC identified hospitals-within-hospitals as the fastest growing type of LTCHs, and specified that the number had grown from 10 in 1993 to 114 in 2002, an average annual increase of approximately 30 percent (p. 85). In the August 30, 2002 final rule that implemented the PPS for LTCHs, we noted that “* * * we remain extremely concerned about rapid growth in LTCH hospitals-within-hospitals and will be collecting data on the relationship among host hospitals, hospitals-within-hospitals, and parent corporations in order to determine the need for additional regulation” (67 FR 56010). We indicated that if, as a consequence of these monitoring activities, we determine the need to revisit existing regulations dealing with ownership and control of hospitals-within-hospitals, we would follow the notice and comment rulemaking process (67 FR 56011).
                    </P>
                    <P>The LTCH PPS was implemented for cost reporting periods beginning on or after October 1, 2002. We have gathered considerable anecdotal information from inquiries from the provider community, fiscal intermediaries, and, particularly, from the survey and certification divisions of our CMS Regional Offices.</P>
                    <P>We believe that existing policies regarding hospitals-within-hospitals do not sufficiently protect the Medicare program from the problems that we envisioned in the September 1, 1994 final rule. We also question the effectiveness of the “separateness and control” requirements alone because entities have used complex arrangements among corporate affiliates, and obtained services from those affiliates, thereby impairing or diluting the separateness of the corporate entity. While technically remaining within the parameters of the rule, these arrangements have intermingled corporate interests so that the corporate distinctness has been lost.</P>
                    <P>In corporate law, several standards are used to determine how much separateness is sufficient for a corporate autonomy to be recognized. The courts have applied a number of tests and considered a number of factors in determining when a parent corporate autonomy is liable for the acts of its subsidiary, including the parent corporate autonomy's exercise of control over the decisionmaking of the subsidiary; the subsidiary's actions as an alter ego of the parent corporate autonomy, such that recognition of a distinct corporate entity would lead to fraud or an injustice or would defeat public policy and the interrelatedness of operations. While we do not believe that it is necessary to apply any single test that might be used in the context of assigning liability, we believe that some of the same considerations apply when trying to determine whether there is functional separateness among related or affiliated organizations.</P>
                    <P>The requirement for separate governing bodies, separate medical boards, separate medical officers, and separate chief executive officers in co-located hospitals under the same ownership does not prevent, on a practical level, the establishment of admission, treatment, and discharge policies that maximize payments. Some of these co-located facilities are under common ownership, either nonprofit or for profit, and, therefore, the payments generated from care delivered at both settings affect their mutual interests.</P>
                    <P>Even when the hospital-within-a-hospital and the host hospital are separately owned, we believe that there may be incentives to prematurely discharge patients to a postacute care setting in spite of the fact that the acute care hospital could continue to provide the appropriate level of care. We find this situation even more troubling regarding LTCHs, in particular, because LTCHs are certified as acute care hospitals and the sole statutory and regulatory distinction between LTCHs and acute care hospitals is the greater than 25-day average length of stay criterion at § 412.23(e)(2). In many parts of the country, there are no LTCHs and appropriate care for patients who could otherwise be treated in LTCHs is being delivered in acute care hospitals, often followed by postacute care at SNFs. Because a similar level of care is often available in either an acute care hospital or a LTCH, we believe that, when an acute care hospital and a LTCH are co-located, there are significant inducements for patients to be moved to the provider setting that generates the highest Medicare payments.</P>
                    <P>This movement of patients is facilitated by the fact of co-location because, rather than arranging for the patient to be admitted to another offsite facility and transporting the patient by ambulance to another hospital, all that may actually be required to “discharge” the patient from one hospital and admit the patient to another is wheeling the patient down the hall or on and off an elevator.</P>
                    <P>Although co-location of Medicare providers, at best, may embody the positive economic benefits of sharing expensive medical equipment and provide a measure of convenience for patient families, at worst, co-location and patient-shifting can serve to undermine the basic premise of the IPPS DRG classification system and generate inappropriate Medicare payments. This is the case because payment for specific diagnoses is determined by setting DRG weights that represent a national averaging of hospital costs for each diagnosis. In addition, the Federal standardized payment amount was based on the average cost of a patient across all hospitals. This assumes that, on average, both high-cost and low-cost patients are treated at a hospital. Although Medicare might pay a hospital less than was expended for a particular case, over a period of time, the hospital would also receive more than was expended for other cases. However, an acute care hospital that consistently discharges a higher cost patient to a postacute care setting for the purpose of lowering its costs undercuts the foundation of the IPPS DRG system, which is based on averages. In this circumstance, the hospital would recoup larger payments from the Medicare system than is intended under the DRG system because the course of acute treatment has not been completed. At the same time, the patient, still under active treatment for an acute illness, will be admitted to a LTCH, thereby generating a second admission and Medicare payment that would not have taken place but for the fact of co-location.</P>
                    <P>
                        We believe that the 15-percent policy is being sidestepped through creative corporate reconfigurations. Therefore, if the LTCH is nominally complying with the 15-percent requirement, it has not been required to meet the basic hospital function requirements at existing § 412.22(e)(5)(iii). Thus, it is free to accept even 100 percent of patients from the onsite host, and share the same basic hospital functions as the host. Reliance on meeting the 15-percent criterion has enabled the creation of LTCH hospitals-within-hospitals that rely upon affiliated entities both for their operations and for their patient referrals. This results in a situation very similar to the hospital-within-hospital serving as a LTCH unit of the acute care hospital, which is precluded by the statute.
                        <PRTPAGE P="28326"/>
                    </P>
                    <P>One of the reasons we are proposing revisions to the existing criteria for hospitals-within-hospital is because we believe that determining whether a hospital has complied with the 15-percent criterion is burdensome for a fiscal intermediary on an ongoing basis. Presently, review of corporate arrangements represents a snapshot in time that may assess a particular set of business transactions but does not provide relevant details to reveal the extent of the unity of interests between the parties over time. Further, the widespread existence of such complex configurations, as well as the ongoing creation of new business arrangements, convinces us that a hospital-within-a-hospital's compliance with § 412.22(e)(5)(ii) may be fluid, unreliable, or, in some cases, nonexistent.</P>
                    <P>Another reason we are proposing revisions to the existing criteria for hospitals-within-hospitals because the concerns that we expressed in 1994 and 1995, when excluded hospitals were paid under the reasonable cost-based TEFRA system, are even more compelling with the implementation of PPSs for LTCHs and IRFs, because now one episode of care for a beneficiary could generate two full Medicare prospective payments, one under the IPPS, and another under the applicable excluded hospital PPS. In addition, the substantial increase in the number of hospitals-within-hospitals adds further urgency to reevaluation of the existing hospital-within-a-hospital policies. Therefore, it is incumbent upon us to revise our regulations in order to offer the greatest possible protection against potential abuses.</P>
                    <P>Accordingly, for qualification purposes, we are proposing to delete the 15-percent criterion at § 412.22(e)(5)(i) and the rarely elected criterion at § 412.22(e)(5)(i) that requires the hospital-within-a-hospital to perform basic hospital functions, which includes nursing services, medical records, pharmacy services, radiology, laboratory services, infection control, and discharge planning, through the use of employees or under contracts or other agreements with entities other than the host hospital or a third entity that controls them both. Because we believe that efficient use of excess space at a hospital and the sharing of medical facilities and services may represent the strongest argument for the existence of hospitals-within-hospitals, from the standpoint of efficiency and cost reduction, we do not believe that these criteria should be maintained.</P>
                    <P>We are proposing that all hospitals-within-hospitals would be required to comply only with the criterion set forth at the existing § 412.22(e)(5)(iii), which requires that at least 75 percent of the admissions to the hospital-within-a-hospital be referred from a source other than the host hospital. We believe that this “functional separateness” test (62 FR 46014, August 29, 1997) directly addresses our concern that the excluded hospital not function either as a vehicle to generate more favorable Medicare reimbursement for each provider or as a de facto unit. Compliance with the 75-percent criterion is a requirement that we can verify without the involvement of corporate attorneys and a yearly reevaluation of corporate documents and transactions. The goal of the proposed provisions is to diminish the possibility that a hospital-within-a-hospital could actually be functioning as a unit of an acute care hospital and generating unwarranted payments under the much more costly LTCH PPS.</P>
                    <P>Therefore, under our proposed policy, a hospital must demonstrate that it has a separate governing body, a separate chief medical officer, and a separate chief executive officer, and that at least 75 percent of its admissions originate from a source other than its host hospital, in order to be totally excluded from the IPPS. Fiscal intermediaries would reevaluate compliance with these regulations annually. In implementing our belief that separation and control can best be objectively determined by limiting compliance to the 75-percent criterion as the single “performance of hospital functions” test, we are proposing several policy options that are detailed below that, if not met, notwithstanding compliance with the separate governance and control requirements under existing § 412.22(e)(1) through (4), could result in the either total discontinuance of IPPS-exclusion payment status or Medicare payment adjustments for hospital-within-a-hospital patients from the host hospitals.</P>
                    <P>As noted above, DRG weights and hence payments under the IPPS are established annually based on the average concept that recognizes that, for patients with a particular diagnosis, some will stay longer and consume more hospital resources than expected, while others will have shorter, less costly stays. Under the IPPS, a full DRG payment is triggered on the first day of admission to the acute care hospital. Medicare adopted an IPPS transfer policy at § 412.4(b) in order to pay appropriately for cases that were discharged to other IPPS hospitals prior to the hospitals delivering full treatment to a beneficiary. We also promulgated the postacute care transfer policy at §§ 412.4(c) and (d) to discourage premature transfers or discharges from IPPS hospitals for particular DRGs to postacute care settings, including LTCHs (63 FR 40977, July 31, 1998, 68 FR 45469, August 1, 2003). The issues that we addressed in formulating the acute and postacute care transfer policies are similar to those we are raising as our present concerns: that the incentives of the IPPS could result in acute care hospitals shifting a portion of the cost of services that should reasonably be treated in that setting to other providers; that the acute care hospitals would still collect a full DRG payment under the IPPS for less than a full course of treatment; and that an additional and unnecessary Medicare payment would be made to the second provider. We believe that the potential for linking clinical decisions to the highest Medicare payments is even stronger when the acute care hospital and a postacute care provider are co-located and, even more so, if they are also under common ownership.</P>
                    <P>Therefore, we are also proposing to revise § 412.22(e), effective October 1, 2004, to preclude common ownership (wholly or in part) of hospitals-within-hospitals and host hospitals (proposed new § 412.22(e)(2)(ii)). However, we are also proposing to “grandfather” those hospitals-within-hospitals that were under common ownership with their host hospitals prior to June 30, 2004, and to continue to pay them as hospitals excluded from the IPPS, as long as they comply with the existing control criteria at § 412.22(e)(1) through (4) (as set forth in proposed new § 412.22(e)(2)(i)) and with the proposed mandatory 75-percent criterion (as set forth in proposed new § 412.22(e)(2)(iii)).</P>
                    <P>In addition, in this proposed rule, we are presenting, for public comment, three payment options that we believe would diminish the possibility of a hospital-within-a-hospital actually functioning as a unit of an acute care hospital and at the same time generating unwarranted payments under the more costly LTCH PPS.</P>
                    <P>
                        <E T="03">Option 1.</E>
                         Under the first option, as discussed earlier, in order for a hospital-within-a-hospital to receive payment as an IPPS-excluded hospital, we are proposing to retain as the only qualifying criterion that the hospital-within-a-hospital have at least 75 percent of its admissions from a source other than the host hospital (existing § 412.22(e)(5)(iii)). The hospital-within-a-hospital would still be required to demonstrate that it meets the separateness and control criteria at § 412.22(a). Under this option, a hospital-within-hospital that admitted 
                        <PRTPAGE P="28327"/>
                        more than 25 percent of its patients from the host hospital would not be paid as an IPPS-excluded hospital for any of its patients. The hospital or unit that does not meet the criteria under this option would receive payment as an acute care hospital for all of its patients.
                    </P>
                    <P>As stated earlier, we believe that compliance with the 75-percent criterion under this option is a requirement that fiscal intermediaries would be able to evaluate annually in an efficient manner without the involvement of corporate attorneys and a yearly reevaluation of corporate documents and transactions. Further, we believe that this option would ensure increased protections to the Medicare program and greatly diminish opportunities for maximizing Medicare payments under the PPS.</P>
                    <P>
                        <E T="03">Option 2.</E>
                         Under the second option, as proposed earlier, we would require the hospital to meet the existing qualifying 75-percent criterion under § 412.22(e)(5)(iii). However, under this option, we would allow a hospital-within-a-hospital that failed to meet the 75-percent criterion to be excluded from the IPPS to be paid as a PPS-excluded hospital only for the patients admitted to the hospital-within-a-hospital from providers other than the host hospital. For example, no payments would be made to a LTCH for those patients that had been transferred to the LTCH from the host hospital because it failed to meet this criterion. Payments for patients referred from the host acute care hospital would only be paid to the host under the IPPS. We would treat services provided by the hospital-within-a-hospital as services furnished “under arrangement.” Therefore, in keeping with our existing policy at § 411.15(m) that restricts separate Medicare payment to hospital services furnished under arrangements, we would make payment only to the acute care hospital from which the patients were referred for “under arrangements” furnished by the hospital-within-a-hospital.
                    </P>
                    <P>
                        <E T="03">Option 3.</E>
                         Under the third option, as proposed earlier, we would require that the hospital-within-a-hospital must meet the existing qualifying 75-percent criterion under § 412.22(e)(iii). However, under this option, we would pay the hospital-within-a-hospital directly for services, even for services provided to patients admitted to the hospital-within-a-hospital from the co-located acute care hospital. However, the payment to the hospital-within-a-hospital for those patients would be the lesser of what would be paid under the IPPS for that DRG, or what would be paid to the hospital-within-a-hospital under the applicable excluded hospital payment system. Payments to the hospital-within-a-hospital for patients admitted to the hospital-within-a-hospital from another hospital that was not the co-located hospital would be made under the hospital-within-a-hospital payment system with no adjustment. Therefore, for example, a LTCH that was a hospital-within-a-hospital and failed to meet the 75-percent criterion would be paid the lesser of the IPPS payment or the LTCH PPS payment for its patients that were admitted from its host hospital. However, for patients admitted from other hospitals, the LTCH hospital-within-a-hospital would be paid under the LTCH PPS with no adjustment.
                    </P>
                    <P>We believe that adoption of any of these three options is within the broad discretion conferred on the Secretary by section 123 of Public Law 106-113 (BBRA) and by section 307 of Public Law 106-554 (BIPA), which grant the Secretary the authority to develop a per discharge PPS for payment of inpatient hospital services by LTCHs and to provide for appropriate adjustments to the LTCH PPS.</P>
                    <P>We are proposing to revise the existing separateness and control regulations at § 412.22(e) for hospitals-within-hospitals and to require that in order to be excluded from the IPPS, all hospitals-within-hospitals must admit no more than 25 percent of their patients from the onsite host hospital. We are also proposing to preclude common ownership of host hospitals and excluded hospitals, while grandfathering existing hospitals-within-hospitals and hosts that are under common ownership, as long as they comply with the proposed mandatory 75-percent criterion. We are further seeking comments on the options presented if the hospital-within-a-hospital fails to meet the 75-percent criterion that would either require that all of the hospital's Medicare payment would be made under the IPPS or, alternatively, to allow a hospital-within-a-hospital to still be paid as an excluded hospital for its admissions from onsite providers while applying specific payment adjustments for patients admitted from the host hospital.</P>
                    <P>We are soliciting comments on the three options presented and whether they provide sufficient protection against the phenomenon of inadequate separateness and control as described in this proposed rule. We want to emphasize that, under any of the options, nowhere is a change in physician clinical decisionmaking or a change in the manner in which a physician or hospital practices medicine intended. The policy options outlined in this proposed rule would simply address the appropriate level of payments once those decisions have been made.</P>
                    <P>
                        <E T="03">Technical Change.</E>
                         In § 412.22(e) of our regulations, we refer to a hospital-within-a-hospital as a hospital that “occupies space in a building also used by another hospital, or in one or more 
                        <E T="03">entire</E>
                         buildings located on the same campus as buildings used by another hospital” (emphasis added). The reference to “entire” buildings is incorrect. We should have referred to “separate” buildings. Therefore, we are proposing to correct this error.
                    </P>
                    <HD SOURCE="HD2">C. Critical Access Hospitals (CAHs)</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Critical Access Hospitals” at the beginning of your comment.]</FP>
                    <HD SOURCE="HD3">1. Background</HD>
                    <P>Section 1820 of the Act provides for the establishment of Medicare Rural Hospital Flexibility Programs, under which individual States may designate certain facilities as critical access hospitals (CAHs). Facilities that are so designated and meet the CAH conditions of participation in 42 CFR Part 485, Subpart F, will be certified as CAHs by CMS. Regulations governing payments to CAHs for services to Medicare beneficiaries are located in 42 CFR Part 413.</P>
                    <HD SOURCE="HD3">2. Payment Amounts for Inpatient CAH Services (Section 405(a) of Public Law 108-173 and §§ 413.70 and 413.114 of the Regulations)</HD>
                    <P>
                        Prior to the enactment of Public Law 108-173, section 1814(l) of the Act provides that the Medicare payment amount for inpatient services furnished by a CAH is the reasonable costs of the CAH in providing the services. Section 1834(g)(1) of the Act provides that the Medicare amount of payment for outpatient services furnished by a CAH is made on a reasonable cost basis, unless the CAH makes an election, under section 1834(g) of the Act, to receive a payment amount that is the sum of the reasonable cost of hospital outpatient facility services plus 115 percent of the amount otherwise paid for professional services. Section 1883(a)(3) of the Act provides for payment to a CAH for covered skilled nursing facility services furnished under an agreement entered into under section 1883 of the Act on the basis of the reasonable costs of such services. Regulations implementing these provisions are set forth in § 413.70(a), for inpatient CAH services; in 
                        <PRTPAGE P="28328"/>
                        § 413.70(b), for payment under the standard method for the reasonable costs of facility services, and outpatient CAH services; in § 413.70(b)(3), for the optional method of payment for outpatient services (reasonable costs for facility services plus fee schedule for professional services); and in § 413.114, for SNF services of a CAH with a swing-bed agreement.
                    </P>
                    <P>Section 405(a) of Public Law 108-173 amended sections 1814(l), 1834(g)(1), and 1883(a)(3) of the Act to provide that, effective for services furnished during cost reporting periods beginning on or after January 1, 2004, the amount of the payment for inpatient, outpatient, and SNF services, respectively, furnished by a CAH is equal to 101 percent of the reasonable cost of the CAH in providing these services.</P>
                    <P>We are proposing to revise §§ 413.70(a)(1), (b)(2), and (b)(3) and § 413.114 of our regulations to incorporate the change in the payment percentage made by section 405(a) of Public Law 180-173. We also are proposing to make a technical correction to § 413.70(b)(2)(i) to remove paragraphs (b)(2)(i)(C) and (D). We are proposing to delete these paragraphs to conform the regulations to provisions of the outpatient hospital PPS.</P>
                    <P>
                        We note that in the IPPS final rule published in the 
                        <E T="04">Federal Register</E>
                         on August 1, 2001 (66 FR 39936), we added a new paragraph (a)(1)(iv) to § 413.70. However, when the change was incorporated into the Code of Federal Regulations, paragraphs (a)(1)(i), (a)(1)(ii), and (a)(1)(iii) were inadvertently omitted. Our proposed revision of § 413.70(a)(1) would correct the omission of these three paragraphs.
                    </P>
                    <HD SOURCE="HD3">3. Condition for Application of Special Professional Service Payment Adjustment (Section 405(d) of Public Law 108-173 and § 413.70(b) of the Regulations)</HD>
                    <P>As stated earlier, section 1834(g) of the Act provides for two methods of payment for outpatient CAH services. Under the provisions of section 1834(g) of the Act, a CAH will be paid under a reasonable cost method unless it elects payment under an optional method. Under the reasonable cost payment method, facility services are paid on a reasonable cost payment basis by the fiscal intermediary to the CAH, and physician and other professional services to CAH outpatients are paid for under the physician fee schedule, with payments being made by the carrier. Under the optional method (frequently referred to as “method 2”), CAHs submit bills for both facility and professional services to the fiscal intermediary. If a CAH elects the optional method of billing for outpatient services, Medicare payment for its facility services are made at the same level as would apply under the reasonable cost reimbursement method, but services of professionals to outpatients are paid for at 115 percent of the amounts that would otherwise be paid for under the physician fee schedule. To make the optional method election feasible and to help prevent possible duplicate billing, we require practitioners furnishing services to outpatients of a CAH to agree to reassign to the CAH their rights to bill the Medicare program for those services.</P>
                    <P>Existing regulations at § 413.70(b) set forth these payment options and specify that an election of the optional method, once made for a cost reporting period, remains in effect for all of that period and applies to all services furnished to CAH outpatients during that period. This means that, under existing regulations, a CAH may elect the optional method payment only if all of its practitioners agree to reassign their billing rights for outpatient services to the CAH.</P>
                    <P>Section 405(d)(1) of Public Law 108-173 amended section 1834(g)(2) of the Act by adding a sentence after paragraph (B) to specify that the Secretary may not require, as a condition for a CAH to make an election of the optional method of payment, that each physician or other practitioner providing professional services in the CAH must assign billing rights with respect to the services. However, the optional payment method does not apply to those physicians and practitioners who have not assigned such billing rights. In other words, section 405(d) amended the Medicare law to authorize CAHs to elect the optional payment method even if some practitioners do not reassign to the CAH their rights to bill for professional services to CAH outpatients. However, it also specifies that the 15-percent increase in payment for those services is not available for professional services for which billing rights are not reassigned.</P>
                    <P>The provisions of section 405(d)(1) of Public Law 108-173 are effective for cost reporting periods beginning on or after July 1, 2004. However, section 405(d)(2)(B) also states, in a special rule of application, that in the case of a CAH that made an election before November 1, 2003, the provisions of section 405(d)(1) are effective for cost periods beginning on or after July 1, 2001.</P>
                    <P>Consistent with section 405(d)(2)(B), we do not intend to attempt recovery of certain amounts paid improperly in the past to CAHs for professional services that the CAHs billed under the optional payment method, even though the CAHs had not obtained reassignments of billing rights from all physicians and other practitioners furnishing professional services to their outpatients, as required by § 413.70 as in effect at that time. However, we are proposing to clarify that the special rule of application in section 405(d)(2)(B) is not to be interpreted to permit a CAH to obtain payment under the optional payment method for any cost reporting period based on an election made for a prior period or on an optional payment method election that was withdrawn or revoked prior to the start of the cost reporting period for which it was made.</P>
                    <P>To illustrate the application of section 405(d)(2)(B), assume that on October 1, 2002, a CAH elected method 2 for its cost reporting period starting on January 1, 2003, but did not obtain reassignments from all physicians treating its outpatients, as required by regulations in effect at that time. Under section 405(d)(2)(B), CMS would not recover any amounts from the CAH for payments for services furnished during that cost reporting period (January 1, 2003, through December 31, 2004) that are attributable to that election, even though the election was inappropriate at the time it was made. Assume further that the same CAH recognized its error and did not make a method 2 election for its cost reporting period beginning January 1, 2004, thus receiving payment under method 1. The fact that the election of October 1, 2002, was made prior to November 1, 2003, is not material in this case and cannot be interpreted to justify method 2 payment for the cost reporting period beginning January 1, 2004, because that method 2 election related to an earlier cost reporting period and not to the cost reporting period beginning January 1, 2004. The same result would occur if the CAH had elected method 2 on October 1, 2003, but subsequently revoked that election on October 15, 2004.</P>
                    <P>
                        We are proposing to revise §§ 413.70(b)(3)(i) to reflect the changes made by section 405(d) of Public Law 108-173. We would specify in § 413.70(b)(3)(i) that a CAH may elect to be paid for outpatient services in any cost reporting period beginning on or after July 1, 2004, under the method described in §§ 413.70(b)(3)(ii) and (b)(3)(iii). In § 413.70(b)(3)(i)(A), we would clarify that such an election is to be made at least 30 days before the start of the cost reporting period for which the election is made. In § 413.70(b)(3)(i)(B), we would specify 
                        <PRTPAGE P="28329"/>
                        that the provision applies to all services furnished to outpatients during that cost reporting period by a physician or other practitioner who has reassigned his or her rights to bill for those services to the CAH in accordance with the reassignment regulations under 42 CFR part 424, Subpart F. In that paragraph, we also would specify that if a physician or other practitioner does not reassign his or her billing rights to the CAH in accordance with 42 CFR Part 424, Subpart F, payment for the physician's or practitioner's services to CAH outpatients will be made on a fee schedule or other applicable basis specified in 42 CFR Part 414, Subpart B. We would also add a new paragraph (C) to § 413.70(b)(3)(i) to state that, in case of a CAH that made an election under § 413.70(b)(3) before November 1, 2003, for a cost reporting period beginning before December 1, 2004, the rules in paragraph (b)(3)(i)(B) are effective for cost reporting periods beginning on or after July 1, 2001. We are also proposing in § 413.70(b)(3)(i)(B) to clarify that an election effective only for any cost reporting period for which it was made for the optional method does not apply to an election that was withdrawn or revoked before the start of the cost reporting period for which it was made.
                    </P>
                    <HD SOURCE="HD3">4. Coverage of Costs for Certain Emergency Room On-Call Providers (Section 405(b) of Public Law 108-173 and §§ 413.70(b)(4) and 485.618 of the Regulations)</HD>
                    <P>Under existing regulations at § 413.70(b)(4), which implement section 1834(g)(5) of the Act, Medicare payments to a CAH may include the costs of compensation and related costs of on-call emergency room physicians who are not present on the premises of a CAH, are not otherwise furnishing services, and are not on-call at any other provider or facility when determining the reasonable cost of outpatient CAH services.</P>
                    <P>Section 405(b) of Public Law 108-173 amended section 1834(g)(5) of the Act to expand the reimbursement of on-call emergency room providers beyond physicians to include physician assistants, nurse practitioners, and clinical nurse specialists for the costs associated with covered Medicare services furnished on or after January 1, 2005.</P>
                    <P>We are proposing to revise § 413.70(b)(4)(i) and (ii) to include the expanded list of emergency room on-call providers for whom reimbursement for reasonable compensation and related costs in a CAH would be available. We also are making a conforming change to § 485.618(d) governing the standard for emergency room personnel who are on call under the CAH conditions of participation.</P>
                    <HD SOURCE="HD3">5. Authorization of Periodic Interim Payments for CAHs (Section 405(c) of Public Law 108-173 and Proposed § 413.64(h)(2)(vi) and § 413.70(d) of the Regulations)</HD>
                    <P>Section 1815(e)(2) of the Act provides that payments may be made on a periodic interim payment (PIP) basis for specified covered Medicare services. Section 405(c)(1) of Public Law 108-173 amended section 1815(e)(2) by adding a new subsection (E) to provide for payments for inpatient services furnished by CAHs on a PIP basis, effective for payments made on or after July 1, 2004. Section 405(c)(2) of Public Law 108-173 directs the Secretary to develop alternative methods for the timing of the payments under the PIP method.</P>
                    <P>We have already established in existing regulations under § 413.64(h) provisions for making payments under the PIP method to providers for certain Medicare covered services. The principles and rules of § 413.64 have been incorporated into regulations governing payment on a PIP basis to acute care IPPS hospitals as well as to other providers, such as SNFs and LTCHs, that are paid on a prospective basis. We believe these principles and rules could be equally applied to CAHs. Therefore, in this proposed rule, to implement the provisions of section 405(c) of Public Law 108-173, we are proposing to add a new § 413.64(h)(2)(vi) to specify inpatient services furnished by CAHs as an additional type of covered service for which PIP is available, effective for payments made on or after July 1, 2004.</P>
                    <P>It has been our longstanding policy under § 413.64(h)(6) that payment will be made biweekly under the PIP method, unless the provider requests a longer fixed interval (not to exceed 1 month) between payments. We believe that this provision grants adequate flexibility for the timing of payments under the PIP method to all qualifying providers, including CAHs. Under our proposed policy for CAHs, if a CAH chooses to receive its payments less frequently than biweekly, it could inform its Medicare fiscal intermediary. Section 413.64(h)(6) does not provide for the payments to be made more frequently than biweekly to providers for which PIP is currently available. We believe this is equally appropriate for the payments for inpatient services furnished by CAHs.</P>
                    <P>In summary, we are proposing to apply the same rules and procedures for payments under the PIP method that we apply to acute care hospitals and certain other Medicare providers. Therefore, CAHs, in applying for and receiving payments for inpatient services under the PIP provision, would be operating under the same rules as other providers for which PIP is available under § 413.64(h), including the flexibility discussed above of the timing of their payments as provided for under § 413.64(h)(6). We also are proposing to establish a new paragraph (d) under § 413.70 to provide that, for payments on or after July l, 2004, a CAH may elect to receive PIP for inpatient services furnished by CAHs, subject to the provisions of § 413.64(h). The new § 413.70(d) summarizes the application of the PIP provisions under § 413.64(h)(6) for CAH inpatient services and notes the availability of accelerated payments for CAHs that are not receiving PIPs.</P>
                    <P>
                        <E T="03">Technical Changes to § 413.64.</E>
                         We are proposing to use this opportunity to remove §§ 413.64(h)(3)(iv) and 413.64(h)(4), which contain an outdated requirement that a provider must repay any outstanding current financing payments before being permitted to be paid under the PIP method. Current financing payments have not been available since 1973.
                    </P>
                    <HD SOURCE="HD3">6. Revision of the Bed Limit for CAHs (Section 405(e) of Public Law 108-173 and §§ 485.620(a) and 485.645(a)(2) of the Regulations)</HD>
                    <P>Prior to the enactment of Public Law 108-173, sections 1820(c)(2)(B)(iii) and 1820(f) of the Act restricted CAHs to 15 acute care beds and a total of 25 beds if the CAH had been granted swing-bed approval. The number of beds used at any time for acute care inpatient services could not exceed 15 beds.</P>
                    <P>Section 405(e) of Public Law 108-173 amended sections 1820(c)(2)(B)(iii) and 1820(f) of the Act to allow CAHs a maximum of 25 acute care beds for inpatient services, regardless of the swing-bed approval. This amendment is effective on January 1, 2004 and applies to CAHs designated before, on, or after this date. However, section 405(e)(3) of Public Law 108-173 also notes that any election made in accordance with the regulations promulgated to carry out the bed size amendments only applies prospectively.</P>
                    <P>
                        We interpret this provision to mean that the increased bed size limitation is to be applied prospectively after April 1, 2004, regardless of when the CAH was designated. Accordingly, we implemented this provision via a survey and certification letter on January 1, 2004. (See Survey and Certification 
                        <PRTPAGE P="28330"/>
                        Letter No. 0414, issued December 11, 2003.) Therefore, effective January 1, 2004, this provision allows any currently participating CAH, or applicant for CAH approval, to maintain up to 25 inpatient beds. If swing-bed approval has been granted, all 25 beds can be used interchangeably for acute care or swing-bed services. However, no CAH will be considered to have had 25 acute care beds prior to January 1, 2004. We are proposing to amend our regulations at §§ 485.620(a) and 485.645(a)(2) to reflect the increase in the number of beds permitted in a CAH, in accordance with the amendments made by section 405(e) of Public Law 108-173.
                    </P>
                    <HD SOURCE="HD3">7. Authority To Establish Psychiatric and Rehabilitation Distinct Part Units of CAHs (Section 405(g)(1) of Public Law 108-173 and Proposed New § 485.646 of the Regulations)</HD>
                    <P>As stated earlier, sections 1820(c)(2)(B) and 1861(mm) of the Act set forth the criteria for designating a CAH. Under this authority, the Secretary has established in regulations the minimum requirements a CAH must meet to participate in Medicare (42 CFR Part 485, Subpart F). The CAH designation is targeted to small rural hospitals with a low patient census and short patient stays.</P>
                    <P>Under the law in effect prior to Public Law 108-173, CAHs are excluded from operating distinct part units (that is, separate sections of hospitals that are dedicated to providing inpatient rehabilitation or psychiatric care and are paid under payment methods different from those used for the acute care areas of the hospitals). The statute (section 1886(d)(l)(B) of the Act) and implementing regulations under 42 CFR Part 412, Subpart B require distinct part units to be units of “subsection (d) hospitals,” which are hospitals paid under the IPPS. Because CAHs are not “subsection (d) hospitals” paid under IPPS, but instead are paid for inpatient care on a reasonable cost basis under section 1814(l) of the Act, they are effectively prohibited from having distinct part units.</P>
                    <P>Section 405(g)(1) of Public Law 108-173 modified the statutory requirements for CAHs under section 1814(l) and section 1820(c)(2) of the Act to allow CAHs to establish distinct part rehabilitation and psychiatric units of up to 10 beds each, which will not be included in the revised total 25 CAH bed count under section 405(e) of Public Law 108-173 (discussed in detail in section VI.D.6. of this preamble. In addition, as explained more fully below, the average 96-hour stay does not apply to the 10 beds in the distinct part units and inpatient admissions; days of inpatient care in these distinct part units are not taken into account in determining the facility's compliance with the requirement for a facility-wide average length of stay that does not exceed 96 hours.</P>
                    <P>Section 405(g)(1) of Public Law 108-173 provides under section 1820(c)(2)(E)(i) of the Act that a distinct part rehabilitation or psychiatric unit of a CAH must meet the conditions of participation that would otherwise apply to the distinct part unit of a hospital if the distinct part unit were established by a subsection (d) hospital in accordance with the matter following clause (v) of section 1886(d)(1)(B) of the Act, including any applicable regulations adopted by the Secretary. CAHs will now be permitted to operate distinct-part psychiatric and rehabilitation units, and it is clear that the law, consistent with this change, requires the same level of health and safety protection for patients in distinct part units of a CAH that is currently required for patients in distinct part units operated by an acute care hospital.</P>
                    <P>The amendments to section 405(g)(1) are effective for the cost reporting periods beginning on or after October 1, 2004.</P>
                    <P>As CAHs were excluded from operating distinct part units prior to the enactment of section 405(g), the CAH conditions of participation did not address the necessary requirements and standards for operating such units. As noted previously, section 1820(c)(2)(E)(i) of the Act makes it clear that the requirements, including conditions of participation, for operating these units in a CAH are to be the same as is currently required for these units operated by an acute care hospital. Accordingly, we are proposing that, in accordance with the requirements of section 405(g), a rehabilitation or psychiatric distinct part unit of a CAH must meet all of the hospital conditions of participation at 42 CFR Part 482, Subparts A, B, C, and D and the criteria for exclusion from the IPPS at 42 CFR Part 412 as described below. These requirements will only apply to the services provided in the distinct part unit of a CAH and not the entire CAH.</P>
                    <P>Currently, psychiatric distinct part units of hospitals are subject to specific Medicare regulations established in 42 CFR 412.27 regarding the types of patients admitted, the scope of services furnished, and the qualifications of staff. For example, psychiatric distinct part units may admit only patients whose condition requires inpatient hospital care for a psychiatric principal diagnosis. The regulations at § 412.27(b) further requires a hospital that wishes to establish a psychiatric distinct part unit to furnish, through the use of qualified personnel, psychological services, social work services, psychiatric nursing, and occupational and recreational therapy. The hospital must maintain medical records for the unit that permit determination of the degree and intensity of services to individuals treated in the unit. Inpatient psychiatric services must be under the supervision of a clinical director, service chief, or equivalent who is qualified to provide the leadership required for an intensive treatment program, and who is board certified in psychiatry (42 CFR 412.27(d)(2)). The distinct part unit must have a director of social services, a qualified director of psychiatric nursing services who is a registered nurse with a master's degree in psychiatric or mental health nursing, or its equivalent from an accredited school of nursing, or is qualified by education and experience in the care of individuals with mental illness. There must also be an adequate number of registered nurses to provide 24-hour coverage as well as licensed practical nurses and mental health workers. These and other applicable requirements are set forth in greater detail in § 412.27.</P>
                    <P>Rehabilitation distinct part units of hospitals are currently subject to criteria in 42 CFR 412.29. This section specifies that such a unit must meet either the requirements for new units (§ 412.30(a)) or those for existing units (§ 412.30(c)). In addition, the units must furnish through qualified personnel rehabilitation nursing, physical and occupational therapy, and as needed, speech therapy and social services or psychological services, and orthotics and prosthetics. The unit must have a director of rehabilitation services who is trained or experienced in medical management of inpatients who require rehabilitation services and is a doctor of medicine or a doctor of osteopathy. Rehabilitation distinct part units may treat only patients likely to benefit significantly from an intensive inpatient program, utilizing services such as physical, occupational, or speech therapy. These and other applicable requirements are set forth in greater detail in §§ 412.29 and 412.30.</P>
                    <P>
                        To implement the requirements of section 1820(c)(2)(E)(i) of the Act, as added by section 405(g)(1) of Public Law 108-173, we are proposing to add a new § 485.647 to 42 CFR Part 485, Subpart F. In proposed § 485.647(a)(1), we would specify that if a CAH provides 
                        <PRTPAGE P="28331"/>
                        inpatient psychiatric services in a distinct part unit, the services provided in that unit must comply with the hospital requirements specified in Subparts A, B, C, and D of Part 482, with the common requirements for IPPS-excluded units in § 412.25(a)(2) through (f), and with the additional requirements of § 412.27 for psychiatric units excluded from the IPPS. In proposed § 485.647(a)(2), we would specify that if a CAH provides inpatient rehabilitation services in a distinct part unit, the services provided in that unit must comply with the hospital requirements specified in Subparts A, B, C, and D of Part 482, with the common requirements for IPPS-excluded units in § 412.25(a)(2) through (f), and with the additional requirements of §§ 412.29 and 412.30, which relate specifically to rehabilitation units excluded from the IPPS. To provide for consistent application of section 405(g)(1) and avoid any confusion, we also are proposing to revise § 412.22, which contains the common requirements for excluded hospital units, to state that, for purposes of 42 CFR Part 412, Subpart B, the term “hospital” includes a CAH.
                    </P>
                    <P>As noted earlier, sections 1820(c)(2)(E)(ii) and (c)(2)(E)(iii) of the Act, as added by section 405(g)(1) of the MMA, provide that each distinct part unit of a CAH may have up to 10 beds and that, in determining the number of beds a CAH has for purposes of compliance with the 25-bed limit described earlier, the beds in a distinct part unit are not to be taken into account. We interpret the exclusion of these beds from consideration for purposes of the 25-bed limit as also indicating that the admissions and lengths of stay in distinct part unit beds are not to be considered in determining the facility-wide average length stay of a CAH for purposes of the 96-hour limitation on CAH's average length of inpatient stay. These rules would be codified in paragraphs (b)(1) through (b)(3) of proposed § 485.647.</P>
                    <P>Section 1820(c)(2)(E)(iv) of the Act, as added by section 405(g)(1) of Public Law 108-173, imposes severe sanctions on CAHs that fail to operate their distinct part units in compliance with applicable requirements. That section states that if a psychiatric or rehabilitation unit of a CAH does not meet the requirements of section 1820(c)(2)(E)(i) with respect to a cost reporting period, no payment may be made to the CAH for services furnished in that unit for that period. Payment to the CAH for services in the unit may resume only after the unit has demonstrated to CMS that the unit meets the requirements of § 485.645. We are proposing to codify this requirement by adding a new paragraph (g) to § 412.25.70, which contains the common requirements for excluded units.</P>
                    <P>Section 405(g)(1) of Public Law 108-173 amended section 1814(l) of the Act by adding a new paragraph (2) to that provision. New section 1814(l)(2) states that, in the case of a distinct-part psychiatric or rehabilitation unit of a CAH, the amount of payment for inpatient CAH services of such a unit is to equal the amount that would be paid if these services were inpatient hospital services of a psychiatric or rehabilitation unit, respectively, of the kind described in the matter following clause (v) of section 1886(d)(1)(B) of the Act. To implement the requirements of section 1814(1)(2) of the Act, we are proposing that, for CAHs that establish rehabilitation or psychiatric distinct part units, or both, in their facility, Medicare payment for inpatient services provided in those units would be made under the applicable existing payment methodology described below for IRFs and IPFs.</P>
                    <P>Presently, IRFs are paid under a per discharge PPS that became effective for cost reporting periods beginning on or after January 1, 2002. The regulations governing the IRF PPS are located under 42 CFR Part 412, Subpart P (§§ 412.600 through 412.632).</P>
                    <P>
                        At this time psychiatric hospitals and units that are excluded from the IPPS are paid for their inpatient operating costs on a reasonable cost basis, subject to a hospital-specific limit. However, as required by statute, a per diem PPS for Medicare payments for inpatient hospital services furnished in psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)) was proposed in the 
                        <E T="04">Federal Register</E>
                         on November 28, 2003 (68 FR 66920). We are in the process of developing the final rule for this proposed rule. When finalized, the IPF PPS will replace the reasonable cost based payment system currently in effect.
                    </P>
                    <P>To clarify the requirements of section 1814(1)(2) of the Act regarding payment for inpatient CAH services of a distinct part psychiatric or rehabilitation unit of a CAH, we are proposing to revise the title and first sentence of paragraph (a)(1) of § 413.70, and to add a new paragraph (a)(4) to that section, to clarify that payment for inpatient services of a CAH distinct part unit is not made in accordance with the otherwise applicable rules for payment for inpatient CAH services, but under other rules described in new § 413.70(e). We propose also in new paragraph § 413,70(e), that payment for inpatient services of distinct part rehabilitation units of CAHs is made in accordance with regulations governing the IRF PPS at 42 CFR Part 412, Subpart F (§§ 412.600 through 412.632). We also would state that payment for inpatient services of distinct part psychiatric units of CAHs is made in accordance with regulations governing IPPS-excluded psychiatric units of hospitals at 42 CFR 413.40.</P>
                    <HD SOURCE="HD3">8. Waiver Authority for Designation of a CAH as a Necessary Provider</HD>
                    <P>Section 405(h) of Public Law 108-173 amended section 1820(c)(B)(i)(II) of the Act by adding language that terminates a State's authority to waive the location requirement for a CAH by designating the CAH as a necessary provider, effective January 1, 2006. Currently, a CAH is required to be located more than a 35-mile drive (or in the case of mountainous terrain or secondary roads, a 15-mile drive) from a hospital or another CAH, unless the CAH is certified by the State as a necessary provider of health care services to residents in the area. Under this provision, after January 1, 2006, States will no longer be able to designate a CAH based upon a determination it is a necessary provider of health care.</P>
                    <P>In addition, section 405(h) of Public Law 108-173 amended section 1820(h) of the Act to include a grandfathering provision for CAHs that are certified as necessary providers prior to January 1, 2006. Under this provision, any CAH that is designated as a necessary provider in its State's rural health plan prior to January 1, 2006, will be permitted to maintain its necessary provider designation.</P>
                    <P>In this proposed rule, we are proposing to revise our regulations at § 485.610(c) to incorporate the amendments made by section 405(h) of Public Law 108-173.</P>
                    <HD SOURCE="HD3">9. Payment for Clinical Diagnostic Laboratory Tests</HD>
                    <P>
                        Medicare payment for clinical diagnostic laboratory tests provided to the outpatients of CAHs was established through the regulatory process and published in the 
                        <E T="04">Federal Register</E>
                         as part of the FY 2004 IPPS final rule (68 FR 45346, August 1, 2003). Payment to a CAH for clinical diagnostic laboratory tests for outpatients is made on a reasonable cost basis only if the individuals for whom the tests are performed are outpatients of the CAH and are physically present at the CAH at the time specimens are collected. Otherwise, payment for these tests is made on a fee schedule basis.
                        <PRTPAGE P="28332"/>
                    </P>
                    <P>We published this final rule to clarify our policy in this area and ensure that all relevant issues were publicly noted. For reasons which are set forth in detail in the FY 2004 IPPS final rule, we do not agree that providing reasonable cost payment to individuals who are not present at the CAH when the specimen is collected is appropriate. We believe that extending reasonable cost payment in these instances is inconsistent with Medicare law and regulations and duplicates existing coverage. It also creates confusion for beneficiaries and others by blurring the distinction between CAHs and other types of providers (for example, SNFs and HHAs) and increases the costs of providing care to Medicare patients without enhancing either the quality or the availability of that care.</P>
                    <P>Following publication of the FY 2004 IPPS final rule, we received a number of letters and statements in Open Door Calls indicating that some commenters continue to believe that this policy will impose a hardship on Medicare beneficiaries in rural areas. Several of these commenters argued that it might cause frail elderly nursing home patients to have to be moved to a CAH to have blood drawn or other specimen collection performed instead of sending a laboratory technician to the patient's bedside for the same purpose. We agree with the commenters that this would not be an appropriate result. However, we would note that there are also alternative ways in which specimen collection and travel are payable under Medicare (for example, the laboratory benefit under Part B or HAAs that have laboratory provider numbers). Therefore, we do not expect beneficiaries to face reduced access to services under this policy.</P>
                    <P>In response to continuing claims of potential access problems, we invited commenters to submit further, more specific comments that provide specific information on actual, rather than merely potential or anticipated access problems. In response, we received many communications asserting that these problems would occur, but no credible documentation that they actually are occurring. As a result of these responses, we are not proposing any further change in policy on this issue at this time. We would like to renew our request for specific, verifiable documentation as to any actual access problems being generated by this policy, and will review carefully any such documentation we receive to determine whether current policy should be reconsidered.</P>
                    <HD SOURCE="HD3">10. Proposed Technical Changes in Part 489</HD>
                    <P>In several sections of Part 489, we have discovered a need to update cross-references to conform them to the redesignation of the Medicare transfer rules from § 489.24(d) to § 489.24(d). Specifically, we are proposing to correct the cross-reference to “§ 489.24(d)” in §§ 489.20(m) and 489.53(b)(2) to read “§ 489.24(e)”.</P>
                    <HD SOURCE="HD1">VII. Proposed Changes to the Disclosure of Information Requirements for Quality Improvement Organizations (QIOs)</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Quality Improvement Organizations” at the beginning of your comment.]</FP>
                    <HD SOURCE="HD2">A. Background</HD>
                    <P>Section 1152 of the Act defines a utilization and quality control peer review organization (now referred to as a quality improvement organization (QIO)). Section 1153 provides for contracts with such organizations to review items and services furnished by physicians, other practitioners, and providers to Medicare patients to verify that the items and services are reasonable, medically necessary, and allowable under the Act; meet professionally recognized standards of health care; and are furnished in the appropriate setting. Section 1154 of the Act outlines the functions of a QIO, which include responsibility for: (1) Collecting and maintaining information necessary to carry out its responsibilities; (2) examining pertinent records maintained by the practitioner or provider verifying the medical necessity and quality of services provided by any practitioner or provider of health care services to Medicare patients; (3) ensuring that health care practitioners and providers maintain evidence of medical necessity and quality of health care services provided to Medicare patients; and (4) exchanging information with intermediaries, carriers, and other public or private review organizations as appropriate. Section 1160 of the Act provides that information acquired by QIOs in the exercise of their duties and functions must be held in confidence. Information cannot be disclosed except as allowed under section 1160 of the Act and the existing regulations governing the release of QIO peer review information in 42 CFR Part 480. Specifically, Part 480 sets forth the policies and procedures for disclosure of information collected, acquired, or generated by a QIO (or the review component of a QIO subcontractor) in the performance of its responsibilities under the Act and the Medicare regulations, as well as the acquisition and maintenance of information needed by a QIO to comply with its responsibilities under the Act.</P>
                    <P>QIOs assist institutions and practitioners seeking to improve the quality of care given to Medicare beneficiaries. CMS aims to ensure that adequate protections of information collected by QIOs are in place and, at the same time, to ensure that the quality improvement activities of these institutions and practitioners are not unnecessarily hindered by regulations. It has come to our attention that the existing regulations omit information disclosure procedures that would allow for the effective and efficient exchange of information that is an essential part of quality improvement activities. In addition, it has come to our attention that, although the QIO does not need the consent of the institution to release nonconfidential information, the existing 30-day advance notice requirement to an institution prior to releasing public information or any other nonconfidential information that identifies an institution, when an institution consents to or requests the release of information, impedes the ability of QIOs to conduct quality improvement work. If the institution requests or consents to the release of the information, the institution is already aware of the QIO's intention to disclose the nonconfidential information. Therefore, we see no reason to require the additional 30-day advance notice. Likewise, there is no reason to require a 30-day notice for practitioners who request the release of information for quality improvement activities or other permissible releases under the regulations.</P>
                    <HD SOURCE="HD2">B. Provisions of the Proposed Regulations</HD>
                    <P>We are proposing to make several changes in the regulations in Part 480 to expedite the exchange of information and minimize delays and expenditures currently required of QIOs, institutions, and practitioners as discussed below.</P>
                    <P>
                        Existing § 480.105(a) requires that a QIO must notify an identified institution of its intent to disclose nonconfidential information about the institution and provide a copy of the information at least 30 calendar days before the disclosure. Section 480.105 also includes certain notice requirements a QIO must meet before disclosing confidential information that identifies practitioners and physicians. Section 480.106 presently includes several exceptions to these notice 
                        <PRTPAGE P="28333"/>
                        requirements. We are proposing to revise § 480.106 to establish additional exceptions to the notice requirements in § 480.105(a) and (b)(2). We are proposing to specify that the notice requirements in § 480.105(a) and (b)(2) would not apply if (1) the institution or practitioner has requested, in writing, that the QIO make the disclosure; (2) the institution or practitioner has provided written consent for the disclosure; or (3) the information is public information as defined in § 480.101 and specified in § 480.120.
                    </P>
                    <P>Existing § 480.133(a)(2)(iii) specifies that a QIO may disclose to any person, agency, or organization confidential information on a particular practitioner or reviewer with the consent of that practitioner or reviewer, provided that the information does not identify other individuals. We are proposing to revise § 480.133(a)(2)(iii) to allow for the release of information at the written request of the practitioner or reviewer, in addition to information releasable with the consent of the practitioner or reviewer under the existing provision. Specifically, the proposed revised § 480.133(a)(2)(iii) would provide that a QIO may disclose confidential information about a particular practitioner or reviewer at the written request of, or with the written consent of that practitioner or reviewer. The recipient of the information would have the same redisclosure rights and responsibilities as the requesting or consenting practitioner or reviewer would, under the authority of Subpart B of Part 480. We are proposing a similar revision to § 480.140 relating to the release of quality review study information. Specifically, we are proposing to revise § 480.140 by adding a new paragraph (d) (the existing paragraphs (d) and (e) would be redesignated as paragraphs (e) and (f), respectively) to provide that a QIO may disclose quality review study information with identifiers of particular practitioners or institutions at the written request of, or with the written consent of, the identified practitioner(s) or institution(s). The recipient of the information would have the same redisclosure rights and responsibilities as the requesting or consenting practitioner or reviewer would, under the authority of Subpart B of Part 480. We believe that these proposed revisions would reduce the existing burden on practitioners, institutions, and QIOs and, at the same time, ensure that necessary protections on information remain in place. These proposed revisions would allow QIOs, institutions, and practitioners to share vital information in an effective manner and further our efforts to ensure the highest quality of care possible for Medicare beneficiaries.</P>
                    <HD SOURCE="HD2">C. Technical Changes</HD>
                    <P>We are proposing to revise the title of Part 480 under Subchapter F of Chapter IV of 42 CFR to conform it to a previous regulatory change in the name of the organization conducting medical reviews under Medicare from a peer review organization to a quality improvement organization. The proposed new title is “Part 480—Acquisition, Protection, and Disclosure of Quality Improvement Organization Information”.</P>
                    <P>
                        In a final rule published in the 
                        <E T="04">Federal Register</E>
                         on November 24, 1999 (64 FR 66279), we redesignated Part 476 as Part 480. However, as part of the redesignation process, we inadvertently failed to make appropriate changes to the cross-references in various sections under the redesignated Part 480. In this proposed rule, we are proposing to correct those cross-references.
                    </P>
                    <HD SOURCE="HD1">VIII. Proposed Policy Changes Relating to Medicare Provider Agreements for Compliance With Bloodborne Pathogens Standards, Hospital Conditions of Participation, and Fire Safety Requirements for Certain Health Care Facilities</HD>
                    <HD SOURCE="HD2">A. Conditions of Participation for Discharge Planning</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Discharge Planning” at the beginning of your comment.]</FP>
                    <HD SOURCE="HD3">1. Background</HD>
                    <P>As part of the definition of “hospital,” sections 1861(e)(1) through (e)(8) of the Act set forth specific requirements that a hospital must meet to participate in the Medicare program. Section 1861(e)(9) of the Act specifies that a hospital also must meet other requirements as the Secretary finds necessary in the interest of the health and safety of individuals who are furnished services in hospitals. Implementing regulations for section 1861(c) of the Act, setting forth the conditions of participation (CoPs) that a hospital must meet to participate in the Medicare program, are located in 42 CFR Part 482.</P>
                    <P>The purposes of these CoPs are to protect patient health and safety and to ensure that high quality care is furnished to all patients in Medicare-participating hospitals. In accordance with section 1864 of the Act, State survey agencies conduct surveys of hospitals to determine compliance with the Medicare CoPs, using interpretive guidelines and survey procedures found in the State Operations Manual (SOM), CMS Publication No. 7. In accordance with section 1865 of the Act and the implementing regulations at 42 CFR 488.5 and 488.6, hospitals accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), the American Osteopathic Association (AOA), or other national accreditation organizations are not routinely surveyed by States for compliance with the CoPs, but are deemed to meet most of the hospital CoPs based on their accreditation. However, all hospitals that participate in the Medicare program are required to be in compliance with the CoPs, regardless of their accreditation status. Under section 1905(a) of the Act, the hospital CoPs also apply to hospitals participating in Medicaid (§ 440.10(a)(3)(iii) and § 482.1(a)(5)).</P>
                    <P>Under § 489.10(d), a Medicare provider agreement is subject to the State survey agency's determination of whether a hospital meets the CoPs. The State survey agency makes corresponding recommendations to CMS about the hospital's certification; that is, whether the hospital has met the standards or requirements necessary to provide Medicare and Medicaid services and receives Federal and State reimbursement.</P>
                    <P>Section 4321(a) of Public Law 105-33 (BBA) amended section 1861(ee)(2) of the Act to require that Medicare-participating hospitals, as part of the discharge planning process, share with each patient, as appropriate, a list of available home health services through individuals and entities, including Medicare-certified home health agencies (HHAs) that participate in Medicare, serve the geographic area in which the patient resides, and request to be listed by the hospital as available. In addition, section 4321(a) prohibits hospitals from limiting or steering patients to any specific HHA or qualified provider that may provide posthospital home health services and requires hospitals to identify (in a form and manner specified by the Secretary) any HHA or other entity to whom the individual is referred in which the hospital has a disclosable financial interest consistent with section 1866(a)(1)(S) of the Act or which has a financial interest in the hospital if the patient is referred to that entity.</P>
                    <P>
                        Congress enacted section 4321 of Public Law 105-33 to protect patient choice and enable Medicare beneficiaries to make more informed choices about the providers from which 
                        <PRTPAGE P="28334"/>
                        they receive certain Medicare services. We believe that this provision was intended to address concerns that some hospitals were referring patients only to HHAs in which they had a financial interest, and that shared financial relationships were influencing referrals to other entities. Hospitals essentially have a captive patient population and, through the discharge planning process, can influence a patient's choice regarding who provides posthospitalization services.
                    </P>
                    <P>Congress also enacted section 926 of Public Law 108-173 (MMA) to improve the administration of the Medicare program by protecting patient choice and enabling Medicare beneficiaries to make more informed choices about the providers from which they receive Medicare services. Section 926(a) of Public Law 108-173 requires the Secretary to publicly provide information that enables hospital discharge planners, Medicare beneficiaries, and the public to identify SNFs that are participating in the Medicare program. Section 926(b) of Public Law 108-173 amended section 1861(ee)(2)(D) of the Act to require Medicare-participating hospitals, as part of the discharge planning process, to include a discharge planning evaluation of a patient's likely need for posthospital extended care services and the availability of these services through facilities that participate in the Medicare program and that serve the geographic area in which the patient resides. The amendments to the Act made by section 926(b) of Public Law 108-173 apply to discharge plans made on or after a date specified by the Secretary, which may be no later than 6 months after the Secretary provides for the availability of information required by section 926(a) of Public Law 108-173.</P>
                    <HD SOURCE="HD3">2. Implementation</HD>
                    <P>
                        We implemented the requirements of section 4321(a) of Public Law 105-33 relating to information on HHAs through a HCFA (now CMS) directive that was issued to the Regional Offices and State survey agencies on October 31, 1997. Enforcement has been carried out through the State agency survey and certification process. We note that even though it was not a requirement under section 4321(a) to provide currently available information on HHAs to the public (as now required under section 1861(ee)(2)(D) of the Act, as amended), we have established a “Home Health Compare” link on the CMS Web site, 
                        <E T="03">www.medicare.gov,</E>
                         that identifies HHAs that are currently participating in the Medicare or Medicaid program.
                    </P>
                    <P>We are now proposing to incorporate in our regulations under § 482.43 the requirements of section 4321(a) of Public Law 105-53 relating to providing information on HHAs to hospital patients as part of the discharge planning process. We note that we had previously issued a proposed rule on December 19, 1997 (62 FR 66726) to implement the provisions of section 4321(a) of Public Law 105-33. However, section 902 of Public Law 108-173 now requires us to finalize rules within 3 years after publication of the proposed rule, except under “exceptional circumstances.” While it is not clear whether Congress intended this policy to apply retroactively, out of an abundance of caution, we are issuing a new proposed rule because of the length of time that has elapsed since the issuance of the 1997 proposed rule. Moreover, the provisions of Public Law 108-173 contain information requirements for SNFs substantially similar to the ones required for HHAs. In developing this second proposed rule, we have taken into consideration the issues raised in the public comments we received on the December 19, 1997 proposed rule relating to HHAs.</P>
                    <P>
                        Information on SNFs related to the requirement imposed by section 926(a) of Public Law 108-173 is currently available to the public and can be accessed at the CMS Web site, 
                        <E T="03">www.medicare.gov,</E>
                         by clicking on the “Nursing Home Compare” link or by calling 1-800-MEDICARE (800-633-4227). Nursing Home Compare, launched in November 2002, meets the statutory requirement of section 926(a) by enabling hospital discharge planners, Medicare beneficiaries, and the public to identify the 17,000 nursing homes that participate in the Medicare or Medicaid program. Nursing Home Compare can be used to locate a nursing home by State and county, by proximity (city or zip code), or by name. In addition, Nursing Home Compare provides detailed information about the past performance of every Medicare-certified and Medicaid-certified nursing home in the country. The data on this Web site describe nursing home characteristics, quality measures, inspection results, and nursing staff information. The Nursing Home Compare tool received 9.3 million page views in 2003 and was the most popular tool on 
                        <E T="03">www.medicare.gov.</E>
                         If an interested individual does not have access to the Internet, the individual can call 1-800-MEDICARE (800-633-4227) and request a printout of the nursing homes in a designated area.
                    </P>
                    <P>We are proposing to amend the regulations at § 482.43 to incorporate the provisions of section 4321(a) of Public Law 105-33 and section 926(b) of Public Law 108-173 into the hospital CoPs. Specifically, we are proposing to add new paragraphs (c)(6), (c)(7), and (c)(8) to include the requirement for hospitals to provide lists of Medicare-certified HHAs and SNFs as part of the discharge planning process. The discharge planning evaluation would be required to include a list of Medicare-certified HHAs that have requested to be placed on the list as available to the patient and that serve the geographic area in which the patient resides. We are proposing to require the SNF list to include Medicare-certified SNFs located in the geographic area in which the patient requests. We are not requiring that the list of Medicare-certified SNFs contain those SNFs that are just located in the area in which the patient resides. Because many available Medicare-certified SNFs are not located in proximity to where the patient resides, especially in rural areas, we believe that a requirement that restricts a patient to SNFs in areas where the patient resides is too restrictive and would limit the availability of posthospital extended care services to Medicare beneficiaries.</P>
                    <P>Section 4321(a) of Public Law 105-33 requires listing the availability of home health services through individuals and entities. We have received inquiries regarding the identity of those individuals and entities. We are proposing that, because section 1861(m) of the Act identifies home health services as “specific items or services furnished to an individual, who is under the care of a physician, by an HHA, or by others under arrangements with an HHA,” section 4321(a) is referring to Medicare-participating HHAs.</P>
                    <P>
                        We are proposing that the hospital present the list of HHAs or SNFs only to patients for whom home health care or posthospital extended care services are indicated as appropriate, as determined by the discharge planning evaluation. We do not expect that patients without a need for home health care or posthospital extended care services would receive the list. In addition, we are proposing to require the hospital to document in the patient's medical record that a list of HHAs or SNFs was presented to the patient or an individual acting on the patient's behalf. Hospitals would not have to duplicate the list in the patient's medical record. The information in the medical record would serve as documentation that the requirement was met. The hospital would have the flexibility to determine 
                        <PRTPAGE P="28335"/>
                        exactly how and where in the patient's medical record this information would be documented.
                    </P>
                    <P>
                        We are proposing that a hospital have the flexibility to implement the requirement to present the lists in a manner that is most efficient and least burdensome in its particular setting. A hospital can simply print a list from the Home Health Compare or Nursing Home Compare site on the CMS Web site, 
                        <E T="03">www.medicare.gov</E>
                         or develop and maintain its own list of HHAs and SNFs. When the patient requires home health services, the CMS Web site list would be printed based on the geographic area in which the patient resides. When the patient requires posthospital extended care services, the CMS Web site list would be printed based on the geographic area requested by the patient. Or, in the rare instance when a hospital does not have Internet access, the hospital can call 1-800-MEDICARE (1-800-633-4227) to request a printout of a list of HHAs or SNFs in the desired geographic area. Information on this Web site should not be construed as an endorsement or advertisement for any particular HHA or SNF.
                    </P>
                    <P>If a hospital chooses to develop its own list of HHAs or SNFs, the hospital would have the flexibility of designing the format of the list. However, the list should be utilized neither as a recommendation nor endorsement by the hospital of the quality of care of any particular HHA or SNF. If a HHA or SNF does not meet all of the criteria, (Medicare-certified and is located in the geographic area in which the patient resides or in the geographic area requested by the patient) for inclusion on the list, we are not proposing to require the hospital to place that HHA or SNF on the list. In addition, in accordance with the provisions of the Act, we are proposing that HHAs must request to be listed by the hospital as available. Also, we are proposing that the list must be legible and current (updated at least annually), and that the listed information be shared with the patient or an individual acting on the patient's behalf at least once during the discharge planning process. However, we would specify that information regarding the availability of HHAs or SNFs may need to be presented more than once during the discharge planning process to meet the patient's need for additional information or as the patient's needs and condition change.</P>
                    <P>We are proposing to require that, as part of the discharge planning process, the hospital must inform the patient or the patient's family of their freedom to choose among participating Medicare providers of posthospital services and must, when possible, respect patient and family preferences when they are expressed (proposed § 482.43(c)(7)). In addition, the hospital may not use the discharge plan to specify or otherwise limit the patient's choice of qualified providers that may provide home health care or posthospital extended care services. The intent of this proposed provision is to provide the patient with the freedom of choice to determine which HHA or SNF will provide care in accordance with section 1802 of the Act, which states that beneficiaries may obtain health services from any Medicare-participating provider.</P>
                    <P>Finally, we are proposing to require the hospital to identify in each discharge plan those HHAs or SNFs to which the patient is referred that the hospital has a disclosable financial interest or HHAs or SNFs that have a financial interest in the hospital (proposed § 482.43(c)(8)). For the purposes of implementing section 4321(a) of Public Law 105-33, we are proposing to define a disclosable “financial interest” as any financial interest that a hospital is required to report according to the provider enrollment process, which is governed by section 1124 of the Act and implementing regulations located in 42 CFR Part 420, Subpart C, and manual provisions. If a hospital refers patients about to be discharged and in need of posthospital services only to entities it owns or controls, the hospital would be infringing on the rights of the patient to choose the facility he or she would like to go to for services. The proposed disclosable financial interest requirement is an effort to increase the beneficiary's awareness of the actual or potential financial incentives for a hospital as a result of the referral. To allow hospitals the flexibility of determining how these financial interests are disclosed to the patient, we are not requiring a specific form or manner in which the hospital must disclose financial interest. The hospital could simply highlight or otherwise identify those entities in which a financial interest exists directly on the HHA and SNF lists. Or, the hospital could choose to maintain a separate list of those entities in which a financial interest exists.</P>
                    <P>Hospitals and managed care organizations (MCOs) have expressed concern as to whether the change made by section 4321(a) of Public Law 105-33 was intended to apply to patients in managed care plans. MCO members are limited as to what services they may obtain from sources other than through the MCO. We believe that providing MCO members with a standardized list of all HHAs or SNFs in the requested geographic area could be misleading and potentially financially harmful because MCO enrollees may be liable for services that they obtain from providers other than the MCO, and patients may interpret a list of HHAs or SNFs that are not available to them under their health plan to mean that they are authorized by the MCO. This does not mean that Medicare MCO members in particular are denied the freedom of choice they are entitled to under section 1802 of the Act. Medicare beneficiaries exercise their freedom of choice when they voluntarily enroll in the MCO and agree to adhere to the plan's coverage provisions.</P>
                    <P>The list provided to MCO patients should include available and accessible HHAs or SNFs in a network of the patient's MCO. Hospitals also have the option, in the course of discussing discharge planning with patients, to determine whether the beneficiary has agreed to excluded services or benefits or coverage limitations through enrollment in a MCO. If this is the case, the hospital could inform the patient of the potential consequences of going outside the plan for services.</P>
                    <P>We also have received many inquiries about how the requirements contained in section 4321(a) of Public Law 105-33 are monitored and enforced. Once codified in the hospital CoPs, a hospital's obligations under both section 4321(a) of Public Law 105-33 and section 926(b) of Public Law 108-173 would be monitored as part of the hospital survey and certification process. Anyone aware of instances in which patients are inappropriately influenced or steered toward a particular HHA or SNF in a way that violated the regulation would have the opportunity to file a complaint with the State survey agency. The State survey agency would then investigate and follow up with the complainant. Noncompliance with the hospital CoPs may result in a hospital losing its ability to participate in the Medicare program.</P>
                    <P>
                        Requiring hospitals to provide a list of Medicare-certified HHAs or SNFs would provide patients with more options and assist them in making informed decisions about the providers from which they receive Medicare services. Specifically, the intent of the proposed modifications to the discharge planning CoPs is to provide the patient with the freedom of choice to determine which HHA or SNF available in the geographic area in which the patient resides or the geographic area requested by the patient, would provide them care in accordance with section 1802 of the Act, 
                        <PRTPAGE P="28336"/>
                        which states that beneficiaries may obtain health services from any Medicare participating provider.
                    </P>
                    <HD SOURCE="HD2">B. Compliance With Bloodborne Pathogens Standards</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Bloodborne Pathogens Standards” at the beginning of your comment.]</FP>
                    <P>Section 1866(a)(1) of the Act sets forth provider agreement requirements that Medicare-participating hospitals must meet. Implementing regulations for these requirements are set forth at 42 CFR 489.20.</P>
                    <P>
                        Section 947 of Public Law 108-173 amended section 1866(a)(1) of the Act to require that, by July 1, 2004, hospitals not otherwise subject to the Occupational Safety and Health Act (OSHA) (or a State occupational safety and health plan that is approved under section 18(b) of that Act) must comply with the OSHA bloodborne pathogens (BBP) standards at 29 CFR 1910.1030 as part of their Medicare provider agreements. These OSHA standards can be found on OSHA's Web site at 
                        <E T="03">http://www.osha.gov/SLTC/bloodbornepathogens/.</E>
                         Section 947, which applies to hospitals participating in Medicare as of July 1, 2004, was enacted to ensure that all hospital employees who may come into contact with human blood or other potentially infectious materials in the course of their duties are provided proper protection from bloodborne pathogens. Section 947 further provides that a hospital that fails to comply with OSHA's BBP standards may be subject to a civil money penalty. The civil money penalty will be imposed and collected in the same manner that civil money penalties are imposed and collected under section 1128A(a) of the Act. However, failure to comply with the BBP standards will not lead to termination of a hospital's provider agreement.
                    </P>
                    <P>Currently, most hospitals are subject either to the OSHA BBP standards or to other BBP standards (generally, State standards) that meet or exceed the OSHA standards. However, non-Federal public hospitals located in States that do not have their own BBP standards are not subject to OSHA standards, including the OSHA BBP standards. Twenty-six States and the District of Columbia, and Guam do not have their own BBP standards under an OSHA-approved State plan. Therefore, an estimated 600,000 employees of hospitals located in those 26 States, the District of Columbia, and Guam are not afforded the same protections from BBPs as employees of all other hospitals in the United States. The States and territories that would be affected by the change made by section 947 of Public Law 108-173 are Alabama, Arkansas, Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Kansas, Louisiana, Maine, Massachusetts, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Texas, West Virginia, Wisconsin, District of Columbia, and Guam.</P>
                    <P>We are proposing to incorporate the provisions of Public Law 108-173 in § 489.20 of the Medicare regulations governing provider agreements by adding a new paragraph (t). Paragraph (t) would specify that hospitals not otherwise subject to the OSHA BBP standards must comply with the OSHA BBP standards at 29 CFR 1910.1030 as part of their Medicare provider agreement. The proposed regulations would further specify that if a hospital fails to comply with OSHA's BBP standards, the hospital may be subject to a civil money penalty. The civil money penalty would be imposed and collected in the same manner that civil money penalties are imposed and collected under section 1128A(a) of the Act. However, failure to comply with the BBP standards would not lead to termination of a hospital's provider agreement. The proposed regulations would also refer to the Federal Civil Penalties Inflation Adjustment Act. This reference is intended to alert the reader that the civil money penalty amounts under section 1128A(a) of the Act may, under the Federal Civil Penalties Inflation Adjustment Act, be increased to adjust for inflation.</P>
                    <HD SOURCE="HD2">C. Fire Safety Requirements for Certain Health Care Facilities</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Life Safety Code” at the beginning of your comment.]</FP>
                    <HD SOURCE="HD3">1. Background</HD>
                    <P>
                        On January 10, 2003, we published a final rule in the 
                        <E T="04">Federal Register</E>
                         (68 FR 1374) that adopted the 2000 edition of the Life Safety Code (LSC) published by the National Fire Protection Association (NFPA) as the fire safety requirements (with specified exceptions) that we are applying to the following types of providers participating in the Medicare and Medicaid programs: long-term care facilities, hospitals, intermediate care facilities for the mentally retarded (ICF/MRs), ambulatory surgical centers (ASCs), hospices that provide inpatient services, religious nonmedical health care institutions, CAHs, and Programs of All-Inclusive Care for the Elderly (PACE).
                    </P>
                    <P>In addition to adopting the 2000 edition of the LSC, we stated our intent to delete references to all previous editions of the LSC. However, as a result of a technical error, the reference to previous editions of the LSC in § 483.70(a)(1) of the regulations for long-term care facilities was not deleted. Allowing long-term care facilities to comply with the 1967, 1973, and 1981 editions of the LSC would not adequately protect long-term care facility patients from the threat of fire and other emergencies. These editions do not recognize newer technology, nor the advances in fire safety that have been developed in the ensuing years. In addition, the existing conflicting regulatory language is confusing and contrary to the best interests of long-term care facilities and their patients. Therefore, in this proposed rule, we are proposing to correct this technical error. We are not proposing to make any substantive policy change.</P>
                    <P>In the January 10, 2003 final rule, we also specified that we were not adopting the provisions of Chapter 19.3.6.3.2, exception number 2 of the LSC regarding the use of roller latches for application to religious nonmedical health care institutions, hospices, hospitals, long-term care facilities, PACE programs, ICF/MRs and CAHs. We prohibit the use of roller latches in existing and new buildings, except for ASCs under Chapter 20 and Chapter 21 of the LSC, and provide for the replacement of existing roller latches, phased in over a 3-year period beginning March 11, 2003. We indicated that allowing health care facilities to continue using roller latches would not adequately protect patients in those facilities. Through fire investigations, roller latches have proven to be an unreliable door latching mechanism requiring extensive on-going maintenance to operate properly. Many roller latches in fire situations failed to provide adequate protection to patients in their room during an emergency. Roller latches that are not maintained pose a threat to the health and safety of patients and staff. We added that we had found through our online survey, certification, and reporting (OSCAR) system data that doors that include roller latches are consistently one of our most cited deficiencies. In fact, in SNFs, roller latches in corridor doors are consistently the number one cited deficiency under the life safety requirements.</P>
                    <P>
                        We have learned that the language regarding the date when these facilities must be in compliance with the 
                        <PRTPAGE P="28337"/>
                        prohibition on the use of roller latch may be misinterpreted and needs to be clarified. In this proposed rule, we are proposing to clarify our intent by revising the regulations as discussed under section VIII.C.2. of this preamble. We are not proposing to make any substantive policy changes.
                    </P>
                    <P>The flexibility of the January 10, 2003 final rule would remain the same. The Secretary has broad authority to grant waivers to facilities under section 1819(d)(2)(B) and section 1919(d)(2)(B) of the Act. The proposed amendments in this proposed rule would continue to allow the Secretary to grant waivers on a case-by-case basis if the safety of the patients would not be compromised and if specific provisions of the LSC would result in unreasonable hardship on the provider. The Secretary also may accept a State's fire and safety code instead of the LSC if the State's fire and safety code adequately protects patients. Further, the NFPA's Fire Safety Evaluation System (FSES), an equivalency system, provides alternatives to meeting various provisions of the LSC, thereby achieving the same level of fire protection as the LSC.</P>
                    <HD SOURCE="HD3">2. Proposed Changes to the Regulations</HD>
                    <P>We are proposing to revise § 483.70(a) to delete references to the 1967, 1973, and 1981 editions of the LSC.</P>
                    <P>We are proposing to revise the following regulations applicable to the specified facilities to clarify that the facility must be in compliance with Chapter 19.2.9, Emergency Lighting, beginning March 13, 2006. In addition, we would also specify that, beginning March 13, 2006, Chapter 19.3.6.3.2, exception number 2 (concerning roller latches), does not apply to the facility.</P>
                    <P>a. For religious nonmedical health care institutions: § 403.744(a) and (c).</P>
                    <P>b. For hospices, § 418.100(d)(1), (d)(4), and new (d)(5). </P>
                    <P>c. For PACE programs, § 460.72(b)(1)(i), (b)(3), and new (b)(4).</P>
                    <P>d. For hospitals, § 482.41(b).</P>
                    <P>e. For long-term care facilities, § 483.70(a).</P>
                    <P>f. For ICF/MRs, § 483.470(j).</P>
                    <P>g. For CAHs, § 485.623(d)(1), (d)(5), and new (d)(6).</P>
                    <HD SOURCE="HD1">IX. MedPAC Recommendations</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “MedPAC Recommendations” at the beginning of your comment.]</FP>
                    <P>
                        We are required by section 1886(e)(4)(B) of the Act to respond to MedPAC's IPPS recommendations in our annual proposed IPPS rule. We have reviewed MedPAC's March 1, 2004 “Report to the Congress: Medicare Payment Policy” and have given it careful consideration in conjunction with the proposals set forth in this document. For further information relating specifically to the MedPAC report or to obtain a copy of the report, contact MedPAC at (202) 653-7220, or visit MedPAC's Web site at: 
                        <E T="03">www.medpac.gov.</E>
                    </P>
                    <P>We note that MedPAC's recommendations in its March 1, 2004 report included only one recommendation concerning Medicare inpatient hospital payment policies. MedPAC's Recommendation 3A-1 states that Congress should increase payment rates for the IPPS by the projected rate of increase in the hospital market basket for FY 2005. We note that section 501(a)(3) of Public Law 108-173 requires that the payment rates for the IPPS be increased by the market basket percentage increase for all hospitals during FYs 2005, 2006, and 2007, except that it also provides for reducing the update by 0.4 percentage points for any hospital that fails to submit data on a list of 10 quality indicators. We discuss this recommendation further in Appendix B of this proposed rule in the context of our recommendation concerning the update factor for inpatient hospital operating costs and for hospitals and hospital distinct-part units excluded from the IPPS.</P>
                    <HD SOURCE="HD1">X. Other Required Information</HD>
                    <HD SOURCE="HD2">A. Requests for Data From the Public</HD>
                    <P>
                        In order to respond promptly to public requests for data related to the prospective payment system, we have established a process under which commenters can gain access to raw data on an expedited basis. Generally, the data are available in computer tape or cartridge format; however, some files are available on diskette as well as on the Internet at 
                        <E T="03">http://www.hcfa.gov/stats/pufiles.htm.</E>
                         Data files and the cost for each file, if applicable, are listed below. Anyone wishing to purchase data tapes, cartridges, or diskettes should submit a written request along with a company check or money order (payable to CMS-PUF) to cover the cost to the following address: Centers for Medicare &amp; Medicaid Services, Public Use Files, Accounting Division, P.O. Box 7520, Baltimore, MD 21207-0520, (410) 786-3691. Files on the Internet may be downloaded without charge.
                    </P>
                    <HD SOURCE="HD3">1. CMS Wage Data</HD>
                    <P>This file contains the hospital hours and salaries for FY 2001 used to create the proposed FY 2005 prospective payment system wage index. The file will be available by the beginning of February for the NPRM and the beginning of May for the final rule.</P>
                    <GPOTABLE COLS="3" OPTS="L2,tp0,i1" CDEF="xls40,6,6">
                        <TTITLE> </TTITLE>
                        <BOXHD>
                            <CHED H="1">Processing year</CHED>
                            <CHED H="1">Wage data year</CHED>
                            <CHED H="1">PPS fiscal year</CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">2004</ENT>
                            <ENT>2001</ENT>
                            <ENT>2005</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">2003</ENT>
                            <ENT>2000</ENT>
                            <ENT>2004</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">2002</ENT>
                            <ENT>1999</ENT>
                            <ENT>2003</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">2001</ENT>
                            <ENT>1998</ENT>
                            <ENT>2002</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">2000</ENT>
                            <ENT>1997</ENT>
                            <ENT>2001</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">1999</ENT>
                            <ENT>1996</ENT>
                            <ENT>2000</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">1998</ENT>
                            <ENT>1995</ENT>
                            <ENT>1999</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">1997</ENT>
                            <ENT>1994</ENT>
                            <ENT>1998</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">1996</ENT>
                            <ENT>1993</ENT>
                            <ENT>1997</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">1995</ENT>
                            <ENT>1992</ENT>
                            <ENT>1996</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">1994</ENT>
                            <ENT>1991</ENT>
                            <ENT>1995</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">1993</ENT>
                            <ENT>1990</ENT>
                            <ENT>1994</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">1992</ENT>
                            <ENT>1989</ENT>
                            <ENT>1993</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">1991</ENT>
                            <ENT>1988</ENT>
                            <ENT>1992</ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>These files support the following:</P>
                    <P>
                        • NPRM published in the 
                        <E T="04">Federal Register</E>
                        .
                    </P>
                    <P>
                        • Final Rule published in the 
                        <E T="04">Federal Register</E>
                        .
                    </P>
                    <P>
                        <E T="03">Media:</E>
                         Diskette/most recent year on the Internet.
                    </P>
                    <P>
                        <E T="03">File Cost:</E>
                         $165.00 per year.
                    </P>
                    <P>
                        <E T="03">Periods Available:</E>
                         FY 2005 PPS Update.
                    </P>
                    <HD SOURCE="HD3">2. CMS Hospital Wages Indices (Formerly: Urban and Rural Wage Index Values Only)</HD>
                    <P>This file contains a history of all wage indices since October 1, 1983.</P>
                    <P>
                        <E T="03">Media:</E>
                         Diskette/most recent year on the Internet.
                    </P>
                    <P>
                        <E T="03">File Cost:</E>
                         $165.00 per year.
                    </P>
                    <P>
                        <E T="03">Periods Available:</E>
                         FY 2005 PPS Update.
                    </P>
                    <HD SOURCE="HD3">3. PPS SSA/FIPS MSA State and County Crosswalk</HD>
                    <P>This file contains a crosswalk of State and county codes used by the Social Security Administration (SSA) and the Federal Information Processing Standards (FIPS), county name, and a historical list of Metropolitan Statistical Areas (MSAs).</P>
                    <P>
                        <E T="03">Media:</E>
                         Diskette/Internet.
                    </P>
                    <P>
                        <E T="03">File Cost:</E>
                         $165.00 per year.
                    </P>
                    <P>
                        <E T="03">Periods Available:</E>
                         FY 2005 PPS Update.
                    </P>
                    <HD SOURCE="HD3">4. Reclassified Hospitals New Wage Index (Formerly: Reclassified Hospitals by Provider Only)</HD>
                    <P>This file contains a list of hospitals that were reclassified for the purpose of assigning a new wage index. Two versions of these files are created each year. They support the following:</P>
                    <P>
                        • NPRM published in the 
                        <E T="04">Federal Register</E>
                        .
                    </P>
                    <P>
                        • Final Rule published in the 
                        <E T="04">Federal Register</E>
                        .
                    </P>
                    <P>
                        <E T="03">Media:</E>
                         Diskette/Internet.
                        <PRTPAGE P="28338"/>
                    </P>
                    <P>
                        <E T="03">File Cost:</E>
                         $165.00 per year.
                    </P>
                    <P>
                        <E T="03">Periods Available:</E>
                         FY 2005 PPS Update.
                    </P>
                    <HD SOURCE="HD3">5. PPS-IV to PPS-XII Minimum Data Set</HD>
                    <P>The Minimum Data Set contains cost, statistical, financial, and other information from Medicare hospital cost reports. The data set includes only the most current cost report (as submitted, final settled, or reopened) submitted for a Medicare participating hospital by the Medicare fiscal intermediary to CMS. This data set is updated at the end of each calendar quarter and is available on the last day of the following month.</P>
                    <P>
                        <E T="03">Media:</E>
                         Tape/Cartridge.
                    </P>
                    <P>
                        <E T="03">File Cost:</E>
                         $770.00 per year.
                    </P>
                    <GPOTABLE COLS="3" OPTS="L2,tp0,i1" CDEF="xs48,10,10">
                        <TTITLE> </TTITLE>
                        <BOXHD>
                            <CHED H="1"> </CHED>
                            <CHED H="1">Periods beginning on or after</CHED>
                            <CHED H="1">and before</CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">PPS-IV</ENT>
                            <ENT>10/01/86</ENT>
                            <ENT>10/01/87</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-V</ENT>
                            <ENT>10/01/87</ENT>
                            <ENT>10/01/88</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-VI</ENT>
                            <ENT>10/01/88</ENT>
                            <ENT>10/01/89</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-VII</ENT>
                            <ENT>10/01/89</ENT>
                            <ENT>10/01/90</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-VIII</ENT>
                            <ENT>10/01/90</ENT>
                            <ENT>10/01/91</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-IX</ENT>
                            <ENT>10/01/91</ENT>
                            <ENT>10/01/92</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-X</ENT>
                            <ENT>10/01/92</ENT>
                            <ENT>10/01/93</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-XI</ENT>
                            <ENT>10/01/93</ENT>
                            <ENT>10/01/94</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-XII</ENT>
                            <ENT>10/01/94</ENT>
                            <ENT>10/01/95</ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>
                        (
                        <E T="04">Note:</E>
                         The PPS-XIII, PPS-XIV, PPS-XV, PPS-XVI, PPS-XVII, PPS-XVIII, and PPS-XIX Minimum Data Sets are part of the PPS-XIII, PPS-XIV, PPS-XV, PPS-XVI, PPS-XVII, PPS-XVIII, and PPS-XIX Hospital Data Set Files (refer to item 7 below).)
                    </P>
                    <HD SOURCE="HD3">6. PPS-IX to PPS-XII Capital Data Set</HD>
                    <P>The Capital Data Set contains selected data for capital-related costs, interest expense and related information and complete balance sheet data from the Medicare hospital cost report. The data set includes only the most current cost report (as submitted, final settled or reopened) submitted for a Medicare certified hospital by the Medicare fiscal intermediary to CMS. This data set is updated at the end of each calendar quarter and is available on the last day of the following month.</P>
                    <P>
                        <E T="03">Media:</E>
                         Tape/Cartridge.
                    </P>
                    <P>
                        <E T="03">File Cost:</E>
                         $770.00 per year.
                    </P>
                    <GPOTABLE COLS="3" OPTS="L2,tp0,i1" CDEF="xs48,10,10">
                        <TTITLE>  </TTITLE>
                        <BOXHD>
                            <CHED H="1">  </CHED>
                            <CHED H="1">Periods beginning on or after </CHED>
                            <CHED H="1">and before.</CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">PPS-IX </ENT>
                            <ENT>10/01/91 </ENT>
                            <ENT>10/01/92.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-X </ENT>
                            <ENT>10/01/92 </ENT>
                            <ENT>10/01/93.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-XI </ENT>
                            <ENT>10/01/93 </ENT>
                            <ENT>10/01/94.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-XII</ENT>
                            <ENT>10/01/94 </ENT>
                            <ENT>10/01/95 </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>
                        (
                        <E T="04">Note:</E>
                         The PPS-XIII, PPS-XIV, PPS-XV, PPS-XVI, PPS-XVII, PPS-XVIII, and PPS-XIX Capital Data Sets are part of the PPS-XIII, PPS-XIV, PPS-XV, PPS-XVI, PPS-XVII, PPS-XVIII, and PPS-XIX Hospital Data Set Files (refer to item 7 below).)
                    </P>
                    <HD SOURCE="HD3">7. PPS-XIII to PPS-XIX Hospital Data Set</HD>
                    <P>The file contains cost, statistical, financial, and other data from the Medicare Hospital Cost Report. The data set includes only the most current cost report (as submitted, final settled, or reopened) submitted for a Medicare-certified hospital by the Medicare fiscal intermediary to CMS. The data set is updated at the end of each calendar quarter and is available on the last day of the following month.</P>
                    <P>
                        <E T="03">Media:</E>
                         Diskette/Internet.
                    </P>
                    <P>
                        <E T="03">File Cost:</E>
                         $2,500.00.
                    </P>
                    <GPOTABLE COLS="3" OPTS="L2,tp0,i1" CDEF="xs48,10,10">
                        <TTITLE>  </TTITLE>
                        <BOXHD>
                            <CHED H="1">  </CHED>
                            <CHED H="1">Periods beginning on or after </CHED>
                            <CHED H="1">and before.</CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">PPS-XIII </ENT>
                            <ENT>10/01/95 </ENT>
                            <ENT>10/01/96.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-XIV </ENT>
                            <ENT>10/01/96 </ENT>
                            <ENT>10/01/97.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-XV </ENT>
                            <ENT>10/01/97 </ENT>
                            <ENT>10/01/98.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-XVI </ENT>
                            <ENT>10/01/98 </ENT>
                            <ENT>10/01/99.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-XVII </ENT>
                            <ENT>10/01/99 </ENT>
                            <ENT>10/01/00.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-XVIII</ENT>
                            <ENT>10/01/00 </ENT>
                            <ENT>10/01/01.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">PPS-XIX </ENT>
                            <ENT>10/01/01 </ENT>
                            <ENT>10/01/02 </ENT>
                        </ROW>
                    </GPOTABLE>
                    <HD SOURCE="HD3">8. Provider-Specific File</HD>
                    <P>This file is a component of the PRICER program used in the fiscal intermediary's system to compute DRG payments for individual bills. The file contains records for all prospective payment system eligible hospitals, including hospitals in waiver States, and data elements used in the prospective payment system recalibration processes and related activities. Beginning with December 1988, the individual records were enlarged to include pass-through per diems and other elements.</P>
                    <P>
                        <E T="03">Media:</E>
                         Diskette/Internet.
                    </P>
                    <P>
                        <E T="03">File Cost:</E>
                         $265.00.
                    </P>
                    <P>
                        <E T="03">Periods Available:</E>
                         FY 2005 PPS Update.
                    </P>
                    <HD SOURCE="HD3">9. CMS Medicare Case-Mix Index File</HD>
                    <P>This file contains the Medicare case-mix index by provider number as published in each year's update of the Medicare hospital inpatient prospective payment system. The case-mix index is a measure of the costliness of cases treated by a hospital relative to the cost of the national average of all Medicare hospital cases, using DRG weights as a measure of relative costliness of cases. Two versions of this file are created each year. They support the following:</P>
                    <P>
                        • NPRM published in the 
                        <E T="04">Federal Register</E>
                        .
                    </P>
                    <P>
                        • Final rule published in the 
                        <E T="04">Federal Register</E>
                        .
                    </P>
                    <P>
                        <E T="03">Media:</E>
                         Diskette/most recent year on Internet.
                    </P>
                    <P>
                        <E T="03">Price:</E>
                         $165.00 per year/per file.
                    </P>
                    <P>
                        <E T="03">Periods Available:</E>
                         FY 1985 through FY 2005.
                    </P>
                    <HD SOURCE="HD3">10. DRG Relative Weights (Formerly Table 5 DRG)</HD>
                    <P>
                        This file contains a listing of DRGs, DRG narrative descriptions, relative weights, and geometric and arithmetic mean lengths of stay as published in the 
                        <E T="04">Federal Register</E>
                        . The hard copy image has been copied to diskette. There are two versions of this file as published in the 
                        <E T="04">Federal Register:</E>
                    </P>
                    <P>• NPRM.</P>
                    <P>• Final rule.</P>
                    <P>
                        <E T="03">Media:</E>
                         Diskette/Internet.
                    </P>
                    <P>
                        <E T="03">File Cost:</E>
                         $165.00.
                    </P>
                    <P>
                        <E T="03">Periods Available:</E>
                         FY 2005 PPS Update.
                    </P>
                    <HD SOURCE="HD3">11. PPS Payment Impact File</HD>
                    <P>
                        This file contains data used to estimate payments under Medicare's hospital inpatient prospective payment systems for operating and capital-related costs. The data are taken from various sources, including the Provider-Specific File, Minimum Data Sets, and prior impact files. The data set is abstracted from an internal file used for the impact analysis of the changes to the prospective payment systems published in the 
                        <E T="04">Federal Register</E>
                        . This file is available for release 1 month after the proposed and final rules are published in the 
                        <E T="04">Federal Register</E>
                        .
                    </P>
                    <P>
                        <E T="03">Media:</E>
                         Diskette/Internet.
                    </P>
                    <P>
                        <E T="03">File Cost:</E>
                         $165.00.
                    </P>
                    <P>
                        <E T="03">Periods Available:</E>
                         FY 2005 PPS Update.
                    </P>
                    <HD SOURCE="HD3">12. AOR/BOR Tables</HD>
                    <P>This file contains data used to develop the DRG relative weights. It contains mean, maximum, minimum, standard deviation, and coefficient of variation statistics by DRG for length of stay and standardized charges. The BOR tables are “Before Outliers Removed” and the AOR is “After Outliers Removed.” (Outliers refers to statistical outliers, not payment outliers.)</P>
                    <P>Two versions of this file are created each year. They support the following:</P>
                    <P>
                        • NPRM published in the 
                        <E T="04">Federal Register</E>
                        .
                    </P>
                    <P>
                        • Final rule published in the 
                        <E T="04">Federal Register</E>
                        .
                    </P>
                    <P>
                        <E T="03">Media:</E>
                         Diskette/Internet.
                    </P>
                    <P>
                        <E T="03">File Cost:</E>
                         $165.00.
                    </P>
                    <P>
                        <E T="03">Periods Available:</E>
                         FY 2005 PPS Update.
                    </P>
                    <HD SOURCE="HD3">13. Prospective Payment System (PPS) Standardizing File</HD>
                    <P>
                        This file contains information that standardizes the charges used to 
                        <PRTPAGE P="28339"/>
                        calculate relative weights to determine payments under the prospective payment system. Variables include wage index, cost-of-living adjustment (COLA), case-mix index, disproportionate share, and the Metropolitan Statistical Areas (MSAs). The file supports the following:
                    </P>
                    <P>
                        • NPRM published in the 
                        <E T="04">Federal Register</E>
                        .
                    </P>
                    <P>
                        • Final rule published in the 
                        <E T="04">Federal Register</E>
                        .
                    </P>
                    <P>
                        <E T="03">Media:</E>
                         Internet.
                    </P>
                    <P>
                        <E T="03">File Cost:</E>
                         No charge.
                    </P>
                    <P>
                        <E T="03">Periods Available:</E>
                         FY 2005 PPS Update.
                    </P>
                    <P>For further information concerning these data tapes, contact the CMS Public Use Files Hotline at (410) 786-3691.</P>
                    <P>Commenters interested in obtaining or discussing any other data used in constructing this rule should contact James Hart at (410) 786-9520.</P>
                    <HD SOURCE="HD2">B. Collection of Information Requirements</HD>
                    <P>
                        Under the Paperwork Reduction Act of 1995 (PRA), we are required to provide 60-day notice in the 
                        <E T="04">Federal Register</E>
                         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 evaluate fairly whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 requires that we solicit comment on the following issues:
                    </P>
                    <P>• The need for the information collection and its usefulness in carrying out the proper functions of our agency.</P>
                    <P>• The accuracy of our estimate of the information collection burden.</P>
                    <P>• The quality, utility, and clarity of the information to be collected.</P>
                    <P>• Recommendations to minimize the information collection burden on the affected public, including automated collection techniques.</P>
                    <P>Therefore, we are soliciting public comments on each of these issues for the information collection requirements discussed below.</P>
                    <P>The following information collection requirements in this proposed rule and the associated burdens are subject to the PRA.</P>
                    <HD SOURCE="HD2">Section 412.22 Excluded Hospitals and Hospital Units: General Rules</HD>
                    <P>In summary, this section outlines the requirements for excluded hospitals and hospital units. This section states that a LTCH that occupies space in a building used by another hospital, or in one or more separate buildings located on the same campus as buildings used by another hospital must notify its fiscal intermediary and CMS in writing of its co-location.</P>
                    <P>The collection requirement has not changed. While this requirement is subject to the PRA, this requirement is currently approved in OMB No. 0938-0897, with a current expiration date of July 31, 2006.</P>
                    <HD SOURCE="HD2">Section 412.25 Excluded Hospital Units: Common Requirements</HD>
                    <P>In summary, this section proposes to apply the excluded hospital unit requirements to psychiatric or rehabilitation CAH units that are now permitted under the provisions of Public Law 108-173. This section states that if a psychiatric rehabilitation unit of a CAH does not meet the applicable requirements, payment will not be made and will resume only after the unit has demonstrated to CMS that it meets the applicable requirements.</P>
                    <P>We believe the collection requirements are exempt as defined in 5 CFR 1320.4, information collections conducted or sponsored during the conduct of a criminal or civil action, or during the conduct of an administrative action or investigation, or audit. We also believe the collection requirements to be exempt as defined in 5 CFR 1320.3(c)(4) because we believe this would affect less than 10 persons.</P>
                    <HD SOURCE="HD2">Section 412.64 Federal Rates for Inpatient Operating Costs for Federal Fiscal Years 2005 and Subsequent Fiscal Years</HD>
                    <P>In summary, this section outlines the proposed requirements and process for determining the adjustment of the wage index to account for the commuting patterns of hospital workers. This section states that a hospital may waive the application of the wage index adjustment by notifying CMS in writing within 45 days after the publication of the annual notice of proposed rulemaking for the IPPS.</P>
                    <P>The burden associated with this requirement is the time and effort for the hospital to prepare a written notice asking to waive the application of the wage index adjustment and send the notice to CMS.</P>
                    <P>The burden associated with this requirement is estimated to be 30 minutes per hospital. Therefore, we estimate it would take 5 total annual hours (30 minutes × 10 hospitals seeking a waiver).</P>
                    <HD SOURCE="HD2">Section 412.103 Special Treatment: Hospitals Located in Urban Areas and That Apply for Reclassification as Rural</HD>
                    <P>In summary, this section outlines the requirements and process for a rural hospital to become reclassified. This section states that a prospective payment hospital that is located in an urban area may be reclassified as a rural hospital if it submits an application in accordance with this section.</P>
                    <P>We are proposing to revise this section; however, the collection requirement remains the same. While this requirement is subject to the PRA, this requirement is currently approved in OMB No. 0938-0573, with a current expiration date of October 31, 2005.</P>
                    <HD SOURCE="HD2">Section 412.101 Special Treatment: Inpatient Hospital Payment Adjustment for Low-Volume Hospitals</HD>
                    <P>In summary, this section outlines the proposed requirements for determining a payment adjustment for low-volume hospitals. This section states that in order to qualify for the higher incremental costs adjustment, the hospital must provide its fiscal intermediary with evidence that it meets the distance requirement to make a determination that the hospital meets the distance requirement specified in this section.</P>
                    <P>The burden associated with this requirement is the time and effort for the hospital to provide the fiscal intermediary with evidence that it meets the specified distance requirement.</P>
                    <P>The burden associated with this requirement is estimated to be 1 hour per hospital. Therefore, we estimate it would take 500 total annual hours (1 hour × 500 hospitals seeking the incremental costs adjustment).</P>
                    <HD SOURCE="HD2">Section 412.211 Puerto Rico Rates for Federal Fiscal Year 2004 and Subsequent Fiscal Years</HD>
                    <P>In summary, this section outlines the requirements and process for determining the adjusted prospective payment rate for inpatient hospital services in Puerto Rico. This section states that a hospital may waive the application of the proposed wage index adjustment for commuting hospital employees by notifying CMS in writing within 45 days after the publication of the annual notice of proposed rulemaking for the inpatient prospective payment system.</P>
                    <P>The burden associated with this requirement is the time and effort for the hospital to prepare a written notice asking to waive the application of the wage index adjustment and send the notice to CMS.</P>
                    <P>
                        The burden associated with this requirement is estimated to be 30 minutes per hospital. Therefore, we estimate it would take 5 total annual hours (30 minutes × 10 hospitals seeking a waiver).
                        <PRTPAGE P="28340"/>
                    </P>
                    <HD SOURCE="HD2">Section 412.234 Criteria for All Hospitals in an Urban County Seeking Redesignation to Another Urban Area</HD>
                    <P>In summary, this section outlines the requirements for determining an urban hospital's redesignation to another urban area. This section states that hospitals must submit appropriate wage data to the fiscal intermediary as outlined.</P>
                    <P>We are proposing to revise this section. However, the collection requirement remains the same. While this requirement is subject to the PRA, this requirement is currently approved in OMB No.0938-0907, with a current expiration date of December 31, 2005.</P>
                    <HD SOURCE="HD2">Section 413.70 Payment for Services of a CAH</HD>
                    <P>In summary, this section outlines the requirements for a CAH to make an election to be paid for outpatient facility services plus the fee schedule for professional services under an optional single payment method. This section states that a CAH may make this election in any cost reporting period. This election must be made in writing, made on an annual basis, and delivered to the fiscal intermediary servicing the CAH at least 30 days before the start of each affected cost reporting period.</P>
                    <P>We are proposing to revise this section. However, the collection requirement remains the same. While this requirement is subject to the PRA, this requirement is currently approved in OMB No. 0938-0050, with a current expiration date of November 30, 2005.</P>
                    <HD SOURCE="HD2">Section 413.78 Direct GME Payments: Determinations of the Total Number of FTE Residents</HD>
                    <P>In summary, this section outlines the requirements for the determination of the total number of FTE residents in determining direct GME payments to hospitals. Currently, this section states that, for residents who spend time in nonprovider settings, there must be a written agreement between the hospital and the outside entity that states that the resident's compensation for training time spent outside of the hospital setting is to be paid by the hospital. This section proposes to remove the written agreement requirement.</P>
                    <P>This requirement is exempt from the PRA in accordance with Public Law 99-272 or Public Law 108-173, or both.</P>
                    <HD SOURCE="HD2">Section 413.79 Direct GME Payments: Determination of the Weighted Number of FTE Residents</HD>
                    <P>In summary, this section outlines the requirements for the determination of the weighted number of FTE residents for direct GME payments to hospitals. This section proposes that a hospital seeking an adjustment to the limit on its unweighted resident count under section 422 of Public Law 108-173 must provide documentation justifying the adjustment. In addition, the section states that a hospital wishing to receive a temporary adjustment to its FTE resident cap because it is participating in a Medicare GME affiliated group must submit the Medicare GME affiliation agreement to the CMS fiscal intermediary and to CMS's Central Office. This section specifies the information that a request must contain.</P>
                    <P>These requirements are exempt from the PRA in accordance with Public Law 99-272 or Public Law 108-173, or both.</P>
                    <HD SOURCE="HD2">Section 413.80 Determination of Weighting Factors for Foreign Medical Graduates</HD>
                    <P>In summary, this section specifies the information that a hospital must submit to the fiscal intermediary to include foreign medical graduates in its FTE count for a particular cost reporting period.</P>
                    <P>This requirement is exempt from the PRA in accordance with Public Law 99-272 or Public Law 108-173, or both.</P>
                    <HD SOURCE="HD2">Section 413.83 Adjustment of a Hospital's Target Amount or Prospective Payment Hospital-Specific Rate</HD>
                    <P>In summary, this section outlines the requirements for seeking an adjustment to the hospital's target amount or hospital-specific rate. This section states that a hospital may request that the intermediary review the classification of operating costs that were previously misclassified for purposes of adjusting the hospital's target amount or hospital-specific rate. A hospital's request for review must include sufficient documentation demonstrating that an adjustment is warranted. This section also specifies the terms in which the information should be provided.</P>
                    <P>This requirement is exempt from the PRA in accordance with Public Law 99-272 or Public Law 108-173, or both.</P>
                    <HD SOURCE="HD2">Section 480.106 Exceptions to QIO Notice Requirements</HD>
                    <P>In summary, we are proposing to revise this section to add exceptions to the notice requirements for disclosure of QIO information to any person, agency, or organization. The notice requirements would not apply if the institution or practitioner has requested, in writing, that the QIO make the disclosure; the institution or practitioner has provided, in writing, consent for the disclosure; or the information is public information.</P>
                    <P>The burden associated with these requirements is the time and effort for the institution or practitioner to provide a written request that the QIO make the disclosure or consent to the disclosure.</P>
                    <P>We believe the collection requirements are exempt as defined in 5 CFR 1320.4, information collections conducted or sponsored during the conduct of a criminal or civil action, or during the conduct of an administrative action or investigation, or audit. We also believe the collection requirements to be exempt as defined in 5 CFR 1320.3(c)(4) because we believe this would affect less than 10 persons.</P>
                    <HD SOURCE="HD2">Section 480.133 Disclosure of Information about Practitioners, Reviewers and Institutions</HD>
                    <P>In summary, this section outlines the requirements concerning the disclosure of QIO information about practitioners, reviewers, and institutions. This section states that a QIO may disclose information on a particular practitioner or reviewer at the written request of or with the written consent of that practitioner or reviewer, with the recipient subject to the same rights and responsibilities on redisclosure as the requesting or consenting practitioner or reviewer.</P>
                    <P>We believe the collection requirements are exempt as defined in 5 CFR 1320.4, information collections conducted or sponsored during the conduct of a criminal or civil action, or during the conduct of an administrative action or investigation, or audit. We also believe the collection requirements to be exempt as defined in 5 CFR 1320.3(c)(4) because we believe this would affect less than 10 persons.</P>
                    <HD SOURCE="HD2">Section 480.140 Disclosure of Quality Review Study Information</HD>
                    <P>In summary, this section outlines the requirements concerning the disclosure of quality review study information. This section states that a QIO may disclose quality review study information with identifiers of particular practitioners or institutions, or both, at the written request of, or with the written consent of, the identified practitioner(s) or institution(s). The consent or request must specify the information that is to be disclosed and the intended recipient of the information. The recipient would be subject to the same rights and responsibilities on redisclosure as the requesting or consenting practitioner or institution.</P>
                    <P>
                        We believe the collection requirements are exempt as defined in 5 CFR 1320.4, information collections conducted or sponsored during the 
                        <PRTPAGE P="28341"/>
                        conduct of a criminal or civil action, or during the conduct of an administrative action or investigation, or audit. We also believe the collection requirements to be exempt as defined in 5 CFR 1320.3(c)(4) because we believe this would affect less than 10 persons.
                    </P>
                    <HD SOURCE="HD2">Section 482.43 Condition of Participation: Discharge Planning</HD>
                    <P>In summary, this section outlines the requirements of the discharge planning process. This section states that the hospital must include in the discharge plan, a list of HHAs or SNFs that are available to the patient, that participate in the Medicare program, that serve the geographic area, and that request to be listed by the hospital as available and to maintain documentation. This section also specifies other information that the discharge plan must contain.</P>
                    <P>The burden associated with these requirements is the time and effort for the hospital to provide a list to beneficiaries, for whom home health care or posthospital extended care services are necessary, and document the patient's medical record.</P>
                    <P>The burden associated with these requirements is estimated to be 5 minutes per hospital per discharge. Therefore, we estimate the total national burden to be 327,684 hours annually to comply with these requirements (652 discharges per hospital per year × 6,031 hospitals × 5 minutes each).</P>
                    <P>We have submitted a copy of this proposed 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.</P>
                    <P>If you comment on any of these information collection and record keeping requirements, please mail copies directly to the following:</P>
                    <P>Centers for Medicare &amp; Medicaid Services, Office of Strategic Operations and Regulatory Affairs, Regulations Development and Issuances Group, Attn: Dawn Willinghan, CMS-1428-P, Room C5-14-03, 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.</P>
                    <P>
                        Comments submitted to OMB may also be e-mailed to the following address: e-mail: 
                        <E T="03">baguilar@omb.eop.gov,</E>
                         or faxed to OMB at (202) 395-6974.
                    </P>
                    <HD SOURCE="HD2">C. Public Comments</HD>
                    <P>
                        Because of the large number of items of correspondence we normally receive on a proposed rule, we are not able to acknowledge or respond to them individually. However, in preparing the final rule, we will consider all comments concerning the provisions of this proposed rule that we receive by the date and time specified in the 
                        <E T="02">DATES</E>
                         section of this preamble and respond to those comments in the preamble to that rule.
                    </P>
                    <GPOTABLE COLS="2" OPTS="L2,i1" CDEF="s150,r150">
                        <TTITLE>Crosswalk of Contents of § 413.86 </TTITLE>
                        <BOXHD>
                            <CHED H="1">Existing section </CHED>
                            <CHED H="1">Proposed new section.</CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">§ 413.86(a) </ENT>
                            <ENT>§ 413.75(a).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(a)(1) </ENT>
                            <ENT>§ 413.75(a)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(a)(2) </ENT>
                            <ENT>§ 413.75(a)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(b) </ENT>
                            <ENT>§ 413.75(b).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(c) </ENT>
                            <ENT>§ 413.75(c).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(d) </ENT>
                            <ENT>§ 413.76.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(d), introductory text </ENT>
                            <ENT>§ 413.76, introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(d)(1) </ENT>
                            <ENT>§ 413.76(a).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(d)(2) </ENT>
                            <ENT>§ 413.76(b).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(d)(3) </ENT>
                            <ENT>§ 413.76(c).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(d)(3)(i) </ENT>
                            <ENT>§ 413.76(c)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(d)(3)(ii) </ENT>
                            <ENT>§ 413.76(c)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(d)(3)(iii) </ENT>
                            <ENT>§ 413.76(c)(3).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(d)(3)(iv) </ENT>
                            <ENT>§ 413.76(c)(4).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(d)(3)(v) </ENT>
                            <ENT>§ 413.76(c)(5).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(d)(4) </ENT>
                            <ENT>§ 413.76(d).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(d)(5) </ENT>
                            <ENT>§ 413.76(e).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(d)(5)(i) </ENT>
                            <ENT>§ 413.76(e)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(d)(5)(ii) </ENT>
                            <ENT>§ 413.76(e)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(d)(6) </ENT>
                            <ENT>§ 413.76(f).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e) </ENT>
                            <ENT>§ 413.77.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(1) </ENT>
                            <ENT>§ 413.77(a).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(1)(i) </ENT>
                            <ENT>§ 413.77(a)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(1)(i)(A) </ENT>
                            <ENT>§ 413.77(a)(1)(i).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(1)(i)(B) </ENT>
                            <ENT>§ 413.77(a)(1)(ii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(1)(ii) </ENT>
                            <ENT>§ 413.77(a)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(1)(ii)(A) </ENT>
                            <ENT>§ 413.77(a)(2)(i).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(1)(ii)(B) </ENT>
                            <ENT>§ 413.77(a)(2)(ii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(1)(ii)(C) </ENT>
                            <ENT>§ 413.77(a)(2)(iii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(1)(iii) </ENT>
                            <ENT>§ 413.77(a)(3).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(1)(iv) </ENT>
                            <ENT>§ 413.77(a)(4).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(1)(v) </ENT>
                            <ENT>§ 413.77(a)(5).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(2), introductory text </ENT>
                            <ENT>§ 413.77(b), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(2)(i) </ENT>
                            <ENT>§ 413.77(b)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(2)(ii) </ENT>
                            <ENT>§ 413.77(b)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(3), introductory text </ENT>
                            <ENT>§ 413.77(c), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(3)(i) </ENT>
                            <ENT>§ 413.77(c)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(3)(ii) </ENT>
                            <ENT>§ 413.77(c)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(4), introductory text </ENT>
                            <ENT>§ 413.77(d), introductory text—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(4)(i), introductory text </ENT>
                            <ENT>§ 413.77(d)(1), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(4)(i)(A), introductory text </ENT>
                            <ENT>§ 413.77(d)(1)(i), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(e)(4)(i)(A)(
                                <E T="03">1</E>
                                ) 
                            </ENT>
                            <ENT>§ 413.77(d)(1)(i)(A).</ENT>
                        </ROW>
                        <ROW>
                            <PRTPAGE P="28342"/>
                            <ENT I="01">
                                § 413.86(e)(4)(i)(A)(
                                <E T="03">2</E>
                                ) 
                            </ENT>
                            <ENT>§ 413.77(d)(1)(i)(B).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(e)(4)(i)(A)(
                                <E T="03">3</E>
                                ) 
                            </ENT>
                            <ENT>§ 413.77(d)(1)(i)(C).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(4)(i)(B) </ENT>
                            <ENT>§ 413.77(d)(1)(ii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(4)(ii), introductory text </ENT>
                            <ENT>§ 413.77(d)(2), introductory text—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(4)(ii)(A) </ENT>
                            <ENT>§ 413.77(d)(2)(i).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(4)(ii)(B) </ENT>
                            <ENT>§ 413.77(d)(2)(ii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(4)(ii)(C), introductory text </ENT>
                            <ENT>§ 413.77(d)(2)(iii), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(e)(4)(ii)(C)(
                                <E T="03">1</E>
                                ) 
                            </ENT>
                            <ENT>§ 413.77(d)(2)(iii)(A).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(e)(4)(ii)(C)(
                                <E T="03">1</E>
                                )(
                                <E T="03">i</E>
                                ) 
                            </ENT>
                            <ENT>
                                § 413.77(d)(2)(iii)(A)(
                                <E T="03">1</E>
                                ).
                            </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(e)(4)(ii)(C)(
                                <E T="03">1</E>
                                )(
                                <E T="03">ii</E>
                                ) 
                            </ENT>
                            <ENT>
                                § 413.77(d)(2)(iii)(A)(
                                <E T="03">2</E>
                                ).
                            </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(e)(4)(ii)(C)(
                                <E T="03">1</E>
                                )(
                                <E T="03">iii</E>
                                ) 
                            </ENT>
                            <ENT>
                                § 413.77(d)(2)(iii)(A)(
                                <E T="03">3</E>
                                ).
                            </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(e)(4)(ii)(C)(
                                <E T="03">2</E>
                                ), introductory text 
                            </ENT>
                            <ENT>§ 413.77(d)(2)(iii)(B),  introductory text—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(e)(4)(ii)(C)(
                                <E T="03">2</E>
                                )(
                                <E T="03">i</E>
                                ) 
                            </ENT>
                            <ENT>
                                § 413.77(d)(2)(iii)(B)(
                                <E T="03">1</E>
                                ).
                            </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(e)(4)(ii)(C)(
                                <E T="03">2</E>
                                )(
                                <E T="03">ii</E>
                                ) 
                            </ENT>
                            <ENT>
                                § 413.77(d)(2)(iii)(B)(
                                <E T="03">2</E>
                                ).
                            </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(e)(4)(ii)(C)(
                                <E T="03">2</E>
                                )(
                                <E T="03">iii</E>
                                ) 
                            </ENT>
                            <ENT>
                                § 413.77(d)(2)(iii)(B)(
                                <E T="03">3</E>
                                )—NEW.
                            </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(e)(4)(ii)(C)(
                                <E T="03">2</E>
                                )(
                                <E T="03">iv</E>
                                ) 
                            </ENT>
                            <ENT>
                                § 413.77(d)(2)(iii)(B)(
                                <E T="03">4</E>
                                )—NEW.
                            </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22"> </ENT>
                            <ENT>
                                § 413.77(d)(2)(iiii)(B)(
                                <E T="03">5</E>
                                )—NEW.
                            </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(e)(4)(ii)(C)(
                                <E T="03">3</E>
                                ) 
                            </ENT>
                            <ENT>§ 413.77(d)(2)(iii)(C)—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(5) </ENT>
                            <ENT>§ 413.77(e).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(5)(i) </ENT>
                            <ENT>§ 413.77(e)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(5)(i)(A) </ENT>
                            <ENT>§ 413.77(e)(1)(i).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(5)(i)(B), introductory text </ENT>
                            <ENT>§ 413.77(e)(1)(ii), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(e)(5)(i)(B)(
                                <E T="03">1</E>
                                ) 
                            </ENT>
                            <ENT>§ 413.77(e)(1)(ii)(A).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(e)(5)(i)(B)(
                                <E T="03">2</E>
                                ) 
                            </ENT>
                            <ENT>§ 413.77(e)(1)(ii)(B).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(5)(i)(C) </ENT>
                            <ENT>§ 413.77(e)(1)(iii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(5)(ii) </ENT>
                            <ENT>§ 413.77(e)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(e)(5)(iii) </ENT>
                            <ENT>§ 413.77(e)(3).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22"/>
                            <ENT>§ 413.77(f)—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(f) </ENT>
                            <ENT>§ 413.78.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(f), introductory text </ENT>
                            <ENT>§ 413.78, introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(f)(1) </ENT>
                            <ENT>§ 413.78(a).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(f)(2) </ENT>
                            <ENT>§ 413.78(b).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(f)(3), introductory text </ENT>
                            <ENT>§ 413.78(c), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(f)(3)(i) </ENT>
                            <ENT>§ 413.78(c)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(f)(3)(ii) </ENT>
                            <ENT>§ 413.78(c)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(f)(4), introductory text </ENT>
                            <ENT>§ 413.78(d), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(f)(4)(i) </ENT>
                            <ENT>§ 413.78(d)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(f)(4)(ii) </ENT>
                            <ENT>§ 413.78(d)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(f)(4)(iii) </ENT>
                            <ENT>§ 413.78(d)(3).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(f)(4)(iv) </ENT>
                            <ENT>§ 413.78(d)(4).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22"> </ENT>
                            <ENT>§ 413.78(e), introductory text—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22"/>
                            <ENT>§ 413.78(e)(1)—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22"> </ENT>
                            <ENT>§ 413.78(e)(2)—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22"> </ENT>
                            <ENT>§ 413.78(e)(3)—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g), introductory text </ENT>
                            <ENT>§ 413.79.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g), introductory text </ENT>
                            <ENT>§ 413.79, introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(1) </ENT>
                            <ENT>§ 413.79(a).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(1) </ENT>
                            <ENT>§ 413.79(a) introductory text—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(1) </ENT>
                            <ENT>§ 413.79(a)(1)—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(1) </ENT>
                            <ENT>§ 413.79(a)(2)—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(1) </ENT>
                            <ENT>§ 413.79(a)(3)—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(1) </ENT>
                            <ENT>§ 413.79(a)(4)—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(1) </ENT>
                            <ENT>§ 413.79(a)(5)—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(1)(i) </ENT>
                            <ENT>§ 413.79(a)(6).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(1)(ii) </ENT>
                            <ENT>§ 413.79(a)(7).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(1)(iii), introductory text </ENT>
                            <ENT>§ 413.79(a)(8), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(1)(iii)(A) </ENT>
                            <ENT>§ 413.79(a)(8)(i).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(1)(iii)(B) </ENT>
                            <ENT>§ 413.79(a)(8)(ii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(1)(iv) </ENT>
                            <ENT>§ 413.79(a)(9).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(2) </ENT>
                            <ENT>§ 413.79(b)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(3) </ENT>
                            <ENT>§ 413.79(b)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22"> </ENT>
                            <ENT>§ 413.79(c)(1), introductory text—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22"> </ENT>
                            <ENT>§ 413.79(c)(1)(i) through (iii)—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(4), introductory text </ENT>
                            <ENT>§ 413.79(c)(2), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(4)(i) </ENT>
                            <ENT>§ 413.79(c)(2)(i).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(4)(ii) </ENT>
                            <ENT>§ 413.79(c)(2)(ii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(4)(iii) </ENT>
                            <ENT>§ 413.79(c)(2)(iii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(4)(iv) </ENT>
                            <ENT>§ 413.79(c)(2)(iv).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(4)(v) </ENT>
                            <ENT>§ 413.79(c)(2)(v).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22"> </ENT>
                            <ENT>§ 413.79(c)(3)(i) through (ii)—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22"> </ENT>
                            <ENT>§ 413.79(c)(4)—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="22"> </ENT>
                            <ENT>§ 413.79(c)(5)—NEW.</ENT>
                        </ROW>
                        <ROW>
                            <PRTPAGE P="28343"/>
                            <ENT I="01">§ 413.86(g)(5), introductory text </ENT>
                            <ENT>§ 413.79(d), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(5)(i) </ENT>
                            <ENT>§ 413.79(d)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(5)(ii) </ENT>
                            <ENT>§ 413.79(d)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(5)(iii) </ENT>
                            <ENT>§ 413.79(d)(3).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(5)(iv) </ENT>
                            <ENT>§ 413.79(d)(4).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(5)(v) </ENT>
                            <ENT>§ 413.79(d)(5).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(5)(vi) </ENT>
                            <ENT>§ 413.79(d)(6).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(5)(vii) </ENT>
                            <ENT>§ 413.79(d)(7).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(6), introductory text </ENT>
                            <ENT>§ 413.79(e), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(6)(i) </ENT>
                            <ENT>§ 413.79(e)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(6)(i)(A) </ENT>
                            <ENT>§ 413.79(e)(1)(i).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(6)(i)(B) </ENT>
                            <ENT>§ 413.79(e)(1)(ii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(6)(i)(C) </ENT>
                            <ENT>§ 413.79(e)(1)(iii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(6)(i)(D) </ENT>
                            <ENT>§ 413.79(e)(1)(iv).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(6)(i)(E) </ENT>
                            <ENT>§ 413.79(e)(1)(v).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(6)(ii), introductory text </ENT>
                            <ENT>§ 413.79(e)(2), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(6)(ii)(A) </ENT>
                            <ENT>§ 413.79(e)(2)(i).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(6)(ii)(B) </ENT>
                            <ENT>§ 413.79(e)(2)(ii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(6)(iii) </ENT>
                            <ENT>§ 413.79(e)(3).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(6)(iv) </ENT>
                            <ENT>§ 413.79(e)(4).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(7) </ENT>
                            <ENT>§ 413.79(f).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(7)(i) </ENT>
                            <ENT>§ 413.79(f)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(7)(ii) </ENT>
                            <ENT>§ 413.79(f)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(7)(iii) </ENT>
                            <ENT>§ 413.79(f)(3).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(7)(iv) </ENT>
                            <ENT>§ 413.79(f)(4).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(7)(v) </ENT>
                            <ENT>§ 413.79(f)(5).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(8), introductory text </ENT>
                            <ENT>§ 413.79(g), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(8)(i), introductory text </ENT>
                            <ENT>§ 413.79(g)(1), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(8)(i)(A) </ENT>
                            <ENT>§ 413.79(g)(1)(i).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(8)(i)(B) </ENT>
                            <ENT>§ 413.79(g)(1)(ii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(8)(ii) </ENT>
                            <ENT>§ 413.79(g)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(8)(iii) </ENT>
                            <ENT>§ 413.79(g)(3).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(8)(iv) </ENT>
                            <ENT>§ 413.79(g)(4).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(8)(v) </ENT>
                            <ENT>§ 413.79(g)(5).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(9) </ENT>
                            <ENT>§ 413.79(h).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(9)(i), introductory text </ENT>
                            <ENT>§ 413.79(h)(1), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(9)(i)(A) </ENT>
                            <ENT>§ 413.79(h)(1)(i).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(9)(i)(B) </ENT>
                            <ENT>§ 413.79(h)(1)(ii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(9)(ii), introductory text </ENT>
                            <ENT>§ 413.79(h)(2), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(9)(ii)(A) </ENT>
                            <ENT>§ 413.79(h)(2)(i).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(9)(ii)(B) </ENT>
                            <ENT>§ 413.79(h)(2)(ii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(9)(iii), introductory text </ENT>
                            <ENT>§ 413.79(h)(3), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(9)(iii)(A), introductory text</ENT>
                            <ENT>§ 413.79(h)(3)(i), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(g)(9)(iii)(A)(
                                <E T="03">1</E>
                                ) 
                            </ENT>
                            <ENT>§ 413.79(h)(3)(i)(A).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(g)(9)(iii)(A)(
                                <E T="03">2</E>
                                ) 
                            </ENT>
                            <ENT>§ 413.79(h)(3)(i)(B).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(9)(iii)(B), introductory text</ENT>
                            <ENT>§ 413.79(h)(3)(ii), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(g)(9)(iii)(B)(
                                <E T="03">1</E>
                                ) 
                            </ENT>
                            <ENT>§ 413.79(h)(3)(ii)(A).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(g)(9)(iii)(B)(
                                <E T="03">2</E>
                                ) 
                            </ENT>
                            <ENT>§ 413.79(h)(3)(ii)(B).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(10), introductory text </ENT>
                            <ENT>§ 413.79(i), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(10)(i) </ENT>
                            <ENT>§ 413.79(i)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(10)(ii) </ENT>
                            <ENT>§ 413.79(i)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(10)(iii) </ENT>
                            <ENT>§ 413.79(i)(3).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(11), introductory text </ENT>
                            <ENT>§ 413.79(j), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(11)(i) </ENT>
                            <ENT>§ 413.79(j)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(11)(ii) </ENT>
                            <ENT>§ 413.79(j)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(11)(iii) </ENT>
                            <ENT>§ 413.79(j)(3).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(12), introductory text </ENT>
                            <ENT>§ 413.79(k), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(12)(i), introductory text </ENT>
                            <ENT>§ 413.79(k)(1), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(12)(i)(A) </ENT>
                            <ENT>§ 413.79(k)(1)(i).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(12)(i)(B) </ENT>
                            <ENT>§ 413.79(k)(1)(ii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(12)(ii), introductory text </ENT>
                            <ENT>§ 413.79(k)(2), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(12)(ii)(A) </ENT>
                            <ENT>§ 413.79(k)(2)(i).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(12)(ii)(B), introductory text</ENT>
                            <ENT>§ 413.79(k)(2)(ii), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(g)(12)(ii)(B)(
                                <E T="03">1</E>
                                ), introductory text
                            </ENT>
                            <ENT>§ 413.79(k)(2)(ii)(A), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(g)(12)(ii)(B)(
                                <E T="03">1</E>
                                )(
                                <E T="03">i</E>
                                ) 
                            </ENT>
                            <ENT>
                                § 413.79(k)(2)(ii)(A)(
                                <E T="03">1</E>
                                ).
                            </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(g)(12)(ii)(B)(
                                <E T="03">1</E>
                                )(
                                <E T="03">ii</E>
                                ) 
                            </ENT>
                            <ENT>
                                § 413.79(k)(2)(ii)(A)(
                                <E T="03">2</E>
                                ).
                            </ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(g)(12)(ii)(B)(
                                <E T="03">2</E>
                                ) 
                            </ENT>
                            <ENT>§ 413.79(k)(2)(ii)(B).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(12)(iii) </ENT>
                            <ENT>§ 413.79(k)(3).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(12)(iv), introductory text </ENT>
                            <ENT>§ 413.79(k)(4), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(12)(iv)(A) </ENT>
                            <ENT>§ 413.79(k)(4)(i).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(12)(iv)(B), introductory text</ENT>
                            <ENT>§ 413.79(k)(4)(ii), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                § 413.86(g)(12)(iv)(B)(
                                <E T="03">1</E>
                                ) 
                            </ENT>
                            <ENT>§ 413.79(k)(4)(ii)(A).</ENT>
                        </ROW>
                        <ROW>
                            <PRTPAGE P="28344"/>
                            <ENT I="01">
                                § 413.86(g)(12)(iv)(B)(
                                <E T="03">2</E>
                                ) 
                            </ENT>
                            <ENT>§ 413.79(k)(4)(ii)(B).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(12)(v), introductory text </ENT>
                            <ENT>§ 413.79(k)(5), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(12)(v)(A) </ENT>
                            <ENT>§ 413.79(k)(5)(i).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(12)(v)(B) </ENT>
                            <ENT>§ 413.79(k)(5)(ii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(12)(v)(C) </ENT>
                            <ENT>§ 413.79(k)(5)(iii).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(12)(vi) </ENT>
                            <ENT>§ 413.79(k)(6).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(g)(13) </ENT>
                            <ENT>§ 413.79(l).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(h) </ENT>
                            <ENT>§ 413.80.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(h)(1), introductory text </ENT>
                            <ENT>§ 413.80(a), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(h)(1)(i) </ENT>
                            <ENT>§ 413.80(a)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(h)(1)(ii) </ENT>
                            <ENT>§ 413.80(a)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(h)(2) </ENT>
                            <ENT>§ 413.80(b).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(h)(3) </ENT>
                            <ENT>§ 413.80(c).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(h)(4) </ENT>
                            <ENT>§ 413.80(d).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(h)(5) </ENT>
                            <ENT>§ 413.80(e).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(h)(6) </ENT>
                            <ENT>§ 413.80(f).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(i) </ENT>
                            <ENT>§ 413.81.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(i)(1), introductory text </ENT>
                            <ENT>§ 413.81(a), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(i)(1)(i) </ENT>
                            <ENT>§ 413.81(a)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(i)(1)(ii) </ENT>
                            <ENT>§ 413.81(a)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(i)(2) </ENT>
                            <ENT>§ 413.81(b).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(i)(3)(i) </ENT>
                            <ENT>§ 413.81(c)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(i)(3)(ii) </ENT>
                            <ENT>§ 413.81(c)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(j), introductory text </ENT>
                            <ENT>§ 413.80(g), introductory text.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(j)(1) </ENT>
                            <ENT>§ 413.80(g)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(j)(2) </ENT>
                            <ENT>§ 413.80(g)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(j)(3) </ENT>
                            <ENT>§ 413.80(g)(3).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(j)(4) </ENT>
                            <ENT>§ 413.80(g)(4).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(j)(5) </ENT>
                            <ENT>§ 413.80(g)(5).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(j)(6) </ENT>
                            <ENT>§ 413.80(g)(6).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(j)(7) </ENT>
                            <ENT>§ 413.80(g)(7).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(k) </ENT>
                            <ENT>§ 413.82.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(k)(1) </ENT>
                            <ENT>§ 413.82(a).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(k)(2) </ENT>
                            <ENT>§ 413.82(b).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(k)(3) </ENT>
                            <ENT>§ 413.82(c).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(l) </ENT>
                            <ENT>§ 413.83.</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(l)(1) </ENT>
                            <ENT>§ 413.83(a).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(l)(1)(i) </ENT>
                            <ENT>§ 413.83(a)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(l)(1)(ii) </ENT>
                            <ENT>§ 413.83(a)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(l)(2)(iii) </ENT>
                            <ENT>§ 413.83(a)(3).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(l)(2) </ENT>
                            <ENT>§ 413.83(b).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(l)(2)(i) </ENT>
                            <ENT>§ 413.83(b)(1).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(l)(2)(ii) </ENT>
                            <ENT>§ 413.83(b)(2).</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">§ 413.86(l)(2)(iii) </ENT>
                            <ENT>§ 413.83(b)(3). </ENT>
                        </ROW>
                    </GPOTABLE>
                    <NOTE>
                        <HD SOURCE="HED">Note to Readers:</HD>
                        <P>Proposed redesignated §§ 413.77, 413.78 and 413.79 are the only three sections of the proposed redesignated §§ 413.75 through 413.83 that contain proposed policy changes, as discussed in section IV. O. of the preamble of this proposed rule. Therefore, we will only consider public comments on the following paragraphs of the proposed redesignated sections: </P>
                        <P>
                            • Sections 413.77(d) introductory text, (d)(2), (d)(2)(iii)(B), (d)(2)(iii)(B)(
                            <E T="03">3</E>
                            ), (d)(2)(iii)(B)(
                            <E T="03">4</E>
                            ), (d)(2)(iii)(B)(
                            <E T="03">5</E>
                            ), (d)(2)(iii)(C), and (f).
                        </P>
                        <P>• Sections 413.78(e), (e)(1), (e)(2), and (e)(3).</P>
                        <P>• Section 413.79(a), (c)(1), (c)(2), (c)(3), (c)(4), and (c)(5).</P>
                        <P>The remaining portions of the proposed redesignated §§ 413.75 through 413.83 contain only coding, cross-reference, and conforming redesignation changes. For these remaining portions, we will consider comments on redesignation, coding, and cross-reference changes only.</P>
                    </NOTE>
                    <LSTSUB>
                        <HD SOURCE="HED">List of Subjects</HD>
                        <CFR>42 CFR Part 403</CFR>
                        <P>Health insurance, Hospitals, Incorporation by reference, Intergovernmental relations, Medicare, Reporting and recordkeeping requirements.</P>
                        <CFR>2 CFR Part 412</CFR>
                        <P>Administrative practice and procedure, Health facilities, Medicare, Puerto Rico, Reporting and recordkeeping requirements.</P>
                        <CFR>42 CFR Part 413</CFR>
                        <P>Health facilities, Kidney diseases, Medicare, Puerto Rico, Reporting and recordkeeping requirements.</P>
                        <CFR>42 CFR Part 418</CFR>
                        <P>Health facilities, Hospice care, Incorporation by reference, Medicare, Reporting and recordkeeping requirements.</P>
                        <CFR>42 CFR Part 460</CFR>
                        <P>Aged, Health, Incorporation by reference, Medicare, Medicaid, Reporting and recordkeeping requirements.</P>
                        <CFR>42 CFR Part 480</CFR>
                        <P>Medicare Program; Utilization and quality control, Quality Improvement Organizations (QIOs).</P>
                        <CFR>42 CFR Part 482</CFR>
                        <P>Grant program-health, Hospitals, Medicaid, Medicare, Reporting and recordkeeping requirements.</P>
                        <CFR>42 CFR Part 483</CFR>
                        <P>
                            Grant program-health, Health facilities, Health professions, Health records, Medicaid, Medicare, Nursing 
                            <PRTPAGE P="28345"/>
                            homes, Nutrition, Reporting and recordkeeping requirements, Safety.
                        </P>
                        <CFR>42 CFR Part 485</CFR>
                        <P>Grant programs-health, Health facilities, Medicaid, Medicare, Reporting and record keeping requirements.</P>
                        <CFR>42 CFR Part 489</CFR>
                        <P>Health facilities, Medicare, Reporting and record keeping requirements.</P>
                    </LSTSUB>
                    <P>For the reasons stated in the preamble of this proposed rule, the Centers for Medicare &amp; Medicaid Services is proposing to amend 42 CFR chapter IV as follows:</P>
                    <P>A. Part 403 is amended as follows:</P>
                    <PART>
                        <HD SOURCE="HED">PART 403—SPECIAL PROGRAMS AND PROJECTS</HD>
                        <P>1. The authority citation for part 403 continues to read as follows:</P>
                        <AUTH>
                            <HD SOURCE="HED">Authority:</HD>
                            <P>Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh).</P>
                        </AUTH>
                        <P>2. Section 403.744 is amended by—</P>
                        <P>A. Revising paragraph (a)(1).</P>
                        <P>B. Revising paragraph (c).</P>
                        <P>C. Removing paragraph (c)(1) and paragraph (c)(2).</P>
                        <P>The revision reads as follows:</P>
                        <SECTION>
                            <SECTNO>§ 403.744 </SECTNO>
                            <SUBJECT>Condition of Participation: Life safety from fire.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">General.</E>
                                 An RNHCI must meet the following conditions:
                            </P>
                            <P>(1) Except as otherwise provided in this section—</P>
                            <P>
                                (i) The RNHCI must meet the applicable provisions of the 2000 edition of the Life Safety Code of the National Fire Protection Association. The Director of the Office of the Federal Register has approved the NFPA 101® 2000 edition of the Life Safety Code, issued January 14, 2000, for incorporation by reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. A copy of the Code is available for inspection at the CMS Information Resource Center, 7500 Security Boulevard, Baltimore, MD and at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: 
                                <E T="03">http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.</E>
                                 Copies may be obtained from the National Fire Protection Association, 1 Batterymarch Park, Quincy, MA 02269. If any changes in this edition of the Code are incorporated by reference, CMS will publish notice in the 
                                <E T="04">Federal Register</E>
                                 to announce the changes.
                            </P>
                            <P>(ii) Chapter 19.3.6.3.2, exception number 2 of the adopted Life Safety Code does not apply to an RNHCI.</P>
                            <STARS/>
                            <P>
                                (c) 
                                <E T="03">Phase-in period.</E>
                                 Beginning March 13, 2006, an RNHCI must be in compliance with Chapter 19.2.9, Emergency Lighting. Beginning March 13, 2006, Chapter 19.3.6.3.2, exception number 2 does not apply to RNHCIs.
                            </P>
                            <P>B. Part 412 is amended as follows:</P>
                        </SECTION>
                    </PART>
                    <PART>
                        <HD SOURCE="HED">PART 412—PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL SERVICES</HD>
                        <P>1. The authority citation for part 412 continues to read as follows:</P>
                        <AUTH>
                            <HD SOURCE="HED">Authority:</HD>
                            <P>Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh).</P>
                        </AUTH>
                        <P>2. Section 412.2 is amended by adding a new paragraph (b)(3) to read as follows:</P>
                        <SECTION>
                            <SECTNO>§ 412.2 </SECTNO>
                            <SUBJECT>Basis for payment.</SUBJECT>
                            <STARS/>
                            <P>
                                (b) 
                                <E T="03">Payment in full.</E>
                            </P>
                            <STARS/>
                            <P>(3) If a patient is admitted to an acute care hospital and then the acute care hospital meets the criteria at § 412.23(e) to be paid as a LTCH, during the course of the patient's hospitalization, Medicare considers all the days of the patient stay in the facility (days prior to and after the designation of LTCH status) to be a single episode of LTCH care. Medicare will not make payment under subpart H for any part of the hospitalization. Payment for the entire patient stay (days prior to and after the designation of LTCH status) will be made in accordance with the requirements specified in § 412.521. The requirements of this paragraph (b)(3) apply only to a patient stay in which a patient is in an acute care hospital and that hospital is designated as a LTCH on or after October 1, 2004.</P>
                            <STARS/>
                            <P>3. Section 412.4 is amended by revising paragraph (d) to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.4</SECTNO>
                            <SUBJECT>Discharges and transfers.</SUBJECT>
                            <STARS/>
                            <P>
                                (d) 
                                <E T="03">Qualifying DRGs.</E>
                            </P>
                            <P>(1) For purposes of paragraph (c) of this section, and subject to the provisions of paragraph (d)(2) of this section, the qualifying DRGs must meet the following criteria for both of the 2 most recent fiscal years for which data are available:</P>
                            <P>(i) The DRG must have a geometric mean length of stay of at least 3 days.</P>
                            <P>(ii) The DRG must have at least 14,000 cases identified as postacute care transfer cases.</P>
                            <P>(iii) The DRG must have at least 10 percent of the postacute care transfers occurring before the geometric mean length of stay for the DRG.</P>
                            <P>(iv) If the DRG is one of a paired DRG based on the presence or absence of a comorbidity or complication, one of the DRGs meets the criteria specified under paragraphs (d)(1)(i) through (d)(1)(iii) of this section.</P>
                            <P>(v) To initially qualify, the DRG must meet the criteria specified in paragraphs(d)(1)(i) through (d)(1)(iv) of this section and must have a decline in the geometric mean length of stay for the DRG during the most recent 5-year period of at least 7 percent. Once a DRG initially qualifies, the DRG is subject to the criteria specified under paragraphs (d)(1)(i) through (d)(1)(iv) of this section for each subsequent fiscal year.</P>
                            <P>(2) Effective October 1, 2004, if a DRG fails to meet the qualifying criteria under paragraph (d)(1) of this section, the qualifying DRG must meet the following criteria for both of the 2 most recent fiscal years for which data are available:</P>
                            <P>(i) The DRG must have a geometric mean length stay of at least 3 days.</P>
                            <P>(ii) The DRG must have at least 5,000 cases identified as postacute care transfer cases.</P>
                            <P>(iii) The DRG must have a percentage of the postacute care transfer cases occurring before the geometric mean length of stay of at least 2 standard deviations above the geometric mean length of stay across all DRGs.</P>
                            <P>(iv) If the DRG is one of a paired DRG based on the presence or absence of a comorbidity or complication, one of the DRGs meets the criteria specified under paragraph (d)(2)(i) through (d)(2)(iii) of this section.</P>
                            <P>(v) To initially qualify, the DRG meets the criteria specified in paragraph (d)(2)(i) through (d)(2)(iv) of this section and must either have experienced a decline in its geometric mean length of stay during the most recent 5-year period of at least 7 percent, or contain only cases that would have been included in a DRG to which the policy applied in the prior year. Once a DRG initially qualifies, the DRG is subject to the criteria specified under paragraphs (d)(2)(i) through (d)(2)(iv) for each subsequent fiscal year.</P>
                            <STARS/>
                            <P>4. Section 412.22 is amended by—</P>
                            <P>A. Adding a sentence at the end of paragraph (a).</P>
                            <P>B. Revising paragraph (e).</P>
                            <P>The addition and revision read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <PRTPAGE P="28346"/>
                            <SECTNO>§ 412.22 </SECTNO>
                            <SUBJECT>Excluded hospitals and hospital units: General rules.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Criteria.</E>
                                 * * * For purposes of this subpart, the term “hospital” includes a critical access hospital (CAH).
                            </P>
                            <STARS/>
                            <P>
                                (e) 
                                <E T="03">Hospitals-within-hospitals.</E>
                                 Except as provided in paragraph (f) of this section, a hospital that occupies space in a building also used by another hospital, or in one or more separate buildings located on the same campus as buildings used by another hospital, must meet the following criteria in order to be excluded from the prospective payment systems specified in § 412.1(a)(1):
                            </P>
                            <P>(1) For cost reporting periods beginning on or after October 1, 1987, and before October 1, 2004—</P>
                            <P>
                                (i) 
                                <E T="03">Separate governing body.</E>
                                 The hospital has a governing body that is separate from the governing body of the hospital occupying space in the same building or on the same campus. The hospital's governing body is not under the control of the hospital occupying space in the same building or on the same campus, or of any third entity that controls both hospitals.
                            </P>
                            <P>
                                (ii) 
                                <E T="03">Separate chief medical officer.</E>
                                 The hospital has a single chief medical officer who reports directly to the governing body and who is responsible for all medical staff activities of the hospital. The chief medical officer of the hospital is not employed by or under contract with either the hospital occupying space in the same building or on the same campus or any third entity that controls both hospitals.
                            </P>
                            <P>
                                (iii) 
                                <E T="03">Separate medical staff.</E>
                                 The hospital has a medical staff that is separate from the medical staff of the hospital occupying space in the same building or on the same campus. The hospital's medical staff is directly accountable to the governing body for the quality of medical care provided in the hospital, and adopts and enforces by laws governing medical staff activities, including criteria and procedures for recommending to the governing body the privileges to be granted to individual practitioners.
                            </P>
                            <P>
                                (iv) 
                                <E T="03">Chief executive officer.</E>
                                 The hospital has a single chief executive officer through whom all administration authority flows, and who exercises control and surveillance over all administrative activities of the hospital. The chief executive officer is not employed by, or under contract with, either the hospital occupying space in the same building or on the same campus or any third entity that controls both hospitals.
                            </P>
                            <P>
                                (v) 
                                <E T="03">Performance of basic hospital functions.</E>
                                 The hospital meets one of the following criteria:
                            </P>
                            <P>(A) The hospital performs the basic functions specified in §§ 482.21 through 482.27, 482.30, 482.42, 482.43, and 482.45 of this chapter through the use of employees or under contracts or other agreements with entities other than the hospital occupying space in the same building or on the same campus, or a third entity that controls both hospitals. Food and dietetic services and housekeeping, maintenance, and other services necessary to maintain a clean and safe physical environment could be obtained under contracts or other agreements with the hospital occupying space in the same building or on the same campus, or with a third entity that controls both hospitals.</P>
                            <P>(B) For the same period of at least 6 months used to determine compliance with the criterion regarding the age of patients in § 412.23(d)(2) or the length-of-stay criterion in § 412.23(e)(2), or for hospitals other than children's or long-term care hospitals, for a period of at least 6 months immediately preceding the first cost reporting period for which exclusion is sought, the cost of the services that the hospital obtains under contracts or other agreements with the hospital occupying space in the same building or on the same campus, or with a third entity that controls both hospitals, is no more than 15 percent of the hospital's total inpatient operating costs, as defined in § 412.2(c). For purposes of this paragraph (e)(1)(v)(B), however, the costs of preadmission services are those specified under § 413.40(c)(2) rather than those specified under § 412.2(c)(5).</P>
                            <P>(C) For the same period of at least 6 months used to determine compliance with the criterion regarding the age of inpatients in § 412.23(d)(2) or the length-of-stay criterion in § 412.23(e)(2), or for hospitals other than children's or long-term care hospitals, for the period of at least 6 months immediately preceding the first cost reporting period for which exclusion is sought, the hospital has an inpatient population of whom at least 75 percent were referred to the hospital from a source other than another hospital occupying space in the same building or on the same campus.</P>
                            <P>(2) Effective for cost reporting periods beginning on or after October 1, 2004, the hospital must meet the following:</P>
                            <P>
                                (i) 
                                <E T="03">Governance and control requirements.</E>
                                 The hospital meets the criteria under paragraphs (e)(1)(i) through (e)(1)(iv) of this section.
                            </P>
                            <P>
                                (ii) 
                                <E T="03">Ownership interest and control.</E>
                                 The hospital must not be owned, wholly or in part, by a person or party that has any ownership interest in the hospital occupying space in the same building or on the same campus, or of any third party entity that controls both hospitals. However, hospitals that were excluded from the prospective payment systems specified in § 412.1(a) as of June 30, 2004, will be deemed to these criteria.
                            </P>
                            <P>
                                (iii) 
                                <E T="03">Admissions criteria.</E>
                                 For the same period of at least 6 months used to determine compliance with the criterion regarding the age of inpatients in § 412.23(d)(2) or the length-of-stay criterion in § 412.23(e)(2), or for hospitals other than children's or long-term care hospitals, for the period of at least 6 months immediately preceding the first cost reporting period for which exclusion is sought, the hospital has an inpatient population of whom at least 75 percent were referred to the hospital from a source other than another hospital occupying space in the same building or on the same campus.
                            </P>
                            <P>
                                (3) 
                                <E T="03">Notification of co-located status.</E>
                                 A long-term care hospital that occupies space in a building used by another hospital, or in one or more separate buildings located on the same campus as buildings used by another hospital that meets the criteria of (e)(1) or (e)(2) of this section must notify its fiscal intermediary and CMS in writing of its co-location within 60 days of its first cost reporting period that begins on or after October 1, 2002.
                            </P>
                            <STARS/>
                            <P>5. Section 412.25 is amended by adding a new paragraph (g), to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.25 </SECTNO>
                            <SUBJECT>Excluded hospital units: Common requirements.</SUBJECT>
                            <STARS/>
                            <P>
                                (g) 
                                <E T="03">CAH units not meeting applicable requirements.</E>
                                 If a psychiatric or rehabilitation unit of a CAH does not meet the requirements of § 485.645 with respect to a cost reporting period, no payment may be made to the CAH for services furnished in that unit for that period. Payment to the CAH for services in the unit may resume only after the unit has demonstrated to CMS that the unit meets the requirements of § 485.645.
                            </P>
                            <P>6. Section 412.63 is amended by—</P>
                            <P>A. Revising the heading of the section.</P>
                            <P>B. Revising paragraph (a).</P>
                            <P>C. Adding introductory text to paragraph (b).</P>
                            <P>D. Revising paragraph (c)(1), (c)(5), and (c)(6)</P>
                            <P>E. Revising paragraph (u).</P>
                            <P>The revisions and addition read as follow:</P>
                        </SECTION>
                        <SECTION>
                            <PRTPAGE P="28347"/>
                            <SECTNO>§ 412.63 </SECTNO>
                            <SUBJECT>Federal rates for inpatient operating costs for Federal fiscal years 1984 through 2004.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">General rule.</E>
                                 (1) CMS determines a national adjusted prospective payment rate for inpatient operating costs for each inpatient hospital discharge in Federal fiscal years 1985 through 2004 involving inpatient hospital service of a hospital in the United States, subject to the PPS, and determines a regional adjusted PPS rate for operating costs for such discharges in each region for which payment may be made under Medicare Part A.
                            </P>
                            <P>(2) Each such rate is determined for hospitals located in urban or rural areas within the United States and within each such region, respectively, as described under paragraphs (b) through (u) of this section.</P>
                            <STARS/>
                            <P>
                                (b) 
                                <E T="03">Geographic classifications.</E>
                                 Effective for fiscal years 1985 through 2004, the following rules apply.
                            </P>
                            <STARS/>
                            <P>
                                (c) 
                                <E T="03">Updating previous standardized amounts.</E>
                                 (1) For discharges occurring in fiscal year 1985 through fiscal year 2003, CMS computes average standardized amounts for hospitals in urban areas and rural areas within the United States, and in urban areas and rural areas within each region. For discharges occurring in fiscal year 2004, CMS computes an average standardized amount for hospitals located in all areas.
                            </P>
                            <STARS/>
                            <P>(5) For fiscal years 1987 through 2004, CMS standardizes the average standardized amounts by excluding an estimate of indirect medical education payments.</P>
                            <P>
                                (6) For fiscal years 1988 through 2003, CMS computes average standardized amounts for hospitals located in large urban areas, other urban areas, and rural areas. The term 
                                <E T="03">large urban area</E>
                                 means an MSA with a population of more than 1,000,000 or an NECMA, with a population of more than 970,000 based on the most recent available population data published by the Census Bureau. For fiscal year 2004, CMS computes an average standardized amount for hospitals located in all areas.
                            </P>
                            <STARS/>
                            <P>
                                (u) 
                                <E T="03">Applicable percentage change for fiscal year 2004.</E>
                                 The applicable percentage change for fiscal year 2004 is the percentage increase in the market basket index for prospective payment hospitals (as defined in § 413.40(a) of this subchapter) for hospitals in all areas.
                            </P>
                            <STARS/>
                            <P>7. A new § 412.64 is added to Subpart D to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.64 </SECTNO>
                            <SUBJECT>Federal rates for inpatient operating costs for Federal fiscal year 2005 and subsequent fiscal years.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">General rule.</E>
                                 CMS determines a national adjusted prospective payment rate for inpatient operating costs for each inpatient hospital discharge in Federal fiscal year 2005 and subsequent fiscal years involving inpatient hospital services of a hospital in the United States subject to the prospective payment system for which payment may be made under Medicare Part A.
                            </P>
                            <P>
                                (b) 
                                <E T="03">Geographic classifications.</E>
                                 (1) For purposes of this section, the following definitions apply:
                            </P>
                            <P>
                                (i) The term 
                                <E T="03">region</E>
                                 means one of the 9 metropolitan divisions comprising the 50 States and the District of Columbia, established by the Executive Office of Management and Budget for statistical and reporting purposes.
                            </P>
                            <P>
                                (ii) The term 
                                <E T="03">urban area</E>
                                 means—
                            </P>
                            <P>(A) A Metropolitan Statistical Area, as defined by the Executive Office of Management and Budget; or</P>
                            <P>(B) The following New England counties, which are deemed to be parts of urban areas under section 601(g) of the Social Security Amendments of 1983 (Public Law 98-21, 42 U.S.S. 1395ww (note)): Litchfield County, Connecticut; York County, Maine; Sagadahoc County, Maine; Merrimack County, New Hampshire; and Newport County, Rhode Island.</P>
                            <P>
                                (C) The term 
                                <E T="03">rural area</E>
                                 means any area outside an urban area.
                            </P>
                            <P>
                                (D) The phrase 
                                <E T="03">hospital reclassified as rural</E>
                                 means a hospital located in a county that, in FY 2004, was part of an MSA, but was redesignated as rural after September 30, 2004, as a result of the most recent census data and implementation of the new MSA definitions announced by OMB on June 6, 2003.
                            </P>
                            <P>(2) For hospitals within an MSA that crosses census division boundaries, the MSA is deemed to belong to the census division in which most of the hospitals within the MSA are located.</P>
                            <P>
                                (3) For discharges occurring on or after October 1, 2004, a hospital located in a rural county adjacent to one or more urban areas is deemed to be located in an urban area and receives the Federal payment amount for the urban area to which the greater number of workers in the county commute if the rural county would otherwise be considered part of an urban area, under the standards for designating MSAs if the commuting rates used in determining outlying counties were determined on the basis of the aggregate number of resident workers who commute to (and, if applicable under the standards, from) the central county or central counties of all adjacent MSAs. These EOMB standards are set forth in the notice of final revised standards for classification of MSAs published in the 
                                <E T="04">Federal Register</E>
                                 on December 27, 2000 (65 FR 82228), announced by EOMB on June 6, 2003, and available from CMS, 7500 Security Boulevard, Baltimore, Maryland 21244.
                            </P>
                            <P>(4) For purposes of this section, any change in an MSA designation is recognized on October 1 following the effective date of the change. Such a change in MSA designation may occur as a result of redesignation of an MSA by the Executive Office of Management and Budget.</P>
                            <P>
                                (c) 
                                <E T="03">Computing the standardized amount.</E>
                                 CMS computes an average standardized amount that is applicable to all hospitals located in all areas, updated by the applicable percentage increase specified in paragraph (d) of this section.
                            </P>
                            <P>
                                (d) 
                                <E T="03">Applicable percentage change for fiscal year 2005 and for subsequent fiscal years.</E>
                            </P>
                            <P>(1) Subject to the provisions of paragraph (d)(2) of this section, the applicable percentage change for fiscal year 2005 and for subsequent years for updating the standardized amount is the percentage increase in the market basket index for prospective payment hospitals (as defined in § 413.40(a) of this subchapter) for hospitals in all areas.</P>
                            <P>(2) For fiscal years 2005, 2006, and 2007, the applicable percentage change specified in paragraph (d)(1) of this section is reduced by 0.4 percentage points in the case of a “subsection (d) hospital,” as defined under section 1886(d)(1)() of the Act, that does not submit quality data on a quarterly basis to CMS, as specified by CMS. Any reduction of the percentage change will apply only to the fiscal year involved and will not be taken into account in computing the applicable percentage increase for a subsequent fiscal year.</P>
                            <P>
                                (e) 
                                <E T="03">Maintaining budget neutrality.</E>
                                 (1) CMS makes an adjustment to the standardized amount to ensure that— 
                            </P>
                            <P>(i) Changes to the DRG classifications and recalibrations of the DRG relative weights are made in a manner so that aggregate payments to hospitals are not affected; and</P>
                            <P>(ii) The annual updates and adjustments to the wage index under paragraph (h) of this section are made in a manner that ensures that aggregate payments to hospitals are not affected.</P>
                            <P>
                                (2) CMS also makes an adjustment to the rates to ensure that aggregate payments after implementation of reclassifications under subpart L of this part are equal to the aggregate prospective payments that would have 
                                <PRTPAGE P="28348"/>
                                been made in the absence of these provisions.
                            </P>
                            <P>
                                (f) 
                                <E T="03">Adjustment for outlier payments.</E>
                                 CMS reduces the adjusted average standardized amount determined under paragraph (c) through (e) of this section by a proportion equal to the proportion estimated by CMS) to the total amount of payments based on DRG prospective payment rates that are additional payments for outlier cases under subpart F of this part.
                            </P>
                            <P>
                                (g) 
                                <E T="03">Computing Federal rates for inpatient operating costs for hospitals located in all areas.</E>
                                 For each discharge classified within a DRG, CMS establishes for the fiscal year a national prospective payment rate for inpatient operating costs based on the standardized amount for the fiscal year and the weighting factor determined under § 412.60(b) for that DRG.
                            </P>
                            <P>
                                (h) 
                                <E T="03">Adjusting for different area wage levels.</E>
                                 CMS adjusts the proportion of the Federal rate for inpatient operating costs that are attributable to wages and labor-related costs for area differences in hospital wage levels by a factor (established by CMS based on survey data) reflecting the relative level of hospital wages and wage-related costs in the geographic area (that is, urban or rural area as determined under the provisions of paragraph (b) of this section) of the hospital compared to the national average level of hospital wages and wage-related costs. The adjustment described in this paragraph (h) also takes into account the earnings and paid hours of employment by occupational category.
                            </P>
                            <P>(1) The wage index is updated annually.</P>
                            <P>(2) CMS determines the proportion of the Federal rate that is attributable to wages and labor-related costs from time to time, employing a methodology that is described in the annual regulation updating the system of payment for inpatient hospital operating costs.</P>
                            <P>(3) For discharges occurring on or after October 1, 2004, CMS employs 62 percent as the proportion of the rate that is adjusted for the relative level of hospital wages and wage-related costs, unless employing that percentage would result in lower payments for the hospital than employing the proportion determined under the methodology described in paragraph (h)(2) of this section.</P>
                            <P>
                                (i) 
                                <E T="03">Adjusting the wage index to account for commuting patterns of hospital workers.</E>
                            </P>
                            <P>
                                (1) 
                                <E T="03">General criteria.</E>
                                 For discharges occurring on or after October 1, 2004, CMS adjusts the hospital wage index for hospitals located in qualifying counties to recognize the commuting patterns of hospital employees. A qualifying county is a county that meets all of the following criteria:
                            </P>
                            <P>(i) Hospital employees in the county commute to work in an MSA (or MSAs) with a wage index (or wage indices) higher than the wage index of the MSA or rural statewide area in which the county is located.</P>
                            <P>(ii) At least 10 percent of the county's hospital employees commute to an MSA (or MSAs) with a higher wage index (or wage indices).</P>
                            <P>(iii) The 3-year average hourly wage of the hospital(s) in the county equals or exceeds the 3-year average hourly wage of all hospitals in the MSA or rural statewide area in which the county is located.</P>
                            <P>
                                (2) 
                                <E T="03">Amount of adjustment.</E>
                                 A hospital located in a county that meets the criteria under paragraphs (i)(l)(i) through (i)(1)(iii) of this section will receive an increase in its wage index that is equal to a weighted average of the difference between the prereclassified wage index of the MSA (or MSAs) with the higher wage index (or wage indices) and the prereclasssified wage index of the MSA or rural statewide area in which the qualifying county is located, weighted by the overall percentage of the hospital employees residing in the qualifying county who are employed in any MSA with a higher wage index.
                            </P>
                            <P>
                                (3) 
                                <E T="03">Process for determining the adjustment.</E>
                            </P>
                            <P>(i) CMS will use the most accurate data available, as determined by CMS, to determine the out-migration percentage for each county.</P>
                            <P>(ii) CMS will include, in its annual proposed and final notices of updates to the hospital inpatient prospective payment system, a listing of qualifying counties and the hospitals that are eligible to receive the adjustment to their wage indexes for commuting hospital employees, and the wage index increase applicable to each qualifying county.</P>
                            <P>(iii) Any wage index adjustment made under this paragraph (i) is effective for a period of 3 fiscal years, except that hospitals in a qualifying county may elect to waive the application of the wage index adjustment. A hospital may waive the application of the wage index adjustment by notifying CMS in writing within 45 days after the publication of the annual notice of proposed rulemaking for the hospital inpatient prospective payment system.</P>
                            <P>(iv) A hospital in a qualifying county that receives a wage index adjustment under this paragraph (g) is not eligible for reclassification under Subpart L of this part.</P>
                            <P>
                                (j) 
                                <E T="03">Wage index assignment for rural referral centers for FY 2005.</E>
                            </P>
                            <P>(1) CMS makes an exception to the wage index assignment of a rural referral center for FY 2005 if the rural referral center meets the following conditions:</P>
                            <P>(i) The rural referral center was reclassified for FY 2004 by the MGCRB to another MSA, but, upon applying to the MGCRB for FY 2005, was found to be ineligible for reclassification because its average hourly wage was less than 84 percent (but greater than 82 percent) of the average hourly wage of the hospitals geographically located in the MSA to which the rural referral center applied for reclassification for FY 2005.</P>
                            <P>(ii) The hospital may not qualify for any geographic reclassification under subpart L of this part, effective for discharges occurring on or after October 1, 2004.</P>
                            <P>(2) CMS will assign a rural referral center that meets the conditions of paragraph (j)(1) of this section the wage index value of the MSA to which it was reclassified by the MGCRB in FY 2004.</P>
                            <P>
                                (k) 
                                <E T="03">Midyear corrections to the wage index.</E>
                            </P>
                            <P>(1) CMS makes a midyear correction to the wage index for an area only if a hospital can show that—</P>
                            <P>(i) The intermediary or CMS made an error in tabulating its data; and</P>
                            <P>(ii) The hospital could not have known about the error, or did not have the opportunity to correct the error, before the beginning of the Federal fiscal year.</P>
                            <P>(2) A midyear correction to the wage index is effective prospectively from the date the change is made to the wage index.</P>
                            <P>
                                (l) 
                                <E T="03">Judicial decision.</E>
                                 If a judicial decision reverses a CMS denial of a hospital's wage data revision request, CMS pays the hospital by applying a revised wage index that reflects the revised wage data as if CMS's decision had been favorable rather than unfavorable.
                            </P>
                            <P>8. Section 412.87 is amended by revising paragraph (b)(3) to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.87 </SECTNO>
                            <SUBJECT>Additional payment for new medical services and technologies: General provisions.</SUBJECT>
                            <STARS/>
                            <P>
                                (b) 
                                <E T="03">Eligibility criteria.</E>
                                 * * *
                            </P>
                            <P>
                                (3) The DRG prospective payment rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate, based on application of a threshold amount to estimated charges incurred with respect to such discharges. To determine whether the 
                                <PRTPAGE P="28349"/>
                                payment would be adequate, CMS will determine whether the charges of the cases involving a new medical service or technology will exceed a threshold amount that is the lesser of 75 percent of the standardized amount (increased to reflect the difference between cost and charges) or 75 percent of one standard deviation beyond the geometric mean standardized charge for all cases in the DRG to which the new medical service or technology is assigned (or the case-weighted average of all relevant DRGs if the new medical service or technology occurs in many different DRGs). Standardized charges reflect the actual charges of a case adjusted by the prospective payment system payment factors applicable to an individual hospital, such as the wage index, the indirect medical education adjustment factor, and the disproportionate share adjustment factor.
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.88 </SECTNO>
                            <SUBJECT>[Amended]</SUBJECT>
                            <P>9. Section 412.88 is amended by removing paragraph (c).</P>
                            <P>10. A new § 412.101 is added to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.101 </SECTNO>
                            <SUBJECT>Special treatment: Inpatient hospital payment adjustment for low-volume hospitals.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">General considerations.</E>
                            </P>
                            <P>(1) CMS provides an additional payment to a qualifying hospital for the higher incremental costs associated with a low volume of discharges. The amount of any additional payment for a qualifying hospital is calculated in accordance with paragraph (b) of this section.</P>
                            <P>(2) In order to qualify for this adjustment, a hospital must have 500 or fewer discharges during the fiscal year, as reflected in its cost report specified in paragraph (a)(3) of this section, and be located more than 25 road miles from the nearest inpatient acute care prospective payment system hospital.</P>
                            <P>(3) The fiscal intermediary makes the determination of the discharge count for purposes of determining a hospital's qualification for the adjustment and the amount of the adjustment based on the hospital's most recent submitted cost report.</P>
                            <P>(4) In order to qualify for the adjustment, a hospital must provide its fiscal intermediary with sufficient evidence that it meets the distance requirement specified under paragraph (a)(2) of this section. The fiscal intermediary will base its determination of whether the distance requirement is satisfied upon the evidence presented by the hospital and other relevant evidence, such as maps, mapping software, and inquiries to State and local police, transportation officials, or other government officials.</P>
                            <P>
                                (b) 
                                <E T="03">Determination of the adjustment amount.</E>
                                 The maximum low-volume adjustment is 25 percent. Each qualifying hospital's low-volume adjustment is calculated as follows: 1.25-(.0005*D), where 0&lt;D≤500 discharges, and 1.25 represents the maximum 25 percent add-on amount, .0005 is the payment adjustment per case (derived by dividing .25 by 500 discharges) and “D” is the number of discharges determined under paragraph (a)(3) of this section.
                            </P>
                            <P>
                                (c) 
                                <E T="03">Eligibility of new hospitals for the adjustment.</E>
                                 A new hospital will be eligible for a low-volume adjustment under this section once it has submitted a cost report for a cost reporting period that indicates that it meets the number of discharge requirement during the fiscal year, as specified in paragraph (a) of this section.
                            </P>
                            <P>11. Section 412.102 is amended by revising the introductory text to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.102 </SECTNO>
                            <SUBJECT>Special treatment: Hospitals located in areas that are reclassified from urban to rural as a result of a geographic redesignation.</SUBJECT>
                            <P>Effective on or after October 1, 1983, a hospital reclassified as rural, as defined in subpart D of this part, may receive an adjustment to its rural Federal payment amount for operating costs for two successive fiscal years.</P>
                            <STARS/>
                            <P>12. Section 412.103 is amended by revising paragraph (a) introductory text to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.103 </SECTNO>
                            <SUBJECT>Special treatment: Hospitals located in urban areas and that apply for reclassification as rural.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">General criteria.</E>
                                 A prospective payment hospital that is located in an urban area (as defined in subpart D of this part) may be reclassified as a rural hospital if it submits an application in accordance with paragraph (b) of this section and meets any of the following conditions:
                            </P>
                            <STARS/>
                            <P>13. Section 412.104 is amended by revising paragraph (a) to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.104 </SECTNO>
                            <SUBJECT>Special treatment: Hospitals with high percentage of ESRD discharges.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Criteria for classification.</E>
                                 CMS provides an additional payment to a hospital for inpatient services provided to ESRD beneficiaries who receive a dialysis treatment during a hospital stay, if the hospital has established that ESRD beneficiary discharges, excluding discharges classified into DRG 302 (Kidney Transplant, DRG 316 (Renal Failure), or DRG 317 (Admit for Renal Dialysis), where the beneficiary received dialysis services during the inpatient stay, constitute 10 percent or more of its total Medicare discharges.
                            </P>
                            <STARS/>
                            <P>14. Section 412.105 is amended by—</P>
                            <P>A. Revising paragraph (d)(3)(vii).</P>
                            <P>B. Adding new paragraphs (d)(3)(viii) through (xii).</P>
                            <P>C. Adding a new paragraph (d)(4).</P>
                            <P>D. Redesignating the contents of paragraph (e) as paragraph (e)(1) and adding a new paragraph (e)(2).</P>
                            <P>E. Redesignating the contents of paragraph (f)(1)(iv) as paragraph (f)(1)(iv)(A) and adding new paragraphs (f)(1)(iv)(B) and (f)(1)(iv(C).</P>
                            <P>F. Adding a sentence at the end of paragraph (f)(1)(v).</P>
                            <HD SOURCE="HD1">Cross-Reference Changes</HD>
                            <P>G. In paragraphs (a), (f), and (g) as indicated in the left column of the table below, remove the cross-reference indicated in the middle column from wherever it appears, and add the cross-reference in the right column:</P>
                            <GPOTABLE COLS="3" OPTS="L2,i1" CDEF="s75,r75,r75">
                                <TTITLE>  </TTITLE>
                                <BOXHD>
                                    <CHED H="1">Section </CHED>
                                    <CHED H="1">Remove cross-reference </CHED>
                                    <CHED H="1">Add cross-reference.</CHED>
                                </BOXHD>
                                <ROW>
                                    <ENT I="01">412.105(a)(1), introductory text </ENT>
                                    <ENT>paragraph (f) and (h) of this section </ENT>
                                    <ENT>paragraph (f) of this section..</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">412.105(f)(1)(i)(A) </ENT>
                                    <ENT>§ 415.200(a) </ENT>
                                    <ENT>§ 415.152..</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">412.105(f)(1)(ii)(C) </ENT>
                                    <ENT>§ 413.86(f)(3) or § 413.86(f)(4)</ENT>
                                    <ENT>§ 413.78(c) or § 413.78(d).</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">412.105(f)(1)(vi) </ENT>
                                    <ENT>§ 413.86(b) </ENT>
                                    <ENT>§ 413.75(b)..</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">412.105(f)(1)(vi) </ENT>
                                    <ENT>§ 413.86(g)(7) </ENT>
                                    <ENT>§ 413.79(f)..</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">412.105(f)(1)(vii) </ENT>
                                    <ENT>§ 413.86(g)(13) </ENT>
                                    <ENT>§ 413.79(l)..</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">412.105(f)(1)(vii) </ENT>
                                    <ENT>§§ 413.86(g)(6)(i) through (iv) </ENT>
                                    <ENT>§§ 413.79(e)(1) through (e)(4)..</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">412.105(f)(1)(viii) </ENT>
                                    <ENT>§ 413.86(g)(8) </ENT>
                                    <ENT>§ 413.79(g)..</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">412.105(f)(1)(ix) </ENT>
                                    <ENT>§§ 413.86(g)(9)(i) and (g)(9)(ii) </ENT>
                                    <ENT>§§ 413.79(h)(1) and (h)(2)..</ENT>
                                </ROW>
                                <ROW>
                                    <PRTPAGE P="28350"/>
                                    <ENT I="01">412.105(f)(1)(ix) </ENT>
                                    <ENT>§§ 413.86(g)(9)(i) and (g)(9)(iii)(B) </ENT>
                                    <ENT>§§ 413.79(h)(1) and (h)(3)(ii)..</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">412.105(f)(1)(ix) </ENT>
                                    <ENT>§§ 413.86(g)(9)(i) and (g)(9)(iii)(A) </ENT>
                                    <ENT>§§ 413.79(h)(1) and (h)(3)(i)..</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">412.105(f)(1)(x) </ENT>
                                    <ENT>§ 413.86(g)(13) </ENT>
                                    <ENT>§ 413.79(l)..</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">412.105(f)(1)(x) </ENT>
                                    <ENT>§ 413.86(g)(12) </ENT>
                                    <ENT>§ 413.79(k)..</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">412.105(f)(1)(xi) </ENT>
                                    <ENT>§ 413.86(g)(10) </ENT>
                                    <ENT>§ 413.79(i)..</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">412.105(f)(1)(xii) </ENT>
                                    <ENT>§ 413.86(g)(11) </ENT>
                                    <ENT>§ 413.79(j)..</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">412.105(g) </ENT>
                                    <ENT>§§ 413.86(d)(3)(i) through (d)(3)(v) </ENT>
                                    <ENT>§§ 413.76(c)(1) through (c)(5). </ENT>
                                </ROW>
                            </GPOTABLE>
                            <P>The revisions and additions read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.105 </SECTNO>
                            <SUBJECT>Special treatment: Hospitals that incur indirect costs for graduate medical education programs.</SUBJECT>
                            <STARS/>
                            <P>
                                (d) 
                                <E T="03">Determination of education adjustment factor.</E>
                            </P>
                            <STARS/>
                            <P>
                                (3) 
                                <E T="03">Step three.</E>
                                 * * *
                            </P>
                            <P>(vii) For discharges occurring on or after October 1, 2002 and before April 1, 2004, 1.35.</P>
                            <P>(viii) For discharges occurring on or after April l, 2004 and before October l, 2004, 1.47.</P>
                            <P>(ix) For discharges occurring during fiscal year 2005, 1.42.</P>
                            <P>(x) For discharges occurring during fiscal year 2006, 1.37.</P>
                            <P>(xi) For discharges occurring during fiscal year 2007, 1.32.</P>
                            <P>(xii) For discharges occurring during fiscal year 2008 and thereafter, 1.35.</P>
                            <P>(4) For discharges occurring on or after July 1, 2005, with respect to FTE residents added as a result of increases in the FTE resident cap under paragraph (f)(1)(iv)(C) of this section, the factor derived from completing steps one and two is multiplied by ‘c’, where ‘c’ is equal to 0.66.</P>
                            <P>
                                (e) 
                                <E T="03">Determination of payment amount.</E>
                            </P>
                            <P>(1) * * *</P>
                            <P>(2) For discharges occurring on or after July 1, 2005, a hospital that counts additional residents as a result of an increase in its FTE resident cap under paragraph (f)(1)(iv)(C) of this section will receive indirect medical education payments based on the sum of the following two indirect medical education adjustment factors:</P>
                            <P>(i) An adjustment factor that is calculated using the schedule of formula multipliers in paragraph (d)(3) of this section and the hospital's FTE resident count, not including residents attributable to an increase in its FTE cap under paragraph (f)(1)(iv)(C) under this section; and</P>
                            <P>(ii) An adjustment factor that is calculated using the applicable formula multiplier under paragraph (d)(4) of this section, and the additional number of FTE residents that are attributable to the increase in the hospital's FTE resident cap under paragraph (f)(1)(iv)(C) in this section.</P>
                            <P>
                                (f) 
                                <E T="03">Determining the total number of full-time equivalent residents for cost reporting periods beginning on or after July 1, 1991.</E>
                            </P>
                            <P>(1) * * *</P>
                            <P>(iv)(A) * * *</P>
                            <P>(B) Effective for portions of cost reporting periods beginning on or after July l, 2005, a hospital's otherwise applicable FTE resident cap may be reduced if its reference resident level is less than its otherwise applicable FTE resident cap in a reference cost reporting period, in accordance with the provisions of § 413.79(c)(3) of this subchapter. The reduction is 75 percent of the difference between the otherwise applicable FTE resident cap and the reference resident level.</P>
                            <P>(C) Effective for portions of cost reporting periods beginning on or after July 1, 2005, a hospital may qualify to receive an increase in its otherwise applicable FTE resident cap (up to 25 additional FTE slots) if the criteria specified in § 413.79(c)(4) of this subchapter are met.</P>
                            <P>(v) * * * If a hospital increases its FTE count of residents as a result of paragraph (f)(1)(iv)(C) of this section, effective for cost reporting periods beginning on or after July 1, 2005, the FTE residents are included in the hospital's rolling average calculation described in this paragraph (f)(1)(v).</P>
                            <STARS/>
                            <P>15. Section 412.106 is amended by—</P>
                            <P>A. In paragraph (a)(1)(iii), removing the cross-reference “§ 412.62(f)” and adding in its place “§ 412.62(f) or § 412.64”.</P>
                            <P>B. Revising paragraphs (d)(2)(ii), (d)(2)(iii), and (d)(2)(iv) to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.106 </SECTNO>
                            <SUBJECT>Special treatment: Hospitals that serve a disproportionate share of low-income patients.</SUBJECT>
                            <STARS/>
                            <P>
                                (d) 
                                <E T="03">Payment adjustment factor.</E>
                            </P>
                            <STARS/>
                            <P>
                                (2) 
                                <E T="03">Payment adjustment factors.</E>
                            </P>
                            <STARS/>
                            <P>(ii) If the hospital meets the criteria of paragraph (c)(1)(ii) of this section, the payment adjustment factor is equal to one of the following:</P>
                            <P>(A) If the hospital is classified as a rural referral center—</P>
                            <P>
                                (
                                <E T="03">1</E>
                                ) For discharges occurring before April 1, 2001, the payment adjustment factor is 4 percent plus 60 percent of the difference between the hospital's disproportionate patient percentage and 30 percent.
                            </P>
                            <P>
                                (
                                <E T="03">2</E>
                                ) For discharges occurring on or after April 2, 2001, and before April 1, 2004, the following applies:
                            </P>
                            <P>
                                (
                                <E T="03">i</E>
                                ) If the hospital's disproportionate patient percentage is less than 19.3 percent, the applicable payment adjustment factor is 2.5 percent plus 65 percent of the difference between 15 percent and the hospital's disproportionate patient percentage.
                            </P>
                            <P>
                                (
                                <E T="03">ii</E>
                                ) If the hospital's disproportionate patient percentage is greater than 19.3 percent and less than 30 percent, the applicable payment adjustment factor is 5.25 percent.
                            </P>
                            <P>
                                (
                                <E T="03">iii</E>
                                ) If the hospital's disproportionate patient percentage is greater than or equal to 30 percent, the applicable payment adjustment factor is 5.25 percent plus 60 percent of the difference between 30 percent and the hospital's disproportionate patient percentage.
                            </P>
                            <P>
                                (
                                <E T="03">3</E>
                                ) For discharges occurring on or after April 1, 2004, the following applies:
                            </P>
                            <P>
                                (
                                <E T="03">i</E>
                                ) If the hospital's disproportionate patient percentage is less than 20.2 percent, the applicable payment adjustment factor is 2.5 percent plus 65 percent of the difference between 15 percent and the hospital's disproportionate patient percentage.
                            </P>
                            <P>
                                (
                                <E T="03">ii</E>
                                ) If the hospital's disproportionate patient percentage is greater than 20.2 percent, the applicable payment adjustment factor is 5.88 percent plus 82.5 percent of the difference between 20.2 percent and the hospital's disproportionate patient percentage.
                            </P>
                            <P>
                                (B) If the hospital is classified as a sole community hospital—
                                <PRTPAGE P="28351"/>
                            </P>
                            <P>
                                (
                                <E T="03">1</E>
                                ) For discharges occurring before April 1, 2001, the payment adjustment factor is 10 percent.
                            </P>
                            <P>
                                (
                                <E T="03">2</E>
                                ) For discharges occurring on or after April 1, 2001 and before April 1, 2004, the following applies:
                            </P>
                            <P>
                                (
                                <E T="03">i</E>
                                ) If the hospital's disproportionate patient percentage is less than 19.3 percent, the applicable payment adjustment factor is 2.5 percent plus 65 percent of the difference between 15 percent and the hospital's disproportionate patient percentage.
                            </P>
                            <P>
                                (
                                <E T="03">ii</E>
                                ) If the hospital's disproportionate patient percentage is equal to or greater than 19.3 percent and less than 30 percent, the applicable payment adjustment factor is 5.25 percent.
                            </P>
                            <P>
                                (
                                <E T="03">iii</E>
                                ) If the hospital's disproportionate patient percentage is equal to or greater than 30 percent, the applicable payment adjustment factor is 10 percent.
                            </P>
                            <P>
                                (
                                <E T="03">3</E>
                                ) For discharges occurring on or after April 1, 2004, the following applies:
                            </P>
                            <P>
                                (
                                <E T="03">i</E>
                                ) If the hospital's disproportionate patient percentage is less than 20.2 percent, the applicable payment adjustment factor is 2.5 percent plus 65 percent of the difference between 15 percent and the hospital's disproportionate patient percentage.
                            </P>
                            <P>
                                (
                                <E T="03">ii</E>
                                ) If the hospital's disproportionate patient percentage is greater than 20.2 percent, the applicable payment adjustment factor is 5.88 percent plus 82.5 percent of the difference between 20.2 percent and the hospital's disproportionate patient percentage.
                            </P>
                            <P>
                                (
                                <E T="03">iii</E>
                                ) The maximum payment adjustment factor is 12 percent.
                            </P>
                            <P>(C) If the hospital is classified as both a rural referral center and a sole community hospital, the payment adjustment is—</P>
                            <P>
                                (
                                <E T="03">1</E>
                                ) For discharges occurring before April 1, 2001, the greater of—
                            </P>
                            <P>
                                (
                                <E T="03">i</E>
                                ) 10 percent; or
                            </P>
                            <P>
                                (
                                <E T="03">ii</E>
                                ) 4 percent plus 60 percent of the difference between the hospital's disproportionate patient percentage and 30 percent.
                            </P>
                            <P>
                                (
                                <E T="03">2</E>
                                ) For discharges occurring on or after April 1, 2001 and before April 1, 2004, the greater of the adjustments determined under paragraphs (d)(2)(ii)(A) or (d)(2)(ii)(B) of this section.
                            </P>
                            <P>
                                (
                                <E T="03">3</E>
                                ) For discharges occurring on or after April 1, 2004, the following applies:
                            </P>
                            <P>
                                (
                                <E T="03">i</E>
                                ) If the hospital's disproportionate patient percentage is less than 20.2 percent, the applicable payment adjustment factor is 2.5 percent plus 65 percent of the difference between 15 percent and the hospital's disproportionate patient percentage.
                            </P>
                            <P>
                                (
                                <E T="03">ii</E>
                                ) If the hospital's disproportionate patient percentage is greater than 20.2 percent, the applicable payment adjustment factor is 5.88 percent plus 82.5 percent of the difference between 20.2 percent and the hospital's disproportionate patient percentage.
                            </P>
                            <P>(D) If the hospital is classified as a rural hospital and is not classified as either a sole community hospital or a rural referral center, and has 100 or more beds—</P>
                            <P>
                                (
                                <E T="03">1</E>
                                ) For discharges occurring before April 1, 2001, the payment adjustment factor is 4 percent.
                            </P>
                            <P>
                                (
                                <E T="03">2</E>
                                ) For discharges occurring on or after April 1, 2001 and before April 1, 2004, the following applies:
                            </P>
                            <P>
                                (
                                <E T="03">i</E>
                                ) If the hospital's disproportionate patient percentage is less than 19.3 percent, the applicable payment adjustment factor is 2.5 percent plus 65 percent of the difference between the hospital's disproportionate patient percentage and 15 percent.
                            </P>
                            <P>
                                (
                                <E T="03">ii</E>
                                ) If the hospital's disproportionate patient percentage is equal to or greater than 19.3 percent, the applicable payment adjustment factor is 5.25 percent.
                            </P>
                            <P>
                                (
                                <E T="03">3</E>
                                ) For discharges occurring on or after April 1, 2004, the following applies:
                            </P>
                            <P>
                                (
                                <E T="03">i</E>
                                ) If the hospital's disproportionate patient percentage is less than 20.2 percent, the applicable payment adjustment factor is 2.5 percent plus 65 percent of the difference between 15 percent and the hospital's disproportionate patient percentage.
                            </P>
                            <P>
                                (
                                <E T="03">ii</E>
                                ) If the hospital's disproportionate patient percentage is greater than 20.2 percent, the applicable payment adjustment factor is 5.88 percent plus 82.5 percent of the difference between 20.2 percent and the hospital's disproportionate patient percentage.
                            </P>
                            <P>
                                (
                                <E T="03">iii</E>
                                ) The maximum payment adjustment factor is 12 percent.
                            </P>
                            <P>(iii) If the hospital meets the criteria of paragraph (c)(1)(iii) of this section—</P>
                            <P>(A) For discharges occurring before April 1, 2001, the payment adjustment factor is 5 percent.</P>
                            <P>(B) For discharges occurring on or after April 1, 2001 and before April 1, 2004, the following applies:</P>
                            <P>
                                (
                                <E T="03">1</E>
                                ) If the hospital's disproportionate patient percentage is less than 19.3 percent, the applicable payment adjustment factor is 2.5 percent plus 65 percent of the difference between the hospital's disproportionate patient percentage and 15 percent.
                            </P>
                            <P>
                                (
                                <E T="03">2</E>
                                ) If the hospital's disproportionate patient percentage is equal to or greater than 19.3 percent, the applicable payment adjustment factor is 5.25 percent.
                            </P>
                            <P>(C) For discharges occurring on or after April 1, 2004, the following applies:</P>
                            <P>
                                (
                                <E T="03">1</E>
                                ) If the hospital's disproportionate patient percentage is less than 20.2 percent, the applicable payment adjustment factor is 2.5 percent plus 65 percent of the difference between 15 percent and the hospital's disproportionate patient percentage.
                            </P>
                            <P>
                                (
                                <E T="03">2</E>
                                ) If the hospital's disproportionate patient percentage is greater than 20.2 percent, the applicable payment adjustment factor is 5.88 percent plus 82.5 percent of the difference between 20.2 percent and the hospital's disproportionate patient percentage.
                            </P>
                            <P>
                                (
                                <E T="03">3</E>
                                ) The maximum payment adjustment factor is 12 percent.
                            </P>
                            <P>(iv) If the hospital meets the criteria of paragraph (c)(1)(iv) of this section—</P>
                            <P>(A) For discharges occurring before April 1, 2001, the payment adjustment factor is 4 percent.</P>
                            <P>(B) For discharges occurring on or after April 1, 2001 and before April 1, 2004, the following applies:</P>
                            <P>
                                (
                                <E T="03">1</E>
                                ) If the hospital's disproportionate patient percentage is less than 19.3 percent, the applicable payment adjustment factor is 2.5 percent plus 65 percent of the difference between the hospital's disproportionate patient percentage and 15 percent.
                            </P>
                            <P>
                                (
                                <E T="03">2</E>
                                ) If the hospital's disproportionate patient percentage is equal to or greater than 19.3 percent, the applicable payment adjustment factor is 5.25 percent.
                            </P>
                            <P>(C) For discharges occurring on or after April 1, 2004, the following applies:</P>
                            <P>
                                (
                                <E T="03">1</E>
                                ) If the hospital's disproportionate patient percentage is less than 20.2 percent, the applicable payment adjustment factor is 2.5 percent plus 65 percent of the difference between 15 percent and the hospital's disproportionate patient percentage.
                            </P>
                            <P>
                                (
                                <E T="03">2</E>
                                ) If the hospital's disproportionate patient percentage is greater than 20.2 percent, the applicable payment adjustment factor is 5.88 percent plus 82.5 percent of the difference between 20.2 percent and the hospital's disproportionate patient percentage.
                            </P>
                            <P>
                                (
                                <E T="03">3</E>
                                ) The maximum payment adjustment factor is 12 percent.
                            </P>
                            <STARS/>
                            <P>16. Section 412.108 is amended by revising paragraph (a)(1) introductory text to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.108 </SECTNO>
                            <SUBJECT>Special treatment: Medicare-dependent, small rural hospitals.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Criteria for classification as a Medicare-dependent, small rural hospital.</E>
                            </P>
                            <P>
                                (1) 
                                <E T="03">General considerations.</E>
                                 For cost reporting periods beginning on or after 
                                <PRTPAGE P="28352"/>
                                April 1, 1990 and ending before October 1, 1994, or beginning on or after October 1, 1997 and ending before October 1, 2006, a hospital is classified as a Medicare-dependent, small rural hospital if it is located in a rural area (as defined in subpart D of this part) and meets all of the following conditions:
                            </P>
                            <STARS/>
                            <P>17. Section 412.204 is amended by—</P>
                            <P>A. Revising the introductory text of paragraph (a).</P>
                            <P>B. Revising the title and introductory text of paragraph (b).</P>
                            <P>C. Adding new paragraphs (c) and (d).</P>
                            <P>The revision and addition read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.204 </SECTNO>
                            <SUBJECT>Payment to hospitals in Puerto Rico.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">FY 1988 through FY 1997.</E>
                                 For discharges occurring on or after October 1, 1987 and before October 1, 1997, payments for inpatient operating costs to hospitals located in Puerto Rico that are paid under the prospective payment system are equal to the sum of—
                            </P>
                            <STARS/>
                            <P>
                                (b) 
                                <E T="03">FY 1998 through March 31, 2004.</E>
                                 For discharges occurring on or after October 1, 1997 and before April 1, 2004, payments for inpatient operating costs to hospitals located in Puerto Rico that are paid under the prospective payment system are equal to the sum of—
                            </P>
                            <STARS/>
                            <P>
                                (c) 
                                <E T="03">Period of April 1, 2004 through September 31, 2004.</E>
                                 For discharges occurring on or after April 1, 2004 and before October 1, 2004, payment for inpatient operating costs to hospitals located in Puerto Rico that are paid under the prospective payment system are equal to the sum of—
                            </P>
                            <P>(1) 37.5 percent of the Puerto Rico prospective payment rate for inpatient operating costs, as determined under § 412.208 or § 412.210; and</P>
                            <P>(2) 62.5 percent of the national prospective payment rate for inpatient operating costs, as determined under § 412.212.</P>
                            <P>
                                (d) 
                                <E T="03">FY 2005 and thereafter.</E>
                                 For discharges occurring on or after October 1, 2004, payments for inpatient operating costs to hospitals located in Puerto Rico that are paid under the prospective payment system are equal to the sum of—
                            </P>
                            <P>(1) 25 percent of the Puerto Rico prospective payment rate for inpatient operating costs, as determined under § 412.208 or § 412.211; and</P>
                            <P>(2) 75 percent of a national prospective payment rate for inpatient operating costs, as determined under § 412.212.</P>
                            <P>18. Section 412.210 is amended by—</P>
                            <P>A. Revising the title of the section.</P>
                            <P>B. Revising paragraph (a)(1).</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.210 </SECTNO>
                            <SUBJECT>Puerto Rico rates for Federal fiscal years 1989 through 2003.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">General rule.</E>
                                 (1) CMS determines the Puerto Rico adjusted prospective payment rate for inpatient operating costs for each inpatient hospital discharge occurring in Federal fiscal years 1989 through 2003 that involves inpatient hospital services of a hospital in Puerto Rico subject to the prospective payment system for which payment may be made under Medicare Part A.
                            </P>
                            <STARS/>
                            <P>19. New § 412.211 is added to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.211 </SECTNO>
                            <SUBJECT>Puerto Rico rates for Federal fiscal year 2004 and subsequent fiscal years.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">General rule.</E>
                                 CMS determines the Puerto Rico adjusted prospective payment rate for inpatient operating costs for each inpatient hospital discharge occurring in Federal fiscal year 2004 and subsequent fiscal years that involves inpatient hospital services of a hospital in Puerto Rico subject to the prospective payment system for which payment may be made under Medicare Part A.
                            </P>
                            <P>
                                (b) 
                                <E T="03">Geographic classifications.</E>
                                 (1) For purposes of this section, the following definitions apply
                            </P>
                            <P>
                                (i) The term 
                                <E T="03">urban area</E>
                                 means a Metropolitan Statistical Area (MSA) as defined by the Executive Office of Management and Budget.
                            </P>
                            <P>
                                (ii) The term 
                                <E T="03">rural</E>
                                 area means any area outside of an urban area.
                            </P>
                            <P>
                                (2) For discharges occurring on or after October 1, 2004, a hospital located in a rural county adjacent to one or more urban areas is deemed to be located in an urban area and receives the Federal payment amount for the urban area to which the greater number of workers in the county commute if the rural county would otherwise be considered part of an urban area, under the standards for designating MSAs if the commuting rates used in determining outlying counties were determined on the basis of the aggregate number of resident workers who commute to (and, if applicable under the standards, from) the central county or central counties of all adjacent MSAs. These EOMB standards are set forth in the notice of final revised standards for classification of MSAs published in the 
                                <E T="04">Federal Register</E>
                                 on December 27, 2000 (65 FR 82228), announced by EOMB on June 6, 2003, and available from CMS, 7500 Security Boulevard, Baltimore, Maryland 21244.
                            </P>
                            <P>
                                (c) 
                                <E T="03">Computing the standardized amount.</E>
                                 CMS computes a Puerto Rico standardized amount that is applicable to all hospitals located in all areas, increased by the applicable percentage change specified in § 412.64(d)(1).
                            </P>
                            <P>
                                (d) 
                                <E T="03">Computing Puerto Rico Federal rates for inpatient operating costs for hospitals located in all areas.</E>
                                 For each discharge classified within a DRG, CMS establishes for the fiscal year a Puerto Rico prospective payment rate for inpatient operating costs equal to the product of—
                            </P>
                            <P>(1) The average standardized amount for the fiscal year for hospitals located in all areas; and</P>
                            <P>(2) The weighting factor determined under § 412.60(b) for that DRG.</P>
                            <P>
                                (e) 
                                <E T="03">Adjusting for different area wage levels.</E>
                                 CMS adjusts the proportion of the Puerto Rico rate for inpatient operating costs that are attributable to wages and labor-related costs for area differences in hospital wage levels by a factor (established by CMS based on survey data) reflecting the relative level of hospital wages and wage-related costs in the geographic area (that is, urban or rural area as determined under the provisions of paragraph (b) of this section) of the hospital compared to the Puerto Rico average level of hospital wages and wage-related costs. The adjustment specified in this paragraph (e) also takes into account the earnings and paid hours of employment by occupational category.
                            </P>
                            <P>(1) The wage index is updated annually.</P>
                            <P>
                                (2) CMS determines the proportion of the Puerto Rico rate that is attributable to wages and labor-related costs from time to time, employing a methodology that is described in the annual update of the prospective payment system for payment of inpatient hospital operating costs published in the 
                                <E T="04">Federal Register</E>
                                .
                            </P>
                            <P>(3) For discharges occurring on or after October 1, 2004, CMS employs 62 percent as the proportion of the rate that is adjusted for the relative level of hospital wages and wage-related costs, unless employing that percentage would result in lower payments for the hospital than employing the proportion determined under the methodology described in paragraph (e)(2) of this section.</P>
                            <P>
                                (f) 
                                <E T="03">Adjusting the wage index to account for commuting patterns of hospital workers.</E>
                                 (1) 
                                <E T="03">General criteria.</E>
                                 For discharges occurring on or after October 1, 2004, CMS adjusts the hospital wage index for hospitals located in qualifying areas to recognize the commuting patterns of hospital employees. A qualifying area is an area that meets all of the following criteria:
                                <PRTPAGE P="28353"/>
                            </P>
                            <P>(i) Hospital employees in the area commute to work in an MSA (or MSAs) with a wage index (or wage indices) higher than the wage index of the area.</P>
                            <P>(ii) At least 10 percent of the county's hospital employees commute to an MSA (or MSAs) with a higher wage index (or wage indices).</P>
                            <P>(iii) The 3-year average hourly wage of the hospital(s) in the area equals or exceeds the 3-year average hourly wage of all hospitals in the MSA or rural area in which the county is located.</P>
                            <P>
                                (2) 
                                <E T="03">Amount of adjustment.</E>
                                 A hospital located in an area that meets the criteria under paragraphs (f)(l)(i) through (f)(1)(iii) of this section will receive an increase in its wage index that is equal to a weighted average of the difference between the prereclassified wage index of the MSA (or MSAs) with the higher wage index (or wage indices) and the prereclassified wage index of the qualifying area, weighted by the overall percentage of the hospital employees residing in the qualifying area who are employed in any MSA with a higher wage index.
                            </P>
                            <P>
                                (3) 
                                <E T="03">Process for determining the adjustment.</E>
                            </P>
                            <P>(i) CMS will use the most accurate data available, as determined by CMS, to determine the out-migration percentage for each area.</P>
                            <P>(ii) CMS will include, in its annual proposed and final notices of updates to the hospital inpatient prospective payment system, a listing of qualifying areas and the hospitals that are eligible to receive the adjustment to their wage indexes for commuting hospital employees, and the wage index increase applicable to each qualifying area.</P>
                            <P>
                                (iii) Any wage index adjustment made under this paragraph (f) is effective for a period of 3 fiscal years, except that hospitals in a qualifying county may elect to waive the application of the wage index adjustment. A hospital may waive the application of the wage index adjustment by notifying CMS in writing within 45 days after the publication in the 
                                <E T="04">Federal Register</E>
                                 of the annual notice of proposed rulemaking for the hospital inpatient prospective payment system.
                            </P>
                            <P>(iv) A hospital in a qualifying area that receives a wage index adjustment under this paragraph (f) is not eligible for reclassification under Subpart L of this part.</P>
                            <P>20. Section 412.212 is amended by revising paragraph (b) to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.212 </SECTNO>
                            <SUBJECT>National rate.</SUBJECT>
                            <STARS/>
                            <P>
                                (b) 
                                <E T="03">Computing Puerto Rico standardized amounts.</E>
                                 (1) For Federal fiscal years before FY 2004, CMS computes a discharge-weighted average of the—
                            </P>
                            <P>(i) National urban adjusted standardized amount determined under § 412.63(j)(1); and</P>
                            <P>(ii) National rural adjusted average standardized amount determined under § 412.63(j)(2)(i).</P>
                            <P>(2) For fiscal years 2004 and subsequent fiscal years, CMS computes a discharge-weighted average of the national adjusted standardized amount determined under § 412.64(e).</P>
                            <STARS/>
                            <P>21. Section 412.230 is amended by—</P>
                            <P>A. Revising paragraph (a)(1).</P>
                            <P>B. Revising paragraph (a)(4).</P>
                            <P>C. Removing paragraph (a)(5)(ii) and redesignating paragraphs (a)(5)(iii), (a)(5)(iv), and (a)(5)(v) as paragraphs (a)(5)(ii), (a)(5)(iii), and (a)(5)(iv), respectively.</P>
                            <P>D. Removing paragraph (d).</P>
                            <P>E. Removing paragraph (e)(2)(i)(C).</P>
                            <P>F. Redesignating paragraph (e) as paragraph (d).</P>
                            <P>G. In redesignated paragraph (d)(1), removing the cross-reference “paragraphs (e)(3) and (e)(4)” and adding in its place “paragraphs (d)(3) and (d)(4)”.</P>
                            <P>H. In redesignated paragraph (d)(2)(iii), removing the cross-reference “paragraph (e)(2)” and adding in its place “paragraph (d)(2)''.</P>
                            <P>I. Revising redesignated paragraph (d)(3).</P>
                            <P>J. In redesignated paragraph (d)(4), removing the cross-reference “paragraphs (e)(1)(i) and (e)(1)(iii)” and adding in its place “paragraph (d)(1)(i) and (d)(1)(iii)”.</P>
                            <P>K. In redesignated paragraph (d)(4)(iii), removing the cross-reference “paragraph (e)” and adding in its place “paragraph (d)”.</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.230 </SECTNO>
                            <SUBJECT>Criteria for an individual hospital seeking redesignation to another rural area or an urban area.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">General.</E>
                                 (1) 
                                <E T="03">Purposes.</E>
                                 Except as specified in paragraph (a)(5)—
                            </P>
                            <P>(i) For fiscal years prior to fiscal year 2005, an individual hospital may be redesignated from a rural area to an urban area, from a rural area to another rural area, or from a rural area to another urban area for the purposes of using the other area's standardized amount for inpatient operating costs, the wage index value, or both.</P>
                            <P>(ii) Effective for fiscal year 2005 and subsequent fiscal years, an individual hospital may be redesignated from a rural area to an urban area, from a rural area to another rural area, or from a rural area to another urban area for the purposes of using the other area's wage index value.</P>
                            <P>
                                (4) 
                                <E T="03">Application of criteria.</E>
                                 In applying the numeric criteria contained in paragraphs (b)(1), (b)(2), (d)(1)(iii), (d)(1)(iv)(A), and (d)(1)(iv)(B) of this section, rounding of numbers to meet the mileage or qualifying percentage standards is not permitted.
                            </P>
                            <STARS/>
                            <P>
                                (d) 
                                <E T="03">Use of urban or other rural area's wage index.</E>
                                 * * *
                            </P>
                            <STARS/>
                            <P>
                                (3) 
                                <E T="03">Rural referral center exceptions.</E>
                            </P>
                            <P>(i) If a hospital was ever a rural referral center, it does not have to demonstrate that it meets the criterion set forth in paragraph (d)(1)(iii) of this section concerning its average hourly wage.</P>
                            <P>(ii) If a hospital was ever a rural referral center, it is required to meet only the criterion that applies to rural hospitals under paragraph (d)(1)(iv) of this section, whether or not it is actually located in an urban or rural area.</P>
                            <STARS/>
                            <P>22. Section 412.232 is amended by—</P>
                            <P>A. Revising paragraph (a)(1).</P>
                            <P>B. Revising paragraph (a)(4).</P>
                            <P>C. Revising paragraph (b).</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.232 </SECTNO>
                            <SUBJECT>Criteria for all hospitals in a rural county seeking urban redesignation.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Criteria.</E>
                                 * * *
                            </P>
                            <P>(1) The county in which the hospitals are located—</P>
                            <P>(i) For fiscal years prior to fiscal year 2005, must be adjacent to the MSA or NECMA to which they seek redesignation.</P>
                            <P>(ii) For fiscal years beginning with fiscal years 2005, must be adjacent to the MSA to which they seek redesignation.</P>
                            <STARS/>
                            <P>(4) The hospital may be redesignated only if one of the following conditions is met:</P>
                            <P>(i) The prereclassified average hourly wage for the area to which they seek redesignation is higher than the prereclassified average hourly wage for the area in which they are currently located.</P>
                            <P>(ii) For fiscal years prior to fiscal year 2005, the standardized amount for the area to which they seek redesignation is higher than the standardized amount for the area in which they are located.</P>
                            <P>
                                (b) 
                                <E T="03">Metropolitan character.</E>
                                 (1) For fiscal years prior to FY 2005, the group of hospitals must demonstrate that the county in which the hospitals are located meets the standards for redesignation to an MSA or an NECMA as an outlying county that were published in the 
                                <E T="04">Federal Register</E>
                                 on March 30, 1990 (55 FR 12154) using Bureau of the Census data or Bureau of Census estimates made after 1990.
                                <PRTPAGE P="28354"/>
                            </P>
                            <P>
                                (2) For fiscal years beginning with FY 2005, the group of hospitals must demonstrate that the county in which the hospitals are located meets the standards for redesignation to an MSA as an outlying county that were published in the 
                                <E T="04">Federal Register</E>
                                 on December 27, 2000 (65 FR 82228) using Census Bureau data or Census Bureau estimates made after 2000.
                            </P>
                            <STARS/>
                            <P>23. Section 412.234 is amended by—</P>
                            <P>A. Revising paragraph (a)(3).</P>
                            <P>B. Revising paragraph (a)(4).</P>
                            <P>C. Removing paragraph (c).</P>
                            <P>D. Redesignating paragraph (d) as paragraph (c) and revising the redesignated paragraph (c).</P>
                            <P>The revisions read as follows.</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.234 </SECTNO>
                            <SUBJECT>Criteria for all hospitals in an urban county seeking redesignation to another urban area.</SUBJECT>
                            <P>(a) General criteria. * * *</P>
                            <P>(3) The county in which the hospital is located must be part of the CBSA that includes the urban area to which they seek redesignation.</P>
                            <P>(4) The hospital may be redesignated only if one of the following conditions is met:</P>
                            <P>(i) The prereclassified average hourly wage for the area to which they seek redesignation is higher than the prereclassified average hourly wage for the area in which they are currently located.</P>
                            <P>(ii) For fiscal years prior to fiscal year 2005, the standardized amount for the area to which they seek redesignation is higher than the standardized amount for the area in which they are located.</P>
                            <STARS/>
                            <P>
                                (c) 
                                <E T="03">Appropriate wage data.</E>
                                 The hospitals must submit appropriate wage data as provided for in § 412.230(d)(2).
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.236 </SECTNO>
                            <SUBJECT>[Removed]</SUBJECT>
                            <P>24. Section 412.236 is removed.</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.252 </SECTNO>
                            <SUBJECT>[Amended]</SUBJECT>
                            <P>25. In § 412.252, paragraph (b), the phrase “or in a NECMA” is removed.</P>
                            <P>26. Section 412.274 is amended by revising paragraph (b)(1) to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.274 </SECTNO>
                            <SUBJECT>Scope and effect of an MGCRB decision.</SUBJECT>
                            <STARS/>
                            <P>
                                (b) 
                                <E T="03">Effective date and term of the decision.</E>
                            </P>
                            <P>(1) For reclassifications prior to fiscal year 2005, a standardized amount classification change is effective for 1 year beginning with discharges occurring on the first day (October 1) of the second Federal fiscal year following the Federal fiscal year in which the complete application is filed and ending effective at the end of that Federal fiscal year (the end of the next September 30).</P>
                            <STARS/>
                            <P>27. Section 412.312 is amended by—</P>
                            <P>A. Revising paragraph (b)(2)(ii).</P>
                            <P>B. Revising paragraph (e).</P>
                            <P>The revisions read as follows.</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.312 </SECTNO>
                            <SUBJECT>Payment based on the Federal rate.</SUBJECT>
                            <P>
                                (b) 
                                <E T="03">Payment adjustment.</E>
                                 * * *
                            </P>
                            <P>
                                (2) 
                                <E T="03">Geographic adjustment factor.</E>
                                 * * *
                            </P>
                            <P>
                                (ii) 
                                <E T="03">Large urban add-on.</E>
                                 An additional adjustment is made for hospitals located in a large urban area to reflect the higher costs incurred by hospitals located in those areas. For purposes of the payment adjustment under this paragraph, the definition of large urban area set forth at § 412.63(c)(6) continues to be in effect for discharges occurring on or after September 30, 2004.
                            </P>
                            <STARS/>
                            <P>
                                (e) 
                                <E T="03">Payment for extraordinary circumstances.</E>
                                 For cost reporting periods beginning on or after October 1, 2001—
                            </P>
                            <P>(1) Payment for extraordinary circumstances is made as provided for in § 412.348(f).</P>
                            <P>(2) Although no longer independently in effect, the minimum payment levels established under § 412.348(c) continue to be used in the calculation of exception payments for extraordinary circumstances, according to the formula in § 412.348(f).</P>
                            <P>(3) Although no longer independently in effect, the offsetting amounts established under § 412.348(c) continue to be used in the calculation of exception payments for extraordinary circumstances. However, for cost reporting periods beginning during FY 2005 and subsequent fiscal years, the offsetting amounts in § 412.348(c) are determined based on the lesser of—</P>
                            <P>(i) The preceding 10-year period; or</P>
                            <P>(ii) The period of time under which the hospital is subject to the prospective payment system for capital-related costs.</P>
                            <P>26. Section 412.316 is amended by revising paragraph (b) to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.316 </SECTNO>
                            <SUBJECT>Geographic adjustment factors.</SUBJECT>
                            <STARS/>
                            <P>
                                (b) 
                                <E T="03">Large urban location.</E>
                                 CMS provides an additional payment to a hospital located in a large urban area equal to 3.0 percent of what would otherwise be payable to the hospital based on the Federal rate.
                            </P>
                            <P>(1) For discharges occurring on or before September 30, 2004, the payment adjustment under this section is based on a hospital's location for the purpose of receiving payment under § 412.63(a). The term “large urban area” is defined under § 412.63(c)(6).</P>
                            <P>(2) For discharges occurring on or after October 1, 2004, the definition of large urban area under § 412.63(c)(6) continues to be in effect for purposes of the payment adjustment under this section, based on the geographic classification under § 412.64.</P>
                            <STARS/>
                            <P>27. Section 412.320 is amended by revising paragraph (a)(1) to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.320 </SECTNO>
                            <SUBJECT>Disproportionate share adjustment factor.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Criteria for classification.</E>
                            </P>
                            <STARS/>
                            <P>(1) The hospital is located in an urban area, has 100 or more beds as determined in accordance with § 412.105(b), and serves low-income patients as determined under § 412.106(b).</P>
                            <P>(i) For discharges occurring on or before September 30, 2004, the payment adjustment under this section is based on a hospital's location, for the purpose of receiving payment, under § 412.63(a).</P>
                            <P>(ii) For discharges occurring on or after October 1, 2004, the payment adjustment under this section is based on the geographic classifications specified under § 412.64.</P>
                            <STARS/>
                            <P>28. Section 412.374 is amended by—</P>
                            <P>A. Revising paragraph (a).</P>
                            <P>B. Redesignating paragraphs (b) and (c) as paragraphs (c) and (d), respectively.</P>
                            <P>C. Adding a new paragraph (b).</P>
                            <P>The revisions and addition read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.374 </SECTNO>
                            <SUBJECT>Payments to hospitals located in Puerto Rico.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">FY 1998 through FY 2004.</E>
                                 Payments for capital-related costs to hospitals located in Puerto Rico that are paid under the prospective payment system are equal to the sum of the following:
                            </P>
                            <P>(1) 50 percent of the Puerto Rico capital rate based on data from Puerto Rico hospitals only, which is determined in accordance with procedures for developing the Federal rate; and</P>
                            <P>(2) 50 percent of the Federal rate, as determined under § 412.308.</P>
                            <P>
                                (b) 
                                <E T="03">FY 2005 and FYs thereafter.</E>
                                 For discharges occurring on or after October 1, 2004, payments for capital-related costs to hospitals located in Puerto Rico that are paid under the prospective payment system are equal to the sum of the following:
                            </P>
                            <P>
                                (1) 25 percent of the Puerto Rico capital rate based on data from Puerto 
                                <PRTPAGE P="28355"/>
                                Rico hospitals only, which is determined in accordance with procedures for developing the Federal rate; and
                            </P>
                            <P>(2) 75 percent of the Federal rate, as determined under § 412.308.</P>
                            <STARS/>
                            <P>29. Section 412.521 is amended by adding a new paragraph (e) to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 412.521 </SECTNO>
                            <SUBJECT>Basis for payment.</SUBJECT>
                            <STARS/>
                            <P>
                                (e) 
                                <E T="03">Special payment provisions for patients in acute care hospitals that change classification status to LTCH status during a patient stay.</E>
                                 (1) If a patient is admitted to an acute care hospital and then the acute care hospital meets the criteria at § 412.23(e) to be paid as a LTCH during the course of the patient's hospitalization, Medicare considers all the days of the patient stay in the facility (days prior to and after the designation of LTCH status) to be a single episode of LTCH care. Payment for the entire patient stay (days prior to and after the designation of LTCH status) will include the day and cost data for that patient at both the acute care hospital and the LTCH in determining the payment to the LTCH under this subpart. The requirements of this paragraph (e)(1) apply only to a patient stay in which a patient is in an acute care hospital and that hospital is designated as a LTCH on or after October 1, 2004.
                            </P>
                            <P>(2) The days of the patient's stay prior to and after the hospital's designation as a LTCH as specified in paragraph (e)(1) of this section are included for purposes of determining the beneficiary's length of stay.</P>
                            <P>C. Part 413 is amended as follows:</P>
                        </SECTION>
                    </PART>
                    <PART>
                        <HD SOURCE="HED">PART 413—PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED PAYMENT RATES FOR SKILLED NURSING FACILITIES</HD>
                        <P>1. The authority citation for part 413 is revised to read as follows:</P>
                        <AUTH>
                            <HD SOURCE="HED">Authority:</HD>
                            <P>Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), and (n), 1871, 1881, 1883, and 1886 of the Social Security Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and (n), 1395hh, 1395rr, 1395tt, and 1395ww).</P>
                        </AUTH>
                        <P>2. Section 413.40 is amended by—</P>
                        <P>
                            A. Republishing the introductory text of paragraphs (c)(4) and (c)(4)(iii) and revising paragraphs (c)(4)(iii)(A)(
                            <E T="03">1</E>
                            ) and (c)(4)(iii)(A)(
                            <E T="03">2</E>
                            ).
                        </P>
                        <P>
                            B. Republishing the introductory text of paragraph (c)(4)(iii)(B) and revising paragraph (c)(4)(iii)(B)(
                            <E T="03">4</E>
                            )(
                            <E T="03">i</E>
                            ).
                        </P>
                        <P>C. Revising the introductory text of paragraphs (d)(4)(i) and (d)(4)(ii).</P>
                        <P>The revisions read as follows:</P>
                        <SECTION>
                            <SECTNO>§ 413.40 </SECTNO>
                            <SUBJECT>Ceiling on the rate of increase in hospital inpatient costs.</SUBJECT>
                            <STARS/>
                            <P>
                                (c) 
                                <E T="03">Costs subject to the ceiling.</E>
                            </P>
                            <STARS/>
                            <P>
                                (4) 
                                <E T="03">Target amounts.</E>
                                 The intermediary will establish a target amount for each hospital. The target amount for a cost reporting period is determined as follows:
                            </P>
                            <STARS/>
                            <P>(iii) In the case of a psychiatric hospital or unit, rehabilitation hospital or unit, or long-term care hospital, the target amount is the lower of the amounts specified in paragraph (c)(4)(iii)(A) or (c)(4)(iii)(B) of this section.</P>
                            <P>(A) The hospital-specific target amount.</P>
                            <P>
                                (
                                <E T="03">1</E>
                                ) In the case of all hospitals and units, except long-term care hospitals for cost reporting periods beginning during FY 2001, the hospital-specific target amount is the net allowable costs in a base period increased by the applicable update factors.
                            </P>
                            <P>
                                (
                                <E T="03">2</E>
                                ) In the case of long-term care hospitals, for cost reporting periods beginning during FY 2001, the hospital-specific target amount is the net allowable costs in a base period increased by the applicable update factors multiplied by 1.25.
                            </P>
                            <P>(B) One of the following for the applicable cost reporting period—</P>
                            <STARS/>
                            <P>
                                (
                                <E T="03">4</E>
                                ) For cost reporting periods beginning during fiscal years 2001 and 2002—
                            </P>
                            <P>
                                (
                                <E T="03">i</E>
                                ) The amounts determined under paragraph (c)(4)(iii)(B)(3)(
                                <E T="03">i</E>
                                ) of this section are: increased by the market basket percentage up through the subject period; or in the case of a long-term care hospital for cost reporting periods beginning during FY 2001, the amounts determined under paragraph (c)(4)(iii)(B)(
                                <E T="03">3</E>
                                )(
                                <E T="03">i</E>
                                ) of this section, increased by the market basket percentage up through the subject period and further increased by 2 percent.
                            </P>
                            <STARS/>
                            <P>
                                (d) 
                                <E T="03">Application of the target amount in determining the amount of payment.</E>
                            </P>
                            <STARS/>
                            <P>
                                (4) 
                                <E T="03">Continuous improvement bonus payments.</E>
                                 (i) For cost reporting periods beginning on or after October 1, 1997, eligible hospitals (as defined in paragraph (d)(5) of this section) receive payments in addition to those in paragraph (d)(2) of this section, as applicable. These payments are equal to the lesser of—
                            </P>
                            <STARS/>
                            <P>(ii) For cost reporting periods beginning on or after October 1, 2000, and before September 30, 2001, eligible psychiatric hospitals and units and long-term care hospitals (as defined in paragraph (d)(5) of this section) receive payments in addition to those in paragraph (d)(2) of this section, as applicable. These payments are equal to the lesser of—</P>
                            <STARS/>
                            <P>3. Section 413.64 is amended by—</P>
                            <P>A. Revising the introductory text of paragraph (h)(2) and adding a new paragraph (h)(2)(vi).</P>
                            <P>B. Removing paragraph (h)(3)(iv).</P>
                            <P>C. Removing and reserving paragraph (h)(4).</P>
                            <P>The additions and revisions read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 413.64 </SECTNO>
                            <SUBJECT>Payments to providers: Specific rules.</SUBJECT>
                            <STARS/>
                            <P>
                                (h) 
                                <E T="03">Periodic interim payment method of reimbursement.</E>
                            </P>
                            <STARS/>
                            <P>
                                (2) 
                                <E T="03">Covered services furnished on or after July 1, 1987.</E>
                                 Effective with claims received on or after July l, 1987, or as otherwise specified, the periodic interim payment (PIP) method is available for the following:
                            </P>
                            <STARS/>
                            <P>(vi) Effective for payments made on or after July l, 2004, inpatient CAH services furnished by a CAH as specified in § 413.70. Payment on a PIP basis is described in § 413.70(d).</P>
                            <STARS/>
                            <P>(4) [Reserved]</P>
                            <STARS/>
                            <P>4. Section 413.70 is amended by—</P>
                            <P>A. Revising the heading of paragraph (a) and paragraph (a)(1).</P>
                            <P>B. Adding a new paragraph (a)(4).</P>
                            <P>C. Revising paragraph (b)(2)(i) introductory text, paragraph (b)(2)(i)(A), and paragraph (b)(2)(i)(B).</P>
                            <P>D. Removing paragraphs (b)(2)(i)(C) and (b)(2)(i)(D).</P>
                            <P>E. In paragraph (b)(2)(iii), remove the phrase “on a reasonable cost basis” and add in its place “at 101 percent of reasonable cost”.</P>
                            <P>F. Revising the heading of paragraph (b)(3) and the contents of paragraphs (b)(3)(i) and (b)(3)(ii).</P>
                            <P>G. Revising paragraph (b)(4).</P>
                            <P>H. Adding a new paragraph (d).</P>
                            <P>I. Adding a new paragraph (e).</P>
                            <P>The revisions and additions read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <PRTPAGE P="28356"/>
                            <SECTNO>§ 413.70 </SECTNO>
                            <SUBJECT>Payment for services of a CAH.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Payment for inpatient services furnished by a CAH (other than services of distinct part units).</E>
                                 (1) Effective for cost reporting periods beginning on or after January 1, 2004, payment for inpatient services of a CAH, other than services of a distinct part unit of the CAH, is 101 percent of the reasonable costs of the CAH in providing CAH services to its inpatients, as determined in accordance with section 1861(v)(1)(A) of the Act and the applicable principles of cost reimbursement in this part and in Part 415 of this chapter, except that the following payment principles are excluded when determining payment for CAH inpatient services:
                            </P>
                            <P>(i) Lesser of cost or charges;</P>
                            <P>(ii) Ceilings on hospital operating costs;</P>
                            <P>(iii) Reasonable compensation equivalent (RCE) limits for physician services to providers; and</P>
                            <P>(iv) The payment window provisions for preadmission services, specified in § 412.2(c)(5) of this subchapter and § 413.40(c)(2).</P>
                            <STARS/>
                            <P>(4) Payment for inpatient services of distinct part psychiatric or rehabilitation units is described in paragraph (e) of this section.</P>
                            <P>
                                (b) 
                                <E T="03">Payment for outpatient services furnished by a CAH.</E>
                            </P>
                            <STARS/>
                            <P>
                                (2) 
                                <E T="03">Reasonable costs for facility services.</E>
                                 (i) Effective for cost reporting periods beginning on or after January 1, 2004, payment for outpatient services of a CAH is 101 percent of the reasonable costs of the CAH in providing CAH services to its outpatients, as determined in accordance with section 1861(v)(1)(A) of the Act and the applicable principles of cost reimbursement in this part and in Part 415 of this chapter, except that the following payment principles are excluded when determining payment for CAH outpatient services:
                            </P>
                            <P>(A) Lesser of cost or charges; and</P>
                            <P>(B) RCE limits.</P>
                            <STARS/>
                            <P>
                                (3) 
                                <E T="03">Election to be paid 101 percent of reasonable costs for facility services plus fee schedule for professional services.</E>
                            </P>
                            <P>(i) A CAH may elect to be paid for outpatient services in any cost reporting period beginning on or after July 1, 2004 under the method described in paragraphs (b)(3)(ii) and (b)(3)(iii) of this section.</P>
                            <P>(A) The election must be made in writing, made on an annual basis, and delivered to the fiscal intermediary servicing the CAH at least 30 days before the start of the cost reporting period for which the election is made.</P>
                            <P>(B) An election of this payment method, once made for a cost reporting period, remains in effect for all of that period and, effective for cost reporting periods beginning on or after July 1, 2004, applies to all services furnished to outpatients during that period by a physician or other practitioner who has reassigned his or her rights to bill for those services to the CAH in accordance with 42 CFR Part 424, Subpart F of this chapter. If a physician or other practitioner does not reassign his or her billing rights to the CAH in accordance with 42 CFR Part 424, payment for the physician's or practitioner's services to CAH outpatients will be made on a fee schedule or other applicable basis as specified in Subpart B of part 414 of this subchapter.</P>
                            <P>(C) In the case of a CAH that made an election under this section before November 1, 2003, for a cost reporting period beginning before December 1, 2003, the rules in paragraph (b)(3)(i)(B) of this section are effective for cost reporting periods beginning on or after July 1, 2001.</P>
                            <P>(D) An election made under paragraph (b)(3)(i)(B) or paragraph (b)(3)(i)(C) of this section is effective only for a period for which it was made and does not apply to an election that was withdrawn or revoked prior to the start of the cost reporting period for which it was made.</P>
                            <P>(ii) If the CAH elects payment under this method, payment to the CAH for each outpatient visit will be the sum of the following:</P>
                            <P>(A) For facility services not including any services for which payment may be made under paragraph (b)(3)(ii)(B) of this section, 101 percent of the reasonable costs of the services as determined under paragraph (b)(2)(i) of this section; and</P>
                            <P>(B) For professional services that are furnished by a physician or other practitioner who has reassigned his or her rights to bill for those services to the CAH in accordance with Part 424, Subpart F of this chapter, and that would otherwise be payable to the physician or other practitioner if the rights to bill for them had not been reassigned, 115 percent of the amounts that otherwise would be paid for the service if the CAH had not elected payment under this method.</P>
                            <STARS/>
                            <P>
                                (4) 
                                <E T="03">Costs of certain emergency room on-call providers</E>
                                . (i) Effective for cost reporting periods beginning on or after October 1, 2001, the reasonable costs of outpatient CAH services under paragraph (b) of this section may include amounts for reasonable compensation and related costs for an emergency room physician who is on call but who is not present on the premise of the CAH involved, is not otherwise furnishing physicians' services, and is not on call at any other provider or facility. Effective for costs incurred for services furnished on or after January 1, 2005, the payment amount of 101 percent of the reasonable costs of outpatient CAH services may also include amounts for reasonable compensation and related costs for the following emergency room providers who are on call but who are not present on the premise of the CAH involved, are not otherwise furnishing physicians' services, and are not on call at any other provider or facility: physician assistants, nurse practitioners, and clinical nurse specialists.
                            </P>
                            <P>(ii) For purposes of this paragraph (b)(4)—</P>
                            <P>(A) “Amounts for reasonable compensation and related costs” means all allowable costs of compensating emergency room physicians, physician assistants, nurse practitioners, and clinical nurse specialists who are on call to the extent that the costs are found to be reasonable under the rules specified in paragraph (b)(2) of this section and the applicable sections of Part 413. Costs of compensating these specified medical emergency room staff are allowable only if the costs are incurred under written contracts that require the physician, physician assistant, nurse practitioner, or clinical nurse specialist to come to the CAH when the physician's or other practitioner's presence is medically required.</P>
                            <P>(B) Effective for costs incurred on or after January 1, 2005, an “emergency room physician, physician assistant, nurse practitioner, or clinical nurse specialist who is on call” means a doctor of medicine or osteopathy, a physician assistant, a nurse practitioner, or a clinical nurse specialist with training or experience in emergency care who is immediately available by telephone or radio contact, and is available onsite within the timeframes specified in § 485.618(d) of this chapter.</P>
                            <STARS/>
                            <P>
                                (d) 
                                <E T="03">Periodic interim payments</E>
                                . Subject to the provisions of § 413.64(h), a CAH receiving payments under this section may elect to receive periodic interim payments (PIP) for Part A inpatient CAH services, effective for payments made on or after July l, 2004. Payment is made biweekly under the PIP method unless the CAH requests a longer fixed interval (not to exceed one month) between 
                                <PRTPAGE P="28357"/>
                                payments. The biweekly interim payment amount is based on the total estimated Medicare payment (after estimated beneficiary deductibles and coinsurance) for the cost reporting period. Each payment is made 2 weeks after the end of a biweekly period of service, as described in § 413.64(h)(6). These PIP provisions are further described in § 413.64(h)(6). Under certain circumstances that are described in § 413.64(g), a CAH that is not receiving PIP may request an accelerated payment.
                            </P>
                            <P>
                                (e) 
                                <E T="03">Payment for services of distinct part psychiatric and rehabilitation units of CAHs</E>
                                . Payment for inpatient services of distinct part psychiatric units of CAHs is made in accordance with regulations governing IPPS-excluded psychiatric units of hospitals at § 413.40. Payment for inpatient services of distinct part rehabilitation units of CAHs is made in accordance with regulations governing the IRF PPS at Subpart F (§§ 412.600 through 412.632) of Part 412 of this subchapter.
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 413.80 </SECTNO>
                            <SUBJECT>[Redesignated as § 413.89]</SUBJECT>
                            <P>5. Section 413.80 is redesignated as § 413.89.</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 413.85 </SECTNO>
                            <SUBJECT>[Amended]</SUBJECT>
                            <P>6. In § 413.85—</P>
                            <P>A. In paragraph (b)(2), the cross-reference “§ 413.86” is removed and the cross-reference “§§ 413.75 through 413.83” is added in its place.</P>
                            <P>B. In paragraph (c)(3), in the definition “Redistribution of costs,” the cross-reference “§ 413.86” is removed and “§ 413.75 through 413.83” is added in its place.</P>
                            <P>7. Section 413.86 is removed and §§ 413.75 through 413.83 are added to Subpart F to read as follows:</P>
                            <CONTENTS>
                                <SUBPART>
                                    <HD SOURCE="HED">Subpart F—Specific Categories of Costs</HD>
                                    <SECTNO>413.75 </SECTNO>
                                    <SUBJECT>Direct GME payments: General requirements.</SUBJECT>
                                    <SECTNO>413.76 </SECTNO>
                                    <SUBJECT>Direct GME payments: Calculation of payments for GME costs.</SUBJECT>
                                    <SECTNO>413.77 </SECTNO>
                                    <SUBJECT>Direct GME payments: Determination of per resident amounts.</SUBJECT>
                                    <SECTNO>413.78 </SECTNO>
                                    <SUBJECT>Direct GME payments: Determination of the total number of FTE residents.</SUBJECT>
                                    <SECTNO>413.79 </SECTNO>
                                    <SUBJECT>Direct GME payments: Determination of the weighted number of FTE residents.</SUBJECT>
                                    <SECTNO>413.80 </SECTNO>
                                    <SUBJECT>Direct GME payments: Determination of weighting factors for foreign medical graduates.</SUBJECT>
                                    <SECTNO>413.81 </SECTNO>
                                    <SUBJECT>Direct GME payments: Application of community support and redistribution of costs in determining FTE resident counts.</SUBJECT>
                                    <SECTNO>413.82 </SECTNO>
                                    <SUBJECT>Direct GME payments: Special rules for States that formerly had a waiver from Medicare reimbursement principles.</SUBJECT>
                                    <SECTNO>413.83 </SECTNO>
                                    <SUBJECT>Direct GME payments: Adjustment of a hospital's target amount or prospective payment hospital-specific rate.</SUBJECT>
                                </SUBPART>
                            </CONTENTS>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 413.75 </SECTNO>
                            <SUBJECT>Direct GME payments: General requirements.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Statutory basis and scope</E>
                                — (1) 
                                <E T="03">Basis</E>
                                . This section and §§ 413.76 through 413.83 implement section 1886(h) of the Act by establishing the methodology for Medicare payment of the cost of direct graduate medical educational activities.
                            </P>
                            <P>
                                (2) 
                                <E T="03">Scope</E>
                                . This section and §§ 413.76 through 413.83 apply to Medicare payments to hospitals and hospital-based providers for the costs of approved residency programs in medicine, osteopathy, dentistry, and podiatry for cost reporting periods beginning on or after July 1, 1985.
                            </P>
                            <P>
                                (b) 
                                <E T="03">Definitions</E>
                                . For purposes of this section and §§ 413.76 through 413.83, the following definitions apply:
                            </P>
                            <P>
                                “
                                <E T="03">All or substantially all of the costs for the training program in the nonhospital setting</E>
                                ” means the residents' salaries and fringe benefits (including travel and lodging where applicable) and the portion of the cost of teaching physicians' salaries and fringe benefits attributable to direct graduate medical education (GME).
                            </P>
                            <P>
                                <E T="03">Approved geriatric program</E>
                                 means a fellowship program of one or more years in length that is approved by one of the national organizations listed in § 415.152 of this chapter under that respective organization's criteria for geriatric fellowship programs.
                            </P>
                            <P>
                                <E T="03">Approved medical residency program</E>
                                 means a program that meets one of the following criteria:
                            </P>
                            <P>(1) Is approved by one of the national organizations listed in § 415.152 of this chapter.</P>
                            <P>(2) May count towards certification of the participant in a specialty or subspecialty listed in the current edition of either of the following publications:</P>
                            <P>(i) The Directory of Graduate Medical Education Programs published by the American Medical Association, and available from American Medical Association, Department of Directories and Publications, 515 North State Street, Chicago, Illinois 60610; or</P>
                            <P>(ii) The Annual Report and Reference Handbook published by the American Board of Medical Specialties, and available from American Board of Medical Specialties, One Rotary Center, Suite 805, Evanston, Illinois 60201.</P>
                            <P>(3) Is approved by the Accreditation Council for Graduate Medical Education (ACGME) as a fellowship program in geriatric medicine.</P>
                            <P>(4) Is a program that would be accredited except for the accrediting agency's reliance upon an accreditation standard that requires an entity to perform an induced abortion or require, provide, or refer for training in the performance of induced abortions, or make arrangements for such training, regardless of whether the standard provides exceptions or exemptions.</P>
                            <P>
                                <E T="03">Base period</E>
                                 means a cost reporting period that began on or after October 1, 1983 but before October 1, 1984.
                            </P>
                            <P>
                                <E T="03">Community support</E>
                                 means funding that is provided by the community and generally includes all non-Medicare sources of funding (other than payments made for furnishing services to individual patients), including State and local government appropriations. Community support does not include grants, gifts, and endowments of the kind that are not to be offset in accordance with section 1134 of the Act.
                            </P>
                            <P>
                                <E T="03">CPI-U</E>
                                 stands for the Consumer Price Index for All Urban Consumers as compiled by the Bureau of Labor Statistics.
                            </P>
                            <P>
                                <E T="03">Foreign medical graduate</E>
                                 means a resident who is not a graduate of a medical, osteopathy, dental, or podiatry school, respectively, accredited or approved as meeting the standards necessary for accreditation by one of the following organizations:
                            </P>
                            <P>(1) The Liaison Committee on Medical Education of the American Medical Association.</P>
                            <P>(2) The American Osteopathic Association.</P>
                            <P>(3) The Commission on Dental Accreditation.</P>
                            <P>(4) The Council on Podiatric Medical Education.</P>
                            <P>
                                <E T="03">FMGEMS</E>
                                 stands for the Foreign Medical Graduate Examination in the Medical Sciences (Part I and Part II).
                            </P>
                            <P>
                                <E T="03">FTE</E>
                                 stands for full-time equivalent.
                            </P>
                            <P>
                                <E T="03">GME</E>
                                 stands for graduate medical education.
                            </P>
                            <P>
                                <E T="03">Medicare GME affiliated group</E>
                                 means—
                            </P>
                            <P>(1) Two or more hospitals that are located in the same urban or rural area (as those terms are defined in § 412.62(f) of this subchapter) or in a contiguous area and meet the rotation requirements in § 413.79(g)(2).</P>
                            <P>(2) Two or more hospitals that are not located in the same or in a contiguous urban or rural area, but meet the rotation requirement in § 413.79(g)(2), and are jointly listed—</P>
                            <P>
                                (i) As the sponsor, primary clinical site, or major participating institution for one or more programs as these terms are used in the most current publication of the 
                                <E T="03">Graduate Medical Education Directory</E>
                                ; or
                            </P>
                            <P>
                                (ii) As the sponsor or is listed under “affiliations and outside rotations” for 
                                <PRTPAGE P="28358"/>
                                one or more programs in operation in 
                                <E T="03">Opportunities, Directory of Osteopathic Postdoctoral Education Programs</E>
                                .
                            </P>
                            <P>(3) Two or more hospitals that are under common ownership and, effective for all Medicare GME affiliation agreements beginning July 1, 2003, meet the rotation requirement in § 413.79(g)(2).</P>
                            <P>
                                <E T="03">Medicare GME affiliation agreement</E>
                                 means a written, signed, and dated agreement by responsible representatives of each respective hospital in a Medicare GME affiliated group, as defined in this section, that specifies—
                            </P>
                            <P>(1) The term of the Medicare GME affiliation agreement (which, at a minimum is 1 year), beginning on July 1 of a year;</P>
                            <P>(2) Each participating hospital's direct and indirect GME FTE caps in effect prior to the Medicare GME affiliation;</P>
                            <P>(3) The total adjustment to each hospital's FTE caps in each year that the Medicare GME affiliation agreement is in effect, for both direct GME and IME, that reflects a positive adjustment to one hospital's direct and indirect FTE caps that is offset by a negative adjustment to the other hospital's (or hospitals') direct and indirect FTE caps of at least the same amount;</P>
                            <P>(4) The adjustment to each participating hospital's FTE counts resulting from the FTE resident's (or residents') participation in a shared rotational arrangement at each hospital participating in the Medicare GME affiliated group for each year the Medicare GME affiliation agreement is in effect. This adjustment to each participating hospital's FTE count is also reflected in the total adjustment to each hospital's FTE caps (in accordance with paragraph (3) of this definition); and</P>
                            <P>(5) The names of the participating hospitals and their Medicare provider numbers.</P>
                            <P>
                                <E T="03">Medicare patient load</E>
                                 means, with respect to a hospital's cost reporting period, the total number of hospital inpatient days during the cost reporting period that are attributable to patients for whom payment is made under Medicare Part A divided by total hospital inpatient days. In calculating inpatient days, inpatient days in any distinct part of the hospital furnishing a hospital level of care are included and nursery days are excluded.
                            </P>
                            <P>
                                <E T="03">Primary care resident</E>
                                 is a resident enrolled in an approved medical residency training program in family medicine, general internal medicine, general pediatrics, preventive medicine, geriatric medicine or osteopathic general practice.
                            </P>
                            <P>
                                <E T="03">Redistribution of costs</E>
                                 occurs when a hospital counts FTE residents in medical residency programs and the costs of the program had previously been incurred by an educational institution.
                            </P>
                            <P>
                                <E T="03">Resident</E>
                                 means an intern, resident, or fellow who participates in an approved medical residency program, including programs in osteopathy, dentistry, and podiatry, as required in order to become certified by the appropriate specialty board.
                            </P>
                            <P>
                                <E T="03">Rural track FTE limitation</E>
                                 means the maximum number of residents (as specified in § 413.79(l)) training in a rural track residency program that an urban hospital may include in its FTE count and that is in addition to the number of FTE residents already included in the hospital's FTE cap.
                            </P>
                            <P>
                                <E T="03">Rural track or integrated rural track</E>
                                 means an approved medical residency training program established by an urban hospital in which residents train for a portion of the program at the urban hospital and then rotate for a portion of the program to a rural hospital(s) or a rural nonhospital site(s).
                            </P>
                            <P>
                                <E T="03">Shared rotational arrangement</E>
                                 means a residency training program under which a resident(s) participates in training at two or more hospitals in that program.
                            </P>
                            <P>
                                (c) 
                                <E T="03">Payment for GME costs—General rule</E>
                                . Beginning with cost reporting periods starting on or after July 1, 1985, hospitals, including hospital-based providers, are paid for the costs of approved GME programs as described in §§ 413.76 through 413.83.
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 413.76 </SECTNO>
                            <SUBJECT>Direct GME payments: Calculation of payments for GME costs.</SUBJECT>
                            <P>A hospital's Medicare payment for the costs of an approved residency program is calculated as follows:</P>
                            <P>
                                (a) 
                                <E T="03">Step one</E>
                                . The hospital's updated per resident amount (as determined under § 413.77) is multiplied by the actual number of FTE residents (as determined under § 413.79). This result is the aggregate approved amount for the cost reporting period.
                            </P>
                            <P>
                                (b) 
                                <E T="03">Step two</E>
                                . The product derived in step one is multiplied by the hospital's Medicare patient load.
                            </P>
                            <P>
                                (c) 
                                <E T="03">Step three</E>
                                . For portions of cost reporting periods occurring on or after January 1, 1998, the product derived in step one is multiplied by the proportion of the hospital's inpatient days attributable to individuals who are enrolled under a risk-sharing contract with an eligible organization under section 1876 of the Act and who are entitled to Medicare Part A or with a Medicare+Choice organization under Title XVIII, Part C of the Act. This amount is multiplied by an applicable payment percentage equal to—
                            </P>
                            <P>(1) 20 percent for 1998;</P>
                            <P>(2) 40 percent for 1999;</P>
                            <P>(3) 60 percent in 2000;</P>
                            <P>(4) 80 percent in 2001; and</P>
                            <P>(5) 100 percent in 2002 and subsequent years.</P>
                            <P>
                                (d) 
                                <E T="03">Step four</E>
                                . Effective for portions of cost reporting periods occurring on or after January 1, 2000, the product derived from step three is reduced by a percentage equal to the ratio of the Medicare+Choice nursing and allied health payment “pool” for the current calendar year as described at § 413.87(f), to the projected total Medicare+Choice direct GME payments made to all hospitals for the current calendar year.
                            </P>
                            <P>
                                (e) 
                                <E T="03">Step five</E>
                                . (1) For portions of cost reporting periods beginning on or after January 1, 1998 and before January 1, 2000, add the results of steps two and three.
                            </P>
                            <P>(2) Effective for portions of cost reporting periods beginning on or after January 1, 2000, add the results of steps two and four.</P>
                            <P>
                                (f) 
                                <E T="03">Step six</E>
                                . The product derived in step two is apportioned between Part A and Part B of Medicare based on the ratio of Medicare's share of reasonable costs excluding GME costs attributable to each part as determined through the Medicare cost report.
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 413.77 </SECTNO>
                            <SUBJECT>Direct GME payments: Determination of per resident amounts.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Per resident amount for the base period</E>
                                —(1) Except as provided in paragraph (d) of this section, the intermediary determines a base-period per resident amount for each hospital as follows:
                            </P>
                            <P>(i) Determine the allowable GME costs for the cost reporting period beginning on or after October 1, 1983 but before October 1, 1984. In determining these costs, GME costs allocated to the nursery cost center, research and other nonreimbursable cost centers, and hospital-based providers that are not participating in Medicare are excluded and GME costs allocated to distinct-part hospital units and hospital-based providers that participate in Medicare are included.</P>
                            <P>(ii) Divide the costs calculated in paragraph (a)(1)(i) of this section by the average number of FTE residents working in all areas of the hospital complex (including those areas whose costs were excluded under paragraph (a)(1)(i) of this section) for its cost reporting period beginning on or after October 1, 1983 but before October 1, 1984.</P>
                            <P>
                                (2) In determining the base-period per resident amount under paragraph (a)(1) of this section, the intermediary—
                                <PRTPAGE P="28359"/>
                            </P>
                            <P>(i) Verifies the hospital's base-period GME costs and the hospital's average number of FTE residents;</P>
                            <P>(ii) Excludes from the base-period GME costs any nonallowable or misclassified costs, including those previously allowed under § 412.113(b)(3) of this chapter; and</P>
                            <P>(iii) Upon a hospital's request, includes GME costs that were misclassified as operating costs during the hospital's prospective payment base year and were not allowable under § 412.113(b)(3) of this chapter during the GME base period. These costs may be included only if the hospital requests an adjustment of its prospective payment hospital-specific rate or target amount as described in § 413.82(a) of this chapter.</P>
                            <P>(3) If the hospital's cost report for its GME base period is no longer subject to reopening under § 405.1885 of this chapter, the intermediary may modify the hospital's base-period costs solely for purposes of computing the per resident amount.</P>
                            <P>(4) If the intermediary modifies a hospital's base-period GME costs as described in paragraph (a)(2)(ii) of this section, the hospital may request an adjustment of its prospective payment hospital-specific rate or target amount as described in § 413.82(a) of this chapter.</P>
                            <P>(5) The intermediary notifies each hospital that either had direct GME costs or received indirect education payment in its cost reporting period beginning on or after October 1, 1984, and before October 1, 1985, of its base-period average per resident amount. A hospital may appeal this amount within 180 days of the date of that notice.</P>
                            <P>
                                (b) 
                                <E T="03">Per resident amount for cost reporting periods beginning on or after July 1, 1985, and before July 1, 1986.</E>
                                 For cost reporting periods beginning on or after July 1, 1985, and before July 1, 1986, a hospital's base-period per resident amount is adjusted as follows:
                            </P>
                            <P>(1) If a hospital's base period began on or after October 1, 1983, and before July 1, 1984, the amount is adjusted by the percentage change in the CPI-U that occurred between the hospital's base period and the first cost reporting period to which the provisions of this section apply. The adjusted amount is then increased by one percent.</P>
                            <P>(2) If a hospital's base period began on or after July 1, 1984 and before October 1, 1984, the amount is increased by one percent.</P>
                            <P>
                                (c) 
                                <E T="03">Per resident amount for cost reporting periods beginning on or after July 1, 1986.</E>
                                 Subject to the provisions of paragraph (d) of this section, for cost reporting periods beginning on or after July 1, 1986, a hospital's base-period per resident amount is adjusted as follows:
                            </P>
                            <P>(1) Except as provided in paragraph (c)(2) of this section, each hospital's per resident amount for the previous cost reporting is adjusted by the projected change in the CPI-U for the 12-month cost reporting period. This adjustment is subject to revision during the settlement of the cost report to reflect actual changes in the CPI-U that occurred during the cost reporting period.</P>
                            <P>(2) For cost reporting periods beginning on or after October 1, 1993 through September 30, 1995, each hospital's per resident amount for the previous cost reporting period will not be adjusted for any resident FTEs who are not either a primary care resident or an obstetrics and gynecology resident.</P>
                            <P>
                                (d) 
                                <E T="03">Per resident amount for cost reporting periods beginning on or after October 1, 2000 and ending on or before September 30, 2013.</E>
                                 For cost reporting periods beginning on or after October 1, 2000 and ending on or before September 30, 2013, a hospital's per resident amount for each fiscal year is adjusted in accordance with the following provisions:
                            </P>
                            <P>
                                (1) 
                                <E T="03">General provisions.</E>
                                 For purposes of this § 413.77—
                            </P>
                            <P>
                                (i) 
                                <E T="03">Weighted average per resident amount</E>
                                . The weighted average per resident amount is established as follows:
                            </P>
                            <P>(A) Using data from hospitals' cost reporting periods ending during FY 1997, CMS calculates each hospital's single per resident amount by adding each hospital's primary care and nonprimary care per resident amounts, weighted by its respective FTEs, and dividing by the sum of the FTEs for primary care and nonprimary care residents.</P>
                            <P>(B) Each hospital's single per resident amount calculated under paragraph (d)(1)(i)(A) of this section is standardized by the 1999 geographic adjustment factor for the physician fee schedule area (as determined under § 414.26 of this chapter) in which the hospital is located.</P>
                            <P>(C) CMS calculates an average of all hospitals' standardized per resident amounts that are determined under paragraph (d)(1)(i)(B) of this section. The resulting amount is the weighted average per resident amount.</P>
                            <P>
                                (ii) 
                                <E T="03">Primary care/obstetrics and gynecology and nonprimary care per resident amounts</E>
                                . A hospital's per resident amount is an amount inclusive of any CPI-U adjustments that the hospital may have received since the hospital's base year, including any CPI-U adjustments the hospital may have received because the hospital trains primary care/obstetrics and gynecology residents and nonprimary care residents as specified under paragraph (c)(2) of this section.
                            </P>
                            <P>
                                (2) 
                                <E T="03">Adjustment beginning in FY 2001 and ending in FY 2013</E>
                                . For cost reporting periods beginning on or after October 1, 2000, and ending on or before September 30, 2013, a hospital's per resident amount is adjusted in accordance with paragraphs (d)(2)(i) through (d)(2)(iv) of this section, in that order:
                            </P>
                            <P>
                                (i) 
                                <E T="03">Updating the weighted average per resident amount for inflation</E>
                                . The weighted average per resident amount (as determined under paragraph (d)(1)(i) of this section) is updated by the estimated percentage increase in the CPI-U during the period beginning with the month that represents the midpoint of the cost reporting periods ending during FY 1997 (that is, October 1, 1996) and ending with the midpoint of the hospital's cost reporting period that begins in FY 2001.
                            </P>
                            <P>
                                (ii) 
                                <E T="03">Adjusting for locality</E>
                                . The updated weighted average per resident amount determined under paragraph (d)(2)(i) of this section (the national average per resident amount) is adjusted for the locality of each hospital by multiplying the national average per resident amount by the 1999 geographic adjustment factor for the physician fee schedule area in which each hospital is located, established in accordance with § 414.26 of this chapter.
                            </P>
                            <P>
                                (iii) 
                                <E T="03">Determining necessary revisions to the per resident amount</E>
                                . The locality-adjusted national average per resident amount, as calculated in accordance with paragraph (d)(2)(ii) of this section, is compared to the hospital's per resident amount and is revised, if appropriate, according to the following three categories:
                            </P>
                            <P>
                                (A) 
                                <E T="03">Floor</E>
                                . (
                                <E T="03">1</E>
                                ) For cost reporting periods beginning on or after October 1, 2000, and before October 1, 2001, if the hospital's per resident amount would otherwise be less than 70 percent of the locality-adjusted national average per resident amount for FY 2001 (as determined under paragraph (d)(2)(ii) of this section), the per resident amount is equal to 70 percent of the locality-adjusted national average per resident amount for FY 2001.
                            </P>
                            <P>
                                (
                                <E T="03">2</E>
                                ) For cost reporting periods beginning on or after October 1, 2001, and before October 1, 2002, if the hospital's per resident amount would otherwise be less than 85 percent of the locality-adjusted national average per resident amount for FY 2002 (as determined under paragraph (d)(2)(ii) of this section), the per resident amount is equal to 85 percent of the locality-
                                <PRTPAGE P="28360"/>
                                adjusted national average per resident amount for FY 2002.
                            </P>
                            <P>
                                (
                                <E T="03">3</E>
                                ) For subsequent cost reporting periods beginning on or after October 1, 2002, the hospital's per resident amount is updated using the methodology specified under paragraph (c)(1) of this section.
                            </P>
                            <P>
                                (B) 
                                <E T="03">Ceiling</E>
                                . If the hospital's per resident amount is greater than 140 percent of the locality-adjusted national average per resident amount, the per resident amount is adjusted as follows for FY 2001 through FY 2013:
                            </P>
                            <P>
                                (
                                <E T="03">1</E>
                                ) 
                                <E T="03">FY 2001</E>
                                . For cost reporting periods beginning on or after October 1, 2000 and on or before September 30, 2001, if the hospital's FY 2000 per resident amount exceeds 140 percent of the FY 2001 locality-adjusted national average per resident amount (as calculated under paragraph (d)(2)(ii) of this section), subject to the provision stated in paragraph (d)(2)(iii)(B)(
                                <E T="03">5</E>
                                ) of this section, the hospital's per resident amount is frozen at the FY 2000 per resident amount and is not updated for FY 2001 by the CPI-U factor.
                            </P>
                            <P>
                                (
                                <E T="03">2</E>
                                ) 
                                <E T="03">FY 2002</E>
                                . For cost reporting periods beginning on or after October 1, 2001, and on or before September 30, 2002, if the hospital's FY 2001 per resident amount exceeds 140 percent of the FY 2002 locality-adjusted national average per resident amount, subject to the provision stated in paragraph (d)(2)(iii)(B)(
                                <E T="03">5</E>
                                ) of this section, the hospital's per resident amount is frozen at the FY 2001 per resident amount and is not updated for FY 2002 by the CPI-U factor.
                            </P>
                            <P>
                                (
                                <E T="03">3</E>
                                ) 
                                <E T="03">FY 2003</E>
                                . For cost reporting periods beginning on or after October 1, 2002, and on or before September 30, 2003, if the hospital's per resident amount for the previous cost reporting period is greater than 140 percent of the locality-adjusted national average per resident amount for that same previous cost reporting period (for example, for cost reporting periods beginning in FY 2003, compare the hospital's per resident amount from the FY 2002 cost report to the hospital's locality-adjusted national average per resident amount from FY 2002), subject to the provision stated in paragraph (d)(2)(iii)(B)(
                                <E T="03">5</E>
                                ) of this section, the hospital's per resident amount is adjusted using the methodology specified in paragraph (c)(1) of this section, except that the CPI-U applied for a 12-month period is reduced (but not below zero) by 2 percentage points.
                            </P>
                            <P>
                                (
                                <E T="03">4</E>
                                ) 
                                <E T="03">FY 2004 through FY 2013</E>
                                . For cost reporting periods beginning on or after October 1, 2003, and on or before September 30, 2013, if the hospital's preceding year per resident amount exceeds 140 percent of the current year's locality-adjusted national average per resident amount (as calculated under paragraph (d)(2)(ii) of this section), subject to the provision stated in paragraph (d)(2)(iii)(B)(
                                <E T="03">5</E>
                                ) of this section, the hospital-specific per resident amount is frozen for the current year at the preceding year's hospital-specific per resident amount and is not updated by the CPI-U factor.
                            </P>
                            <P>
                                (
                                <E T="03">5</E>
                                ) 
                                <E T="03">General rule for hospitals that exceed the ceiling</E>
                                . For cost reporting periods beginning on or after October 1, 2000, and on or before September 30, 2013, if a hospital's per resident amount exceeds 140 percent of the hospital's locality-adjusted national average per resident amount and it is adjusted under any of the criteria under paragraphs (d)(2)(iii)(B)(
                                <E T="03">1</E>
                                ) through (d)(2)(iii)(B)(
                                <E T="03">3</E>
                                ) of this section, the current year per resident amount cannot be reduced below 140 percent of the locality-adjusted national average per resident amount.
                            </P>
                            <P>
                                (C) 
                                <E T="03">Per resident amounts greater than or equal to the floor and less than or equal to the ceiling</E>
                                . For cost reporting periods beginning on or after October 1, 2000 and on or before September 30, 2013, if a hospital's per resident amount is greater than or equal to 70 percent and less than or equal to 140 percent of the hospital's locality-adjusted national average per resident amount for each respective fiscal year, the hospital's per resident amount is updated using the methodology specified in paragraph (c)(1) of this section.
                            </P>
                            <P>
                                (e) 
                                <E T="03">Exceptions</E>
                                —(1) 
                                <E T="03">Base period for certain hospitals</E>
                                . If a hospital did not have any approved medical residency training programs or did not participate in Medicare during the base period, but either condition changes in a cost reporting period beginning on or after July 1, 1985, the intermediary establishes a per resident amount for the hospital using the information from the first cost reporting period during which the hospital participates in Medicare and the residents are on duty during the first month of that period. Any GME program costs incurred by the hospital before that cost reporting period are reimbursed on a reasonable cost basis. The per resident amount is based on the lower of the amount specified in paragraph (e)(1)(i) or in paragraph (e)(1)(ii) of this section, subject to the provisions of paragraph (e)(1)(iii) of this section.
                            </P>
                            <P>(i) The hospital's actual costs, incurred in connection with the GME program for the hospital's first cost reporting period in which residents were on duty during the first month of the cost reporting period.</P>
                            <P>(ii) Except as specified in paragraph (e)(1)(iii)of this section—</P>
                            <P>(A) For base periods that begin before October 1, 2002, the updated weighted mean value of per resident amounts of all hospitals located in the same geographic wage area, as that term is used in the prospective payment system under Part 412 of this chapter.</P>
                            <P>(B) For base periods beginning on or after October 1, 2002, the updated weighted mean value of per resident amounts of all hospitals located in the same geographic wage area is calculated using all per resident amounts (including primary care and obstetrics and gynecology and nonprimary care) and FTE resident counts from the most recently settled cost reports of those teaching hospitals.</P>
                            <P>(iii) If, under paragraph (e)(1)(ii)(A) or paragraph (e)(1)(ii)(B) of this section, there are fewer than three existing teaching hospitals with per resident amounts that can be used to calculate the weighted mean value per resident amount, for base periods beginning on or after October 1, 1997, the per resident amount equals the updated weighted mean value of per resident amounts of all hospitals located in the same census region as that term is used in § 412.62(f)(1)(i) of this chapter.</P>
                            <P>
                                (2) 
                                <E T="03">Short or long base-period cost reporting periods.</E>
                                 If a hospital's base-period cost reporting period reflects GME costs for a period that is shorter than 50 weeks or longer than 54 weeks, the intermediary converts the allowable costs for the base period into a daily figure. The daily figure is then multiplied by 365 or 366, as appropriate, to derive the approved per resident amount for a 12-month base-period cost reporting period. If a hospital has two cost reporting periods beginning in the base period, the later period serves as the base-period cost reporting period.
                            </P>
                            <P>
                                (3) 
                                <E T="03">Short or long cost reporting periods beginning on or after July 1, 1985.</E>
                                 If a hospital's cost reporting period is shorter than 50 weeks or longer than 54 weeks, the hospital's intermediary should contact CMS Central Office to receive a special CPI-U adjustment factor.
                            </P>
                            <P>
                                (f) 
                                <E T="03">Special use of locality-adjusted national average per resident amount.</E>
                                 Effective for portions of cost reporting periods beginning on or after July 1, 2005, a hospital that counts additional residents as a result of an increase in its FTE resident cap under § 413.79(c)(4) will receive direct GME payments based on those additional FTE residents using the locality-adjusted national average per resident amount, as determined under paragraph (d)(2)(ii) of this 
                                <PRTPAGE P="28361"/>
                                section. The hospital will receive direct GME payments based on the sum of the following two direct GME calculations:
                            </P>
                            <P>(1) A calculation using the hospital's per resident amount(s) as determined under paragraph (d) of this section and the hospital's number of FTE residents that are not attributable to an FTE resident cap increase under § 413.79(c)(4); and</P>
                            <P>(2) A calculation using the locality-adjusted national average per resident amount, as determined under paragraph (d)(2)(ii) of this section, inflated to the hospital's current cost reporting period, and the hospital's number of FTE residents that is attributable to the increase in the hospital's FTE resident cap under § 413.79(c)(4).</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 413.78 </SECTNO>
                            <SUBJECT>Direct GME payments: Determination of the total number of FTE residents.</SUBJECT>
                            <P>Subject to the weighting factors in §§ 413.79 and 413.80, and subject to the provisions of § 413.81, the count of FTE residents is determined as follows:</P>
                            <P>(a) Residents in an approved program working in all areas of the hospital complex may be counted.</P>
                            <P>(b) No individual may be counted as more than one FTE. A hospital cannot claim the time spent by residents training at another hospital. Except as provided in paragraphs (c), (d), and (e) of this section, if a resident spends time in more than one hospital or in a nonprovider setting, the resident counts as partial FTE based on the proportion of time worked at the hospital to the total time worked. A part-time resident counts as a partial FTE based on the proportion of allowable time worked compared to the total time necessary to fill a full-time internship or residency slot.</P>
                            <P>(c) On or after July 1, 1987, and for portions of cost reporting periods occurring before January 1, 1999, the time residents spend in nonprovider settings such as freestanding clinics, nursing homes, and physicians' offices in connection with approved programs is not excluded in determining the number of FTE residents in the calculation of a hospital's resident count if the following conditions are met—</P>
                            <P>(1) The resident spends his or her time in patient care activities.</P>
                            <P>(2) There is a written agreement between the hospital and the outside entity that states that the resident's compensation for training time spent outside of the hospital setting is to be paid by the hospital.</P>
                            <P>(d) For portions of cost reporting periods occurring on or after January 1, 1999, and before October 1, 2004, the time residents spend in nonprovider settings such as freestanding clinics, nursing homes, and physicians' offices in connection with approved programs may be included in determining the number of FTE residents in the calculation of a hospital's resident count if the following conditions are met—</P>
                            <P>(1) The resident spends his or her time in patient care activities.</P>
                            <P>(2) The written agreement between the hospital and the nonhospital site must indicate that the hospital will incur the cost of the resident's salary and fringe benefits while the resident is training in the nonhospital site and the hospital is providing reasonable compensation to the nonhospital site for supervisory teaching activities. The agreement must indicate the compensation the hospital is providing to the nonhospital site for supervisory teaching activities.</P>
                            <P>(3) The hospital must incur all or substantially all of the costs for the training program in the nonhospital setting in accordance with the definition in § 413.75(b).</P>
                            <P>(4) The hospital is subject to the principles of community support and redistribution of costs as specified in § 413.81.</P>
                            <P>(e) For portions of cost reporting periods occurring on or after October 1, 2004, the time residents spend in nonprovider settings such as freestanding clinics, nursing homes, and physicians' offices in connection with approved programs may be included in determining the number of FTE residents in the calculation of a hospital's resident count if the following conditions are met—</P>
                            <P>(1) The resident spends his or her time in patient care activities.</P>
                            <P>(2) The hospital must incur all or substantially all of the costs of the training program in a nonhospital setting(s) (in accordance with the definition under § 413.75(b)) attributable to training that occurs during a month by the end of the month following the month in which the training in the nonhospital site occurred.</P>
                            <P>(3) The hospital is subject to the principles of community support and redistribution of costs as specified in § 413.81.</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 413.79 </SECTNO>
                            <SUBJECT>Direct GME payments: Determination of the weighted number of FTE residents.</SUBJECT>
                            <P>Subject to the provisions in § 413.80, CMS determines a hospital's number of FTE residents by applying a weighting factor to each resident and then summing the resulting numbers that represent each resident. The weighting factor is determined as follows:</P>
                            <P>
                                (a) 
                                <E T="03">Initial residency period.</E>
                                 Generally, for purposes of this section, effective July 1, 1995, an initial residency period is defined as the minimum number of years required for board eligibility.
                            </P>
                            <P>(1) Prior to July 1, 1995, the initial residency period equals the minimum number of years required for board eligibility in a specialty or subspecialty plus 1 year. An initial residency period may not exceed 5 years in order to be counted toward determining FTE status except in the case of a resident in an approved geriatric program whose initial residency period may last up to 2 additional years.</P>
                            <P>(2) Effective October 1, 2003, for a resident who trains in an approved geriatric program that requires the residents to complete 2 years of training to initially become board eligible in the geriatric specialty, the 2 years spent in the geriatrics program are treated as part of the resident's initial residency period.</P>
                            <P>(3) Effective July 1, 2000, for residency programs that began before, on, or after November 29, 1999, the period of board eligibility and the initial residency period for a resident in an approved child neurology program is the period of board eligibility for pediatrics plus 2 years.</P>
                            <P>(4) Effective August 10, 1993, residents or fellows in an approved preventive medicine residency or fellowship program also may be counted as a full FTE resident for up to 2 additional years beyond the initial residency period limitations.</P>
                            <P>(5) For combined residency programs, an initial residency period is defined as the time required for individual certification in the longer of the programs. If the resident is enrolled in a combined medical residency training program in which all of the individual programs (that are combined) are for training primary care residents (as defined in § 413.75(b)) or obstetrics and gynecology residents, the initial residency period is the time required for individual certification in the longer of the programs plus 1 year.</P>
                            <P>(6) For residency programs other than those specified in paragraphs (a)(2) through (a)(4) of this section, the initial residency period is the minimum number of years of formal training necessary to satisfy the requirements for initial board eligibility in the particular specialty for which the resident is training, as specified in the most recently published edition of the Graduate Medical Education Directory.</P>
                            <P>
                                (7) For residency programs in osteopathy, dentistry, and podiatry, the minimum requirement for certification in a specialty or subspecialty is the minimum number of years of formal 
                                <PRTPAGE P="28362"/>
                                training necessary to satisfy the requirements of the appropriate approving body listed in § 415.152 of this chapter.
                            </P>
                            <P>(8) For residency programs in geriatric medicine, accredited by the appropriate approving body listed in § 415.152 of this chapter, these programs are considered approved programs on the later of—</P>
                            <P>(i) The starting date of the program within a hospital; or</P>
                            <P>(ii) The hospital's cost reporting periods beginning on or after July 1, 1985.</P>
                            <P>(9) The time spent in residency programs that do not lead to certification in a specialty or subspecialty, but that otherwise meet the definition of approved programs, as described in § 413.75(b), is counted toward the initial residency period limitation.</P>
                            <P>
                                (b) 
                                <E T="03">Weighting factor</E>
                                —(1) If the resident is in an initial residency period, the weighting factor is one.
                            </P>
                            <P>(2) If the resident is not in an initial residency period, the weighting factor is 1.00 during the period beginning on or after July 1, 1985 and before July 1, 1986, .75 during the period beginning on or after July 1, 1986 and before July 1, 1987, and .50 thereafter without regard to the hospital's cost reporting period.</P>
                            <P>
                                (c) 
                                <E T="03">Unweighted FTE counts.</E>
                            </P>
                            <P>
                                (1) 
                                <E T="03">Definitions.</E>
                                 As used in this paragraph (c):
                            </P>
                            <P>
                                (i) 
                                <E T="03">Otherwise applicable resident cap</E>
                                 refers to a hospital's FTE resident cap that is determined for a particular cost reporting period under paragraph (c)(2) of this section.
                            </P>
                            <P>
                                (ii) 
                                <E T="03">Reference resident level</E>
                                 refers to a hospital's resident level in the applicable reference period specified under paragraph (c)(3)(ii) of this section.
                            </P>
                            <P>
                                (iii) 
                                <E T="03">Resident level</E>
                                 refers to the number of unweighted allopathic and osteopathic FTE residents who are training in a hospital in a particular cost reporting period.
                            </P>
                            <P>
                                (2) 
                                <E T="03">Determination of the FTE resident cap.</E>
                                 Subject to the provisions of paragraphs (c)(3) and (c)(4) of this section and § 413.81, for purposes of determining direct GME payment—
                            </P>
                            <P>(i) For cost reporting periods beginning on or after October 1, 1997, a hospital's resident level may not exceed the hospital's unweighted FTE count (or, effective for cost reporting periods beginning on or after April 1, 2000, 130 percent of the unweighted FTE count for a hospital located in a rural area) for these residents for the most recent cost reporting period ending on or before December 31, 1996.</P>
                            <P>(ii) If a hospital's number of FTE residents in a cost reporting period beginning on or after October 1, 1997, and before October 1, 2001, exceeds the limit described in this section, the hospital's total weighted FTE count (before application of the limit) will be reduced in the same proportion that the number of FTE residents for that cost reporting period exceeds the number of FTE residents for the most recent cost reporting period ending on or before December 31, 1996.</P>
                            <P>(iii) If the hospital's number of FTE residents in a cost reporting period beginning on or after October 1, 2001 exceeds the limit described in this section, the hospital's weighted FTE count (before application of the limit) for primary care and obstetrics and gynecology residents and nonprimary care residents, respectively, will be reduced in the same proportion that the number of FTE residents for that cost reporting period exceeds the number of FTE residents for the most recent cost reporting period ending on or before December 31, 1996.</P>
                            <P>(iv) Hospitals that are part of the same Medicare GME affiliated group (as described under § 413.75(b)) may elect to apply the limit on an aggregate basis as described under paragraph (f) of this section.</P>
                            <P>(v) The fiscal intermediary may make appropriate modifications to apply the provisions of this paragraph (c) of this section based on the equivalent of a 12-month cost reporting period.</P>
                            <P>
                                (3) 
                                <E T="03">Determination of the reduction to the FTE resident cap due to unused FTE resident slots.</E>
                                 If a hospital's reference resident level is less than its otherwise applicable FTE resident cap as determined under paragraph (c)(2) of this section or paragraph (e) of this section in the reference cost reporting period (as described under paragraph (c)(3)(ii) of this section), for portions of cost reporting periods beginning on or after July 1, 2005, the hospital's otherwise applicable FTE resident cap is reduced by 75 percent of the difference between the otherwise applicable FTE resident cap and the reference resident level. Under this provision—
                            </P>
                            <P>
                                (i) 
                                <E T="03">Exemption for certain rural hospitals.</E>
                                 Rural hospitals, as defined at § 412.62(f)(iii), with less than 250 beds (as determined at § 412.105(b)) in its most recent cost reporting period ending on or before September 30, 2002, are exempt from the reduction to the otherwise applicable FTE resident cap limit under paragraph (c)(3) of this section.
                            </P>
                            <P>
                                (ii) 
                                <E T="03">Reference cost reporting periods.</E>
                            </P>
                            <P>(A) To determine a hospital's reference resident level, CMS uses one of the following periods:</P>
                            <P>
                                (
                                <E T="03">1</E>
                                ) A hospital's most recent cost reporting period ending on or before September 30, 2002, for which a cost report has been settled or if the cost report has not been settled, the as-submitted cost report (subject to audit); or
                            </P>
                            <P>
                                (
                                <E T="03">2</E>
                                ) A hospital's cost reporting period that includes July 1, 2003 if the hospital increased its resident level due to an expansion of an existing program and that expansion is not reflected on the hospital's most recent settled cost report; and if the hospital makes a request to use that cost reporting period within a timeframe designated by CMS. An expansion of an existing program means that, except for expansions due to newly approved programs under paragraph (c)(3)(ii)(A)(
                                <E T="03">3</E>
                                ) of this section, the number of unweighted allopathic and osteopathic FTE residents, regardless of specialty, in any cost reporting period after the hospital's most recent settled cost report, up to and including the hospital's cost report that includes July 1, 2003, is greater than the number of unweighted allopathic and osteopathic FTE residents in the hospital's most recent settled cost report.
                            </P>
                            <P>
                                (
                                <E T="03">3</E>
                                ) A hospital may submit a request, within the timeframe designated by CMS, that CMS adjust the resident level for purposes of determining any reduction under paragraph (c)(3) of this section.
                            </P>
                            <P>
                                (
                                <E T="03">i</E>
                                ) In the hospital's reference cost reporting period under paragraph (c)(3)(ii)(A)(
                                <E T="03">1</E>
                                ) of this section, to include the number of FTE residents for which a new program was accredited by the appropriate allopathic or osteopathic accrediting body (listed under § 415.152 of this chapter) before January 1, 2002, if the program was not in operation during the reference cost reporting period under paragraph (c)(3)(ii)(A)(
                                <E T="03">1</E>
                                ) or (c)(3)(ii)(A)(
                                <E T="03">2</E>
                                ) of this section; or
                            </P>
                            <P>
                                (
                                <E T="03">ii</E>
                                ) In the hospital's reference cost reporting period under paragraph (c)(3)(ii)(A)(
                                <E T="03">2</E>
                                ) of this section, to include the number of FTE residents for which a new program was accredited by the appropriate allopathic or osteopathic accrediting body (listed under § 415.152 of this chapter) before January 1, 2002, if the program was not in operation during the cost reporting period that includes July 1, 2003, and if the hospital also qualifies to use its cost report under paragraph (c)(3)(ii)(A)(
                                <E T="03">2</E>
                                ) of this section due to an expansion of an existing program.
                            </P>
                            <P>
                                (B) If the cost report that is used to determine a hospital's otherwise 
                                <PRTPAGE P="28363"/>
                                applicable FTE resident cap in the reference period is not equal to 12 months, the fiscal intermediary may make appropriate modifications to apply the provisions of paragraph (c)(3)(i)(A) of this section based on the equivalent of a 12-month cost reporting period.
                            </P>
                            <P>
                                (iii) If the new program described in paragraph (c)(3)(ii)(A)(3)(i) or paragraph (c)(3)(ii)(A)(ii) was accredited for a range of residents, the hospital may request that its reference resident level in its applicable reference cost reporting period under paragraph (c)(3)(ii)(A)(
                                <E T="03">1</E>
                                ) or (c)(3)(ii)(A)(
                                <E T="03">2</E>
                                ) of this section be adjusted to reflect the maximum number of accredited slots.
                            </P>
                            <P>
                                (iv) 
                                <E T="03">Consideration of Medicare GME affiliated group agreements.</E>
                                 For hospitals that are members of the same affiliated group for the program year July 1, 2003 through June 30, 2004, in determining whether a hospital's otherwise applicable resident FTE resident cap is reduced under paragraph (c)(3) of this section, CMS utilizes a hospital's otherwise applicable FTE resident cap as revised by a Medicare GME affiliation agreement for hospitals that are members of the same affiliated group (as described under § 413.75(b)) for the program year July 1, 2003 through June 30, 2004. Possible reductions to a hospital's otherwise applicable FTE resident cap are made on a hospital-specific basis. If the hospital's reference resident level is below its otherwise applicable FTE resident cap as adjusted by the July 1, 2003 Medicare GME affiliation agreement, the hospital's otherwise applicable FTE resident cap is reduced by 75 percent of the difference between the hospital's reference resident level and the otherwise applicable FTE resident cap as adjusted by the July 1, 2003 Medicare GME affiliation agreement.
                            </P>
                            <P>
                                (4) 
                                <E T="03">Determination of an increase in otherwise applicable resident cap.</E>
                                 For portions of cost reporting periods beginning on or after July 1, 2005, a hospital may receive an increase in its otherwise applicable FTE resident cap up to an additional 25 FTEs (as determined by CMS) if the hospital meets the requirements and qualifying criteria of section 1886(h)(7) of the Act and implementing instructions issued by CMS and if the hospital submits an application to CMS within the timeframe specified by CMS.
                            </P>
                            <P>
                                (5) 
                                <E T="03">Special rules for hospitals that participate in demonstration projects or voluntary resident reduction plans.</E>
                            </P>
                            <P>(i) If a hospital was participating in a demonstration project under section 402 of Public Law 90-248 or the voluntary reduction plan under § 413.88 at any time during the hospital's most recent cost reporting period ending on or before September 30, 2002, for purposes of determining a possible reduction to the FTE resident caps under paragraph (c)(3) of this section, CMS compares the higher of the hospital's base number of residents or the hospital's reference resident level to the hospital's otherwise applicable resident cap determined under paragraph (c)(2) of this section.</P>
                            <P>(ii) If a hospital withdrew its participation in the demonstration project or the voluntary resident reduction plan prior to its most recent cost reporting period ending on or before September 30, 2002, the special rules in paragraph(c)(5)(i) do not apply, and the hospital is subject to the procedures applicable to all other hospitals for determining possible reductions to the FTE resident caps under paragraph (c)(3) of this section.</P>
                            <P>(iii) CMS will not redistribute residency positions that are attributable to a hospital's participation in a demonstration project or a voluntary resident reduction plan to other hospitals that seek to increase their FTE resident caps under paragraph (c)(4) of this section.</P>
                            <P>
                                (d) 
                                <E T="03">Weighted FTE counts.</E>
                                 Subject to the provisions of § 413.81, for purposes of determining direct GME payment—
                            </P>
                            <P>(1) For the hospital's first cost reporting period beginning on or after October 1, 1997, the hospital's weighted FTE count is equal to the average of the weighted FTE count for the payment year cost reporting period and the preceding cost reporting period.</P>
                            <P>(2) For cost reporting periods beginning on or after October 1, 1998, and before October 1, 2001, the hospital's weighted FTE count is equal to the average of the weighted FTE count for the payment year cost reporting period and the preceding two cost reporting periods.</P>
                            <P>(3) For cost reporting periods beginning on or after October 1, 2001, the hospital's weighted FTE count for primary care and obstetrics and gynecology residents is equal to the average of the weighted primary care and obstetrics and gynecology counts for the payment year cost reporting period and the preceding two cost reporting periods, and the hospital's weighted FTE count for nonprimary care residents is equal to the average of the weighted nonprimary care FTE counts for the payment year cost reporting period and the preceding two cost reporting periods.</P>
                            <P>(4) The fiscal intermediary may make appropriate modifications to apply the provisions of this paragraph (d) based on the equivalent of 12-month cost reporting periods.</P>
                            <P>(5) If a hospital qualifies for an adjustment to the limit established under paragraph (c)(2) of this section for new medical residency programs created under paragraph (e) of this section, the count of the residents participating in new medical residency training programs above the number included in the hospital's FTE count for the cost reporting period ending during calendar year 1996 is added after applying the averaging rules in this paragraph (d), for a period of years. Residents participating in new medical residency training programs are included in the hospital's FTE count before applying the averaging rules after the period of years has expired. For purposes of this paragraph (d), for each new program started, the period of years equals the minimum accredited length for each new program. The period of years begins when the first resident begins training in each new program.</P>
                            <P>(6) Subject to the provisions of paragraph (h) of this section, FTE residents that are displaced by the closure of either another hospital or another hospital's program are added to the FTE count after applying the averaging rules in this paragraph (d), for the receiving hospital for the duration of the time that the displaced residents are training at the receiving hospital.</P>
                            <P>(7) Subject to the provisions under paragraph (k) of this section, effective for cost reporting periods beginning on or after April 1, 2000, FTE residents in a rural track program at an urban hospital are included in the urban hospital's rolling average calculation described in this paragraph (d).</P>
                            <P>(8) Subject to the provisions under paragraph(c)(4) of this section, effective for portions of cost reporting periods beginning on or after July 1, 2005, FTE residents added by a hospital as a result of an increase in a hospital's FTE resident cap under paragraph (c)(4) of this section are included in the hospital's rolling average calculation described in this paragraph (d).</P>
                            <P>
                                (e) 
                                <E T="03">New medical residency training programs</E>
                                . If a hospital establishes a new medical residency training program as defined in paragraph (l) of this section on or after January 1, 1995, the hospital's FTE cap described under paragraph (c) of this section may be adjusted as follows:
                            </P>
                            <P>
                                (1) If a hospital had no allopathic or osteopathic residents in its most recent cost reporting period ending on or before December 31, 1996, and it establishes a new medical residency training program on or after January 1, 1995, the hospital's unweighted FTE 
                                <PRTPAGE P="28364"/>
                                resident cap under paragraph (c) of this section may be adjusted based on the product of the highest number of residents in any program year during the third year of the first program's existence for all new residency training programs and the number of years in which residents are expected to complete the program based on the minimum accredited length for the type of program. The adjustment to the cap may not exceed the number of accredited slots available to the hospital for the new program.
                            </P>
                            <P>(i) If the residents are spending an entire program year (or years) at one hospital and the remainder of the program at another hospital, the adjustment to each respective hospital's cap is equal to the product of the highest number of residents in any program year during the third year of the first program's existence and the number of years the residents are training at each respective hospital.</P>
                            <P>(ii) Prior to the implementation of the hospital's adjustment to its FTE cap beginning with the fourth year of the hospital's residency program(s), the hospital's cap may be adjusted during each of the first 3 years of the hospital's new residency program using the actual number of residents participating in the new program. The adjustment may not exceed the number of accredited slots available to the hospital for each program year.</P>
                            <P>(iii) Except for rural hospitals, the cap will not be adjusted for new programs established more than 3 years after the first program begins training residents.</P>
                            <P>(iv) An urban hospital that qualifies for an adjustment to its FTE cap under paragraph (e)(1) of this section is not permitted to be part of a Medicare GME affiliated group for purposes of establishing an aggregate FTE cap.</P>
                            <P>(v) A rural hospital that qualifies for an adjustment to its FTE cap under paragraph (e)(1) of this section is permitted to be part of a Medicare GME affiliated group for purposes of establishing an aggregate FTE cap.</P>
                            <P>(2) If a hospital had allopathic or osteopathic residents in its most recent cost reporting period ending on or before December 31, 1996, the hospital's unweighted FTE cap may be adjusted for new medical residency training programs established on or after January 1, 1995 and on or before August 5, 1997. The adjustment to the hospital's FTE resident limit for the new program is based on the product of the highest number of residents in any program year during the third year of the newly established program and the number of years in which residents are expected to complete each program based on the minimum accredited length for the type of program.</P>
                            <P>(i) If the residents are spending an entire program year (or years) at one hospital and the remainder of the program at another hospital, the adjustment to each respective hospital's cap is equal to the product of the highest number of residents in any program year during the third year of the first program's existence and the number of years the residents are training at each respective hospital.</P>
                            <P>(ii) Prior to the implementation of the hospital's adjustment to its FTE cap beginning with the fourth year of the hospital's residency program, the hospital's cap may be adjusted during each of the first 3 years of the hospital's new residency program, using the actual number of residents in the new programs. The adjustment may not exceed the number of accredited slots available to the hospital for each program year.</P>
                            <P>(3) If a hospital with allopathic or osteopathic residents in its most recent cost reporting period ending on or before December 31, 1996, is located in a rural area (or other hospitals located in rural areas that added residents under paragraph (e)(1) of this section), the hospital's unweighted FTE limit may be adjusted in the same manner described in paragraph (e)(2) of this section to reflect the increase for residents in the new medical residency training programs established after August 5, 1997. For these hospitals, the limit will be adjusted for additional new programs but not for expansions of existing or previously existing programs.</P>
                            <P>(4) A hospital seeking an adjustment to the limit on its unweighted resident count policy must provide documentation to its fiscal intermediary justifying the adjustment.</P>
                            <P>
                                (f) 
                                <E T="03">Medicare GME affiliated group</E>
                                . A hospital may receive a temporary adjustment to its FTE cap, which is subject to the averaging rules under paragraph (e)(3) of this section, to reflect residents added or subtracted because the hospital is participating in a Medicare GME affiliated group (as defined under § 413.75(b)). Under this provision—
                            </P>
                            <P>(1) Each hospital in the Medicare GME affiliated group must submit the Medicare GME affiliation agreement, as defined under § 413.75(b) of this section, to the CMS fiscal intermediary servicing the hospital and send a copy to CMS's Central Office no later than July 1 of the residency program year during which the Medicare GME affiliation agreement will be in effect.</P>
                            <P>(2) Each hospital in the Medicare GME affiliated group must have a shared rotational arrangement, as defined in § 413.75(b), with at least one other hospital within the Medicare GME affiliated group, and all of the hospitals within the Medicare GME affiliated group must be connected by a series of such shared rotational arrangements.</P>
                            <P>(3) During the shared rotational arrangements under a Medicare GME affiliation agreement, as defined in § 413.75(b), more than one of the hospitals in the Medicare GME affiliated group must count the proportionate amount of the time spent by the resident(s) in its FTE resident counts. No resident may be counted in the aggregate as more than one FTE.</P>
                            <P>(4) The net effect of the adjustments (positive or negative) on the Medicare GME affiliated hospitals' aggregate FTE cap for each Medicare GME affiliation agreement must not exceed zero.</P>
                            <P>(5) If the Medicare GME affiliation agreement terminates for any reason, the FTE cap of each hospital in the Medicare GME affiliated group will revert to the individual hospital's pre-affiliation FTE cap that is determined under the provisions of paragraph (c) of this section.</P>
                            <P>
                                (g) 
                                <E T="03">Newly constructed hospitals</E>
                                . A hospital that began construction of its facility prior to August 5, 1997, and sponsored new medical residency training programs on or after January 1, 1995, and on or before August 5, 1997, that either received initial accreditation by the appropriate accrediting body or temporarily trained residents at another hospital(s) until the facility was completed, may receive an adjustment to its FTE cap.
                            </P>
                            <P>(1) The newly constructed hospital's FTE cap is equal to the lesser of—</P>
                            <P>(i) The product of the highest number of residents in any program year during the third year of the newly established program and the number of years in which residents are expected to complete the programs based on the minimum accredited length for each type of program; or</P>
                            <P>(ii) The number of accredited slots available to the hospital for each year of the programs.</P>
                            <P>(2) If the new medical residency training programs sponsored by the newly constructed hospital have been in existence for 3 years or more by the time the residents begin training at the newly constructed hospital, the newly constructed hospital's cap will be based on the number of residents training in the third year of the programs begun at the temporary training site.</P>
                            <P>
                                (3) If the new medical residency training programs sponsored by the newly constructed hospital have been in existence for less than 3 years by the 
                                <PRTPAGE P="28365"/>
                                time the residents begin training at the newly constructed hospital, the newly constructed hospital's cap will be based on the number of residents training at the newly constructed hospital in the third year of the programs (including the years at the temporary training site).
                            </P>
                            <P>(4) A hospital that qualifies for an adjustment to its FTE cap under this paragraph (g) may be part of an affiliated group for purposes of establishing an aggregate FTE cap.</P>
                            <P>(5) The provisions of this paragraph (g) are applicable during portions of cost reporting periods occurring on or after October 1, 1999.</P>
                            <P>
                                (h) 
                                <E T="03">Closure of hospital or hospital residency program</E>
                                .
                            </P>
                            <P>
                                (1) 
                                <E T="03">Definitions.</E>
                                 For purposes of this section—
                            </P>
                            <P>
                                (i) 
                                <E T="03">Closure of a hospital</E>
                                 means the hospital terminates its Medicare agreement under the provisions of § 489.52 of this chapter.
                            </P>
                            <P>
                                (ii) 
                                <E T="03">Closure of a hospital residency training program</E>
                                 means the hospital ceases to offer training for residents in a particular approved medical residency training program.
                            </P>
                            <P>
                                (2) 
                                <E T="03">Closure of a hospital</E>
                                . A hospital may receive a temporary adjustment to its FTE cap to reflect residents added because of another hospital's closure if the hospital meets the following criteria:
                            </P>
                            <P>(i) The hospital is training additional residents from a hospital that closed on or after July 1, 1996.</P>
                            <P>(ii) No later than 60 days after the hospital begins to train the residents, the hospital submits a request to its fiscal intermediary for a temporary adjustment to its FTE cap, documents that the hospital is eligible for this temporary adjustment by identifying the residents who have come from the closed hospital and have caused the hospital to exceed its cap, and specifies the length of time the adjustment is needed.</P>
                            <P>
                                (3) 
                                <E T="03">Closure of a hospital's residency training program</E>
                                . If a hospital that closes its residency training program voluntarily agrees to temporarily reduce its FTE cap according to the criteria specified in paragraph (h)(3)(ii) of this section, another hospital(s) may receive a temporary adjustment to its FTE cap to reflect residents added because of the closure of the residency training program if the criteria specified in paragraph (h)(3)(i) of this section are met.
                            </P>
                            <P>
                                (i) 
                                <E T="03">Receiving hospital(s)</E>
                                . A hospital may receive a temporary adjustment to its FTE cap to reflect residents added because of the closure of another hospital's residency training program if—
                            </P>
                            <P>(A) The hospital is training additional residents from the residency training program of a hospital that closed a program; and</P>
                            <P>(B) No later than 60 days after the hospital begins to train the residents, the hospital submits to its fiscal intermediary a request for a temporary adjustment to its FTE cap, documents that it is eligible for this temporary adjustment by identifying the residents who have come from another hospital's closed program and have caused the hospital to exceed its cap, specifies the length of time the adjustment is needed, and submits to its fiscal intermediary a copy of the FTE reduction statement by the hospital that closed its program, as specified in paragraph (h)(3)(ii)(B) of this section.</P>
                            <P>
                                (ii) 
                                <E T="03">Hospital that closed its program(s).</E>
                                 A hospital that agrees to train residents who have been displaced by the closure of another hospital's program may receive a temporary FTE cap adjustment only if the hospital with the closed program—
                            </P>
                            <P>(A) Temporarily reduces its FTE cap based on the FTE residents in each program year training in the program at the time of the program's closure. This yearly reduction in the FTE cap will be determined based on the number of those residents who would have been training in the program during that year had the program not closed; and</P>
                            <P>(B) No later than 60 days after the residents who were in the closed program begin training at another hospital, submit to its fiscal intermediary a statement signed and dated by its representative that specifies that it agrees to the temporary reduction in its FTE cap to allow the hospital training the displaced residents to obtain a temporary adjustment to its cap; identifies the residents who were in training at the time of the program's closure; identifies the hospitals to which the residents are transferring once the program closes; and specifies the reduction for the applicable program years.</P>
                            <P>
                                (i) 
                                <E T="03">Additional FTEs for residents on maternity or disability leave or other approved leave of absence.</E>
                                 Effective for cost reporting periods beginning on or after November 29, 1999, a hospital may receive an adjustment to its FTE cap of up to three additional resident FTEs, if the hospital meets the following criteria:
                            </P>
                            <P>(1) The additional residents are residents of a primary care program that would have been counted by the hospital as residents for purposes of the hospital's FTE cap but for the fact that the additional residents were on maternity or disability leave or a similar approved leave of absence during the hospital's most recent cost reporting period ending on or before December 31, 1996;</P>
                            <P>(2) The leave of absence was approved by the residency program director to allow the residents to be absent from the program and return to the program after the leave of absence; and</P>
                            <P>(3) No later than 6 months after August 1, 2000, the hospital submits to the fiscal intermediary a request for an adjustment to its FTE cap, and provides contemporaneous documentation of the approval of the leave of absence by the residency director, specific to each additional resident that is to be counted for purposes of the adjustment.</P>
                            <P>
                                (j) 
                                <E T="03">Residents previously trained at VA hospitals.</E>
                                 For cost reporting periods beginning on or after October 1, 1997, a non-Veterans Affairs (VA) hospital may receive a temporary adjustment to its FTE cap to reflect residents who had previously trained at a VA hospital and were subsequently transferred to the non-VA hospital, if that hospital meets the following criteria:
                            </P>
                            <P>(1) The transferred residents had been training previously at a VA hospital in a program that would have lost its accreditation by the ACGME if the residents continued to train at the VA hospital;</P>
                            <P>(2) The residents were transferred to the hospital from the VA hospital on or after January 1, 1997, and before July 31, 1998; and</P>
                            <P>(3) The hospital submits a request to its fiscal intermediary for a temporary adjustment to its FTE cap, documents that it is eligible for this temporary adjustment by identifying the residents who have come from the VA hospital, and specifies the length of time those residents will be trained at the hospital.</P>
                            <P>
                                (k) 
                                <E T="03">Residents training in rural track programs.</E>
                                 Subject to the provisions of § 413.81, an urban hospital that establishes a new residency program, or has an existing residency program, with a rural track (or an integrated rural track) may include in its FTE count residents in those rural tracks, in addition to the residents subject to its FTE cap specified under paragraph (c) of this section. An urban hospital with a rural track residency program may count residents in those rural tracks up to a rural track FTE limitation if the hospital complies with the conditions specified in paragraphs (k)(2) through (k)(6) of this section.
                            </P>
                            <P>
                                (1) If an urban hospital rotates residents to a separately accredited rural track program at a rural hospital(s) for two-thirds of the duration of the program for cost reporting periods beginning on or after April 1, 2000, and before October 1, 2003, or for more than 
                                <PRTPAGE P="28366"/>
                                one-half of the duration of the program for cost reporting periods beginning on or after October 1, 2003, the urban hospital may include those residents in its FTE count for the time the rural track residents spend at the urban hospital. The urban hospital may include in its FTE count those residents in the rural track training at the urban hospital, not to exceed its rural track FTE limitation, determined as follows:
                            </P>
                            <P>(i) For the first 3 years of the rural track's existence, the rural track FTE limitation for each urban hospital will be the actual number of FTE residents, subject to the rolling average at paragraph (d)(7) of this section, training in the rural track at the urban hospital.</P>
                            <P>(ii) Beginning with the fourth year of the rural track's existence, the rural track FTE limitation is equal to the product of the highest number of residents, in any program year, who during the third year of the rural track's existence are training in the rural track at the urban hospital or the rural hospital(s) and are designated at the beginning of their training to be rotated to the rural hospital(s) for at least two-thirds of the duration of the program for cost reporting periods beginning on or after April 1, 2000, and before October 1, 2002, or for more than one-half of the duration of the program effective for cost reporting periods beginning on or after October 1, 2003, and the number of years those residents are training at the urban hospital.</P>
                            <P>(2) If an urban hospital rotates residents to a separately accredited rural track program at a rural nonhospital site(s) for two-thirds of the duration of the program for cost reporting periods beginning on or after April 1, 2000, and before October 1, 2003, or for more than one-half of the duration of the program for cost reporting periods beginning on or after October 1, 2003, the urban hospital may include those residents in its FTE count, subject to the requirements under § 413.78(d). The urban hospital may include in its FTE count those residents in the rural track, not to exceed its rural track FTE limitation, determined as follows:</P>
                            <P>(i) For the first 3 years of the rural track's existence, the rural track FTE limitation for each urban hospital will be the actual number of FTE residents, subject to the rolling average specified in paragraph (d)(7) of this section, training in the rural track at the urban hospital and the rural nonhospital site(s).</P>
                            <P>(ii) Beginning with the fourth year of the rural track's existence, the rural track FTE limitation is equal to the product of—</P>
                            <P>(A) The highest number of residents in any program year who, during the third year of the rural track's existence, are training in the rural track at—</P>
                            <P>
                                (
                                <E T="03">1</E>
                                ) The urban hospital and are designated at the beginning of their training to be rotated to a rural nonhospital site(s) for at least two-thirds of the duration of the program for cost reporting periods beginning on or after April 1, 2000 and before October 1, 2003, or for more than one-half of the duration of the program for cost reporting periods beginning on or after October 1, 2003; and
                            </P>
                            <P>
                                (
                                <E T="03">2</E>
                                ) The rural nonhospital site(s); and
                            </P>
                            <P>(B) The number of years in which the residents are expected to complete each program based on the minimum accredited length for the type of program.</P>
                            <P>(3) If an urban hospital rotates residents in the rural track program to a rural hospital(s) for less than two-thirds of the duration of the program for cost reporting periods beginning on or after April 1, 2000, and before October 1, 2003, or for one-half or less than one-half of the duration of the program for cost reporting periods beginning on or after October 1, 2003, the rural hospital may not include those residents in its FTE count (if the rural track is not a new program under paragraph (e)(3) of this section, or if the rural hospital's FTE count exceeds that hospital's FTE cap), nor may the urban hospital include those residents when calculating its rural track FTE limitation.</P>
                            <P>(4) If an urban hospital rotates residents in the rural track program to a rural nonhospital site(s) for period of time is less than two-thirds of the duration of the program for cost reporting periods beginning on or after April 1, 2000 and before October 1, 2003, or for one-half or less than one-half of the duration of the program for cost reporting periods beginning on or after October 1, 2003, the urban hospital may include those residents in its FTE count, subject to the requirements under § 413.78(d). The urban hospital may include in its FTE count those residents in the rural track, not to exceed its rural track limitation, determined as follows:</P>
                            <P>(i) For the first 3 years of the rural track's existence, the rural track FTE limitation for the urban hospital will be the actual number of FTE residents, subject to the rolling average specified in paragraph (d)(7) of this section, training in the rural track at the rural nonhospital site(s).</P>
                            <P>(ii) Beginning with the fourth year of the rural track's existence, the rural track FTE limitation is equal to the product of—</P>
                            <P>(A) The highest number of residents in any program year who, during the third year of the rural track's existence, are training in the rural track at the rural nonhospital site(s) or are designated at the beginning of their training to be rotated to the rural nonhospital site(s) for a period that is less than two-thirds of the duration of the program for cost reporting periods beginning on or after April 1, 2002, and before October 1, 2003, or for one-half or less than one-half of the duration of the program for cost reporting periods beginning on or after October 1, 2003; and</P>
                            <P>(B) The length of time in which the residents are being training at the rural nonhospital site(s) only.</P>
                            <P>(5) All urban hospitals that wish to count FTE residents in rural tracks, not to exceed their respective rural track FTE limitation, must also comply with all of the following conditions:</P>
                            <P>(i) An urban hospital may not include in its rural track FTE limitation or (assuming the urban hospital's FTE count exceeds its FTE cap) FTE count residents who are training in a rural track residency program that were already included as part of the hospital's FTE cap.</P>
                            <P>(ii) The hospital must base its count of residents in a rural track on written contemporaneous documentation that each resident enrolled in a rural track program at the hospital intends to rotate for a portion of the residency program to a rural area.</P>
                            <P>(iii) All residents that are included by the hospital as part of its rural track FTE count (not to exceed its rural track FTE limitation) must train in the rural area. However, where a resident begins to train in the rural track program at the urban hospital but leaves the program before completing the total required portion of training in the rural area, the urban hospital may count the time the resident trained in the urban hospital if another resident fills the vacated FTE slot and completes the training in the rural portion of the rural track program. An urban hospital may not receive GME payment for the time the resident trained at the urban hospital if another resident fills the vacated FTE slot and first begins to train at the urban hospital.</P>
                            <P>
                                (6) If CMS finds that residents who are included by the urban hospital as part of its FTE count did not actually complete the training in the rural area, CMS will reopen the urban hospital's cost report within the 3-year reopening period as specified in § 405.1885 of this chapter and adjust the hospital's Medicare GME payments (and, where applicable, the hospital's rural track FTE limitation).
                                <PRTPAGE P="28367"/>
                            </P>
                            <P>(l) For purposes of this section, a new medical residency training program means a medical residency that receives initial accreditation by the appropriate accrediting body or begins training residents on or after January 1, 1995.</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 413.80 </SECTNO>
                            <SUBJECT>Direct GME payments: Determination of weighting factors for foreign medical graduates.</SUBJECT>
                            <P>(a) The weighting factor for a foreign medical graduate is determined under the provisions of § 413.79 if the foreign medical graduate—</P>
                            <P>(1) Has passed FMGEMS; or</P>
                            <P>(2) Before July 1, 1986, received certification from, or passed an examination of, the Educational Committee for Foreign Medical Graduates.</P>
                            <P>(b) Before July 1, 1986, the weighting factor for a foreign medical graduate is 1.0 times the weight determined under the provisions of § 413.79. On or after July 1, 1986, and before July 1, 1987, the weighting factor for a graduate of a foreign medical school who was in a residency program both before and after July 1, 1986 but who does not meet the requirements set forth in paragraph (a) of this section is .50 times the weight determined under the provisions of § 413.79.</P>
                            <P>(c) On or after July 1, 1987, these foreign medical graduates are not counted in determining the number of FTE residents.</P>
                            <P>(d) During the cost reporting period in which a foreign medical graduate passes FMGEMS, the weighting factor for that resident is determined under the provisions of § 413.79 for the part of the cost reporting period beginning with the month the resident passes the test.</P>
                            <P>(e) On or after September 1, 1989, the National Board of Medical Examiners Examination, Parts I and II, may be substituted for FMGEMS for purposes of the determination made under paragraphs (a) and (d) of this section.</P>
                            <P>(f) On or after June 1, 1992, the United States Medical Licensing Examination may be substituted for the FMGEMS for purposes of the determination made under paragraphs (a) and (d) of this section. On or after July 1, 1993, only the results of steps I and II of the United States Medical Licensing Examination will be accepted for purposes of making this determination.</P>
                            <P>(g) To include a resident in the FTE count for a particular cost reporting period, the hospital must furnish the following information. The information must be certified by an official of the hospital and, if different, an official responsible for administering the residency program.</P>
                            <P>(1) The name and social security number of the resident.</P>
                            <P>(2) The type of residency program in which the individual participates and the number of years the resident has completed in all types of residency programs.</P>
                            <P>(3) The dates the resident is assigned to the hospital and any hospital-based providers.</P>
                            <P>(4) The dates the resident is assigned to other hospitals, or other freestanding providers, and any nonprovider setting during the cost reporting period, if any.</P>
                            <P>(5) The name of the medical, osteopathic, dental, or podiatric school from which the resident graduated and the date of graduation.</P>
                            <P>(6) If the resident is an FMG, documentation concerning whether the resident has satisfied the requirements of this section.</P>
                            <P>(7) The name of the employer paying the resident's salary.</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 413.81 </SECTNO>
                            <SUBJECT>Direct GME payments: Application of community support and redistribution of costs in determining FTE resident counts.</SUBJECT>
                            <P>(a) For purposes of determining direct GME payments, the following principles apply:</P>
                            <P>
                                (1) 
                                <E T="03">Community support.</E>
                                 If the community has undertaken to bear the costs of medical education through community support, the costs are not considered GME costs to the hospital for purposes of Medicare payment.
                            </P>
                            <P>
                                (2) 
                                <E T="03">Redistribution of costs.</E>
                                 The costs of training residents that constitute a redistribution of costs from an educational institution to the hospital are not considered GME costs to the hospital for purposes of Medicare payment.
                            </P>
                            <P>
                                (b) 
                                <E T="03">Application.</E>
                                 A hospital must continuously incur costs of direct GME of residents training in a particular program at a training site since the date the residents first began training in that program in order for the hospital to count the FTE residents in accordance with the provisions of §§ 413.78, 413.79 (c) through (e), and 413.79(k). This rule also applies to providers that are paid for direct GME in accordance with § 405.2468 of this chapter, § 422.270 of this subchapter, and § 413.70.
                            </P>
                            <P>
                                (c)(1) 
                                <E T="03">Effective date.</E>
                                 Subject to the provisions of paragraph (c)(2) of this section, payments made in accordance with determinations made under the provisions of paragraphs (a) and (b) of this section will be effective for portions of cost reporting periods occurring on or after October 1, 2003.
                            </P>
                            <P>
                                (2) 
                                <E T="03">Applicability for certain hospitals.</E>
                                 With respect to an FTE resident who begins training in a residency program on or before October 1, 2003, and with respect to whom there has been a redistribution of costs or community support determined under the provisions of paragraphs (a) and (b) of this section, the hospital may continue to count the FTE resident until the resident has completed training in that program, or until 3 years after the date the resident began training in that program, whichever comes first.
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 413.82 </SECTNO>
                            <SUBJECT>Direct GME payments: Special rules for States that formerly had a waiver from Medicare reimbursement principles.</SUBJECT>
                            <P>(a) Effective for cost reporting periods beginning on or after January 1, 1986, hospitals in States that, prior to becoming subject to the prospective payment system, had a waiver for the operation of a State reimbursement control system under section 1886(c) of the Act, section 402 of the Social Security Amendments of 1967 (42 U.S.C. 1395b-1 or section 222(a) of the Social Security Amendment of 1972 (42 U.S.C. 1395b-1 (note)) are permitted to change the order in which they allocate administrative and general costs to the order specified in the instructions for the Medicare cost report.</P>
                            <P>(b) For hospitals making this election, the base-period costs for the purpose of determining the per resident amount are adjusted to take into account the change in the order by which they allocate administrative and general costs to interns and residents in approved program cost centers.</P>
                            <P>(c) Per resident amounts are determined for the base period and updated as described in § 413.77. For cost reporting periods beginning on or after January 1, 1986, payment is made based on the methodology described in § 413.76.</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 413.83 </SECTNO>
                            <SUBJECT>Direct GME payments: Adjustment of a hospital's target amount or prospective payment hospital-specific rate.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Misclassified operating costs</E>
                                —(1) 
                                <E T="03">General rule.</E>
                                 If a hospital has its base-period GME costs reduced under § 413.77(a) of this section because those costs included misclassified operating costs, the hospital may request that the intermediary review the classification of the affected costs in its rate-of-increase ceiling or prospective payment base year for purposes of adjusting the hospital's target amount or hospital-specific rate. For those cost reports that are not subject to reopening under § 405.1885 of this chapter, the hospital's reopening request must explicitly state that the review is limited to this one issue.
                            </P>
                            <P>
                                (2) 
                                <E T="03">Request for review.</E>
                                 The hospital must request review of the classification 
                                <PRTPAGE P="28368"/>
                                of its rate-of-increase ceiling or prospective payment base year costs no later than 180 days after the date of the notice by the intermediary of the hospital's base-period average per resident amount. A hospital's request for review must include sufficient documentation to demonstrate to the intermediary that adjustment of the hospital's hospital-specific rate or target amount is warranted.
                            </P>
                            <P>
                                (3) 
                                <E T="03">Effect of intermediary's review.</E>
                                 If the intermediary, upon review of the hospital's costs, determines that the hospital's hospital-specific rate or target amount should be adjusted, the adjustment of the hospital-specific rate or the target amount is effective for the hospital's cost reporting periods subject to the prospective payment system or the rate-of-increase ceiling that are still subject to reopening under § 405.1885 of this chapter.
                            </P>
                            <P>
                                (b) 
                                <E T="03">Misclassification of GME costs</E>
                                —(1) 
                                <E T="03">General rule.</E>
                                 If costs that should have been classified as GME costs were treated as operating costs during both the GME base period and the rate-of-increase ceiling base year or prospective payment base year and the hospital wishes to receive benefit for the appropriate classification of these costs as GME costs in the GME base period, the hospital must request that the intermediary review the classification of the affected costs in the rate-of-increase ceiling or prospective payment base year for purposes of adjusting the hospital's target amount or hospital-specific rate. For those cost reports that are not subject to reopening under § 405.1885 of this chapter, the hospital's reopening request must explicitly state that the review is limited to this one issue.
                            </P>
                            <P>
                                (2) 
                                <E T="03">Request for review.</E>
                                 The hospital must request review of the classification of its costs no later than 180 days after the date of the intermediary's notice of the hospital's base-period average per resident amount. A hospital's request for review must include sufficient documentation to demonstrate to the intermediary that modification of the adjustment of the hospital's hospital-specific rate or target amount is warranted.
                            </P>
                            <P>
                                (3) 
                                <E T="03">Effect of intermediary's review.</E>
                                 If the intermediary, upon review of the hospital's costs, determines that the hospital's hospital-specific rate or target amount should be adjusted, the adjustment of the hospital-specific rate and the adjustment of the target amount is effective for the hospital's cost reporting periods subject to the prospective payment system or the rate-of-increase ceiling that are still subject to reopening under § 405.1885 of this chapter.
                            </P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 413.87 </SECTNO>
                            <SUBJECT>[Amended]</SUBJECT>
                            <P>8. In § 413.87—</P>
                            <P>A. In paragraph (e), the cross-reference “§ 413.86(d)(4)” is removed and the cross-reference “413.76(d)” is added in its place.</P>
                            <P>B. In paragraph (f)(1)(i), the cross-reference “413.86(d)(3)” is removed and the cross-reference “413.76(c)” is added in its place.</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 413.88 </SECTNO>
                            <SUBJECT>[Amended]</SUBJECT>
                            <P>9. In § 413.88—</P>
                            <P>A. In paragraph (b)(1), the cross-reference “413.86(b)” is removed and the cross-reference “§ 413.75(b)” is added in its place.</P>
                            <P>B. In paragraph (b)(2), the cross-reference “§ 413.86(b)” is removed and the cross-reference “§ 413.75(b)” is added in its place.</P>
                            <P>C. In paragraph (d)(7), the reference “413.86(b)” is removed and the cross-reference “§ 413.75(b)” is added in its place.</P>
                            <P>D. In paragraphs (g)(1)(i)(A) and (B), the cross-reference “§ 413.86(g)” is removed and the cross-reference “§ 413.79” is added in its place, wherever it appears.</P>
                            <P>E. In paragraph (h)(1)(i), the cross-reference “§ 413.86(d)” (2 times) is removed and the cross-reference “§ 413.76” (2 times) is added in its place.</P>
                            <P>10. Section 413.114 is amended by revising the last sentence of paragraph (a)(2) to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 413.114 </SECTNO>
                            <SUBJECT>Payment for posthospital SNF care furnished by a swing-bed hospital.</SUBJECT>
                            <P>(a) * * *</P>
                            <P>
                                (2) 
                                <E T="03">Services furnished in cost reporting periods beginning on and after July 1, 2002.</E>
                                 * * * Posthospital SNF care furnished in general routine inpatient beds in CAHs is paid based on reasonable cost for cost reporting periods beginning on and after July l, 2002 and before January 1, 2004, and is paid based on 101 percent of reasonable cost for cost reporting periods beginning on and after January 1, 2004, in accordance with the provisions of subparts A through G of this part (other than paragraphs (c) and (d) of this section).
                            </P>
                            <STARS/>
                            <P>11. Section 413.302 is amended by revising the definition of “Urban area” to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 413.302 </SECTNO>
                            <SUBJECT>Definitions.</SUBJECT>
                            <P>For purposes of this subpart I—</P>
                            <STARS/>
                            <P>Urban area means—</P>
                            <P>(1) Prior to October 1, 2004, a Metropolitan Statistical Area (MSA), or New England County Metropolitan Area (NECMA), as defined by the Office of Management and Budget, or a New England county deemed to be an urban area as listed in § 412.62(f)(1)(ii)(B) of this chapter.</P>
                            <P>(2) Effective October 1, 2004, a Metropolitan Statistical Area (MSA), as defined by the Office of Management and Budget, or a New England county deemed to be an urban area as specified under § 412.64.</P>
                            <P>D. Part 418 is amended as follows:</P>
                        </SECTION>
                    </PART>
                    <PART>
                        <HD SOURCE="HED">PART 418—HOSPICE CARE</HD>
                        <P>1. The authority citation for part 418 continues to read as follows:</P>
                        <AUTH>
                            <HD SOURCE="HED">Authority:</HD>
                            <P>Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh).</P>
                        </AUTH>
                        <P>Section 418.100 is amended as follows:</P>
                        <P>A. Revising paragraph (d)(1).</P>
                        <P>B. Revising paragraph (d)(4).</P>
                        <P>C. Adding a new paragraph (d)(5).</P>
                        <P>The revision and addition read as follows:</P>
                        <SECTION>
                            <SECTNO>§ 418.100 </SECTNO>
                            <SUBJECT>Condition of Participation: Hospices that provide inpatient care directly.</SUBJECT>
                            <STARS/>
                            <P>
                                (d) 
                                <E T="03">Standard: Fire protection.</E>
                                 (1) Except as otherwise provided in this section—
                            </P>
                            <P>
                                (i) The hospice must meet the provisions applicable to nursing homes of the 2000 edition of the Life Safety Code of the National Fire Protection Association. The Director of the Office of the Federal Register has approved the NFPA 101® 2000 edition of the Life Safety Code, issued January 14, 2000, for incorporation by reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. A copy of the Code is available for inspection at the CMS Information Resource Center, 7500 Security Boulevard, Baltimore, MD and at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: 
                                <E T="03">http://www.archives.gov./federal_register/code_of_federal_regulations/ibr_locations.html.</E>
                                 Copies may be obtained from the National Fire Protection Association, 1 Batterymarch Park, Quincy, MA 02269. If any changes in this edition of the Code are incorporated by reference, CMS will publish notice in the 
                                <E T="04">Federal Register</E>
                                 to announce the changes.
                                <PRTPAGE P="28369"/>
                            </P>
                            <P>(ii) Chapter 19.3.6.3.2, exception number 2 of the adopted edition of the LSC does not apply to a hospice.</P>
                            <STARS/>
                            <P>(4) Beginning March 13, 2006, a hospice must be in compliance with Chapter 9.2.9, Emergency Lighting.</P>
                            <P>(5) Beginning March 13, 2006, Chapter 19.3.6.3.2, exception number 2 does not apply to hospices.</P>
                            <STARS/>
                            <P>E. Part 460 is amended as follows:</P>
                        </SECTION>
                    </PART>
                    <PART>
                        <HD SOURCE="HED">PART 460—PROGRAMS OF ALL-INCLUSIVE CARE FOR THE ELDERLY (PACE)</HD>
                        <P>1. The authority citation for part 460 continues to read as follows:</P>
                        <AUTH>
                            <HD SOURCE="HED">Authority:</HD>
                            <P>Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395).</P>
                        </AUTH>
                        <SUBPART>
                            <HD SOURCE="HED">Subpart E—PACE Administrative Requirements</HD>
                        </SUBPART>
                        <P>2. Section 460.72 is amended by—</P>
                        <P>A. Revising paragraph (b)(1).</P>
                        <P>B. Revising paragraph (b)(3).</P>
                        <P>C. Adding paragraph (b)(4).</P>
                        <P>The revision and addition read as follows:</P>
                        <SECTION>
                            <SECTNO>§ 460.72 </SECTNO>
                            <SUBJECT>Physical environment.</SUBJECT>
                            <STARS/>
                            <P>
                                (b) 
                                <E T="03">Fire safety.</E>
                                 (1) 
                                <E T="03">General rule.</E>
                                 Except as otherwise provided in this section—
                            </P>
                            <P>
                                (i) A PACE center must meet the applicable provisions of the 2000 edition of the Life Safety Code (LSC) of the National Fire Protection Association that apply to the type of setting in which the center is located. The Director of the Office of the Federal Register has approved the NFPA 101® 2000 edition of the Life Safety Code, issued January 14, 2000, for incorporation by reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. A copy of the Code is available for inspection at the CMS Information Resource Center, 7500 Security Boulevard, Baltimore, MD and at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: 
                                <E T="03">http://www.archives.gov./federal_register/code_of_federal_regulations/ibr_locations.html.</E>
                                 Copies may be obtained from the National Fire Protection Association, 1 Batterymarch Park, Quincy, MA 02269. If any changes in this edition of the Code are incorporated by reference, CMS will publish notice in the 
                                <E T="04">Federal Register</E>
                                 to announce the changes.
                            </P>
                            <P>(ii) Chapter 19.3.6.3.2, exception number 2 of the adopted edition of the LSC does not apply to PACE centers.</P>
                            <STARS/>
                            <P>(3) Beginning March 13, 2006, a PACE center must be in compliance with Chapter 9.2.9, Emergency Lighting.</P>
                            <P>(4) Beginning March 13, 2006, Chapter 19.3.6.3.2, exception number 2 does not apply to PACE centers.</P>
                            <STARS/>
                            <P>F. The title of Part 480 under Subchapter F is revised to read as follows:</P>
                        </SECTION>
                    </PART>
                    <PART>
                        <HD SOURCE="HED">PART 480—ACQUISITION, PROTECTION, AND DISCLOSURE OF QUALITY IMPROVEMENT ORGANIZATION INFORMATION</HD>
                        <P>G. Part 480 is amended as follows:</P>
                        <P>1. The authority citation for Part 480 continues to read:</P>
                        <AUTH>
                            <HD SOURCE="HED">Authority:</HD>
                            <P>Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh).</P>
                        </AUTH>
                        <P>2. Section 480.106 is amended by adding a new paragraph (c) to read as follows:</P>
                        <SECTION>
                            <SECTNO>§ 480.106 </SECTNO>
                            <SUBJECT>Exceptions to QIO notice requirements.</SUBJECT>
                            <STARS/>
                            <P>
                                (c) 
                                <E T="03">Other.</E>
                                 The notification requirements in § 480.105(a) and (b)(2) do not apply if:
                            </P>
                            <P>(1) The institution or practitioner has requested, in writing, that the QIO make the disclosure;</P>
                            <P>(2) The institution or practitioner has provided, in writing, consent for the disclosure; or</P>
                            <P>(3) The information is public information as defined in § 480.101(b) and specified under § 480.120.</P>
                            <P>3. Section 480.133 is amended by revising paragraph (a)(2)(iii) to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 480.133</SECTNO>
                            <SUBJECT>Disclosure of information about practitioners, reviewers and institutions.</SUBJECT>
                            <P>(a) * * *</P>
                            <P>
                                (2) 
                                <E T="03">Disclosure to others.</E>
                                 * * *
                            </P>
                            <P>(iii) A QIO may disclose to any person, agency, or organization information on a particular practitioner or reviewer at the written request of or with the written consent of that practitioner or reviewer. The recipient of the information has the same redisclosure rights and responsibilities as the requesting or consenting practitioner or reviewer as provided under this Subpart B.</P>
                            <STARS/>
                            <P>4. Section 480.140 is amended by redesignating paragraphs (d) and (e) as paragraphs (e) and (f), respectively, and adding a new paragraph (d) to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 480.140</SECTNO>
                            <SUBJECT>Disclosure of quality review study information.</SUBJECT>
                            <STARS/>
                            <P>(d) A QIO may disclose quality review study information with identifiers of particular practitioners or institutions, or both, at the written request of, or with the written consent of, the identified practitioner(s) or institution(s).</P>
                            <P>(1) The consent or request must specify the information that is to be disclosed and the intended recipient of the information.</P>
                            <P>(2) The recipient of the information has the same redisclosure rights and responsibilities as the requesting or consenting practitioner or reviewer as provided under this Subpart B.</P>
                            <STARS/>
                            <P>5. Cross-Reference Changes</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§§ 480.101, 480.104, 480.105, 480.106, 480.120, 480.121, 480.130, 480.132, 480.133, 480.136, 480.137, 480.138, 480.141, 480.142</SECTNO>
                            <SUBJECT>[Amended]</SUBJECT>
                            <P>In the table below, for each section indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the section, and add the cross-reference in the right column:</P>
                            <GPOTABLE COLS="3" OPTS="L2,tp0,i1" CDEF="s50,r50,xs100">
                                <TTITLE>  </TTITLE>
                                <BOXHD>
                                    <CHED H="1">Section </CHED>
                                    <CHED H="1">Remove </CHED>
                                    <CHED H="1">Add.</CHED>
                                </BOXHD>
                                <ROW>
                                    <ENT I="01" O="xl">480.101(b), under the definition “Patient representative”</ENT>
                                    <ENT>§ 476.132(c)(3) </ENT>
                                    <ENT>§ 480.132(c)(3).</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.104(a)(1) </ENT>
                                    <ENT>§ 476.105 </ENT>
                                    <ENT>§ 480.105.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.104(a)(2) </ENT>
                                    <ENT>§ 476.106 </ENT>
                                    <ENT>§ 480.106.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.104(a)(2) </ENT>
                                    <ENT>§ 476.107 </ENT>
                                    <ENT>§ 480.107.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.104(d) </ENT>
                                    <ENT>§ 476.120(a)(6) </ENT>
                                    <ENT>§ 480.120(a)(6).</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.105(a) </ENT>
                                    <ENT>§ 476.106 </ENT>
                                    <ENT>§ 480.106.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.105(b)(1) </ENT>
                                    <ENT>§ 476.132 </ENT>
                                    <ENT>§ 480.132.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.105(b)(2) </ENT>
                                    <ENT>§§ 476.137 and 476.138</ENT>
                                    <ENT>§§ 480.137 and 480.138.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.105(b)(2) </ENT>
                                    <ENT>§ 476.106 </ENT>
                                    <ENT>§ 480.106.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.106(a) </ENT>
                                    <ENT>§ 476.105 </ENT>
                                    <ENT>§ 480.105.</ENT>
                                </ROW>
                                <ROW>
                                    <PRTPAGE P="28370"/>
                                    <ENT I="01">§ 480.106(b) </ENT>
                                    <ENT>§ 476.105 </ENT>
                                    <ENT>§ 480.105.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.120, introductory text </ENT>
                                    <ENT>§§ 476.104 and 476.105</ENT>
                                    <ENT>§§ 480.104 and 480.105.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.120(a)(5) </ENT>
                                    <ENT>§ 476.139 </ENT>
                                    <ENT>§ 480.139.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.121 </ENT>
                                    <ENT>§ 476.105 </ENT>
                                    <ENT>§ 480.105.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.121 </ENT>
                                    <ENT>§ 476.120 </ENT>
                                    <ENT>§ 480.120.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.130 </ENT>
                                    <ENT>§§ 476.139(a) and 476.140</ENT>
                                    <ENT>§§ 480.139(a) and 480.140.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.132(b)(2) </ENT>
                                    <ENT>§ 476.139(a) </ENT>
                                    <ENT>§ 480.139(a).</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.132(b)(3) </ENT>
                                    <ENT>§ 476.140 </ENT>
                                    <ENT>§ 480.140.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.133(a)(2)(ii) </ENT>
                                    <ENT>§§ 476.137 and 476.138 </ENT>
                                    <ENT>§§ 480.137 and 480.138.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.133(b)(2) </ENT>
                                    <ENT>§ 476.139(a) </ENT>
                                    <ENT>§ 480.139(a).</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.133(b)(3) </ENT>
                                    <ENT>§ 476.140 </ENT>
                                    <ENT>§ 480.140.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.136(a), introductory text </ENT>
                                    <ENT>§§ 476.139(a) and 476.140 </ENT>
                                    <ENT>§§ 480.139(a) and 480.140.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.137(a), introductory text</ENT>
                                    <ENT>§§ 476.139(a) and 476.140</ENT>
                                    <ENT>§§ 480.139(a) and 480.140.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.138(b)(2) </ENT>
                                    <ENT>§§ 476.139(a) and 476.140 </ENT>
                                    <ENT>§§ 480.139(a) and 480.140.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.141 </ENT>
                                    <ENT>§§ 476.104 and 476.105</ENT>
                                    <ENT>§§ 480.104 and 480.105.</ENT>
                                </ROW>
                                <ROW>
                                    <ENT I="01">§ 480.142(b) </ENT>
                                    <ENT>§ 476.137 </ENT>
                                    <ENT>§ 480.137 </ENT>
                                </ROW>
                            </GPOTABLE>
                            <P>H. Part 482 is amended as follows:</P>
                        </SECTION>
                    </PART>
                    <PART>
                        <HD SOURCE="HED">PART 482—CONDITIONS OF PARTICIPATION FOR HOSPITALS</HD>
                        <P>1. The authority citation for part 482 continues to read as follows:</P>
                        <AUTH>
                            <HD SOURCE="HED">Authority:</HD>
                            <P>Secs. 1102 and 1871 of the Social Security Act, unless otherwise noted (42 U.S.C. 1302 and 1395hh).</P>
                        </AUTH>
                        <P>2. Section 482.41 is amended by-revising paragraph (b).</P>
                        <SECTION>
                            <SECTNO>§ § 482.41</SECTNO>
                            <SUBJECT>Conditions of participation: Physical environment.</SUBJECT>
                            <STARS/>
                            <P>
                                (b) 
                                <E T="03">Standard: Life safety from fire.</E>
                                 (1) Except as otherwise provided in this section—
                            </P>
                            <P>
                                (i) The hospital must meet the applicable provisions of the 2000 edition of the Life Safety Code of the National Fire Protection Association. The Director of the Office of the Federal Register has approved the NFPA 101® 2000 edition of the Life Safety Code, issued January 14, 2000, for incorporation by reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. A copy of the Code is available for inspection at the CMS Information Resource Center, 7500 Security Boulevard, Baltimore, MD and at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: 
                                <E T="03">http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.</E>
                                 Copies may be obtained from the National Fire Protection Association, 1 Batterymarch Park, Quincy, MA 02269. If any changes in this edition of the Code are incorporated by reference, CMS will publish notice in the 
                                <E T="04">Federal Register</E>
                                 to announce the changes.
                            </P>
                            <P>(ii) Chapter 19.3.6.3.2, exception number 2 of the adopted edition of the LSC does not apply to hospitals.</P>
                            <P>(2) After consideration of State survey agency findings, CMS may waive specific provisions of the Life Safety Code which, if rigidly applied, would result in unreasonable hardship upon the facility, but only if the waiver does not adversely affect the health and safety of the patients.</P>
                            <P>(3) The provisions of the Life Safety Code do not apply in a State where CMS finds that a fire and safety code imposed by State law adequately protects patients in hospitals.</P>
                            <P>(4) Beginning March 13, 2006, a hospital must be in compliance with Chapter 19.2.9, Emergency Lighting.</P>
                            <P>(5) Beginning March 13, 2006, Chapter 19.3.6.3.2, exception number 2 does not apply to hospitals.</P>
                            <P>(6) The hospital must have procedures for the proper routine storage and prompt disposal of trash.</P>
                            <P>(7) The hospital must have written fire control plans that contain provisions for prompt reporting of fires; extinguishing fires; protection of patients, personnel and guests; evacuation; and cooperation with fire fighting authorities.</P>
                            <P>(8) The hospital must maintain written evidence of regular inspection and approval by State or local fire control agencies.</P>
                            <STARS/>
                            <P>3. Section 482.43 is amended by adding new paragraphs (c)(6), (c)(7), and (c)(8) to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 482.43</SECTNO>
                            <SUBJECT>Conditions of participation: Discharge planning.</SUBJECT>
                            <STARS/>
                            <P>(c) * * *</P>
                            <P>(6) The hospital must include in the discharge plan a list of HHAs or SNFs that are available to the patient, that are participating in the Medicare program, and that serve the geographic area (as defined by the HHA) in which the patient resides, or in the case of a SNF, in the geographic area requested by the patient. HHAs must request to be listed by the hospital as available.</P>
                            <P>(i) This list must only be presented to patients for whom home health care or post-hospital extended care services are indicated and appropriate as determined by the discharge planning evaluation.</P>
                            <P>(ii) The hospital must document in the patient's medical record that the list was presented to the patient or to the individual acting on the patient's behalf.</P>
                            <P>(7) The hospital, as part of the discharge planning process, must inform the patient or the patient's family of their freedom to choose among participating Medicare providers of home health services and posthospital extended care services and must, when possible, respect patient and family preferences when they are expressed. The hospital must not exclude qualified providers that are available to the patient.</P>
                            <P>(8) The discharge plan must identify any HHA or SNF to which the patient is referred in which the hospital has a disclosable financial interest, as specified by the Secretary, and any HHA or SNF that has a disclosable financial interest in a hospital under Medicare. Financial interests that are disclosable under Medicare are determined in accordance with the provisions of Part 420, Subpart C, of this chapter.</P>
                            <P>I. Part 483 is amended as follows:</P>
                        </SECTION>
                    </PART>
                    <PART>
                        <HD SOURCE="HED">PART 483—REQUIREMENTS FOR STATES AND LONG TERM CARE FACILITIES</HD>
                        <P>The authority citation for part 483 continues to read as follows:</P>
                        <AUTH>
                            <HD SOURCE="HED">Authority:</HD>
                            <P>Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh).</P>
                        </AUTH>
                        <PRTPAGE P="28371"/>
                        <P>2. Section 483.70 is amended by revising paragraph (a) to read as follows.</P>
                        <SECTION>
                            <SECTNO>§ 483.70</SECTNO>
                            <SUBJECT>Physical environment.</SUBJECT>
                            <STARS/>
                            <P>
                                (a) 
                                <E T="03">Life safety from fire.</E>
                            </P>
                            <P>(1) Except as otherwise provided in this section—</P>
                            <P>
                                (i) The facility must meet the applicable provisions of the 2000 edition of the Life Safety Code of the National Fire Protection Association. The Director of the Office of the Federal Register has approved the NFPA 101® 2000 edition of the Life Safety Code, issued January 14, 2000, for incorporation by reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. A copy of the Code is available for inspection at the CMS Information Resource Center, 7500 Security Boulevard, Baltimore, MD and at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: 
                                <E T="03">http://www.archives.gov./federal_register/code_of_federal_regulations/ibr_locations.html.</E>
                                 Copies may be obtained from the National Fire Protection Association, 1 Batterymarch Park, Quincy, MA 02269. If any changes in this edition of the Code are incorporated by reference, CMS will publish notice in the 
                                <E T="04">Federal Register</E>
                                 to announce the changes.
                            </P>
                            <P>(ii) Chapter 19.3.6.3.2, exception number 2 of the adopted edition of the LSC does not apply to long-term care facilities.</P>
                            <P>(2) After consideration of State survey agency findings, CMS may waive specific provisions of the Life Safety Code which, if rigidly applied, would result in unreasonable hardship upon the facility, but only if the waiver does not adversely affect the health and safety of the patients.</P>
                            <P>(3) The provisions of the Life Safety Code do not apply in a State where CMS finds, in accordance with applicable provisions of sections 1819(d)(2)(B)(ii) and 1919(d)(2)(B)(ii) of the Act, that a fire and safety code imposed by State law adequately protects patients, residents and personnel in long term care facilities.</P>
                            <P>(4) Beginning March 13, 2006, a long-term care facility must be in compliance with Chapter 19.2.9, Emergency Lighting.</P>
                            <P>(5) Beginning March 13, 2006, Chapter 19.3.6.3.2, exception number 2 does not apply to long-term care facilities.</P>
                            <STARS/>
                            <P>3. Section 483.470 is amended by revising paragraph (j) to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 483.470</SECTNO>
                            <SUBJECT>Condition of participation: Physical environment.</SUBJECT>
                            <STARS/>
                            <P>
                                (j) 
                                <E T="03">Standard: Fire protection.</E>
                            </P>
                            <P>
                                (1) 
                                <E T="03">General.</E>
                                 Except as otherwise provided in this section—
                            </P>
                            <P>
                                (i) The facility must meet the applicable provisions of either the Health Care Occupancies Chapters or the Residential Board and Care Occupancies Chapter of the 2000 edition of the Life Safety Code of the National Fire Protection Association. The Director of the Office of the Federal Register has approved the NFPA 101® 2000 edition of the Life Safety Code, issued January 14, 2000, for incorporation by reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. A copy of the Code is available for inspection at the CMS Information Resource Center, 7500 Security Boulevard, Baltimore, MD and at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: 
                                <E T="03">http://www.archives.gov./federal_register/code_of_federal_regulations/ibr_locations.html.</E>
                                 Copies may be obtained from the National Fire Protection Association, 1 Batterymarch Park, Quincy, MA 02269. If any changes in this edition of the Code are incorporated by reference, CMS will publish notice in the 
                                <E T="04">Federal Register</E>
                                 to announce the changes.
                            </P>
                            <P>(ii) Chapter 19.3.6.3.2, exception number 2 of the adopted LSC does not apply to a facility.</P>
                            <P>(2) The State survey agency may apply a single chapter of the LSC to the entire facility or may apply different chapters to different buildings or parts of buildings as permitted by the LSC.</P>
                            <P>(3) A facility that meets the LSC definition of a residential board and care occupancy must have its evacuation capability evaluated in accordance with the Evacuation Difficulty Index of the Fire Safety Evaluation System for Board and Care facilities (FSES/BC).</P>
                            <P>(4) If CMS finds that the State has a fire and safety code imposed by State law that adequately protects a facility's clients, CMS may allow the State survey agency to apply the State's fire and safety code instead of the LSC.</P>
                            <P>(5) Beginning March 13, 2006, a facility must be in compliance with Chapter 19.2.9, Emergency Lighting.</P>
                            <P>(6) Beginning March 13, 2006, Chapter 19.3.6.3.2, exception number 2 does not apply to a facility.</P>
                            <P>
                                (7) 
                                <E T="03">Facilities that meet the LSC definition of a health care occupancy.</E>
                                 After consideration of State survey agency recommendations, CMS may waive, for appropriate periods, specific provisions of the Life Safety Code if the following requirements are met:
                            </P>
                            <P>(i) The waiver would not adversely affect the health and safety of the clients.</P>
                            <P>(ii) Rigid application of specific provisions would result in an unreasonable hardship for the facility.</P>
                            <STARS/>
                            <P>J. Part 485 is amended as follows:</P>
                        </SECTION>
                    </PART>
                    <PART>
                        <HD SOURCE="HED">PART 485—CONDITIONS OF PARTICIPATION: SPECIALIZED PROVIDERS</HD>
                        <P>1. The authority citation for Part 485 continues to read as follows:</P>
                        <AUTH>
                            <HD SOURCE="HED">Authority:</HD>
                            <P>Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh).</P>
                        </AUTH>
                        <P>2. Section 485.610 is amended by revising paragraph (c) to read as follows:</P>
                        <SECTION>
                            <SECTNO>§ 485.610 </SECTNO>
                            <SUBJECT>Condition of participation: Status and location.</SUBJECT>
                            <STARS/>
                            <P>
                                (c) 
                                <E T="03">Standard: Location relative to other facilities or necessary provider certification.</E>
                                 The CAH is located more than a 35-mile drive (or, in the case of mountainous terrain or in areas with only secondary roads available, a 15-mile drive) from a hospital or another CAH, or before January 1, 2006, the CAH is certified by the State as being a necessary provider of health care services to residents in the area. A CAH that is designated as a necessary provider as of January 1, 2006, will maintain its necessary provider designation after January 1, 2006.
                            </P>
                            <P>3. Section 485.618 is amended by—</P>
                            <P>A. Revising paragraph (d)(1) introductory text.</P>
                            <P>B. In paragraph (d)(2)(iv), removing the cross-reference “paragraph (d)(2)(ii)” and adding in its place the cross-reference “paragraph (d)(2)(iii)”.</P>
                            <P>C. In paragraph (d)(3), removing the cross-reference “paragraph (d)(2)(ii)” and adding in its place the cross-reference “paragraph (d)(2)(iii)”.</P>
                            <P>The revision reads as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 485.618 </SECTNO>
                            <SUBJECT>Condition of participation: Emergency services.</SUBJECT>
                            <STARS/>
                            <P>
                                (d) 
                                <E T="03">Standard: Personnel.</E>
                                 (1) Except as specified in paragraph (d)(2) of this section, there must be a doctor of medicine or osteopathy, a physician assistant, a nurse practitioner, or a clinical nurse specialist with training or experience in emergency care on call and immediately available by telephone 
                                <PRTPAGE P="28372"/>
                                or radio contact, and available onsite within the following timeframes:
                            </P>
                            <STARS/>
                            <P>4. Section 485.620 is amended by revising paragraph (a) to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 485.620 </SECTNO>
                            <SUBJECT>Condition of participation: Number of beds and average length of stay.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Standard: Number of beds.</E>
                                 Except as permitted for CAHs having distinct part units under § 485.646, the CAH maintains no more than 25 inpatient beds after January 1, 2004, that can be used for either inpatient or swing-bed services.
                            </P>
                            <STARS/>
                            <P>5. Section 485.623 is amended by—</P>
                            <P>A. Revising paragraph (d)(1)</P>
                            <P>B. Revising paragraph (d)(5).</P>
                            <P>C. Adding a new paragraph (d)(6).</P>
                            <P>The revisions and addition read as follows.</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 485.623 </SECTNO>
                            <SUBJECT>Condition of participation: Physical plant and environment.</SUBJECT>
                            <STARS/>
                            <P>
                                (d) 
                                <E T="03">Standard: Life safety from fire.</E>
                            </P>
                            <P>(1) Except as otherwise provided in this section—</P>
                            <P>
                                (i) The CAH must meet the applicable provisions of the 2000 edition of the Life Safety Code of the National Fire Protection Association. The Director of the Office of the Federal Register has approved the NFPA 101® 2000 edition of the Life Safety Code, issued January 14, 2000, for incorporation by reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. A copy of the Code is available for inspection at the CMS Information Resource Center, 7500 Security Boulevard, Baltimore, MD and at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: 
                                <E T="03">http://www.archives.gov./federal_register/code_of_federal_regulations/ibr_locations.html.</E>
                                 Copies may be obtained from the National Fire Protection Association, 1 Batterymarch Park, Quincy, MA 02269. If any changes in this edition of the Code are incorporated by reference, CMS will publish notice in the 
                                <E T="04">Federal Register</E>
                                 to announce the changes.
                            </P>
                            <P>(ii) Chapter 19.3.6.3.2, exception number 2 of the adopted edition of the Life Safety Code does not apply to a CAH.</P>
                            <STARS/>
                            <P>(5) Beginning March 13, 2006, a critical access hospital must be in compliance with Chapter 9.2.9, Emergency Lighting.</P>
                            <P>(6) Beginning March 13, 2006, Chapter 19.3.6.3.2, exception number 2 does not apply to critical access hospitals.</P>
                            <P>6. Section 485.645 is amended by republishing the introductory text of paragraph (a) and revising paragraph (a)(2) to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 485.645 </SECTNO>
                            <SUBJECT>Special requirements for CAH providers of long-term care services (“swing-beds”).</SUBJECT>
                            <STARS/>
                            <P>
                                (a) 
                                <E T="03">Eligibility.</E>
                                 A CAH must meet the following eligibility requirements:
                            </P>
                            <STARS/>
                            <P>(2) The facility provides not more than 25 inpatient beds. Any bed of a unit of the facility that is licensed as a distinct-part SNF at the time the facility applies to the State for designation as a CAH is not counted under paragraph (a) of this section.</P>
                            <STARS/>
                            <P>7. A new § 485.647 is added in subpart F to read as follows:</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 485.647 </SECTNO>
                            <SUBJECT>Condition of participation: psychiatric and rehabilitation distinct part units.</SUBJECT>
                            <P>
                                (a) 
                                <E T="03">Conditions.</E>
                            </P>
                            <P>(1) If a CAH provides inpatient psychiatric services in a distinct part unit, the services furnished by the distinct part unit must comply with the hospital requirements specified in Subparts A, B, C, and D of Part 482 of this subchapter, the common requirements of § 412.25(a)(2) through (f) of Part 412 of this chapter for hospital units excluded from the prospective payment systems, and the additional requirements of § 412.27 of Part 412 of this chapter for excluded psychiatric units.</P>
                            <P>(2) If a CAH provides inpatient rehabilitation services in a distinct part unit, the services furnished by the distinct part unit must comply with the hospital requirements specified in Subparts A, B, C, and D of Part 482 of this subchapter, the common requirements of § 412.25(a)(2) through (f) of Part 412 of this chapter for hospital units excluded from the prospective payments systems, and the additional requirements of §§ 412.29 and § 412.30 of Part 412 of this chapter related specifically to rehabilitation units.</P>
                            <P>
                                (b) 
                                <E T="03">Eligibility requirements.</E>
                            </P>
                            <P>(1) To be eligible to receive Medicare payments for psychiatric or rehabilitation services as a distinct part unit, the facility provides no more than 10 beds in the distinct part unit.</P>
                            <P>(2) The beds in the distinct part are excluded from the 25 inpatient-bed count limit specified in § 485.620(a).</P>
                            <P>(3) The average annual 96-hour length of stay requirement specified under § 485.620(b) does not apply to the 10 beds in the distinct part units specified in paragraph (b)(1) of this section, and admissions and days of inpatient care in the distinct part units are not taken into account in determining the CAH's compliance with the limits on the number of beds and length of stay in § 485.620.</P>
                            <P>K. Part 489 is amended as follows:</P>
                        </SECTION>
                    </PART>
                    <PART>
                        <HD SOURCE="HED">PART 489—PROVIDER AGREEMENT AND SUPPLIER APPROVAL</HD>
                        <P>1. The authority citation for part 489 continues to read as follows:</P>
                        <AUTH>
                            <HD SOURCE="HED">Authority:</HD>
                            <P>Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh).</P>
                        </AUTH>
                        <P>2. Section 489.20 is amended as follows:</P>
                        <P>A. In paragraph (m), the cross-reference “§ 489.24(d)” is removed and the cross-reference “§ 489.24(e)” is added in its place.</P>
                        <P>B. A new paragraph (t) is added.</P>
                        <SECTION>
                            <SECTNO>§ 489.20 </SECTNO>
                            <SUBJECT>Basic commitments.</SUBJECT>
                            <STARS/>
                            <P>(t) Hospitals that are not otherwise subject to the Occupational Safety and Health Act of 1970 (or a State occupational safety and health plan that is approved under section 18(b) of the Occupational Safety and Health Act) must comply with the bloodborne pathogens (BBP) standards under 29 CFR 1910.1030. A hospital that fails to comply with the BBP standards may be subject to a civil money penalty in accordance with section 17 of the Occupational Safety and Health Act of 1970, including any adjustments of the civil money penalty amounts under the Federal Civil Penalties Inflation Adjustment Act, for a violation of the BBP standards. A civil money penalty will be imposed and collected in the same manner as civil money penalties under section 1128A(a) of the Social Security Act.</P>
                        </SECTION>
                        <SECTION>
                            <SECTNO>§ 489.53 </SECTNO>
                            <SUBJECT>[Amended]</SUBJECT>
                            <P>3. In § 489.53 (b)(2), the cross-reference “489.24 (d)” is removed and the cross-reference “489.24 (e)” is added in its place.</P>
                            <EXTRACT>
                                <FP>(Catalog of Federal Domestic Assistance Program No. 93.778, Medical Assistance Program)</FP>
                                <FP>(Catalog of Federal Domestic Assistance Program No. 93.773, Medicare—Hospital Insurance; and Program No. 93.774, Medicare—Supplementary Medical Insurance Program)</FP>
                            </EXTRACT>
                        </SECTION>
                        <SIG>
                            <PRTPAGE P="28373"/>
                            <DATED>Dated: May 4, 2004.</DATED>
                            <NAME>Mark B. McClellan,</NAME>
                            <TITLE>Administrator, Centers for Medicare &amp; Medicaid Services</TITLE>
                            <DATED>Dated: May 7, 2004.</DATED>
                            <NAME>Tommy G. Thompson,</NAME>
                            <TITLE>Secretary.</TITLE>
                        </SIG>
                        <EXTRACT>
                            <FP>
                                [
                                <E T="04">Editorial Note:</E>
                                 The following Addendum and appendixes will not appear in the Code of Federal Regulations.]
                            </FP>
                        </EXTRACT>
                        <HD SOURCE="HD1">Addendum—Proposed Schedule of Standardized Amount Effective With Discharges Occurring on or After October 1, 2004 and Update Factors and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning On or After October 1, 2004</HD>
                        <FP>[If you choose to comment on issues in this section, please include the caption “Operating Payment Rates” at the beginning of your comment.]</FP>
                        <HD SOURCE="HD1">I. Summary and Background</HD>
                        <P>In this Addendum, we are setting forth the proposed amounts and factors for determining prospective payment rates for Medicare hospital inpatient operating costs and Medicare hospital inpatient capital-related costs. We are also setting forth proposed rate-of-increase percentages for updating the target amounts for hospitals and hospital units excluded from the IPPS.</P>
                        <P>For discharges occurring on or after October 1, 2004, except for SCHs, MDHs, and hospitals located in Puerto Rico, each hospital's payment per discharge under the IPPS will be based on 100 percent of the Federal national rate, which will be based on the national adjusted standardized amount. This amount reflects the national average hospital costs per case from a base year, updated for inflation.</P>
                        <P>SCHs are paid based on whichever of the following rates yields the greatest aggregate payment: the Federal national rate; the updated hospital-specific rate based on FY 1982 costs per discharge; the updated hospital-specific rate based on FY 1987 costs per discharge; or the updated hospital-specific rate based on FY 1996 costs per discharge.</P>
                        <P>Under section 1886(d)(5)(G) of the Act, MDHs are paid based on the Federal national rate or, if higher, the Federal national rate plus 50 percent of the difference between the Federal national rate and the updated hospital-specific rate based on FY 1982 or FY 1987 costs per discharge, whichever is higher. MDHs do not have the option to use their FY 1996 hospital-specific rate.</P>
                        <P>For hospitals in Puerto Rico, the payment per discharge is based on the sum of 25 percent of a Puerto Rico rate that reflects base year average costs per case of Puerto Rico hospitals and 75 percent of the Federal national rate. (See section II.D.3. of this Addendum for a complete description.)</P>
                        <P>As discussed below in section II. of this Addendum, we are proposing to make changes in the determination of the prospective payment rates for Medicare inpatient operating costs for FY 2005. The proposed changes, to be applied prospectively effective with discharges occurring on or after October 1, 2004, affect the calculation of the Federal rates. In section III. of this Addendum, we discuss our proposed changes for determining the prospective payment rates for Medicare inpatient capital-related costs for FY 2005. Section IV. of this Addendum sets forth our proposed changes for determining the rate-of-increase limits for hospitals excluded from the IPPS for FY 2004. Section V. of this Addendum sets forth policies on payment for blood clotting factor administered to hemophilia patients. The tables to which we refer in the preamble of this proposed rule are presented in section VI. of this Addendum.</P>
                        <HD SOURCE="HD1">II. Proposed Changes to Prospective Payment Rates for Hospital Inpatient Operating Costs for FY 2005</HD>
                        <P>The basic methodology for determining prospective payment rates for hospital inpatient operating costs is set forth at existing § 412.63 and proposed new § 412.64. The basic methodology for determining the prospective payment rates for hospital inpatient operating costs for hospitals located in Puerto Rico is set forth at existing §§ 412.210 and 412.212 and proposed new § 412.211. Below, we discuss the factors used for determining the prospective payment rates.</P>
                        <P>In summary, the proposed standardized amounts set forth in Tables 1A, 1B, 1C, and 1D of section VI. of this Addendum reflect—</P>
                        <P>• The requirements of section 401 of Public Law 108-173, equalizing the standardized amounts for urban and other areas at the level computed for urban hospitals during FY 2004, updated by the applicable percentage increase required under section 501(a) of Public Law 108-173;</P>
                        <P>• The requirements of section 403 of Public Law 108-173, establishing two labor-related shares that are applicable to the standardized amounts depending on whether the hospital's payments would be higher with a lower (in the case of a wage index below 1.0000) or higher (in the case of a wage index above 1.0000) labor share;</P>
                        <P>• Updates of 3.3 percent for all areas (that is, the full market basket percentage increase of 3.3 percent, as required by section 501(a) of Public Law 108-173), and reflecting the requirements of section 501(b) of Public Law 108-173, to reduce the applicable percentage increase by 0.4 percentage points for hospitals that fail to submit data in a form and manner specified by the Secretary, relating to the quality of inpatient care furnished by the hospital;</P>
                        <P>• An adjustment to ensure the proposed DRG recalibration and wage index update and changes are budget neutral, as provided for under sections 1886(d)(4)(C)(iii) and (d)(3)(E) of the Act, by applying new budget neutrality adjustment factors to the standardized amount;</P>
                        <P>• An adjustment to ensure the effects of geographic reclassification are budget neutral, as provided for in section 1886(d)(8)(D) of the Act, by removing the FY 2004 budget neutrality factor and applying a revised factor;</P>
                        <P>• An adjustment to apply the new outlier offset by removing the FY 2004 outlier offsets and applying a new offset;</P>
                        <P>• An adjustment to ensure the effects of the rural community hospital demonstration required under section 410A of Public Law 108-173 are budget neutral, as required under section 410A(c)(2) of Public Law 108-173.</P>
                        <HD SOURCE="HD2">A. Calculation of the Adjusted Standardized Amount</HD>
                        <HD SOURCE="HD3">1. Standardization of Base-Year Costs or Target Amounts</HD>
                        <P>The national standardized amount is based on per discharge averages of adjusted hospital costs from a base period (section 1886(d)(2)(A) of the Act) or, for Puerto Rico, adjusted target amounts from a base period (section 1886(d)(9)(B)(i) of the Act), updated and otherwise adjusted in accordance with the provisions of section 1886(d) of the Act. The preamble to the September 1, 1983 interim final rule (48 FR 39763) contained a detailed explanation of how base-year cost data (from cost reporting periods ending during FY 1981) were established in the initial development of standardized amounts for the IPPS. The September 1, 1987 final rule (52 FR 33043, 33066) contains a detailed explanation of how the target amounts were determined, and how they are used in computing the Puerto Rico rates.</P>
                        <P>
                            Sections 1886(d)(2)(B) and (d)(2)(C) of the Act require us to update base-year per discharge costs for FY 1984 and then standardize the cost data in order to remove the effects of certain sources of cost variations among hospitals. These effects include case-mix, differences in area wage levels, cost-of-living adjustments for Alaska and Hawaii, indirect medical education 
                            <PRTPAGE P="28374"/>
                            costs, and costs to hospitals serving a disproportionate share of low-income patients.
                        </P>
                        <P>Under sections 1886(d)(2)(H) and (d)(3)(E) of the Act, the Secretary estimates from time-to-time the proportion of costs that are wages and wage-related costs. The standardized amount is divided into labor-related and nonlabor-related amounts; only the proportion considered the labor-related amount is adjusted by the wage index. The current labor-related share is 71.1 percent. The current labor-related share in Puerto Rico is 71.3 percent.</P>
                        <P>Section 403 of Public Law 108-173 revises the proportion of the standardized amount that is considered labor-related. Specifically, section 403 requires that 62 percent of the standardized amount be adjusted by the wage index, unless doing so would result in lower payments to a hospital than would otherwise be made (section 403(b) extends this provision to the Puerto Rico standardized amounts). As a consequence, we are adjusting 62 percent of the national and Puerto Rico standardized amount by the wage index for all hospitals whose wage indexes are less than or equal to 1.0000; otherwise, the wage index is applied to 71.1 percent of the standardized amount.</P>
                        <HD SOURCE="HD3">2. Computing the Average Standardized Amount</HD>
                        <P>Sections 1886(d)(2)(D) and (d)(3) of the Act previously required the Secretary to compute two average standardized amounts for discharges occurring in a fiscal year: one for hospitals located in large urban areas and one for hospitals located in other areas. In addition, under sections 1886(d)(9)(B)(iii) and (d)(9)(C)(i) of the Act, the average standardized amount per discharge was determined for hospitals located in large urban and other areas in Puerto Rico. In accordance with section 1886(b)(3)(B)(i) of the Act, the large urban average standardized amount was 1.6 percent higher than the other area average standardized amount.</P>
                        <P>Section 402(b) of Public Law 108-7 required that, effective for discharges occurring on or after April 1, 2003, and before October 1, 2003, the Federal rate for all IPPS hospitals would be based on the large urban standardized amount. Subsequently, Public Law 108-89, extended section 402(b) of Public Law 108-7 beginning with discharges on or after October 1, 2003 and before March 31, 2004. Finally, section 401(a) of Public Law 108-173 requires that, beginning with fiscal year 2004 and thereafter, an equal standardized amount is to be computed for all hospitals at the level computed for large urban hospitals during FY 2003, updated by the applicable percentage update. This provision in effect makes permanent the equalization of the standardized amounts at the level of the previous standardized amount for large urban hospitals. Section 401(c) also equalizes the Puerto Rico-specific urban and other area rates. Accordingly, we are providing in this proposed rule for a single national standardized amount, and a single Puerto Rico standardized amount, for FY 2005 and thereafter.</P>
                        <HD SOURCE="HD3">3. Updating the Average Standardized Amount</HD>
                        <P>In accordance with section 1886(d)(3)(A)(iv) of the Act, we are proposing to update the equalized standardized amount for FY 2005 by the full estimated market basket percentage increase for hospitals in all areas, as specified in section 1886(b)(3)(B)(i)(XIX) of the Act, as amended by section 501 of Public Law 108-173. The percentage change in the market basket reflects the average change in the price of goods and services purchased by hospitals to furnish inpatient care. The most recent forecast of the hospital market basket increase for FY 2005 is 3.3 percent. Thus, for FY 2005, the proposed update to the average standardized amount equals 3.3 percent for hospitals in all areas.</P>
                        <P>As discussed above in section IV.E. of this proposed rule, section 501(b) of Public Law 108-173 amended section 1886(b)(3)(B) of the Act to add a new subclause (vii) to revise the mechanism used to update the standardized amount for payment for inpatient hospital operating costs. Specifically, the amendment provides for a reduction of 0.4 percentage points to the update percentage increase (also known as the market basket update) for each of FYs 2005 through 2007 for any “subsection (d) hospital” that does not submit data on a set of 10 quality indicators established by the Secretary as of November 1, 2003. The statute also provides that any reduction will apply only to the fiscal year involved, and will not be taken into account in computing the applicable percentage increase for a subsequent fiscal year. This measure establishes an incentive for hospitals to submit data on quality measures established by the Secretary. The standardized amount in Tables 1A through 1D of section VI. of this addendum reflect these differential amounts.</P>
                        <P>Although the update factors for FY 2005 are set by law, we are required by section 1886(e)(3) of the Act to report to the Congress our initial recommendation of update factors for FY 2005 for both IPPS hospitals and hospitals excluded from the IPPS. Our recommendation on the update factors (which is required by sections 1886(e)(4)(A) and (e)(5)(A) of the Act) is set forth as Appendix B of this proposed rule.</P>
                        <HD SOURCE="HD3">4. Other Adjustments to the Average Standardized Amount</HD>
                        <P>As in the past, we are proposing to adjust the FY 2005 standardized amount to remove the effects of the FY 2004 geographic reclassifications and outlier payments before applying the FY 2005 updates. We then apply the new offsets for outliers and geographic reclassifications to the standardized amount for FY 2005.</P>
                        <P>We do not remove the prior year's budget neutrality adjustments for reclassification and recalibration of the DRG weights and for updated wage data because, in accordance with section 1886(d)(4)(C)(iii) of the Act, estimated aggregate payments after the changes in the DRG relative weights and wage index should equal estimated aggregate payments prior to the changes. If we removed the prior year adjustment, we would not satisfy this condition.</P>
                        <P>Budget neutrality is determined by comparing aggregate IPPS payments before and after making the changes that are required to be budget neutral (for example, reclassifying and recalibrating the DRGs, updating the wage data, and geographic reclassifications). We include outlier payments in the payment simulations because outliers may be affected by changes in these payment parameters.</P>
                        <P>We are also proposing to adjust the standardized amount this year by an amount estimated to ensure that aggregate IPPS payments do not exceed the amount of payments that would have been made in the absence of the rural community hospital demonstration required under section 410A of Public Law 108-173. This demonstration is required to be budget neutral under section 410A(c)(2) of Public Law 108-173.</P>
                        <HD SOURCE="HD3">a. Recalibration of DRG Weights and Updated Wage Index—Budget Neutrality Adjustment</HD>
                        <P>
                            Section 1886(d)(4)(C)(iii) of the Act specifies that, beginning in FY 1991, the annual DRG reclassification and recalibration of the relative weights must be made in a manner that ensures that aggregate payments to hospitals are not affected. As discussed in section II. of the preamble, we normalized the recalibrated DRG weights by an adjustment factor, so that the average 
                            <PRTPAGE P="28375"/>
                            case weight after recalibration is equal to the average case weight prior to recalibration. However, equating the average case weight after recalibration to the average case weight before recalibration does not necessarily achieve budget neutrality with respect to aggregate payments to hospitals because payments to hospitals are affected by factors other than average case weight. Therefore, as we have done in past years, we are proposing to make a budget neutrality adjustment to ensure that the requirement of section 1886(d)(4)(C)(iii) of the Act is met.
                        </P>
                        <P>Section 1886(d)(3)(E) of the Act requires us to update the hospital wage index on an annual basis beginning October 1, 1993. This provision also requires us to make any updates or adjustments to the wage index in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. For FY 2005, we are proposing to apply an occupational mix adjustment to the wage index. We describe our proposed occupational mix adjustment in section III.C. of this proposed rule. Since section 1886(d)(3)(E) of the Act requires us to update the wage index on a budget neutral basis, we are including the effects of this proposed occupational mix adjustment on the wage index in our budget neutrality calculations.</P>
                        <P>Section 4410 of Public Law 105-33 provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is not located in a rural area may not be less than the area wage index applicable to hospitals located in rural areas in that State. This provision is required by section 4410(b) of Public Law 105-33 to be budget neutral. Therefore, we include the effects of this provision in our calculation of the wage update budget neutrality factor.</P>
                        <P>Section 1886(d)(5)(K)(ii)(III) of the Act previously required that we adjust the rates to ensure that any add-on payments for new technology under section 1886(d)(5)(K) of the Act be budget neutral. However, section 503(d)(2) of Public Law 108-173 has repealed this requirement. We discuss this provision in section II.E. of this proposed rule. In accordance with this provision, we are proposing no budget neutrality adjustment to account for approval of new technologies for add-on payments in FY 2005.</P>
                        <P>To comply with the requirement that DRG reclassification and recalibration of the relative weights be budget neutral, and the requirement that the updated wage index be budget neutral, we used FY 2003 discharge data to simulate payments and compared aggregate payments using the FY 2004 relative weights and wage index to aggregate payments using the proposed FY 2005 relative weights and wage index. The same methodology was used for the FY 2004 budget neutrality adjustment (although the FY 2004 adjustment included the effects of new technology add-on payments).</P>
                        <P>Based on this comparison, we computed a proposed budget neutrality adjustment factor equal to 0.998969. We also are proposing to adjust the Puerto Rico-specific standardized amount for the effect of DRG reclassification and recalibration. We computed a proposed budget neutrality adjustment factor for Puerto Rico-specific standardized amount equal to 0.999326. These budget neutrality adjustment factors are applied to the standardized amounts without removing the effects of the FY 2004 budget neutrality adjustments.</P>
                        <P>In addition, we are proposing to apply these same adjustment factors to the hospital-specific rates that are effective for cost reporting periods beginning on or after October 1, 2004. (See the discussion in the September 4, 1990 final rule (55 FR 36073)).</P>
                        <HD SOURCE="HD3">b. Reclassified Hospitals—Budget Neutrality Adjustment</HD>
                        <P>Section 1886(d)(8)(B) of the Act provides that, effective with discharges occurring on or after October 1, 1988, certain rural hospitals are deemed urban. In addition, section 1886(d)(10) of the Act provides for the reclassification of hospitals based on determinations by the MGCRB. Under section 1886(d)(10) of the Act, a hospital may be reclassified for purposes of the wage index.</P>
                        <P>Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amount to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. (Neither the wage index reclassifications provided under section 508 of Public Law 108-173, nor the wage index adjustments provided under section 505 of Public Law 108-173, are budget neutral. Section 508(b) provides that the wage index reclassifications approved under section 508(a) “shall not be effected in a budget neutral manner.” Section 505(a) similarly provides that any increase in a wage index under that section shall not be taken into account “in computing any budget neutrality adjustment with respect to such index under” section 1886(d)(8)(D) of the Act.) To calculate this budget neutrality factor, we used FY 2003 discharge data to simulate payments, and compared total IPPS payments prior to any reclassifications under sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act to total IPPS payments after such reclassifications. Based on these simulations, we are proposing to apply an adjustment factor of 0.994295 to ensure that the effects of this reclassification are budget neutral.</P>
                        <P>The proposed adjustment factor is applied to the standardized amount after removing the effects of the FY 2004 budget neutrality adjustment factor. We note that the proposed FY 2005 adjustment reflects proposed FY 2005 wage index reclassifications approved by the MGCRB or the Administrator, and the effects of MGCRB reclassifications approved in FY 2003 and FY 2004 (section 1886(d)(10)(D)(v) of the Act makes wage index reclassifications effective for 3 years).</P>
                        <HD SOURCE="HD3">c. Outliers</HD>
                        <P>Section 1886(d)(5)(A) of the Act provides for payments in addition to the basic prospective payments, for “outlier” cases involving extraordinarily high costs. To qualify for outlier payments, a case must have costs above a fixed-loss cost threshold amount (a dollar amount by which the costs of a case must exceed payments in order to qualify for outlier payment). To determine whether the costs of a case exceed the fixed-loss threshold, a hospital's cost-to-charge ratio is applied to the total covered charges for the case to convert the charges to costs. Payments for eligible cases are then made based on a marginal cost factor, which is a percentage of the costs above the threshold.</P>
                        <P>Under section 1886(d)(5)(A)(iv) of the Act, outlier payments for any year must be projected to be not less than 5 percent nor more than 6 percent of total operating DRG payments plus outlier payments. Section 1886(d)(3)(B) of the Act requires the Secretary to reduce the average standardized amount by a factor to account for the estimated proportion of total DRG payments made to outlier cases. Similarly, section 1886(d)(9)(B)(iv) of the Act requires the Secretary to reduce the average standardized amounts applicable to hospitals in Puerto Rico to account for the estimated proportion of total DRG payments made to outlier cases.</P>
                        <P>
                            i. Proposed FY 2005 outlier fixed-loss cost threshold. In the August 1, 2003 IPPS final rule (68 FR 45476-45478), we established a threshold for FY 2004 that was equal to the prospective payment rate for the DRG, plus any IME and DSH payments and any additional payments 
                            <PRTPAGE P="28376"/>
                            for new technology, plus $31,000. The marginal cost factor (the percent of costs paid after costs for the case exceed the threshold) was 80 percent.
                        </P>
                        <P>To calculate the proposed FY 2005 outlier thresholds, we simulated payments by applying proposed FY 2005 rates and policies using cases from the FY 2003 MedPAR file. Therefore, in order to determine the appropriate proposed FY 2005 threshold, it was necessary to inflate the charges on the MedPAR claims by 2 years, from FY 2003 to FY 2005. We are proposing to use a 2-year average annual rate of change in charges per case to inflate FY 2003 charges to approximate FY 2005 charges. The 2-year average annual rate of change in charges per case from FY 2000 to FY 2001, and from FY 2001 to FY 2002, was 12.5978 percent annually or 26.8 percent over 2 years.</P>
                        <P>We are proposing to continue to use the 2-year average annual rate of change in charges per case to establish the proposed FY 2005 threshold. The 2-year average annual rate of change in charges per case from FY 2001 to FY 2002, and from FY 2002 to FY 2003, was 14.5083 percent annually, or 31.1 percent over 2 years. As we have done in the past, we are using hospital cost-to-charge ratio from the most recently Provider Specific File, in this case the December 2003 update. This file includes cost-to-charge ratios reflecting implementation of changes we made last year to the policy affecting the applicable cost-to-charge ratios (68 FR 34494). As of October 1, 2003, fiscal intermediaries use either the most recent settled or the most recent tentative settled cost report, whichever is from the latest reporting period. Because in the past cost-to-charge ratios were taken from the latest settled cost reports and for some hospitals there were delays in settling their cost reports, the cost-to-charge ratios on the Provider Specific File may have been from cost reporting periods that were several years prior. This change results in more up-to-date and, generally, lower cost-to-charge ratios.</P>
                        <P>Using this methodology, we are proposing to establish a fixed-loss cost outlier threshold equal to the prospective payment rate for the DRG, plus any IME and DSH payments, and any add-on payments for new technology, plus $35,085. This single threshold would be applicable to qualify for both operating and capital outlier payments. We also are proposing to maintain the marginal cost factor for cost outliers at 80 percent.</P>
                        <P>This proposed outlier threshold for FY 2005 may be higher than might have been anticipated on the basis of the more up-to-date and, generally, lower cost-to-charge ratios that we are now employing. We believe that a significant factor in this result may be the 2-year average annual rates of change that we are employing to update charges in the MedPAR data from FY 20003 to FY 2005. As we discussed above, we are employing the 2-year average annual rate of change in charges per case from FY 2001 to FY 2002, and from FY 2002 to FY 2003, which is 14.5083 percent annually, or 31.1 percent over 2 years. These rates of increase derive from the period before the changes we made last year to the policy affecting the applicable cost-to-charge ratios (68 FR 34494). In fact, they derive from the years just prior to the adoption of the policy changes, when some hospitals were increasing charges at a rapid rate in order to increase their outlier payments. Therefore, they represent rates of increase that may be higher than the rates of increase under our new policy. We have always used actual data from prior years, rather than projections, to update charges for purposes of determining the outlier threshold. In light of the increase in the proposed outlier threshold for FY 2005, compared to the threshold previously in effect, we welcome comments on the data we are using to update charges for purposes of computing the threshold. We especially encourage commenters to provide any recommendations for data that might better reflect current trends in charge increases.</P>
                        <P>ii. Other changes concerning outliers. As stated in the September 1, 1993 final rule (58 FR 46348), we establish outlier thresholds that are applicable to both hospital inpatient operating costs and hospital inpatient capital-related costs. When we modeled the combined operating and capital outlier payments, we found that using a common set of thresholds resulted in a lower percentage of outlier payments for capital-related costs than for operating costs. We project that the proposed thresholds for FY 2005 would result in outlier payments equal to 5.10 percent of operating DRG payments and 5.03 percent of capital payments based on the Federal rate.</P>
                        <P>In accordance with section 1886(d)(3)(B) of the Act, we reduced the proposed FY 2005 standardized amount by the same percentage to account for the projected proportion of payments paid to outliers.</P>
                        <P>The proposed outlier adjustment factors to be applied to the standardized amount for FY 2005 are as follows:</P>
                        <GPOTABLE COLS="3" OPTS="L2,tp0,i1" CDEF="s25,12,12">
                            <TTITLE> </TTITLE>
                            <BOXHD>
                                <CHED H="1"> </CHED>
                                <CHED H="1">Operating standardized amounts</CHED>
                                <CHED H="1">Capital Federal rate</CHED>
                            </BOXHD>
                            <ROW>
                                <ENT I="01">National</ENT>
                                <ENT>0.948994</ENT>
                                <ENT>0.949706</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Puerto Rico</ENT>
                                <ENT>0.974692</ENT>
                                <ENT>0.9747329</ENT>
                            </ROW>
                        </GPOTABLE>
                        <P>We apply the outlier adjustment factors after removing the effects of the FY 2004 outlier adjustment factors on the standardized amount.</P>
                        <P>To determine whether a case qualifies for outlier payments, we apply hospital-specific cost-to-charge ratios to the total covered charges for the case. Operating and capital costs for the case are calculated separately by applying separate operating and capital cost-to-charge ratios. These costs are then combined and compared with the fixed-loss outlier threshold. </P>
                        <P>
                            The June 9, 2003 outlier final rule (68 FR 34494) eliminated the application of the statewide average for hospitals whose cost-to-charge ratios fall below 3 standard deviations from the national mean cost-to-charge ratio. However, for those hospitals for which the fiscal intermediary computes operating cost-to-charge ratios greater than 1.460 or capital cost-to-charge ratios greater than 0.173, or hospitals for whom the fiscal intermediary is unable to calculate a cost-to-charge ratio (as described at § 412.84(i)(3)), we are still using statewide average ratios to calculate costs to determine whether a hospital qualifies for outlier payments.
                            <SU>7</SU>
                            <FTREF/>
                             Table 8A in section VI. of this Addendum contains the statewide average operating cost-to-charge ratios for urban hospitals and for rural hospitals for which the fiscal intermediary is unable to compute a hospital-specific cost-to-charge ratio within the above range. These statewide average ratios would replace the ratios published in the August 1, 2003 IPPS final rule (68 FR 45637). Table 8B in section VI. of this Addendum contains the proposed comparable statewide average capital cost-to-charge ratios. Again, the proposed cost-to-charge ratios in Tables 8A and 8B would be used during FY 2005 when hospital-specific cost-to-charge ratios based on the latest settled cost report are either not available or are outside the range noted above.
                        </P>
                        <FTNT>
                            <P>
                                <SU>7</SU>
                                 These figues represent 3.0 standard deviations from the mean of the log distribution of cost-to-charge ratios for all hospitals.
                            </P>
                        </FTNT>
                        <P>
                            iii. FY 2003 and FY 2004 outlier payments. In the August 1, 2003 IPPS final rule (68 FR 45478), we stated that, based on available data, we estimated that actual FY 2003 outlier payments would be approximately 6.5 percent of actual total DRG payments. This estimate was computed based on 
                            <PRTPAGE P="28377"/>
                            simulations using the FY 2002 MedPAR file (discharge data for FY 2002 bills). That is, the estimate of actual outlier payments did not reflect actual FY 2003 bills, but instead reflected the application of FY 2003 rates and policies to available FY 2002 bills.
                        </P>
                        <P>Our current estimate, using available FY 2003 bills, is that actual outlier payments for FY 2003 were approximately 5.7 percent of actual total DRG payments. Thus, the data indicate that, for FY 2003, the percentage of actual outlier payments relative to actual total payments is higher than we projected before FY 2003 (and, thus, exceeds the percentage by which we reduced the standardized amounts for FY 2003). Nevertheless, consistent with the policy and statutory interpretation we have maintained since the inception of the IPPS, we do not plan to make retroactive adjustments to outlier payments to ensure that total outlier payments for FY 2003 are equal to 5.1 percent of total DRG payments.</P>
                        <P>We currently estimate that actual outlier payments for FY 2004 will be approximately 4.4 percent of actual total DRG payments, 0.7 percentage points lower than the 5.1 percent we projected in setting outlier policies for FY 2004. This estimate is based on simulations using the FY 2003 MedPAR file (discharge data for FY 2003 bills). We used these data to calculate an estimate of the actual outlier percentage for FY 2004 by applying FY 2004 rates and policies, including an outlier threshold of $31,000 to available FY 2003 bills.</P>
                        <HD SOURCE="HD3">d. Section 410A Rural Community Hospital Demonstration Program Adjustment</HD>
                        <P>Section 410A of Public Law 108-173 requires the Secretary to establish a demonstration that will modify reimbursement for inpatient services for up to fifteen small rural hospitals. Section 410A(c)(2) requires that “in conducting the demonstration program under this section, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount which the Secretary would have paid if the demonstration program under this section was not implemented.” As discussed in section IV.P. of this proposed rule, we are proposing to satisfy this requirement by adjusting national IPPS rates by a factor that is sufficient to account for the added costs of this demonstration. We estimate that the average additional annual payment that will be made to each participating hospital under the demonstration will be approximately $1,120,000. We based this estimate on the recent historical experience of the difference between inpatient cost and payment for hospitals that would be eligible for the demonstration. For 15 participating hospitals, the total annual impact of the demonstration program is estimated to be $16,820,148. We estimate that there will be an average decrease in payment per discharge of approximately $0.83. The required adjustment as a result of the demonstration to the Federal rate in calculating Medicare inpatient prospective payments is 0.999818.</P>
                        <P>In order to achieve budget neutrality, we are proposing to adjust national IPPS rates by an amount sufficient to account for the added costs of this demonstration. We are proposing, in other words, to apply budget neutrality across the payment system as a whole rather than merely across the participants of this demonstration. We believe that the language of the statutory budget neutrality requirement permits the agency to implement the budget neutrality provision in this manner. This is because the statutory language requires “aggregate payments made by the Secretary do not exceed the amount which the Secretary would have paid if the demonstration * * * was not implemented,” but does not identify the range across which aggregate payments must be held equal. We invite public comment on this proposal.</P>
                        <HD SOURCE="HD3">5. Proposed FY 2005 Standardized Amount</HD>
                        <P>The adjusted standardized amount is divided into labor and nonlabor portions. Tables 1A and 1B in section VI. of this Addendum contain the national standardized amount that we are proposing to apply to all hospitals, except hospitals in Puerto Rico. The amounts shown in the two tables differ only in that the labor-related share applied to the standardized amounts in Table 1A is 71.1 percent, and the labor-related share applied to the standardized amounts in Table 1B is 62 percent. As described in section II.A.1. of this Addendum, we are proposing to implement section 403 of Public Law 108-173, which provides that the labor-related share is 62 percent, unless the application of that percentage would result in lower payments to a hospital than would otherwise be made. The effect of this provision is that the labor-related share of the standardized amount is 62 percent for all hospitals whose wage indexes are less than or equal to 1.0000. However, the labor-related share of the standardized amount remains 71.1 percent (reflecting the Secretary's current estimate of the proportion of costs that are wages and wage-related costs) for hospitals whose wage indexes are greater than 1.0000. In addition, both tables include standardized amounts reflecting the full 3.3 percent update for FY 2005, and standardized amounts reflecting the 0.4 percentage point reduction to the update applicable for hospitals that fail to submit quality data consistent with section 501(b) of Public Law 108-173. (Tables 1C and 1D show the new standardized amounts for Puerto Rico, reflecting the different labor shares that apply, that is, 71.3 percent or 62 percent.)</P>
                        <P>The following tables illustrate the proposed changes from the FY 2004 national average standardized amount. The first column shows the proposed changes from the 2004 standardized amounts for hospitals that satisfy the quality data submission requirement for receiving the full update (3.3 percent). The second column shows the proposed changes for hospitals receiving the reduced update (2.9 percent). The first row in the table shows the updated (through FY 2003) average standardized amount after restoring the FY 2004 offsets for outlier payments and geographic reclassification budget neutrality. The DRG reclassification and recalibration and wage index budget neutrality factor is cumulative. Therefore, the FY 2004 factor is not removed from the amount in the table. We have added separate rows to this table to reflect the different labor-related shares that apply to hospitals.</P>
                        <GPOTABLE COLS="3" OPTS="L2,i1" CDEF="s100,r50,xs84">
                            <TTITLE>Comparison of FY 2004 Standardized Amounts to Proposed FY 2005 Single Standardized Amount With Full Update and Reduced Update </TTITLE>
                            <BOXHD>
                                <CHED H="1">  </CHED>
                                <CHED H="1">
                                    Full update 
                                    <LI>(3.3 percent) </LI>
                                </CHED>
                                <CHED H="1">
                                    Reduced update 
                                    <LI>(2.9 percent).</LI>
                                </CHED>
                            </BOXHD>
                            <ROW>
                                <ENT I="01">FY 2004 Base Rate (after removing reclassification budget neutrality and outlier offset)</ENT>
                                <ENT>
                                    Labor: $3,331.33 
                                    <LI>Nonlabor: $1,354.09</LI>
                                </ENT>
                                <ENT>
                                    Labor: $3,331.33 
                                    <LI>Nonlabor: $1,354.09.</LI>
                                </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Proposed FY 2005 Update Factor</ENT>
                                <ENT>1.033</ENT>
                                <ENT>1.029.</ENT>
                            </ROW>
                            <ROW>
                                <PRTPAGE P="28378"/>
                                <ENT I="01">Proposed FY 2005 DRG Recalibrations and Wage Index Budget Neutrality Factor</ENT>
                                <ENT>0.998969 </ENT>
                                <ENT>0.998969.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Proposed FY 2005 Reclassification Budget Neutrality Factor</ENT>
                                <ENT>0.994295 </ENT>
                                <ENT>0.994295.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Adjusted for Blend of FY 2004 DRG Recalibration and Wage Index Budget Neutrality Factors* </ENT>
                                <ENT>
                                    Labor: $3,418.04 
                                    <LI>Nonlabor: $1,389.33 </LI>
                                </ENT>
                                <ENT>
                                    Labor: $3,404.81 
                                    <LI>Nonlabor: $1,383.95.</LI>
                                </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Proposed FY 2005 Outlier Factor </ENT>
                                <ENT>0.948994 </ENT>
                                <ENT>0.948994.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Proposed Rural Demo Budget Neutrality Factor </ENT>
                                <ENT>0.999818</ENT>
                                <ENT>0.999818.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Proposed Rate for FY 2005 (after multiplying FY 2004 base rate by above factors) where the wage index is less than or equal to 1.0000 </ENT>
                                <ENT>
                                    Labor: $2,828.03 
                                    <LI>Nonlabor: $1,733.30</LI>
                                </ENT>
                                <ENT>
                                    Labor: $2,817.08 
                                    <LI>Nonlabor: $1,726.59.</LI>
                                </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Proposed Rate for FY 2005 (after multiplying FY 2004 base rate by above factors) where the wage index is greater than 1.0000 </ENT>
                                <ENT>
                                    Labor: $3,243.10 
                                    <LI>Nonlabor: $1,318.22 </LI>
                                </ENT>
                                <ENT>
                                    Labor: $3,230.55 
                                    <LI>Nonlabor: $1,313.12 </LI>
                                </ENT>
                            </ROW>
                            <TNOTE>*In order to calculate this adjustment correctly, it is necessary to multiply on the DRG recalibration and wage index budget neutrality factor of 1.002608 (1.002588 from October 1, 2003 through March 31, 2004; 1.002628 from April 1, 2004 through September 30, 2004) and divide off the factor of 1.002628 from the second half of FY 2004. This is to account for the fact that it was necessary to employ different budget neutrality adjustments for the first and second halves of FY 2004 due to the extension of the extension of the standardized amount equalization, effective April 1, 2004. </TNOTE>
                        </GPOTABLE>
                        <P>Under section 1886(d)(9)(A)(ii) of the Act, the Federal portion of the Puerto Rico payment rate is based on the discharge-weighted average of the national large urban standardized amount (as set forth in Table 1A). The labor and nonlabor portions of the national average standardized amounts for Puerto Rico hospitals are set forth in Table 1C of section VI. of this Addendum. This table also includes the Puerto Rico standardized amounts. The labor share applied to the Puerto Rico standardized amount is 71.3 percent, or 62 percent, depending on which is more advantageous to the hospital. (Section 403(b) of Public Law 108-173 provides that the labor-related share for hospitals in Puerto Rico will be 62 percent, unless the application of that percentage would result in lower payments to the hospital.)</P>
                        <HD SOURCE="HD2">B. Adjustments for Area Wage Levels and Cost-of-Living</HD>
                        <P>Tables 1A through 1D, as set forth in section VI. of this Addendum, contain the labor-related and nonlabor-related shares that we are proposing to use to calculate the prospective payment rates for hospitals located in the 50 States, the District of Columbia, and Puerto Rico. This section addresses two types of adjustments to the standardized amounts that are made in determining the proposed prospective payment rates as described in this Addendum.</P>
                        <HD SOURCE="HD3">1. Adjustment for Area Wage Levels</HD>
                        <P>Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require that we make an adjustment to the labor-related portion of the national and Puerto Rico prospective payment rates, respectively, to account for area differences in hospital wage levels. This adjustment is made by multiplying the labor-related portion of the adjusted standardized amounts by the appropriate wage index for the area in which the hospital is located. In section III. of the preamble to this proposed rule, we discuss the data and methodology for the proposed FY 2005 wage index. The proposed FY 2005 wage index is set forth in Tables 4A, 4B, 4C, and 4F of section VI. of this Addendum.</P>
                        <HD SOURCE="HD3">2. Adjustment for Cost-of-Living in Alaska and Hawaii</HD>
                        <P>Section 1886(d)(5)(H) of the Act authorizes an adjustment to take into account the unique circumstances of hospitals in Alaska and Hawaii. Higher labor-related costs for these two States are taken into account in the adjustment for area wages described above. For FY 2005, we are proposing to adjust the payments for hospitals in Alaska and Hawaii by multiplying the nonlabor portion of the standardized amount by the appropriate adjustment factor contained in the table below. If the Office of Personnel Management releases revised cost-of-living adjustment factors before July 1, 2004, we will publish them in the final rule and use them in determining FY 2005 payments.</P>
                        <GPOTABLE COLS="2" OPTS="L2,i1" CDEF="s25,7.5">
                            <TTITLE>Table of Cost-of-Living Adjustment Factors, Alaska and Hawaii Hospitals </TTITLE>
                            <BOXHD>
                                <CHED H="1">Area </CHED>
                                <CHED H="1">
                                    Cost of 
                                    <LI>living </LI>
                                    <LI>adjustment </LI>
                                    <LI>factor.</LI>
                                </CHED>
                            </BOXHD>
                            <ROW>
                                <ENT I="01">Alaska-All areas</ENT>
                                <ENT>1.25.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Hawaii:</ENT>
                                <ENT>.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="02">County of Honolulu</ENT>
                                <ENT>1.25.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="02">County of Hawaii </ENT>
                                <ENT>1.165.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="02">County of Kauai </ENT>
                                <ENT>1.2325.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="02">County of Maui </ENT>
                                <ENT>1.2375.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="02">County of Kalawao </ENT>
                                <ENT>1.2375 </ENT>
                            </ROW>
                            <TNOTE>(The above factors are based on data obtained from the U.S. Office of Personnel Management.) </TNOTE>
                        </GPOTABLE>
                        <HD SOURCE="HD2">C. DRG Relative Weights</HD>
                        <P>As discussed in section II. of the preamble, we have developed a classification system for all hospital discharges, assigning them into DRGs, and have developed relative weights for each DRG that reflect the resource utilization of cases in each DRG relative to Medicare cases in other DRGs. Table 5 of section VI. of this Addendum contains the relative weights that we are proposing to use for discharges occurring in FY 2005. These factors have been recalibrated as explained in section II. of the preamble of this proposed rule.</P>
                        <HD SOURCE="HD2">D. Calculation of Proposed Prospective Payment Rates for FY 2005</HD>
                        <HD SOURCE="HD3">General Formula for Calculation of Proposed Prospective Payment Rates for FY 2005</HD>
                        <P>
                            The proposed operating prospective payment rate for all hospitals paid under the IPPS located outside of Puerto Rico, except SCHs and MDHs, equals the Federal rate based on the corresponding amounts in Table 1A or Table 1B in section VI. of this Addendum.
                            <PRTPAGE P="28379"/>
                        </P>
                        <P>The proposed prospective payment rate for SCHs equals the higher of the applicable Federal rate (from Table 1A or Table 1B) or the hospital-specific rate as described below. The proposed prospective payment rate for MDHs equals the higher of the Federal rate, or the Federal rate plus 50 percent of the difference between the Federal rate and the hospital-specific rate as described below. The proposed prospective payment rate for Puerto Rico equals 25 percent of the Puerto Rico rate plus 75 percent of the applicable national rate from Table 1C or Table 1D in section VI. of this Addendum.</P>
                        <HD SOURCE="HD3">1. Federal Rate</HD>
                        <P>For discharges occurring on or after October 1, 2004 and before October 1, 2005, except for SCHs, MDHs, and hospitals in Puerto Rico, payment under the IPPS is based exclusively on the Federal rate.</P>
                        <P>The Federal rate is determined as follows:</P>
                        <P>Step 1—Select the appropriate average standardized amount considering the applicable wage index (Table 1A for wage indexes greater than 1.0000 and Table 1B for wage indexes less than or equal to 1.0000) and whether the hospital has submitted qualifying quality data (full update for qualifying hospitals, update minus 0.4 percent for nonqualifying hospitals).</P>
                        <P>Step 2—Multiply the labor-related portion of the standardized amount by the applicable wage index for the geographic area in which the hospital is located or the area to which the hospital is reclassified (see Tables 4A, 4B, and 4C of section VI. of this Addendum).</P>
                        <P>Step 3—For hospitals in Alaska and Hawaii, multiply the nonlabor-related portion of the standardized amount by the appropriate cost-of-living adjustment factor.</P>
                        <P>Step 4—Add the amount from Step 2 and the nonlabor-related portion of the standardized amount (adjusted, if appropriate, under Step 3).</P>
                        <P>Step 5—Multiply the final amount from Step 4 by the relative weight corresponding to the appropriate DRG (see Table 5 of section VI. of this Addendum).</P>
                        <P>The Federal rate as determined in Step 5 may then be further adjusted if the hospital qualifies for either the IME or DSH adjustment.</P>
                        <HD SOURCE="HD3">2. Hospital-Specific Rate (Applicable Only to SCHs and MDHs)</HD>
                        <HD SOURCE="HD3">a. Calculation of Hospital-Specific Rate</HD>
                        <P>Section 1886(b)(3)(C) of the Act provides that SCHs are paid based on whichever of the following rates yields the greatest aggregate payment: the Federal rate; the updated hospital-specific rate based on FY 1982 costs per discharge; the updated hospital-specific rate based on FY 1987 costs per discharge; or the updated hospital-specific rate based on FY 1996 costs per discharge.</P>
                        <P>Section 1886(d)(5)(G) of the Act provides that MDHs are paid based on whichever of the following rates yields the greatest aggregate payment: the Federal rate or the Federal rate plus 50 percent of the difference between the Federal rate and the greater of the updated hospital-specific rates based on either FY 1982 or FY 1987 costs per discharge. MDHs do not have the option to use their FY 1996 hospital-specific rate.</P>
                        <P>Hospital-specific rates have been determined for each of these hospitals based on either the FY 1982 costs per discharge, the FY 1987 costs per discharge or, for SCHs, the FY 1996 costs per discharge. For a more detailed discussion of the calculation of the hospital-specific rates, we refer the reader to the September 1, 1983 interim final rule (48 FR 39772); the April 20, 1990 final rule with comment (55 FR 15150); the September 4, 1990 final rule (55 FR 35994); and the August 1, 2000 final rule (65 FR 47082). In addition, for both SCHs and MDHs, the hospital-specific rate is adjusted by the proposed budget neutrality adjustment factor (that is, by 0.998969) as discussed in section II.A.4.a. of this Addendum. The resulting rate would be used in determining the payment rate an SCH or MDH would receive for its discharges beginning on or after October 1, 2004.</P>
                        <HD SOURCE="HD3">b. Updating the FY 1982, FY 1987, and FY 1996 Hospital-Specific Rates for FY 2005</HD>
                        <P>We are proposing to increase the hospital-specific rates by 3.3 percent (the hospital market basket percentage increase) for SCHs and MDHs for FY 2005. Section 1886(b)(3)(C)(iv) of the Act provides that the update factor applicable to the hospital-specific rates for SCHs is equal to the update factor provided under section 1886(b)(3)(B)(iv) of the Act, which, for SCHs in FY 2005, is the market basket rate of increase. Section 1886(b)(3)(D) of the Act provides that the update factor applicable to the hospital-specific rates for MDHs also equals the update factor provided under section 1886(b)(3)(B)(iv) of the Act, which, for FY 2005, is the market basket rate of increase.</P>
                        <HD SOURCE="HD3">3. General Formula for Calculation of Proposed Prospective Payment Rates for Hospitals Located in Puerto Rico Beginning On or After October 1, 2004 and Before October 1, 2005</HD>
                        <P>Section 504 of Public Law 108-173 changes the current blend of 50 percent the Puerto Rico national prospective payment rate and 50 percent of the Puerto Rico-specific prospective payment rate to 62.5 percent Puerto Rico national and 37.5 percent Puerto Rico-specific effective for discharges occurring on or after April 1, 2004 and before October 1, 2004. Effective for discharges occurring on or after October 1, 2004, the effective blend is 75 percent of the Puerto Rico national prospective payment rate and 25 percent of the Puerto Rico-specific rate.</P>
                        <HD SOURCE="HD3">a. Puerto Rico Rate</HD>
                        <P>The Puerto Rico prospective payment rate is determined as follows:</P>
                        <P>Step 1—Select the appropriate average standardized amount considering the applicable wage index (Table 1C for wage indexes greater than 1.0000 and Table 1D for wage indexes less than or equal to 1.0000).</P>
                        <P>Step 2—Multiply the labor-related portion of the standardized amount by the appropriate Puerto Rico-specific wage index (see Table 4F of section VI. of the Addendum).</P>
                        <P>Step 3—Add the amount from Step 2 and the nonlabor-related portion of the standardized amount.</P>
                        <P>Step 4—Multiply the result in Step 3 by 25 percent.</P>
                        <P>Step 5—Multiply the amount from Step 4 by the appropriate DRG relative weight (see Table 5 of section VI. of the Addendum).</P>
                        <HD SOURCE="HD3">b. National Rate</HD>
                        <P>The national prospective payment rate is determined as follows:</P>
                        <P>Step 1—Select the appropriate average standardized amount considering the applicable wage index (Table 1C for wage indexes greater than 1.0000 and Table 1D for wage indexes less than or equal to 1.0000).</P>
                        <P>Step 2—Add the amount from Step 1 and the nonlabor-related portion of the national average standardized amount.</P>
                        <P>Step 3—Multiply the result in Step 2 by 75 percent.</P>
                        <P>Step 4—Multiply the amount from Step 3 by the appropriate DRG relative weight (see Table 5 of section VI. of the Addendum).</P>
                        <P>
                            The sum of the Puerto Rico rate and the national rate computed above equals the prospective payment for a given discharge for a hospital located in Puerto Rico. This rate may then be 
                            <PRTPAGE P="28380"/>
                            further adjusted if the hospital qualifies for either the IME or DSH adjustment.
                        </P>
                        <HD SOURCE="HD1">III. Proposed Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2005</HD>
                        <P>The PPS for acute care hospital inpatient capital-related costs was implemented for cost reporting periods beginning on or after October 1, 1991. Effective with that cost reporting period, hospitals were paid during a 10-year transition period (which extended through FY 2001) to change the payment methodology for Medicare acute care hospital inpatient capital-related costs from a reasonable cost-based methodology to a prospective methodology (based fully on the Federal rate).</P>
                        <P>The basic methodology for determining Federal capital prospective rates is set forth in regulations at §§ 412.308 through 412.352. Below we discuss the factors that we are proposing to use to determine the capital Federal rate for FY 2005, which would be effective for discharges occurring on or after October 1, 2004. The 10-year transition period ended with hospital cost reporting periods beginning on or after October 1, 2001 (FY 2002). Therefore, for cost reporting periods beginning in FY 2002, all hospitals (except “new” hospitals under §§ 412.304(c)(2) and 412.324(b)) are paid based on 100 percent of the capital Federal rate.</P>
                        <P>For FY 1992, we computed the standard Federal payment rate for capital-related costs under the IPPS by updating the FY 1989 Medicare inpatient capital cost per case by an actuarial estimate of the increase in Medicare inpatient capital costs per case. Each year after FY 1992, we update the capital standard Federal rate, as provided at § 412.308(c)(1), to account for capital input price increases and other factors. The regulations at § 412.308(c)(2) provides that the capital Federal rate is adjusted annually by a factor equal to the estimated proportion of outlier payments under the capital Federal rate to total capital payments under the capital Federal rate. In addition, § 412.308(c)(3) requires that the capital Federal rate be reduced by an adjustment factor equal to the estimated proportion of payments for (regular and special) exception under § 412.348. Section 412.308(c)(4)(ii) requires that the capital standard Federal rate be adjusted so that the effects of the annual DRG reclassification and the recalibration of DRG weights and changes in the geographic adjustment factor are budget neutral.</P>
                        <P>For FYs 1992 through 1995, § 412.352 required that the capital Federal rate also be adjusted by a budget neutrality factor so that aggregate payments for inpatient hospital capital costs were projected to equal 90 percent of the payments that would have been made for capital-related costs on a reasonable cost basis during the fiscal year. That provision expired in FY 1996. Section 412.308(b)(2) describes the 7.4 percent reduction to the capital rate that was made in FY 1994, and § 412.308(b)(3) describes the 0.28 percent reduction to the capital rate made in FY 1996 as a result of the revised policy of paying for transfers. In FY 1998, we implemented section 4402 of Public Law 105-33, which requires that, for discharges occurring on or after October 1, 1997, and before October 1, 2002, the unadjusted capital standard Federal rate is reduced by 17.78 percent. As we discussed in the August 1, 2002 IPPS final rule (67 FR 50102) and implemented in § 412.308(b)(6)), a small part of that reduction was restored effective October 1, 2002.</P>
                        <P>To determine the appropriate budget neutrality adjustment factor and the regular exceptions payment adjustment during the 10-year transition period, we developed a dynamic model of Medicare inpatient capital-related costs; that is, a model that projected changes in Medicare inpatient capital-related costs over time. With the expiration of the budget neutrality provision, the capital cost model was only used to estimate the regular exceptions payment adjustment and other factors during the transition period. As we explained in the August 1, 2001 IPPS final rule (66 FR 39911), beginning in FY 2003, an adjustment for regular exception payments is no longer necessary because regular exception payments were only made for cost reporting periods beginning on or after October 1, 1991, and before October 1, 2001 (see § 412.348(b)). Because, effective with cost reporting periods beginning in FY 2002, payments are no longer being made under the regular exception policy, we no longer use the capital cost model. The capital cost model and its application during the transition period are described in Appendix B of the August 1, 2001 IPPS final rule (66 FR 40099).</P>
                        <P>In accordance with section 1886(d)(9)(A) of the Act, under the IPPS for acute care hospital operating costs, hospitals located in Puerto Rico are paid for operating costs under a special payment formula. Prior to FY 1998, hospitals in Puerto Rico were paid a blended capital rate that consisted of 75 percent of the applicable standardized amount specific to Puerto Rico hospitals and 25 percent of the applicable national average standardized amount. However, effective October 1, 1997, in accordance with section 4406 of Public Law 105-33, operating payments to hospitals in Puerto Rico are based on a blend of 50 percent of the applicable standardized amount specific to Puerto Rico hospitals and 50 percent of the applicable national average standardized amount. In conjunction with this change to the operating blend percentage, effective with discharges on or after October 1, 1997, we also revised the methodology for computing capital payments to hospitals in Puerto Rico and computing capital payments based on a blend of 50 percent of the Puerto Rico capital rate and 50 percent of the capital Federal rate.</P>
                        <P>As we discuss in section VI. of this Addendum to the proposed rule, section 504 of Public Law 108-173 increases the national portion of the operating IPPS payment for Puerto Rico hospitals from 50 percent to 62.5 percent and decreases the Puerto Rico portion of the operating IPPS payments from 50 percent to 37.5 percent for discharges occurring on or after April 1, 2004 through September 30, 2004 (see the March 26, 2004 One-Time Notification (Change Request 3158)). In addition, section 504 of Public Law 108-173 provides that the national portion of operating IPPS payments for Puerto Rico hospitals is equal to 75 percent and the Puerto Rico portion of operating IPPS payments is equal to 35 percent for discharges occurring on or after October 1, 2004. Consistent with this change in operating IPPS payment to hospitals in Puerto Rico for FY 2005, as we discuss in section V.B. of this Addendum to this proposed rule, we are proposing to revise methodology for computing capital IPPS payments to hospitals located in Puerto Rico. We are proposing that we would compute capital payments to hospitals located in Puerto Rico based on a blend of 25 percent of the Puerto Rico capital rate and 75 percent of the capital Federal rate for discharges occurring on or after October 1, 2004.</P>
                        <P>
                            Section 412.374 provides for the use of a blended payment system for payments to Puerto Rico hospitals under the PPS for acute care hospital inpatient capital-related costs. Accordingly, under the capital IPPS, we compute a separate payment rate specific to Puerto Rico hospitals using the same methodology used to compute the national Federal rate for capital-related costs.
                            <PRTPAGE P="28381"/>
                        </P>
                        <HD SOURCE="HD2">A. Determination of Proposed Federal Hospital Inpatient Capital-Related Prospective Payment Rate Update</HD>
                        <P>
                            In the final IPPS rule published in the 
                            <E T="04">Federal Register</E>
                             on August 1, 2003 (68 FR 45346), we established a capital Federal rate of $415.47 for FY 2004. However, a correction notice to the FY 2004 IPPS final rule issued in the 
                            <E T="04">Federal Register</E>
                             on October 6, 2003 (68 FR 57731) contains corrections and revisions to the wage index and geographic adjustment factor (GAF). In conjunction with the change to the wage index and GAF corrections, we established a revised capital PPS standard Federal rate of $414.18 effective for discharges occurring in FY 2004. Furthermore, the One-Time Notification (Change Request 3158), issued on March 26, 2004, implemented various changes in operating IPPS payments required by sections 401, 402 and 504 of Public Law 108-173. As a result of these changes to payments under the operating IPPS, the fixed loss amount for determining the cost outlier threshold was revised effective for discharges occurring on or after April 1, 2004, through September 30, 2004. Because the regulations at § 412.312(c) establish a unified outlier methodology for inpatient operating and capital-related costs, a single set of thresholds are used to identify outlier cases under both the operating IPPS and the capital IPPS. As a result of the revision to the fixed loss amount used for determining the cost outlier threshold effective for discharges occurring on or after April 1, 2004, through September 30, 2004, we established a new capital IPPS standard Federal rate of $413.48 effective for discharges occurring on or after April 1, 2004, through September 30, 2004.
                        </P>
                        <P>Because there are two capital IPPS standard Federal rates in effect during FY 2004 ($414.18 from October 2003 through March 2004 and $413.48 from April 2004 through September 2004), we are proposing to use an average of the rates effective for the first half of FY 2004 (October 1, 2003 through March 31, 2004) ($414.18) and the second half FY 2004 (April 1, 2004 through September 30, 2004) ($413.48) to determine the proposed FY 2005 capital Federal rate. (The proposed average is $413.83 (($414.18 + $413.48)/2.) As a result of the changes that we are proposing to the factors used to determine the proposed capital Federal rate that are explained in this Addendum, the proposed FY 2005 capital standard Federal rate is $416.59.</P>
                        <P>In the discussion that follows, we explain the factors that were used to determine the proposed FY 2005 capital Federal rate. In particular, we explain why the proposed FY 2005 capital Federal rate has increased 0.67 percent compared to the FY 2004 capital Federal rate. We also estimate aggregate capital payments will remain constant from FY 2004 to FY 2005. We are projecting aggregate capital PPS to remain unchanged primarily due to a projected decrease in Medicare Part A (fee-for-service) admissions. We are projecting a decrease in Medicare Part A enrollment, in part, because we are projecting an increase in Medicare managed care (M+C) enrollment as a result of implementing several sections of Public Law 108-173.</P>
                        <P>Total payments to hospitals under the IPPS are relatively unaffected by changes in the capital prospective payments. Since capital payments constitute about 10 percent of hospital payments, a 1-percent change in the capital Federal rate yields only about 0.1 percent change in actual payments to hospitals. Aggregate payments under the capital PPS are estimated to increase in FY 2005 compared to FY 2004.</P>
                        <HD SOURCE="HD3">1. Proposed Capital Standard Federal Rate Update</HD>
                        <HD SOURCE="HD3">a. Description of the Update Framework</HD>
                        <P>Under § 412.308(c)(1), the capital standard Federal rate is updated on the basis of an analytical framework that takes into account changes in a capital input price index (CIPI) and several other policy adjustment factors. Specifically, we have adjusted the projected CIPI rate of increase as appropriate each year for case-mix index-related changes, for intensity, and for errors in previous CIPI forecasts. The proposed update factor for FY 2005 under that framework is 0.7 percent based on the best data available at this time. The proposed update factor is based on a projected 0.7 percent increase in the CIPI, a 0.0 percent adjustment for intensity, a 0.0 percent adjustment for case-mix, a 0.0 percent adjustment for the FY 2003 DRG reclassification and recalibration, and a forecast error correction of 0.0 percent. We explain the basis for the FY 2005 CIPI projection in section III.C. of this Addendum. Below we describe the proposed policy adjustments that have been applied.</P>
                        <P>The case-mix index is the measure of the average DRG weight for cases paid under the IPPS. Because the DRG weight determines the prospective payment for each case, any percentage increase in the case-mix index corresponds to an equal percentage increase in hospital payments.</P>
                        <P>The case-mix index can change for any of several reasons: </P>
                        <P>• The average resource use of Medicare patients changes (“real” case-mix change); </P>
                        <P>• Changes in hospital coding of patient records result in higher weight DRG assignments (“coding effects”); and</P>
                        <P>• The annual DRG reclassification and recalibration changes may not be budget neutral (“reclassification effect”).</P>
                        <P>We define real case-mix change as actual changes in the mix (and resource requirements) of Medicare patients as opposed to changes in coding behavior that result in assignment of cases to higher weighted DRGs but do not reflect higher resource requirements. In the update framework for the PPS for operating costs, we adjust the update upwards to allow for real case-mix change, but remove the effects of coding changes on the case-mix index. We also remove the effect on total payments of prior year changes to the DRG classifications and relative weights, in order to retain budget neutrality for all case-mix index-related changes other than patient severity. (For example, we adjusted for the effects of the FY 2003 DRG reclassification and recalibration as part of our update for FY 2005.) We have adopted this case-mix index adjustment in the capital update framework as well.</P>
                        <P>For FY 2005, we are projecting a 1.0 percent total increase in the case-mix index. We estimate that the real case-mix increase would equal 1.0 percent in FY 2005. The net adjustment for change in case-mix is the difference between the projected total increase in case-mix and the projected increase in real case-mix change. Therefore, the net adjustment for case-mix change in FY 2005 is 0.0 percentage points.</P>
                        <P>We estimate that FY 2003 DRG reclassification and recalibration would result in a 0.0 percent change in the case-mix when compared with the case-mix index that would have resulted if we had not made the reclassification and recalibration changes to the DRGs. Therefore, we are making a 0.0 percent adjustment for DRG reclassification and recalibration in the update for FY 2005 to maintain budget neutrality.</P>
                        <P>
                            The capital update framework contains an adjustment for forecast error. The input price index forecast is based on historical trends and relationships ascertainable at the time the update factor is established for the upcoming year. In any given year, there may be unanticipated price fluctuations that may result in differences between the actual increase in prices and the forecast used in calculating the update 
                            <PRTPAGE P="28382"/>
                            factors. In setting a prospective payment rate under the framework, we make an adjustment for forecast error only if our estimate of the change in the capital input price index for any year is off by 0.25 percentage points or more. There is a 2-year lag between the forecast and the measurement of the forecast error. A forecast error of 0.0 percentage points was calculated for the FY 2003 update. That is, current historical data indicate that the forecasted FY 2003 CIPI used in calculating the FY 2003 update factor (0.7 percent) slightly overstated the actual realized price increases (0.6 percent) by 0.1 percentage points. This slight overprediction was mostly due to an underestimation of the interest rate cuts by the Federal Reserve Board in 2003, which impacted the interest component of the CIPI. However, since this estimation of the change in the CIPI is less than 0.25 percentage points, it is not reflected in the update recommended under this framework. Therefore, we are making a 0.0 percent adjustment for forecast error in the update for FY 2005.
                        </P>
                        <P>Under the capital PPS system framework, we also make an adjustment for changes in intensity. We calculate this adjustment using the same methodology and data that are used in the framework for the operating PPS. The intensity factor for the operating update framework reflects how hospital services are utilized to produce the final product, that is, the discharge. This component accounts for changes in the use of quality-enhancing services, for changes in within-DRG severity, and for expected modification of practice patterns to remove noncost-effective services.</P>
                        <P>We calculate case-mix constant intensity as the change in total charges per admission, adjusted for price level changes (the CPI for hospital and related services) and changes in real case-mix. The use of total charges in the calculation of the intensity factor makes it a total intensity factor, that is, charges for capital services are already built into the calculation of the factor. Therefore, we have incorporated the intensity adjustment from the operating update framework into the capital update framework. Without reliable estimates of the proportions of the overall annual intensity increases that are due, respectively, to ineffective practice patterns and to the combination of quality-enhancing new technologies and within-DRG complexity, we assume, as in the operating update framework, that one-half of the annual increase is due to each of these factors. The capital update framework thus provides an add-on to the input price index rate of increase of one-half of the estimated annual increase in intensity, to allow for within-DRG severity increases and the adoption of quality-enhancing technology.</P>
                        <P>We have developed a Medicare-specific intensity measure based on a 5-year average. Past studies of case-mix change by the RAND Corporation (“Has DRG Creep Crept Up? Decomposing the Case Mix Index Change Between 1987 and 1988” by G. M. Carter, J. P. Newhouse, and D. A. Relles, R-4098-HCFA/ProPAC (1991)) suggest that real case-mix change was not dependent on total change, but was usually a fairly steady 1.0 to 1.4 percent per year. We use 1.4 percent as the upper bound because the RAND study did not take into account that hospitals may have induced doctors to document medical records more completely in order to improve payment.</P>
                        <P>We calculate case-mix constant intensity as the change in total charges per admission, adjusted for price level changes (the CPI for hospital and related services), and changes in real case-mix. As we noted above, in accordance with § 412.308(c)(1)(ii), we began updating the capital standard Federal rate in FY 1996 using an update framework that takes into account, among other things, allowable changes in the intensity of hospital services. For FYs 1996 through 2001, we found that case-mix constant intensity was declining and we established a 0.0 percent adjustment for intensity in each of those years. For FYs 2001 and 2002, we found that case-mix constant intensity was increasing and we established a 0.3 percent adjustment and 1.0 percent adjustment for intensity, respectively.</P>
                        <P>Using the methodology described above, for FY 2005 we examined the change in total charges per admission, adjusted for price level changes (the CPI for hospital and related services), and changes in real case-mix for FYs 1999 through 2003. We found that, over this period and in particular the last 4 years of this period (FYs 2000 through 2003), the charge data appear to be skewed. More specifically, we found a dramatic increase in hospital charges for FYs 2000 through 2003 without a corresponding increase in hospital case-mix index. These findings are similar to the considerable increase in hospitals charges we found when we were determining the intensity factor in the FY 2004 update recommendation as discussed in the August 1, 2003 final rule (69 FR 45482). If hospitals were treating new or different types of cases, which would result in an appropriate increase in charges per discharge, then we would expect hospitals' case-mix to increase proportionally.</P>
                        <P>As we discussed in the August 1, 2003 final rule (68 FR 45482), because our intensity calculation relies heavily upon charge data and we believe that this charge data may be inappropriately skewed, we established a 0.0 percent adjustment for intensity for FY 2004. In that same final rule, we stated that we believe that it is appropriate to propose a zero intensity adjustment until we believe that any increase in charges can be tied to intensity rather then to attempts to maximize outlier payments. As discussed above, based on the most recent available data, we believe that the charge data used to make this determination may still be inappropriately skewed. Since our intensity calculation relies heavily upon charge data (which may be inappropriately skewed), we are proposing a 0.0 percent adjustment for intensity for FY 2005 in this proposed rule. We note that, in past FYs (1996 through 2000) when we found intensity to be declining, we believed a zero (rather then negative) intensity adjustment was appropriate. Similarly, we believe that it is appropriate to propose a zero intensity adjustment for FY 2005 until we believe that any increase in charges can be tied to intensity rather than to attempts to maximize outlier payments.</P>
                        <P>Above we described the basis of the components used to develop the proposed 0.7 percent capital update factor for FY 2005 as shown in the table below.</P>
                        <GPOTABLE COLS="2" OPTS="L2,p1,8/9,i1" CDEF="s25,6">
                            <TTITLE>CMS's Proposed FY 2005 Update Factor to the Capital Federal Rate </TTITLE>
                            <BOXHD>
                                <CHED H="1">  </CHED>
                                <CHED H="1"> .</CHED>
                            </BOXHD>
                            <ROW>
                                <ENT I="01">Capital Input Price Index </ENT>
                                <ENT>0.7.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Intensity </ENT>
                                <ENT>0.0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Case-Mix Adjustment Factors:.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="02">Projected Case-Mix Change </ENT>
                                <ENT>1.0 </ENT>
                            </ROW>
                            <ROW RUL="n,s">
                                <ENT I="02">Real Across DRG Change </ENT>
                                <ENT>−1.0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Subtotal </ENT>
                                <ENT>0.0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Effect of FY 2003 Reclassification and Recalibration </ENT>
                                <ENT>0.0 </ENT>
                            </ROW>
                            <ROW RUL="n,s">
                                <ENT I="01">Forecast Error Correction </ENT>
                                <ENT>0.0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="02">Total Proposed Update </ENT>
                                <ENT>0.7 </ENT>
                            </ROW>
                        </GPOTABLE>
                        <HD SOURCE="HD3">b. Comparison of CMS and MedPAC Update Recommendation</HD>
                        <P>
                            In the past, MedPAC has included update recommendations for capital PPS in a Report to Congress. In its March 2004 Report to Congress, MedPAC did not make an update recommendation for capital PPS payments for FY 2005. However, in that same report, MedPAC made an update 
                            <PRTPAGE P="28383"/>
                            recommendation for hospital inpatient and outpatient services (page 87). MedPAC reviews inpatient and outpatient services together since they are so closely interrelated. MedPAC's recommendation of the full market basket update for both the inpatient and outpatient PPSs is based on their assessment of beneficiaries' access to care, volume growth, access to capital, quality, and the relationship of Medicare payments to costs in the hospital sector.
                        </P>
                        <HD SOURCE="HD2">2. Outlier Payment Adjustment Factor</HD>
                        <P>Section 412.312(c) establishes a unified outlier methodology for inpatient operating and inpatient capital-related costs. A single set of thresholds is used to identify outlier cases for both inpatient operating and inpatient capital-related payments. Section 412.308(c)(2) provides that the standard Federal rate for inpatient capital-related costs be reduced by an adjustment factor equal to the estimated proportion of capital related outlier payments to total inpatient capital-related PPS payments. The outlier thresholds are set so that operating outlier payments are projected to be 5.1 percent of total operating DRG payments.</P>
                        <P>
                            In the August 1, 2003 IPPS final rule (68 FR 45482), we estimated that outlier payments for capital in FY 2004 would equal 4.79 percent of inpatient capital-related payments based on the FY 2004 capital Federal rate. Accordingly, we applied an outlier adjustment factor of 0.9521 to the FY 2004 capital Federal rate. However, as we noted above, we published a correction notice in the 
                            <E T="04">Federal Register</E>
                             on October 6, 2003 (68 FR 57731), which established revised rates and factors for FY 2004. In that same correction notice (68 FR 57734), we estimated that outlier payments for capital in FY 2004 would equal 4.77 percent of inpatient capital-related payments based on the FY 2004 capital Federal rate. Accordingly, we established a revised outlier adjustment of 0.9523 for use in determining the FY 2004 capital Federal rate. In addition, as we noted above, a One-Time Notification (Change Request 3158) issued on March 26, 2004, implemented various changes in operating IPPS payments required by sections 401, 402, and 504 of Public Law 108-173, effective for discharges on or after April 1, 2004, through September 30, 2004. As a result of changes made to payments under the operating IPPS, the rates and some of the factors, including the outlier adjustment, under the capital IPPS were also revised effective for discharges on or after April 1, 2004, through September 30, 2004. The revised outlier adjustment effective for the second half of FY 2004 (April 2004 through September 2004) is 0.9508.
                        </P>
                        <P>Based on the thresholds as set forth in section II.A.4.c. of this Addendum, we estimate that outlier payments for capital would equal 5.03 percent of inpatient capital-related payments based on the proposed capital Federal rate in FY 2005. Therefore, we are proposing an outlier adjustment factor of 0.9497 to the capital Federal rate. Thus, the percentage of capital outlier payments to total capital standard payments for FY 2005 is higher than the percentages estimated for the first half (4.77 percent for October 2003 through March 2004) and the second half (4.92 percent for April 2004 through September 2004) of FY 2004.</P>
                        <P>The outlier reduction factors are not built permanently into the capital rates; that is, they are not applied cumulatively in determining the capital Federal rate. As we discussed above, there were two outlier adjustment factors applied during FY 2004 (0.9523 from October 2003 through March 2004 and 0.9508 from April 2004 through September 2004). The proposed FY 2005 outlier adjustment of 0.9497 is a -0.19 percent change from the average FY 2004 outlier adjustment of 0.9515 (the mean of the factors for the first half of FY 2004 (0.9523) and the second half of FY 2004 (0.9508) calculated from unrounded numbers). The proposed net change in the outlier adjustment to the capital Federal rate for FY 2005 is 0.9981 (0.9497/0.9515). Thus, the proposed outlier adjustment decreases the FY 2005 capital Federal rate by 0.19 percent compared with the average FY 2004 outlier adjustment.</P>
                        <HD SOURCE="HD3">3. Budget Neutrality Adjustment Factor for Changes in DRG Classifications and Weights and the Geographic Adjustment Factor</HD>
                        <P>Section 412.308(c)(4)(ii) requires that the capital Federal rate be adjusted so that aggregate payments for the fiscal year based on the capital Federal rate after any changes resulting from the annual DRG reclassification and recalibration and changes in the geographic adjustment factor (GAF) are projected to equal aggregate payments that would have been made on the basis of the capital Federal rate without such changes.</P>
                        <P>Since we implemented a separate geographic adjustment factor for Puerto Rico, we apply separate budget neutrality adjustments for the national geographic adjustment factor and the Puerto Rico geographic adjustment factor. We apply the same budget neutrality factor for DRG reclassifications and recalibration nationally and for Puerto Rico. Separate adjustments were unnecessary for FY 1998 and earlier fiscal years since the geographic adjustment factor for Puerto Rico was implemented in FY 1998.</P>
                        <P>In the past, we used the actuarial capital cost model (described in Appendix B of the August 1, 2001 IPPS final rule (66 FR 40099)) to estimate the aggregate payments that would have been made on the basis of the capital Federal rate with and without changes in the DRG classifications and weights and in the GAF to compute the adjustment required to maintain budget neutrality for changes in DRG weights and in the GAF. During the transition period, the capital cost model was also used to estimate the regular exception payment adjustment factor. As we explain in section III.A.4. of this Addendum, beginning in FY 2002, an adjustment for regular exception payments is no longer necessary. Therefore, we are no longer using the capital cost model. Instead, we are using historical data based on hospitals' actual cost experiences to determine the exceptions payment adjustment factor for special exceptions payments.</P>
                        <P>To determine the proposed factors for FY 2005, we compared (separately for the national capital rate and the Puerto Rico capital rate) estimated aggregate capital Federal rate payments based on the FY 2004 DRG relative weights and the average FY 2004 GAF (that is, the mean of the GAFs applied from October 2003 through March 2004 and the GAFs applied from April 2004 through September 2004) to estimated aggregate capital Federal rate payments based on the proposed FY 2005 relative weights and the proposed FY 2005 GAF. For the first half of FY 2004 (October 1, 2003 through March 31, 2004), the budget neutrality adjustment factors were 0.9908 for the national capital rate and 0.9974 for the Puerto Rico capital rate (see the October 6, 2003 correction notice). For the second half of FY 2004 (April 1, 2004 through September 30, 2004), the budget neutrality adjustment factor was revised to 0.9907 for the national capital rate. The budget neutrality factor for the Puerto Rico capital rate remained unchanged (0.9974). In making the comparison, we set the regular and special exceptions reduction factors to 1.00.</P>
                        <P>
                            To achieve budget neutrality for the changes in the national GAF, based on calculations using updated data, we are proposing to apply an incremental budget neutrality adjustment of 1.0018 for FY 2005 to the average of the previous cumulative FY 2004 
                            <PRTPAGE P="28384"/>
                            adjustments of 0.9908 ((0.99083 + 0.99072)/2), yielding a proposed cumulative adjustment of 0.9925 through FY 2005 (calculations were done with unrounded numbers). For the Puerto Rico GAF, we are proposing to apply an incremental budget neutrality adjustment of 0.9989 for FY 2005 to the average of the previous cumulative FY 2004 adjustment of 0.9974, yielding a proposed cumulative adjustment of 0.9963 through FY 2005.
                        </P>
                        <P>We then compared estimated aggregate capital Federal rate payments based on the FY 2004 DRG relative weights and the average FY 2004 GAF to estimated aggregate capital Federal rate payments based on the proposed FY 2005 DRG relative weights and the proposed FY 2005 GAF. The proposed incremental adjustment for DRG classifications and changes in relative weights is 0.9997 both nationally and for Puerto Rico. The proposed cumulative adjustments for DRG classifications and changes in relative weights and for changes in the GAF through FY 2005 are 0.9922 nationally and 0.9960 for Puerto Rico. The following table summarizes the adjustment factors for each fiscal year:</P>
                    </PART>
                    <BILCOD>BILLING CODE 4120-03-U</BILCOD>
                    <GPH SPAN="3" DEEP="437">
                        <GID>EP18MY04.407</GID>
                    </GPH>
                    <BILCOD>BILLING CODE 4120-03-C</BILCOD>
                    <P>
                        The methodology used to determine the proposed recalibration and geographic (DRG/GAF) budget neutrality adjustment factor for FY 2005 is similar to that used in establishing budget neutrality adjustments under the PPS for operating costs. One difference is that, under the operating PPS, the budget neutrality adjustments for the effect of geographic reclassifications are determined separately from the effects of other changes in the hospital wage index and the DRG relative weights. Under the capital PPS, there is a single DRG/GAF budget neutrality adjustment factor (the national capital rate and the Puerto Rico capital rate are determined separately) for changes in the GAF (including geographic reclassification) and the DRG relative weights. In addition, there is no adjustment for the effects that geographic reclassification has on the other payment parameters, such as the payments for serving low-income patients, indirect medical education payments, or the large urban add-on payments.
                        <PRTPAGE P="28385"/>
                    </P>
                    <P>In the August 1, 2003 IPPS final rule (68 FR 45346), we calculated a GAF/DRG budget neutrality factor of 1.00591 for FY 2004. As we noted above, as a result of the revisions to the GAF effective for FY 2004 in the October 6, 2003 correction notice, we calculated a GAF/DRG budget neutrality factor of 1.00256 for discharges occurring in FY 2004. As we also noted above, as a result of implementing sections 401, 402, and 504 of Public Law 108-173, we calculated a GAF/DRG budget neutrality factor of 1.00245 for discharges occurring on or after April 1, 2004 through September 30, 2004. Furthermore, as noted above, the average of capital rates and factors in effect for the first half (October 2003 through March 2004) and second half (April 2004 through September 2004) of FY 2004 was used in determining the FY 2005 capital rates.</P>
                    <P>For FY 2005, we are proposing a GAF/DRG budget neutrality factor of 1.0015. The GAF/DRG budget neutrality factors are built permanently into the capital rates; that is, they are applied cumulatively in determining the capital Federal rate. This follows from the requirement that estimated aggregate payments each year be no more or less than they would have been in the absence of the annual DRG reclassification and recalibration and changes in the GAF. The proposed incremental change in the adjustment from FY 2004 to FY 2005 is 1.0015. The proposed cumulative change in the capital Federal rate due to this adjustment is 0.9922 (the product of the incremental factors for FY 1993, FY 1994, FY 1995, FY 1996, FY 1997, FY 1998, FY 1999, FY 2000, FY 2001, FY 2002, FY 2003, average FY 2004 and the proposed incremental factor for FY 2005: 0.9980 × 1.0053 × 0.9998 × 0.9994 × 0.9987 × 0.9989 × 1.0028 × 0.9985 × 0.9979 × 0.9934 × 0.9956 × 1.0025 × 1.0015=0.9922).</P>
                    <P>This proposed factor accounts for DRG reclassifications and recalibration and for changes in the GAF. It also incorporates the effects on the GAF of FY 2005 geographic reclassification decisions made by the MGCRB compared to FY 2004 decisions. However, it does not account for changes in payments due to changes in the DSH and IME adjustment factors or in the large urban add-on.</P>
                    <HD SOURCE="HD2">4. Exceptions Payment Adjustment Factor</HD>
                    <P>Section 412.308(c)(3) requires that the capital standard Federal rate be reduced by an adjustment factor equal to the estimated proportion of additional payments for both regular exceptions and special exceptions under § 412.348 relative to total capital PPS payments. In estimating the proportion of regular exception payments to total capital PPS payments during the transition period, we used the actuarial capital cost model originally developed for determining budget neutrality (described in Appendix B of the August 1, 2001 IPPS final rule (66 FR 40099)) to determine the exceptions payment adjustment factor, which was applied to both the Federal and hospital-specific capital rates.</P>
                    <P>An adjustment for regular exception payments is no longer necessary in determining the FY 2005 capital Federal rate because, in accordance with § 412.348(b), regular exception payments were only made for cost reporting periods beginning on or after October 1, 1991 and before October 1, 2001. Accordingly, as we explained in the August 1, 2001 IPPS final rule (66 FR 39949), in FY 2002 and subsequent fiscal years, no payments will be made under the regular exceptions provision. However, in accordance with § 412.308(c), we still need to compute a budget neutrality adjustment for special exception payments under § 412.348(g). We describe our methodology for determining the special exceptions adjustment used in calculating the FY 2005 capital Federal rate below.</P>
                    <P>Under the special exceptions provision specified at § 412.348(g)(1), eligible hospitals include SCHs, urban hospitals with at least 100 beds that have a disproportionate share percentage of at least 20.2 percent or qualify for DSH payments under § 412.106(c)(2), and hospitals with a combined Medicare and Medicaid inpatient utilization of at least 70 percent. An eligible hospital may receive special exceptions payments if it meets (1) a project need requirement as described at § 412.348(g)(2), which, in the case of certain urban hospitals, includes an excess capacity test as described at § 412.348(g)(4); (2) an age of assets test as described at § 412.348(g)(3); and (3) a project size requirement as described at § 412.348(g)(5).</P>
                    <P>Based on information compiled from our fiscal intermediaries, six hospitals have qualified for special exceptions payments under § 412.348(g). Since we have cost reports ending in FY 2003 for all of these hospitals, we calculated the proposed adjustment based on actual cost experience. Using data from cost reports ending in FY 2003 from the March 2004 update of the HCRIS data, we divided the capital special exceptions payment amounts for the six hospitals that qualified for special exceptions by the total capital PPS payment amounts (including special exception payments) for all hospitals. Based on the data from cost reports ending in FY 2003, this ratio is rounded to 0.0004. Because we have not received all cost reports ending in FY 2003, we also divided the FY 2003 special exceptions payments by the total capital PPS payment amounts for all hospitals with cost reports ending in FY 2002. This ratio also rounds to 0.0004. Because special exceptions are budget neutral, we are proposing to offset the capital Federal rate by 0.04 percent for special exceptions payments for FY 2005. Therefore, the proposed exceptions adjustment factor is equal to 0.9996 (1-0.0004) to account for special exceptions payments in FY 2005.</P>
                    <P>In the August 1, 2003 IPPS final rule (68 FR 45384) for FY 2004, we estimated that total (special) exceptions payments would equal 0.05 percent of aggregate payments based on the capital Federal rate. Therefore, we applied an exceptions adjustment factor of 0.9995 (1-0.0005) in determining the FY 2004 capital Federal rate. (We note that the special exceptions adjustment factor for FY 2004 was not revised in either the October 6, 2003 correction notice or the March 26, 2004 One-Time Notification.) As we stated above, we estimate that exceptions payments in FY 2005 would equal 0.04 percent of aggregate payments based on the FY 2005 capital Federal rate. Therefore, we are proposing to apply an exceptions payment adjustment factor of 0.9996 to the capital Federal rate for FY 2005. The proposed exceptions adjustment factor for FY 2005 is 0.01 percent higher than the factor for FY 2004 published in the August 1, 2003 IPPS final rule (68 FR 45346). The exceptions reduction factors are not built permanently into the capital rates; that is, the factors are not applied cumulatively in determining the capital Federal rate. Therefore, the proposed net change in the exceptions adjustment factor used in determining the proposed FY 2005 capital Federal rate is 1.0001 (0.9996/0.9995).</P>
                    <HD SOURCE="HD2">5. Proposed Capital Standard Federal Rate for FY 2005</HD>
                    <P>
                        In the August 1, 2003 IPPS final rule (68 FR 45346) we established a capital Federal rate of $415.47 for FY 2004. As we noted above, as a result of the revisions to the GAF for FY 2004, in the October 6, 2003 correction notice, we established a capital Federal rate of $414.18 for discharges occurring in FY 2004. As we also discussed above, a One-Time Notification issued on March 26, 2004, which implemented various 
                        <PRTPAGE P="28386"/>
                        changes in operating IPPS payments required by sections 401, 402, and 504 of Public Law 108-173, resulted in a revised capital Federal rate of $413.48 effective for discharges occurring on or after April 1, 2004 through September 30, 2004. Because there are two capital IPPS standard Federal rates in effect during FY 2004 ($414.18 from October 2003 through March 2004 and $413.48 from April 2004 through September 2004), we are proposing to use an average of the rates effective for the first half ($414.18) and the second half ($413.48) of FY 2004 of $413.83 (($414.18 + $413.48)/2) in determining the proposed FY 2005 capital Federal rate. In this proposed rule, we are proposing to establish a capital Federal rate of $416.59 for FY 2005. The proposed capital Federal rate for FY 2005 was calculated as follows:
                    </P>
                    <P>• The proposed FY 2005 update factor is 1.007; that is, the update is 0.7 percent.</P>
                    <P>• The proposed FY 2005 budget neutrality adjustment factor that is applied to the capital standard Federal payment rate for changes in the DRG relative weights and in the GAF is 1.0015.</P>
                    <P>• The proposed FY 2005 outlier adjustment factor is 0.9497.</P>
                    <P>• The proposed FY 2005 (special) exceptions payment adjustment factor is 0.9996.</P>
                    <P>Because the proposed capital Federal rate has already been adjusted for differences in case-mix, wages, cost-of-living, indirect medical education costs, and payments to hospitals serving a disproportionate share of low-income patients, we are proposing to make no additional adjustments in the capital standard Federal rate for these factors, other than the budget neutrality factor for changes in the DRG relative weights and the GAF.</P>
                    <P>We are providing a chart that shows how each of the proposed factors and adjustments for FY 2005 affected the computation of the proposed FY 2005 capital Federal rate in comparison to the average FY 2004 capital Federal rate. The proposed FY 2005 update factor has the effect of increasing the capital Federal rate by 0.70 percent compared to the average FY 2004 Federal rate. The proposed GAF/DRG budget neutrality factor has the effect of increasing the capital Federal rate by 0.15 percent. The proposed FY 2005 outlier adjustment factor has the effect of decreasing the capital Federal rate by 0.19 percent compared to the average FY 2004 capital Federal rate and the proposed FY 2005 exceptions payment adjustment factor has the effect of increasing the capital Federal rate by 0.01 percent compared to the exceptions payment adjustment factor for the FY 2004 capital Federal rate. The combined effect of all the proposed changes is to increase the capital Federal rate by 0.67 percent compared to the average FY 2004 capital Federal rate.</P>
                    <GPOTABLE COLS="5" OPTS="L2,i1" CDEF="s50,6.4,6.4,10,10">
                        <TTITLE>Comparison of Factors and Adjustments: FY 2004 Capital Federal Rate 1 and Proposed FY 2005 Capital Federal Rate</TTITLE>
                        <BOXHD>
                            <CHED H="1"> </CHED>
                            <CHED H="1">
                                FY 2004 
                                <SU>1</SU>
                            </CHED>
                            <CHED H="1">Proposed FY 2005</CHED>
                            <CHED H="1">Change</CHED>
                            <CHED H="1">Percent change</CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">
                                Update factor 
                                <SU>2</SU>
                            </ENT>
                            <ENT>1.0070</ENT>
                            <ENT>1.0070</ENT>
                            <ENT>1.0070</ENT>
                            <ENT>0.70</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                GAF/DRG Adjustment Factor 
                                <SU>2</SU>
                            </ENT>
                            <ENT>1.0025</ENT>
                            <ENT>1.0015</ENT>
                            <ENT>1.0015</ENT>
                            <ENT>0.15</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                Outlier Adjustment Factor 
                                <SU>3</SU>
                            </ENT>
                            <ENT>0.9515</ENT>
                            <ENT>0.9497</ENT>
                            <ENT>0.9981</ENT>
                            <ENT>−0.19</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">
                                Exceptions Adjustment Factor 
                                <SU>3</SU>
                            </ENT>
                            <ENT>0.9995</ENT>
                            <ENT>0.9996</ENT>
                            <ENT>1.0001</ENT>
                            <ENT>0.01</ENT>
                        </ROW>
                        <ROW>
                            <ENT I="01">Capital Federal Rate</ENT>
                            <ENT>$413.83</ENT>
                            <ENT>$416.59</ENT>
                            <ENT>1.0067</ENT>
                            <ENT>0.67</ENT>
                        </ROW>
                        <TNOTE>
                            <SU>1</SU>
                             Because there are two capital IPPS standard Federal rates in effect during FY 2004 ($414.18 from October 2003 through March 2004 and $413.48 from April 2004 through September 2004), an average of the rates and factors effective for the first half (October 2003 through March 2004) and the second half (April 2004 through September 2004)) of FY 2004 were used.
                        </TNOTE>
                        <TNOTE>
                            <SU>2</SU>
                             The update factor and the GAF/DRG budget neutrality factors are built permanently into the capital rates. Thus, for example, the incremental change from FY 2004 to FY 2005 resulting from the application of the proposed 1.0015 GAF/DRG budget neutrality factor for FY 2005 is 1.0015.
                        </TNOTE>
                        <TNOTE>
                            <SU>3</SU>
                             The outlier reduction factor and the exceptions adjustment factor are not built permanently into the capital rates; that is, these factors are not applied cumulatively in determining the capital rates. Thus, for example, the net change resulting from the application of the proposed FY 2005 outlier adjustment factor is 0.9497/0.9515, or 0.9981.
                        </TNOTE>
                    </GPOTABLE>
                    <HD SOURCE="HD2">6. Special Capital Rate for Puerto Rico Hospitals</HD>
                    <P>As discussed above, beginning in FY 1998, hospitals in Puerto Rico are currently paid based on 50 percent of the Puerto Rico capital rate and 50 percent of the capital Federal rate. The Puerto Rico capital rate is derived from the costs of Puerto Rico hospitals only, while the capital Federal rate is derived from the costs of all acute care hospitals participating in the PPS (including Puerto Rico). Section 504 of Public Law 108-173 increases the national portion of the operating IPPS payment for Puerto Rico hospitals from 50 percent to 75 percent and decreases the Puerto Rico portion of the operating IPPS payments for hospitals located in Puerto Rico from 50 percent to 37.5 percent for discharges occurring on or after April 1, 2004, through September 30, 2004. In addition, section 504 of Public Law 108-173 provides that the national portion of operating IPPS payments for Puerto Rico hospitals is equal to 75 percent and the Puerto Rico portions of the operating IPPS payments is equal to 37.5 percent for discharges occurring on or after October 1, 2004. As discussed in section V.B. of the preamble of this proposed rule, under the broad authority of section 1886(g) of the Act, we are proposing for FY 2005 to increase the national portion of the capital IPPS payment to hospitals located in Puerto Rico from 50 percent to 75 percent, as well. Therefore, for discharges occurring on or after October 1, 2004, capital payments to hospitals in Puerto Rico would be based on a blend of 25 percent of the Puerto Rico capital rate and 75 percent of the capital Federal rate.</P>
                    <P>To adjust hospitals' capital payments for geographic variations in capital costs, we apply a GAF to both portions of the blended capital rate. The GAF is calculated using the operating PPS wage index and varies, depending on the MSA or rural area in which the hospital is located. We use the Puerto Rico wage index to determine the GAF for the Puerto Rico part of the capital-blended rate and the national wage index to determine the GAF for the national part of the blended capital rate.</P>
                    <P>
                        Because we implemented a separate GAF for Puerto Rico in FY 1998, we also apply separate budget neutrality adjustments for the national GAF and for the Puerto Rico GAF. However, we apply the same budget neutrality factor for DRG reclassifications and recalibration nationally and for Puerto Rico. As we stated above in section III.A.4. of this Addendum, for Puerto 
                        <PRTPAGE P="28387"/>
                        Rico the proposed GAF budget neutrality factor is 0.9989, while the proposed DRG adjustment is 0.9997, for a proposed combined cumulative adjustment of 0.9960.
                    </P>
                    <P>In computing the payment for a particular Puerto Rico hospital, the Puerto Rico portion of the capital rate (currently 50 percent; 25 percent proposed for FY 2005 and thereafter) is multiplied by the Puerto Rico-specific GAF for the MSA in which the hospital is located, and the national portion of the capital rate (currently 50 percent; 75 percent proposed for FY 2005 and thereafter) is multiplied by the national GAF for the MSA in which the hospital is located (which is computed from national data for all hospitals in the United States and Puerto Rico). In FY 1998, we implemented a 17.78 percent reduction to the Puerto Rico capital rate as a result of Public Law 105-33. In FY 2003, a small part of that reduction was restored.</P>
                    <P>For FY 2004, before application of the GAF, the special capital rate for Puerto Rico hospitals was $203.17 for discharges occurring on or after October 1, 2003 through March 31, 2004 (see the October 6, 2003 correction notice) and $202.96 for discharges occurring on or after April 1, 2004 through September 30, 2004 (see the March 26, 2004 One-Time Notification). With the changes we are proposing to the factors used to determine the capital rate, the proposed FY 2005 special capital rate for Puerto Rico is $200.52.</P>
                    <HD SOURCE="HD2">B. Calculation of Inpatient Capital-Related Prospective Payments for FY 2005</HD>
                    <P>Because the 10-year capital PPS transition period ended in FY 2001, all hospitals (except “new” hospitals under § 412.324(b) and under § 412.304(c)(2)) are paid based on 100 percent of the capital Federal rate in FY 2005. The applicable proposed capital Federal rate was determined by making adjustments as follows:</P>
                    <P>• For outliers, by dividing the proposed capital standard Federal rate by the proposed outlier reduction factor for that fiscal year; and</P>
                    <P>• For the payment adjustments applicable to the hospital, by multiplying the hospital's proposed GAF, disproportionate share adjustment factor, and IME adjustment factor, when appropriate.</P>
                    <P>For purposes of calculating payments for each discharge during FY 2005, the capital standard Federal rate is adjusted as follows: (Standard Federal Rate) × (DRG weight) × (GAF) × (Large Urban Add-on, if applicable) × (COLA adjustment for hospitals located in Alaska and Hawaii) × (1 + Disproportionate Share Adjustment Factor + IME Adjustment Factor, if applicable). The result is the adjusted capital Federal rate.</P>
                    <P>Hospitals also may receive outlier payments for those cases that qualify under the thresholds established for each fiscal year. Section 412.312(c) provides for a single set of thresholds to identify outlier cases for both inpatient operating and inpatient capital-related payments. The proposed outlier thresholds for FY 2005 are in section II.A.4.c. of this Addendum. For FY 2005, a case qualifies as a cost outlier if the cost for the case plus the IME and DSH payments is greater than the prospective payment rate for the DRG plus $35,085.</P>
                    <P>An eligible hospital may also qualify for a special exceptions payment under § 412.348(g) for up through the 10th year beyond the end of the capital transition period if it meets: (1) a project need requirement described at § 412.348(g)(2), which in the case of certain urban hospitals includes an excess capacity test as described at § 412.348(g)(4); and (2) a project size requirement as described at § 412.348(g)(5). Eligible hospitals include sole community hospitals, urban hospitals with at least 100 beds that have a DSH patient percentage of at least 20.2 percent or qualify for DSH payments under § 412.106(c)(2), and hospitals that have a combined Medicare and Medicaid inpatient utilization of at least 70 percent. Under § 412.348(g)(8), the amount of a special exceptions payment is determined by comparing the cumulative payments made to the hospital under the capital PPS to the cumulative minimum payment level. This amount is offset by: (1) Any amount by which a hospital's cumulative capital payments exceed its cumulative minimum payment levels applicable under the regular exceptions process for cost reporting periods beginning during which the hospital has been subject to the capital PPS; and (2) any amount by which a hospital's current year operating and capital payments (excluding 75 percent of operating DSH payments) exceed its operating and capital costs. Under § 412.348(g)(6), the minimum payment level is 70 percent for all eligible hospitals.</P>
                    <P>During the transition period, new hospitals (as defined under § 412.300) were exempt from the capital PPS for their first 2 years of operation and were paid 85 percent of their reasonable costs during that period. Effective with the third year of operation through the remainder of the transition period, under § 412.324(b) we paid the hospital under the appropriate transition methodology. If the hold-harmless methodology were applicable, the hold-harmless payment for assets in use during the base period would extend for 8 years, even if the hold-harmless payments extend beyond the normal transition period. As discussed in section VI.A. of the preamble of this proposed rule, under § 412.304(c)(2), for cost reporting periods beginning on or after October 1, 2002, we pay a new hospital 85 percent of their reasonable costs during the first 2 years of operation unless it elects to receive payment based on 100 percent of the capital Federal rate. Effective with the third year of operation, we pay the hospital based on 100 percent of the capital Federal rate (that is, the same methodology used to pay all other hospitals subject to the capital PPS).</P>
                    <HD SOURCE="HD2">C. Capital Input Price Index</HD>
                    <HD SOURCE="HD3">1. Background</HD>
                    <P>Like the operating input price index, the capital input price index (CIPI) is a fixed-weight price index that measures the price changes associated with capital costs during a given year. The CIPI differs from the operating input price index in one important aspect—the CIPI reflects the vintage nature of capital, which is the acquisition and use of capital over time. Capital expenses in any given year are determined by the stock of capital in that year (that is, capital that remains on hand from all current and prior capital acquisitions). An index measuring capital price changes needs to reflect this vintage nature of capital. Therefore, the CIPI was developed to capture the vintage nature of capital by using a weighted-average of past capital purchase prices up to and including the current year.</P>
                    <P>We periodically update the base year for the operating and capital input prices to reflect the changing composition of inputs for operating and capital expenses. The CIPI was last rebased to FY 1997 in the August 1, 2002 final rule (67 FR 50044).</P>
                    <HD SOURCE="HD3">2. Forecast of the CIPI for Federal Fiscal Year 2005</HD>
                    <P>
                        Based on the latest forecast by Global Insight, Inc. (first quarter of 2004), we are forecasting the CIPI to increase 0.7 percent in FY 2005. This reflects a projected 1.2 percent increase in vintage-weighted depreciation prices (building and fixed equipment, and movable equipment) and a 3.0 percent increase in other capital expense prices in FY 2005, partially offset by a 2.5 percent decline in vintage-weighted 
                        <PRTPAGE P="28388"/>
                        interest expenses in FY 2005. The weighted average of these three factors produces the 0.7 percent increase for the CIPI as a whole in FY 2005.
                    </P>
                    <HD SOURCE="HD1">IV. Proposed Changes to Payment Rates for Excluded Hospitals and Hospital Units: Rate-of-Increase Percentages</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Excluded Hospitals Rate of Increase” at the beginning of your comment.]</FP>
                    <P>As discussed in section VI. of the preamble of this proposed rule, in accordance with section 1886(b)(3)(H)(i) of the Act and effective for cost reporting periods beginning on or after October 1, 2002, payments to existing psychiatric hospitals and units, rehabilitation hospitals and units, and long-term care hospitals excluded from the IPPS are no longer subject to limits on a hospital-specific target amount (expressed in terms of the inpatient operating cost per discharge) that are set for each hospital, based on the hospital's own historical cost experience trended forward by the applicable rate-of-increase percentages (update factors).</P>
                    <P>Effective for cost reporting periods beginning on or after October 1, 2002, rehabilitation hospitals and units are paid 100 percent of the IRF PPS Federal rate. Effective for cost reporting periods beginning on or after October 1, 2002, LTCHs also are no longer paid on a reasonable cost basis, but are paid under a LTCH DRG-based PPS. As part of the payment process for LTCHs, we established a 5-year transition period from reasonable cost-based reimbursement to a fully Federal PPS. However, a LTCH may elect to be paid based on 100 percent of the Federal prospective payment rate. We have proposed, but not finalized, an IPF PPS under which psychiatric hospitals and units would no longer be paid on a reasonable cost basis but would be paid on a prospective per diem basis. (68 FR 66920, November 28, 2003)</P>
                    <P>In accordance with existing §§ 413.40(c)(4)(ii) and (d)(1)(i) and (ii), where applicable, excluded psychiatric hospitals and units continue to be paid on a reasonable cost basis, payments are based on their Medicare inpatient operating costs, not to exceed the ceiling (as defined in § 413.40(a)(3)). In addition, LTCHs that are paid under a blend methodology will have the TEFRA portion subject to the ceiling as well.</P>
                    <P>Section 1886(b)(7) of the Act had established a payment limitation for new rehabilitation hospitals and units, psychiatric hospitals and units, and long-term care hospitals that first received payment as a hospital or unit excluded from the IPPS on or after October 1, 1997. However, effective for cost reporting periods beginning on or after October 1, 2002, this payment limitation is no longer applicable to new rehabilitation hospitals or units because they are paid 100 percent of the Federal prospective rate under the IRF PPS. Also, effective for cost reporting periods beginning on or after October 1, 2002, new LTCHs are paid based on 100 percent of the fully Federal prospective rate. In contrast, those “new” LTCHs that meet the definition of “new” under § 412.40(f)(2)(ii) and that have their first cost reporting periods beginning on or after October 1, 1997 and before October 1, 2002, may be paid under the LTCH PPS transition methodology. Since those hospitals by definition would have been considered new before October 1, 2002, they would have been subject to the updated payment limitation on new hospitals that was published in the FY 2003 IPPS final rule (67 FR 50103). A discussion of how the payment limitation was calculated can be found in the August 29, 1997 final rule with comment period (62 FR 46019); the May 12, 1998 final rule (63 FR 26344); the July 31, 1998 final rule (63 FR 41000); and the July 30, 1999 final rule (64 FR 41529).</P>
                    <P>The amount of payment for a “new” psychiatric hospital or unit would be determined as follows:</P>
                    <P>• Under existing § 413.40(f)(2)(ii), for the first 12-month cost reporting periods beginning on or after October 1, 1997, the amount of payment for a new hospital or unit that was not paid as an excluded hospital or unit before October 1, 1997, is the lower of: (1) The hospital's net inpatient operating costs per case; or (2) 110 percent of the national median of the target amounts for the same class of excluded hospitals and units, adjusted for differences in wage levels and updated to the first cost reporting period in which the hospital receives payment. The second 12-month cost reporting period is subject to the same target amount applied to the first cost reporting period.</P>
                    <P>• In the case of a hospital that received payments under § 413.40(f)(2)(ii) as a newly created hospital or unit, to determine the hospital's or unit's target amount for the hospital's or unit's third 12-month cost reporting period, the payment amount determined under § 413.40(f)(2)(ii)(A) for the preceding cost reporting period is updated to the third cost reporting period.</P>
                    <P>The amounts included in the following table reflect the proposed updated 110 percent of the national median target amounts of new excluded psychiatric hospitals and units for cost reporting periods beginning during FY 2005. These figures are updated with the most recent data available to reflect the projected market basket increase percentage of 3.3 percent. This projected percentage change in the market basket reflects the average change in the price of goods and services purchased by hospitals to furnish inpatient hospital services (as projected by CMS’ Office of the Actuary based on its historical experience with the IPPS). For a new provider, the labor-related share of the target amount is multiplied by the appropriate geographic area wage index, without regard to IPPS reclassifications, and added to the nonlabor-related share in order to determine the per case limit on payment under the statutory payment methodology for new providers.</P>
                    <GPOTABLE COLS="3" OPTS="L2,tp0,i1" CDEF="s50,14C,14C">
                        <TTITLE>  </TTITLE>
                        <BOXHD>
                            <CHED H="1">Class of excluded hospital or unit </CHED>
                            <CHED H="1">
                                Proposed 
                                <LI>FY 2005 </LI>
                                <LI>labor-related share </LI>
                            </CHED>
                            <CHED H="1">
                                Proposed 
                                <LI>FY 2005 </LI>
                                <LI>nonlabor-related share.</LI>
                            </CHED>
                        </BOXHD>
                        <ROW>
                            <ENT I="01">Psychiatric </ENT>
                            <ENT>$7,534.70 </ENT>
                            <ENT>$2,994.67 </ENT>
                        </ROW>
                    </GPOTABLE>
                    <P>
                        This payment limitation is no longer applicable to new LTCHs that meet the definition of § 412.23(e)(4) since they will be paid 100 percent of the Federal rate. (Section 412.23(e)(4) states that for purposes of payment under the LTCH PPS, a new LTCH is a provider of inpatient services that meets the qualifying criteria in paragraphs (e)(1) and (e)(2) of this section and, under present or previous ownership (or both), its first cost reporting period as a LTCH begins on or after October 1, 2002). Under the LTCH PPS, new LTCHs are based on 100 percent of the fully Federal prospective rate (they may not participate in the 5-year transition from cost-based reimbursement to 
                        <PRTPAGE P="28389"/>
                        prospective payment). In contrast, those “new” LTCHs that meet the definition of “new” under § 413.40(f)(2)(ii) and that have their first cost reporting periods beginning on or after October 1, 1997, and before October 1, 2002, may be paid under the LTCH PPS transition methodology. Because those hospitals by definition would have been considered new before October 1, 2002, they would have been subject to the updated payment limitation on new hospitals that was published in the FY 2003 IPPS final rule (67 FR 50103). Under existing regulations at § 413.40(f)(2)(ii), the “new” hospital would be subject to the same cap in its second cost reporting period; this cap would not be updated for the new hospital's second cost reporting year. Thus, since the same cap is to be used for the “new” LTCH's first two cost reporting periods, it is no longer necessary to publish an updated cap.
                    </P>
                    <HD SOURCE="HD1">V. Payment for Blood Clotting Factor Administered to Hemophilia Inpatients</HD>
                    <FP>[If you choose to comment on issues in this section, please include the caption “Payment for Blood Clotting Factor” at the beginning of your comment.]</FP>
                    <P>
                        In December 2002, the Department implemented a policy that established the Single Drug Pricer (SDP) to correct identified discrepancies, further the legislative goal of establishing a uniform payment allowance as a reflection of the average wholesale price (AWP), and otherwise apply the existing stature and regulation more accurately and efficiently (CMS Program Memorandum AB-02-174, December 3, 2002, which can be accessed at: 
                        <E T="03">http://www.cms.hhs.gov/manuals</E>
                        ). Under the SDP, CMS will establish prices centrally, thereby resulting in greater consistency in drug pricing nationally. The SDP instruction applies to blood clotting factors furnished to hospital inpatients. The payment allowance for the single national drug price for each Medicare covered drug is based on 95 percent of the AWP, except for drugs billed to durable medical equipment regional carriers (DMERCs) and hospital outpatient drugs billed to fiscal intermediaries. We are publishing this notice here because we previously have addressed the add-on payment for the costs of administering blood clotting factor in the IPPS annual rule (see the August 1, 2000 IPPS final rule (65 FR 47116).
                    </P>
                    <P>On a quarterly basis, CMS will furnish three SDP files to all fiscal intermediaries. Each fiscal intermediary must accept the SDP files and process claims for any drug identified on the files on the basis of the price shown on the applicable file. Previously, the fiscal intermediary performed annual update calculations based on the most recent AWP data available to the carrier. The fiscal intermediary should use the SDP to price the blood clotting factors.</P>
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                    <GPH SPAN="3" DEEP="640">
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                    <GPH SPAN="3" DEEP="640">
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                        <GID>EP70AD04.029</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
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                        <GID>EP70AD04.030</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
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                        <GID>EP70AD04.031</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28422"/>
                        <GID>EP70AD04.032</GID>
                    </GPH>
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                    </GPH>
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                    </GPH>
                    <GPH SPAN="3" DEEP="640">
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                        <GID>EP70AD04.035</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
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                        <GID>EP70AD04.036</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
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                        <GID>EP70AD04.037</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28428"/>
                        <GID>EP70AD04.038</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28429"/>
                        <GID>EP70AD04.039</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28430"/>
                        <GID>EP70AD04.040</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28431"/>
                        <GID>EP70AD04.041</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28432"/>
                        <GID>EP70AD04.042</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28433"/>
                        <GID>EP70AD04.043</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28434"/>
                        <GID>EP70AD04.044</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28435"/>
                        <GID>EP70AD04.045</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28436"/>
                        <GID>EP70AD04.046</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
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                    <GPH SPAN="3" DEEP="640">
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                    </GPH>
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                        <GID>EP70AD04.053</GID>
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                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28450"/>
                        <GID>EP70AD04.060</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
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                    <GPH SPAN="3" DEEP="640">
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                    <GPH SPAN="3" DEEP="640">
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                    <GPH SPAN="3" DEEP="640">
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                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28456"/>
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                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28771"/>
                        <GID>EP70AD04.381</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28772"/>
                        <GID>EP70AD04.382</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28773"/>
                        <GID>EP70AD04.383</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28774"/>
                        <GID>EP70AD04.384</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28775"/>
                        <GID>EP70AD04.385</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28776"/>
                        <GID>EP70AD04.386</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28777"/>
                        <GID>EP70AD04.387</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28778"/>
                        <GID>EP70AD04.388</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28779"/>
                        <GID>EP70AD04.389</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28780"/>
                        <GID>EP70AD04.390</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28781"/>
                        <GID>EP70AD04.391</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28782"/>
                        <GID>EP70AD04.392</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28783"/>
                        <GID>EP70AD04.393</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28784"/>
                        <GID>EP70AD04.394</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28785"/>
                        <GID>EP70AD04.395</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28786"/>
                        <GID>EP70AD04.396</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28787"/>
                        <GID>EP70AD04.397</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28788"/>
                        <GID>EP70AD04.398</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28789"/>
                        <GID>EP70AD04.399</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28790"/>
                        <GID>EP70AD04.400</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28791"/>
                        <GID>EP70AD04.401</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28792"/>
                        <GID>EP70AD04.402</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28793"/>
                        <GID>EP70AD04.403</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28794"/>
                        <GID>EP70AD04.404</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28795"/>
                        <GID>EP70AD04.405</GID>
                    </GPH>
                    <GPH SPAN="3" DEEP="640">
                        <PRTPAGE P="28796"/>
                        <GID>EP70AD04.406</GID>
                    </GPH>
                    <APPENDIX>
                        <PRTPAGE P="28797"/>
                        <HD SOURCE="HED">Appendix A—Regulatory Analysis of Impacts</HD>
                        <FP>[If you choose to comment on issues in this section, please include the caption “Impact Analyses” at the beginning of your comment.]</FP>
                        <HD SOURCE="HD1">I. Background and Summary</HD>
                        <P>We have examined the impacts of this proposed rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review) and the Regulatory Flexibility Act (RFA) (September 19, 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.</P>
                        <P>Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year).</P>
                        <P>We have determined that this proposed rule is a major rule as defined in 5 U.S.C. 804(2). Based on the overall percentage change in payments per case estimated using our payment simulation model (a 4.9 percent increase), we estimate that the total impact of these proposed changes for FY 2005 payments compared to FY 2004 payments to be approximately a $4.3 billion increase. As a result, total IPPS payments will increase from approximately $100 billion to approximately $104.3 billion. This amount does not reflect changes in hospital admissions or case-mix intensity, which would also affect overall payment changes.</P>
                        <P>The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and government agencies. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $5 million to $25 million in any 1 year. For purposes of the RFA, all hospitals and other providers and suppliers are considered to be small entities. Individuals and States are not included in the definition of a small entity.</P>
                        <P>In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis for any proposed rule that may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 603 of the RFA. With the exception of hospitals located in certain New England counties, for purposes of section 1102(b) of the Act, we previously defined a small rural hospital as a hospital with fewer than 100 beds that is located outside of a Metropolitan Statistical Area (MSA) or New England County Metropolitan Area (NECMA). However, under the new labor market definitions that we are proposing to adopt, we no longer employ NECMAs to define urban areas in New England. Therefore, we now define a small rural hospital as a hospital with fewer than 100 beds that is located outside of an MSA. Section 601(g) of the Social Security Amendments of 1983 (Pub. L. 98-21) designated hospitals in certain New England counties as belonging to the adjacent NECMA. Thus, for purposes of the IPPS, we continue to classify these hospitals as urban hospitals.</P>
                        <P>Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) also requires that agencies assess anticipated costs and benefits before issuing any proposed rule (or a final rule that has been preceded by a proposed 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 $100 million. This proposed rule would not mandate any requirements for State, local, or tribal governments.</P>
                        <P>Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. We have reviewed this proposed rule in light of Executive Order 13132 and have determined that it would not have any negative impact on the rights, roles, and responsibilities of State, local, or tribal governments.</P>
                        <P>In accordance with the provisions of Executive Order 12866, this proposed rule was reviewed by the Office of Management and Budget.</P>
                        <P>The following analysis, in conjunction with the remainder of this document, demonstrates that this proposed rule is consistent with the regulatory philosophy and principles identified in Executive Order 12866, the RFA, and section 1102(b) of the Act. The proposed rule would affect payments to a substantial number of small rural hospitals as well as other classes of hospitals, and the effects on some hospitals may be significant.</P>
                        <HD SOURCE="HD1">II. Objectives</HD>
                        <P>The primary objective of the IPPS is to create incentives for hospitals to operate efficiently and minimize unnecessary costs while at the same time ensuring that payments are sufficient to adequately compensate hospitals for their legitimate costs. In addition, we share national goals of preserving the Medicare Trust Fund.</P>
                        <P>We believe the changes in this proposed rule would further each of these goals while maintaining the financial viability of the hospital industry and ensuring access to high quality health care for Medicare beneficiaries. We expect that these proposed changes would ensure that the outcomes of this payment system are reasonable and equitable while avoiding or minimizing unintended adverse consequences.</P>
                        <HD SOURCE="HD1">III. Limitations of Our Analysis</HD>
                        <P>The following quantitative analysis presents the projected effects of our proposed policy changes, as well as statutory changes effective for FY 2005, on various hospital groups. We estimate the effects of individual policy changes by estimating payments per case while holding all other payment policies constant. We use the best data available, but we do not attempt to predict behavioral responses to our proposed policy changes, and we do not make adjustments for future changes in such variables as admissions, lengths of stay, or case-mix. As we have done in previous proposed rules, we are soliciting comments and information about the anticipated effects of these proposed changes on hospitals and our methodology for estimating them. Any comments that we receive in response to this proposed rule will be addressed in the final rule.</P>
                        <HD SOURCE="HD1">IV. Hospitals Included in and Excluded From the IPPS</HD>
                        <P>The prospective payment systems for hospital inpatient operating and capital-related costs encompass nearly all general short-term, acute care hospitals that participate in the Medicare program. There were 39 Indian Health Service hospitals in our database, which we excluded from the analysis due to the special characteristics of the prospective payment method for these hospitals. Among other short-term, acute care hospitals, only the 47 such hospitals in Maryland remain excluded from the IPPS under the waiver at section 1814(b)(3) of the Act.</P>
                        <P>As of April 2004, there are 3,904 IPPS hospitals to be included in our analysis. This represents about 65 percent of all Medicare-participating hospitals. The majority of this impact analysis focuses on this set of hospitals. There are also approximately 898 critical access hospitals (CAHs). These small, limited service hospitals are paid on the basis of reasonable costs rather than under the IPPS. There are also 1,194 specialty hospitals and units that are excluded from the IPPS. These specialty hospitals include psychiatric hospitals and units, rehabilitation hospitals and units, long-term care hospitals, children's hospitals, and cancer hospitals. The impacts of our proposed policy changes on these hospitals are discussed below.</P>
                        <HD SOURCE="HD1">V. Impact on Excluded Hospitals and Hospital Units</HD>
                        <P>As of April 2004, there were 1,194 specialty hospitals excluded from the IPPS. Of these 1,194 specialty hospitals, 478 psychiatric hospitals, 80 children's, 11 cancer hospitals, and less than 10 percent of the LTCHs are being paid on a reasonable cost basis subject to the rate-of-increase ceiling under § 413.40. The remaining providers—216 rehabilitation, and approximately 90 percent of the 331 LTCHs are paid 100 percent of the Federal rate under the IRF and LTCH PPS’, respectively. In addition, there were 1,381 psychiatric units (paid on a reasonable cost basis) and 999 rehabilitation units (paid under the IRF PPS) in hospitals otherwise subject to the IPPS. Under § 413.40(a)(2)(i)(A), the rate-of-increase ceiling is not applicable to the 47 specialty hospitals and units in Maryland that are paid in accordance with the waiver at section 1814(b)(3) of the Act.</P>
                        <P>
                            In the past, hospitals and units excluded from the IPPS have been paid based on their reasonable costs subject to limits as established by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). Hospitals that continue to be paid based on 
                            <PRTPAGE P="28798"/>
                            their reasonable costs are subject to TEFRA limits for FY 2005. For these hospitals, the proposed update is the percentage increase in the excluded hospital market basket, currently estimated at 3.3 percent.
                        </P>
                        <P>Inpatient rehabilitation facilities (IRFs) are paid under a prospective payment system (IRF PPS) for cost reporting periods beginning on or after January 1, 2002. For cost reporting periods beginning during FY 2005, the IRF PPS is based on 100 percent of the adjusted Federal IRF prospective payment amount, updated annually. Therefore, these hospitals would not be impacted by this proposed rule.</P>
                        <P>Effective for cost reporting periods beginning on or after October 1, 2002, LTCHs are paid under an LTCH PPS, based on the adjusted Federal prospective payment amount, updated annually. LTCHs will receive a blended payment (Federal prospective payment and a reasonable cost-based payment) over a 5-year transition period. However, under the LTCH PPS, an LTCH may also elect to be paid at 100 percent of the Federal prospective rate at the beginning of any of its cost reporting periods during the 5-year transition period. For purposes of the update factor, the portion of the LTCH PPS transition blend payment based on reasonable costs for inpatient operating services would be determined by updating the LTCH's TEFRA limit by the estimate of the excluded hospital market basket (or 3.3 percent).</P>
                        <P>Section 124 of the Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999 (BBRA) requires the development of a per diem prospective payment system (PPS) for payment of inpatient hospital services furnished in psychiatric hospitals and psychiatric units of acute care hospitals (inpatient psychiatric facilities (IFPs)). We published a proposed rule to implement the IPF PPS on November 28, 2003 (68 FR 66920). On January 30, 2004, we published a notice to extend the comment period for 30 additional days (69 FR 4464). The comment period closed on March 26, 2004.</P>
                        <P>Under the proposed rule, CMS would compute a Federal per diem base rate to be paid to all IPFs based on the sum of the average routine operating, ancillary, and capital costs for each patient day of psychiatric care in an IPF adjusted for budget neutrality. The Federal per diem base rate would be adjusted to reflect certain patient characteristics such as age, specified DRGs, and selected high-cost comorbidities, and certain facility characteristics such as a wage index adjustment, rural location, and indirect teaching costs.</P>
                        <P>The November 28, 2003 proposed rule assumed an April 1, 2004 effective date for the purpose of ratesetting and calculating impacts. However, we are still in the process of analyzing public comments and developing a final rule for publication. The effective date of the IPF PPS would occur 5 months following publication of the final rule.</P>
                        <P>The impact on excluded hospitals and hospital units of the update in the rate-of-increase limit depends on the cumulative cost increases experienced by each excluded hospital or unit since its applicable base period. For excluded hospitals and units that have maintained their cost increases at a level below the rate-of-increase limits since their base period, the major effect is on the level of incentive payments these hospitals and hospital units receive. Conversely, for excluded hospitals and hospital units with per-case cost increases above the cumulative update in their rate-of-increase limits, the major effect is the amount of excess costs that will not be reimbursed.</P>
                        <P>We note that, under § 413.40(d)(3), an excluded hospital or unit whose costs exceed 110 percent of its rate-of-increase limit receives its rate-of-increase limit plus 50 percent of the difference between its reasonable costs and 110 percent of the limit, not to exceed 110 percent of its limit. In addition, under the various provisions set forth in § 413.40, certain excluded hospitals and hospital units can obtain payment adjustments for justifiable increases in operating costs that exceed the limit. At the same time, however, by generally limiting payment increases, we continue to provide an incentive for excluded hospitals and hospital units to restrain the growth in their spending for patient services.</P>
                        <HD SOURCE="HD1">VI. Quantitative Impact Analysis of the Proposed Policy Changes Under the IPPS for Operating Costs</HD>
                        <HD SOURCE="HD2">A. Basis and Methodology of Estimates</HD>
                        <P>In this proposed rule, we are announcing policy changes and payment rate updates for the IPPS for operating and capital-related costs. Based on the overall percentage change in payments per case estimated using our payment simulation model (a 4.9 percent increase), we estimate the total impact of these proposed changes for FY 2005 payments compared to FY 2004 payments to be approximately a $4.3 billion increase. This amount does not reflect changes in hospital admissions or case-mix intensity, which would also affect overall payment changes.</P>
                        <P>We have prepared separate impact analyses of the proposed changes to each system. This section deals with proposed changes to the operating prospective payment system. Our payment simulation model relies on the most recent available data to enable us to estimate the impacts on payments per case of certain changes we are proposing in this proposed rule. However, there are other changes we are proposing for which we do not have data available that would allow us to estimate the payment impacts using this model. For those proposed changes, we have attempted to predict the payment impacts of those proposed changes based upon our experience and other more limited data.</P>
                        <P>The data used in developing the quantitative analyses of changes in payments per case presented below are taken from the FY 2003 MedPAR file and the most current Provider-Specific File that is used for payment purposes. Although the analyses of the changes to the operating PPS do not incorporate cost data, data from the most recently available hospital cost report were used to categorize hospitals. Our analysis has several qualifications. First, we do not make adjustments for behavioral changes that hospitals may adopt in response to the proposed policy changes, and we do not adjust for future changes in such variables as admissions, lengths of stay, or case-mix. Second, due to the interdependent nature of the IPPS payment components, it is very difficult to precisely quantify the impact associated with each proposed change. Third, we draw upon various sources for the data used to categorize hospitals in the tables. In some cases, particularly the number of beds, there is a fair degree of variation in the data from different sources. We have attempted to construct these variables with the best available source overall. However, for individual hospitals, some miscategorizations are possible.</P>
                        <P>Using cases in the FY 2003 MedPAR file, we simulated payments under the operating IPPS given various combinations of payment parameters. Any short-term, acute care hospitals not paid under the IPPSs (Indian Health Service hospitals and hospitals in Maryland) were excluded from the simulations. The impact of payments under the capital IPPS, or the impact of payments for costs other than inpatient operating costs, are not analyzed in this section. Estimated payment impacts of proposed FY 2005 changes to the capital IPPS are discussed in section VIII. of this Appendix.</P>
                        <P>The proposed changes discussed separately below are the following:</P>
                        <P>• The effects of the proposed annual reclassification of diagnoses and procedures and the recalibration of the DRG relative weights required by section 1886(d)(4)(C) of the Act.</P>
                        <P>• The effects of applying a lower labor-related share for hospitals with wage indexes less than or equal to 1.0, as required under section 403 of Public Law 108-173.</P>
                        <P>• The effects of the proposed adoption of the new MSAs as announced by OMB in June 2003.</P>
                        <P>• The effects of the proposed changes in hospitals' wage index values reflecting wage data from hospitals' cost reporting periods beginning during FY 2001, compared to the FY 2000 wage data.</P>
                        <P>• The effects of adjusting hospitals' wage data to reflect the occupational mix based on our survey of hospitals.</P>
                        <P>• The effect of the proposed wage and DRG recalibration budget neutrality factors.</P>
                        <P>• The effects of geographic reclassifications by the MGCRB that will be effective in FY 2005.</P>
                        <P>• The effects of the proposed implementation of section 505 of Public Law 108-173, which provides for an increase in a hospital's wage index if the hospital qualifies by meeting a threshold percentage of residents of the county where the hospital is located who commute to work at hospitals in areas with higher wage indexes.</P>
                        <P>• The total change in payments based on proposed FY 2005 policies and MMA-imposed changes relative to payments based on FY 2004 policies.</P>
                        <P>
                            To illustrate the impacts of the proposed FY 2005 changes, our analysis begins with an FY 2005 baseline simulation model using: the proposed update of 3.3 percent; the FY 2004 DRG GROUPER (version 21.0); the MSA designations for hospitals based on OMB's MSA definitions prior to June 2003; the FY 2004 wage index; and no MGCRB 
                            <PRTPAGE P="28799"/>
                            reclassifications. Outlier payments are set at 5.1 percent of total operating DRG and outlier payments.
                        </P>
                        <P>The baseline simulation model also reflects changes enacted by Public Law 108-173 to the IME and DSH adjustments. Section 402 provides that, for discharges occurring on or after April 1, 2004, all hospitals that qualify will receive DSH payments using the prior (before April 1, 2004) DSH adjustment formula for urban hospitals with 100 or more beds. Except for urban hospitals with 100 or more beds and rural referral centers, the DSH adjustment is capped at 12 percent. Section 502 modifies the IME adjustment for midway through FY 2004 and provides a new schedule of formula multipliers for FYs 2005 and thereafter.</P>
                        <P>Section 501(b) provides that, for FYs 2005 through 2007, the update factors will be reduced by 0.4 percentage point for any hospital that does not submit quality data. For purposes of the FY 2005 simulations in this proposed impact analysis, we are assuming all hospitals will qualify for the full update. Hospitals are not required to begin submitting these data in order to qualify for a full update until July 2004, and we are therefore unable to determine the rate of compliance with this requirement of receiving the full update.</P>
                        <P>Each proposed and statutory policy change is then added incrementally to this baseline model, finally arriving at an FY 2005 model incorporating all of the proposed changes. This allows us to isolate the effects of each proposed change.</P>
                        <P>Our final comparison illustrates the percent change in payments per case from FY 2004 to FY 2005. Five factors not discussed separately above have significant impacts here. The first is the update to the standardized amount. In accordance with section 1886(b)(3)(B)(i) of the Act, we are proposing to update the standardized amount for FY 2005 using the most recently forecasted hospital market basket increase for FY 2005 of 3.3 percent. (Hospitals that fail to comply with the quality data submission requirement to receive the full update will receive an update reduced by 0.4 percentage points to 2.9 percent.) Under section 1886(b)(3)(B)(iv) of the Act, the updates to the hospital-specific amounts for sole community hospitals (SCHs) and for Medicare-dependent small rural hospitals (MDHs) are also equal to the market basket increase, or 3.3 percent.</P>
                        <P>A second significant factor that impacts changes in hospitals' payments per case from FY 2004 to FY 2005 is the change in MGCRB status from one year to the next. That is, hospitals reclassified in FY 2004 that are no longer reclassified in FY 2005 may have a negative payment impact going from FY 2004 to FY 2005; conversely, hospitals not reclassified in FY 2004 that are reclassified in FY 2005 may have a positive impact. In some cases, these impacts can be quite substantial, so if a relatively small number of hospitals in a particular category lose their reclassification status, the percentage change in payments for the category may be below the national mean. However, this effect is alleviated by section 1886(d)(10)(D)(v) of the Act, which provides that reclassifications for purposes of the wage index are for a 3-year period.</P>
                        <P>A third significant factor is that we currently estimate that actual outlier payments during FY 2004 will be 4.4 percent of total DRG payments. When the FY 2004 final rule was published, we projected FY 2004 outlier payments would be 5.1 percent of total DRG plus outlier payments; the average standardized amounts were offset correspondingly. The effects of the lower than expected outlier payments during FY 2004 (as discussed in the Addendum to this proposed rule) are reflected in the analyses below comparing our current estimates of FY 2004 payments per case to estimated FY 2005 payments per case (with outlier payments projected to equal 5.1 percent of total DRG payments).</P>
                        <P>Fourth, as noted above, sections 402 and 502 of Public Law 108-173 establish higher DSH and IME payments, respectively. As a result, payments for these factors will be higher in FY 2005 than in FY 2004.</P>
                        <P>Fifth, section 508 of Public Law 108-173 established a one-time appeal process for hospitals to be reclassified in order to receive a higher wage index for a period of 3 years beginning with discharges on or after April 1, 2004.</P>
                        <HD SOURCE="HD2">B. Analysis of Table I</HD>
                        <P>Table I displays the results of our analysis. The table categorizes hospitals by various geographic and special payment consideration groups to illustrate the varying impacts on different types of hospitals. The top row of the table shows the overall impact on the 3,904 hospitals included in the analysis. This number is 145 fewer hospitals than were included in the impact analysis in the FY 2004 final rule (68 FR 45661). There are 94 new CAHs that were excluded from this year's analysis. The remaining 51 cases represent hospitals that have closed or hospitals for which we have no data.</P>
                        <P>The next four rows of Table I contain hospitals categorized according to their geographic location: all urban, which is further divided into large urban and other urban; and rural. We previously defined a small rural hospital as a hospital with fewer than 100 beds that is located outside of an MSA or NECMA. However, under the new labor market definitions that we are proposing to adopt, we no longer employ NECMAs to define urban areas in New England. Therefore, we will now define a small rural hospital as a hospital with fewer than 100 beds that is located outside of an MSA. There are 2,696 hospitals located in urban areas (MSAs or NECMAs) included in our analysis. Among these, there are 1,424 hospitals located in large urban areas (populations over 1 million), and 1,272 hospitals in other urban areas (populations of 1 million or fewer). In addition, there are 1,208 hospitals in rural areas. The next two groupings are by bed-size categories, shown separately for urban and rural hospitals. The final groupings by geographic location are by census divisions and are also shown separately for urban and rural hospitals.</P>
                        <P>The second part of Table I shows hospital groups based on hospitals' FY 2005 payment classifications, including any reclassifications under section 1886(d)(10) of the Act. For example, the rows labeled urban, large urban, other urban, and rural show that the number of hospitals paid based on these categorizations after consideration of geographic reclassifications are 2,624, 1,405, 1,219, and 1,280, respectively.</P>
                        <P>The next three groupings examine the impacts of the final changes on hospitals grouped by whether or not they have GME residency programs (teaching hospitals that receive an IME adjustment) or receive DSH payments, or some combination of these two adjustments. There are 2,787 nonteaching hospitals in our analysis, 916 teaching hospitals with fewer than 100 residents, and 201 teaching hospitals with 100 or more residents.</P>
                        <P>In the DSH categories, hospitals are grouped according to their DSH payment status, and whether they are considered urban or rural for DSH purposes. Previously, hospitals in the rural DSH categories in the impact table represented hospitals that were not reclassified for purposes of the standardized amount. (However, they may have been reclassified for purposes of the wage index.) However, reclassification for purposes of the standardized amount has been terminated as a result of the equalization of the standardized amounts. As a result, there are no longer cases in which reclassifications change the status of rural hospitals for DSH purposes. There is little or no impact from the termination of standardized amount reclassification under the operating IPPS, since there are few concrete cases in which change from rural to urban status now would have any effect under the revised DSH payment formulas. The next category groups hospitals considered urban after geographic reclassification, in terms of whether they receive the IME adjustment, the DSH adjustment, both, or neither.</P>
                        <P>The next five rows examine the impacts of the proposed changes on rural hospitals by special payment groups (SCHs, rural referral centers (RRCs), and Medicare dependant hospitals (MDHs)), as well as rural hospitals not receiving a special payment designation. There were 137 RRCs, 454 SCHs, 211 MDHs, and 73 hospitals that are both SCH and RRC.</P>
                        <P>The next two groupings are based on type of ownership and the hospital's Medicare utilization expressed as a percent of total patient days. These data are taken primarily from the FY 2001 Medicare cost report files, if available (otherwise FY 2000 data are used). Data needed to determine ownership status were unavailable for 68 hospitals. Similarly, the data needed to determine Medicare utilization were unavailable for 173 hospitals. The next two rows compare the impacts on those hospitals that converted from urban MSAs to rural CBSAs and for the hospitals that converted from rural MSAs to urban CBSAs.</P>
                        <P>
                            The next series of groupings concern the geographic reclassification status of hospitals. The first grouping displays all hospitals that were reclassified by the MGCRB for FY 2005. The next two groupings separate the hospitals in the first group by urban and rural status. The final row in Table I contains hospitals located in rural counties 
                            <PRTPAGE P="28800"/>
                            but deemed to be urban under section 1886(d)(8)(B) of the Act.
                        </P>
                        <GPOTABLE COLS="11" OPTS="L2(,0,),p7,7/8,i1" CDEF="s25,9,7,7,7,7,9,8,10,10,9">
                            <TTITLE>Table I.—Impact Analysis of Proposed Changes for FY 2005 Operating Prospective Payment System </TTITLE>
                            <TDESC>[Percent Changes in Payments per Case] </TDESC>
                            <BOXHD>
                                <CHED H="1">  </CHED>
                                <CHED H="1">
                                    No. of 
                                    <LI>
                                        hosps.
                                        <SU>1</SU>
                                    </LI>
                                </CHED>
                                <CHED H="1">
                                    DRG 
                                    <LI>
                                        recal 
                                        <SU>2</SU>
                                    </LI>
                                </CHED>
                                <CHED H="1">
                                    Labor 
                                    <LI>share </LI>
                                    <LI>
                                        split 
                                        <SU>3</SU>
                                    </LI>
                                </CHED>
                                <CHED H="1">
                                    Core 
                                    <LI>based </LI>
                                    <LI>stat. </LI>
                                    <LI>
                                        areas 
                                        <SU>4</SU>
                                    </LI>
                                </CHED>
                                <CHED H="1">
                                    New 
                                    <LI>wage </LI>
                                    <LI>
                                        data 
                                        <SU>5</SU>
                                    </LI>
                                </CHED>
                                <CHED H="1">
                                    Occupa- 
                                    <LI>tional </LI>
                                    <LI>
                                        mix 
                                        <SU>6</SU>
                                    </LI>
                                </CHED>
                                <CHED H="1">
                                    DRG &amp; 
                                    <LI>wage </LI>
                                    <LI>index </LI>
                                    <LI>
                                        changes 
                                        <SU>7</SU>
                                    </LI>
                                </CHED>
                                <CHED H="1">
                                    MGCRB 
                                    <LI>reclassifica-</LI>
                                    <LI>
                                        tion 
                                        <SU>8</SU>
                                    </LI>
                                </CHED>
                                <CHED H="1">
                                    Out- 
                                    <LI>migration </LI>
                                    <LI>
                                        data 
                                        <SU>9</SU>
                                    </LI>
                                </CHED>
                                <CHED H="1">
                                    All 
                                    <LI>FY 2005 </LI>
                                    <LI>
                                        changes 
                                        <SU>10</SU>
                                    </LI>
                                </CHED>
                            </BOXHD>
                            <ROW RUL="s">
                                <ENT I="25">  </ENT>
                                <ENT>(1) </ENT>
                                <ENT>(2) </ENT>
                                <ENT>(3) </ENT>
                                <ENT>(4) </ENT>
                                <ENT>(5) </ENT>
                                <ENT>(6) </ENT>
                                <ENT>(7) </ENT>
                                <ENT>(8) </ENT>
                                <ENT>(9) </ENT>
                                <ENT>(10) </ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">By Geographic Location:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">All hospitals </ENT>
                                <ENT>3,904</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.5</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Urban hospitals </ENT>
                                <ENT>2,696</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.5</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Large urban areas (populations over 1 million) </ENT>
                                <ENT>1,424</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.1 </ENT>
                                <ENT>−0.4</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.5</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Other urban areas (populations of 1 million or fewer) </ENT>
                                <ENT>1,272</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.7</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.1</ENT>
                                <ENT>5.0</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Rural hospitals </ENT>
                                <ENT>1,208</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>1.1 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>1.9</ENT>
                                <ENT>0.0</ENT>
                                <ENT>6.0</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Bed Size (Urban):</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">0-99 beds </ENT>
                                <ENT>684</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.5</ENT>
                                <ENT>0.4</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.3 </ENT>
                                <ENT>−0.4</ENT>
                                <ENT>0.1</ENT>
                                <ENT>5.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">100-199 beds </ENT>
                                <ENT>966</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.5 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.1</ENT>
                                <ENT>4.6</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">200-299 beds </ENT>
                                <ENT>500</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.4</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.2 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.4</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">300-499 beds </ENT>
                                <ENT>415</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.5</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.8</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">500 or more beds </ENT>
                                <ENT>131</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.1 </ENT>
                                <ENT>−0.4</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Bed Size (Rural):</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">0-49 beds </ENT>
                                <ENT>549</ENT>
                                <ENT>0.4 </ENT>
                                <ENT>1.0 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.5</ENT>
                                <ENT>0.4</ENT>
                                <ENT>0.1</ENT>
                                <ENT>6.3</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">50-99 beds </ENT>
                                <ENT>393</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.9 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.3 </ENT>
                                <ENT>1.0</ENT>
                                <ENT>0.1</ENT>
                                <ENT>6.1</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">100-149 beds </ENT>
                                <ENT>163</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>1.2 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.3 </ENT>
                                <ENT>2.6</ENT>
                                <ENT>0.1</ENT>
                                <ENT>6.0</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">150-199 beds </ENT>
                                <ENT>57</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>1.3 </ENT>
                                <ENT>−0.3 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>3.2</ENT>
                                <ENT>0.0</ENT>
                                <ENT>5.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">200 or more beds </ENT>
                                <ENT>46</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>1.1 </ENT>
                                <ENT>−0.1 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.1 </ENT>
                                <ENT>2.9</ENT>
                                <ENT>0.0</ENT>
                                <ENT>5.6</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Urban by Region:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">New England </ENT>
                                <ENT>137</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.4 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.2 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>3.6</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Middle Atlantic </ENT>
                                <ENT>397</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>−0.7</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.8 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>3.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">South Atlantic </ENT>
                                <ENT>419</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.5</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>5.0</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">East North Central </ENT>
                                <ENT>450</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">East South Central </ENT>
                                <ENT>175</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>1.2</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.1</ENT>
                                <ENT>5.5</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">West North Central </ENT>
                                <ENT>160</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.6</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>−0.5</ENT>
                                <ENT>0.0</ENT>
                                <ENT>5.1</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">West South Central </ENT>
                                <ENT>346</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.9</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.5</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.5 </ENT>
                                <ENT>−0.5</ENT>
                                <ENT>0.0</ENT>
                                <ENT>5.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Mountain </ENT>
                                <ENT>140</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>−0.4</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.4 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>3.8</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Pacific </ENT>
                                <ENT>421</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.1</ENT>
                                <ENT>4.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Puerto Rico </ENT>
                                <ENT>51 </ENT>
                                <ENT>−0.4 </ENT>
                                <ENT>6.2 </ENT>
                                <ENT>−0.1 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.7 </ENT>
                                <ENT>−0.5</ENT>
                                <ENT>0.0</ENT>
                                <ENT>14.3</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Rural by Region:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">New England </ENT>
                                <ENT>34</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.3 </ENT>
                                <ENT>1.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>3.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Middle Atlantic </ENT>
                                <ENT>57</ENT>
                                <ENT>0.3 </ENT>
                                <ENT>1.0 </ENT>
                                <ENT>−0.4 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>1.8</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.2</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">South Atlantic </ENT>
                                <ENT>176</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>1.1 </ENT>
                                <ENT>−0.7 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>2.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>5.8</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">East North Central </ENT>
                                <ENT>160</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.8 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>1.4</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.5</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">East South Central </ENT>
                                <ENT>192</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>2.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>−0.1 </ENT>
                                <ENT>2.8</ENT>
                                <ENT>0.1</ENT>
                                <ENT>9.4</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">West North Central </ENT>
                                <ENT>206</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.8 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.5 </ENT>
                                <ENT>1.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>5.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">West South Central </ENT>
                                <ENT>228</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>1.7</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.4 </ENT>
                                <ENT>3.0</ENT>
                                <ENT>0.1</ENT>
                                <ENT>7.2</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Mountain </ENT>
                                <ENT>93</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.4 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.4</ENT>
                                <ENT>0.5</ENT>
                                <ENT>0.1</ENT>
                                <ENT>4.4</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Pacific </ENT>
                                <ENT>62</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.5</ENT>
                                <ENT>0.8</ENT>
                                <ENT>0.1</ENT>
                                <ENT>4.5</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">By Payment Classification:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Urban hospitals </ENT>
                                <ENT>2,624</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.5</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Large urban areas (populations over 1 million)</ENT>
                                <ENT>1,405</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.1 </ENT>
                                <ENT>−0.4</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.5</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Other urban areas (populations of 1 million or fewer) </ENT>
                                <ENT>1,219</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.7</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.1</ENT>
                                <ENT>5.0</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Rural areas </ENT>
                                <ENT>1,280</ENT>
                                <ENT>0.3 </ENT>
                                <ENT>1.0 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>1.7</ENT>
                                <ENT>0.0</ENT>
                                <ENT>5.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Teaching Status:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Non-teaching </ENT>
                                <ENT>2,787</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.7</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.1</ENT>
                                <ENT>5.2</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Fewer than 100 Residents</ENT>
                                <ENT>916</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.5</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.8</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">100 or more Residents </ENT>
                                <ENT>201</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>−0.1 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.3 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.5</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Urban DSH:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Non-DSH </ENT>
                                <ENT>1,156</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.4</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">100 or more beds </ENT>
                                <ENT>1,465</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.5</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.1 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Less than 100 beds </ENT>
                                <ENT>335</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.7</ENT>
                                <ENT>0.9</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.4 </ENT>
                                <ENT>−0.4</ENT>
                                <ENT>0.1</ENT>
                                <ENT>7.0</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Rural DSH:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Sole Community (SCH) </ENT>
                                <ENT>482</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.6 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.4</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Referral Center (RRC)</ENT>
                                <ENT>157</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>1.3 </ENT>
                                <ENT>−0.2 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>3.6</ENT>
                                <ENT>0.0</ENT>
                                <ENT>6.1</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="13">Other Rural:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">100 or more beds </ENT>
                                <ENT>68</ENT>
                                <ENT>0.3 </ENT>
                                <ENT>1.7</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>1.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>8.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Less than 100 beds </ENT>
                                <ENT>241</ENT>
                                <ENT>0.4 </ENT>
                                <ENT>1.8 </ENT>
                                <ENT>−0.3 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>1.2</ENT>
                                <ENT>0.1</ENT>
                                <ENT>10.1</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Urban teaching and DSH:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">DSH</ENT>
                                <ENT>800</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.4</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.1 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.6</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Teaching and no DSH </ENT>
                                <ENT>250</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.1</ENT>
                                <ENT>4.8</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">No teaching and DSH </ENT>
                                <ENT>1,000</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.6</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.1</ENT>
                                <ENT>5.1</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">No teaching and no DSH</ENT>
                                <ENT>574</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.4</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.6</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Rural Hospital Types:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Non special status hospitals </ENT>
                                <ENT>400</ENT>
                                <ENT>0.4 </ENT>
                                <ENT>1.6 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.3 </ENT>
                                <ENT>1.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>8.6</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">RRC </ENT>
                                <ENT>137</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>1.7 </ENT>
                                <ENT>−0.3 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>4.6</ENT>
                                <ENT>0.0</ENT>
                                <ENT>6.4</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">SCH </ENT>
                                <ENT>454</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.4 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.0</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Medicare-dependent hospitals (MDH) </ENT>
                                <ENT>211</ENT>
                                <ENT>0.4 </ENT>
                                <ENT>1.6 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.6</ENT>
                                <ENT>0.9</ENT>
                                <ENT>0.1</ENT>
                                <ENT>8.1</ENT>
                            </ROW>
                            <ROW>
                                <PRTPAGE P="28801"/>
                                <ENT I="03">SCH and RRC </ENT>
                                <ENT>73</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.5 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>1.4</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.5</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Type of Ownership:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Voluntary </ENT>
                                <ENT>2,343</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.5</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Proprietary </ENT>
                                <ENT>717</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.7 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>5.3</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Government </ENT>
                                <ENT>776</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.7</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.1</ENT>
                                <ENT>5.4</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Unknown </ENT>
                                <ENT>68 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.7</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>−0.5</ENT>
                                <ENT>0.0</ENT>
                                <ENT>5.1</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Medicare Utilization as a Percent of Inpatient Days:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">0-25 </ENT>
                                <ENT>227 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.3 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.4</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">25-50 </ENT>
                                <ENT>1,122</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.4</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">50-65 </ENT>
                                <ENT>1,445</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.7</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.1</ENT>
                                <ENT>5.1</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Over 65 </ENT>
                                <ENT>937</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.7</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Unknown </ENT>
                                <ENT>173</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.4</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.2 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.8</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Rural Converted to Urban</ENT>
                                <ENT>164</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>1.2 </ENT>
                                <ENT>3.6 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>1.2</ENT>
                                <ENT>0.0</ENT>
                                <ENT>6.4</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Urban Converted to Rural</ENT>
                                <ENT>69</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.7 </ENT>
                                <ENT>−0.2 </ENT>
                                <ENT>−0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.8</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Hospitals Reclassified by the Medicare Geographic Classification Review Board: FY 2005 Reclassifications:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">All Reclassified Hospitals </ENT>
                                <ENT>485</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.9</ENT>
                                <ENT>0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.1 </ENT>
                                <ENT>3.7</ENT>
                                <ENT>0.0</ENT>
                                <ENT>5.2</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Nonreclassified Hospitals </ENT>
                                <ENT>3,326</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.5</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.5</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.8</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">All Reclassified Urban Hospitals</ENT>
                                <ENT>118</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.6 </ENT>
                                <ENT>1.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>3.8</ENT>
                                <ENT>0.0</ENT>
                                <ENT>14.3</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Urban Nonreclassified Hospitals </ENT>
                                <ENT>2,486</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.4</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.5</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">All Reclassified Rural Hospitals</ENT>
                                <ENT>367</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>1.1 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.2 </ENT>
                                <ENT>3.7</ENT>
                                <ENT>0.0</ENT>
                                <ENT>5.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Rural Nonreclassified Hospitals</ENT>
                                <ENT>840</ENT>
                                <ENT>0.3 </ENT>
                                <ENT>1.0 </ENT>
                                <ENT>−0.2</ENT>
                                <ENT>0.1</ENT>
                                <ENT>0.0</ENT>
                                <ENT>0.3 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.1</ENT>
                                <ENT>6.2</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Other Reclassified Hospitals (Section 1886(D)(8)(B)) </ENT>
                                <ENT>93</ENT>
                                <ENT>0.2</ENT>
                                <ENT>0.5</ENT>
                                <ENT>0.4 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.0 </ENT>
                                <ENT>−0.1 </ENT>
                                <ENT>−0.3</ENT>
                                <ENT>0.0</ENT>
                                <ENT>4.4 </ENT>
                            </ROW>
                            <TNOTE>
                                <SU>1</SU>
                                 Because data necessary to classify some hospitals by category were missing, the total number of hospitals in each category may not equal the national total. Discharge data are from FY 2003, and hospital cost report data are from reporting periods beginning in FY 2001 and FY 2000. 
                            </TNOTE>
                            <TNOTE>
                                <SU>2</SU>
                                 This column displays the payment impact of the recalibration of the DRG weights based on FY 2003 MedPAR data and the DRG reclassification changes, in accordance with section 1886(d)(4)(C) of the Act. 
                            </TNOTE>
                            <TNOTE>
                                <SU>3</SU>
                                 This column displays the payment impact of applying a lower labor-related share for hospitals with wage indexes less than or equal to 1.0, as required under section 403 of Public Law 108-173. 
                            </TNOTE>
                            <TNOTE>
                                <SU>4</SU>
                                 This column displays the impact of the proposed adoption of the new MSAs as announced by OMB in June 2003. 
                            </TNOTE>
                            <TNOTE>
                                <SU>5</SU>
                                 This column displays the impact of updating the wage index with wage data from hospitals' FY 2001 cost reports. 
                            </TNOTE>
                            <TNOTE>
                                <SU>6</SU>
                                 This column displays the effects of adjusting hospitals' wage data to reflect the occupational mix based on our survey of hospitals. 
                            </TNOTE>
                            <TNOTE>
                                <SU>7</SU>
                                 This column shows the payment impact of the budget neutrality adjustment factor for DRG and wage index changes, in accordance with sections 1886(d)(4)(C)(iii) and 1886(d)(3)(E) of the Act. Thus, it represents the combined impacts shown in columns 2, 3, 4 and 5, and the proposed FY 2005 budget neutrality factor of 0.994295 (the change to the labor-related share shown in column 3 is not included in the budget neutrality calculation). 
                            </TNOTE>
                            <TNOTE>
                                <SU>8</SU>
                                 Shown here are the effects of geographic reclassifications by the Medicare Geographic Classification Review Board (MGCRB). The effects demonstrate the FY 2005 payment impact of going from no reclassifications to the reclassifications scheduled to be in effect for FY 2005. Reclassification for prior years has no bearing on the payment impacts shown here. 
                            </TNOTE>
                            <TNOTE>
                                <SU>9</SU>
                                 This column displays the impact of the proposed implementation of section 505 of Public Law 108-173, which provides for an increase in a hospital's wage index if the hospital qualifies by meeting a threshold percentage of residents of the county where the hospital is located who commute to work at hospitals in counties with higher wage indexes. 
                            </TNOTE>
                            <TNOTE>
                                <SU>10</SU>
                                 This column shows changes in payments from FY 2004 to FY 2005. It incorporates all of the changes displayed in columns 3, 7, 8 and 9 (the changes displayed in columns 2, 4, 5 and 6 are included in column 7). It also reflects the impact of the FY 2005 update, changes in hospitals' reclassification status in FY 2005 compared to FY 2004, and the changes in payments as a result of implementing Section 508 of the MMA. The sum of these impacts may be different from the percentage changes shown here due to rounding and interactive effect. 
                            </TNOTE>
                        </GPOTABLE>
                        <HD SOURCE="HD2">C. Impact of the Proposed Changes to the DRG Reclassifications and Recalibration of Relative Weights (Column 2)</HD>
                        <P>In column 2 of Table I, we present the combined effects of the DRG reclassifications and recalibration, as discussed in section II. of the preamble to this proposed rule. Section 1886(d)(4)(C)(i) of the Act requires us annually to make appropriate classification changes and to recalibrate the DRG weights in order to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.</P>
                        <P>We compared aggregate payments using the FY 2004 DRG relative weights (GROUPER version 21.0) to aggregate payments using the proposed FY 2005 DRG relative weights (GROUPER version 22.0). We note that, consistent with section 1886(d)(4)(C)(iii) of the Act, we have applied a budget neutrality factor to ensure that the overall payment impact of the DRG changes (combined with the wage index changes) is budget neutral. This proposed budget neutrality factor of 0.994295 is applied to payments in Column 7. Because this is a combined DRG reclassification and recalibration and wage index budget neutrality factor, it is not applied to payments in this column.</P>
                        <P>
                            The major DRG classification changes we are proposing include: reassigning the procedure code for left ventricular assist devices (LVADs) from DRG 525 to DRG 103 (now titled “Heart Transplant or Implant of Heart Assist System”); reassigning the procedure codes involving artificial anal sphincters from DRGs 157 and 158 to DRGs 146 (Rectal Resection With CC) and 147 (Rectal Resection Without CC); modifying the ventilation by reassigning all those cases to DRGs 504 and 505; splitting the DRG 483 into two new DRGs based on the presence or absence of major OR procedures, DRG 541 (Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth and Neck Diagnoses With Major Operating Room Procedure) and 542 (Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth and Neck Diagnoses Without Major Operating Room Procedure). In the aggregate, these proposed changes would result in 0.1 percent change in overall payments to hospitals. On average, the impacts of these changes on any particular hospital group are very small. The largest impact is a 0.2 percent increase among rural hospitals. This is likely primarily attributable to a 1.46 percent increase in DRG 127 (Heart Failure and Shock). This high-volume DRG comprises a disproportionate percentage of cases in small rural hospitals. Ten Puerto Rico hospitals also experience case mix declines of greater than 1 percent in this 
                            <PRTPAGE P="28802"/>
                            column, leading to a 0.4 percent decrease overall for this row.
                        </P>
                        <HD SOURCE="HD2">D. Impact of the Change in the Labor-Related Share</HD>
                        <P>Section 403 of the MMA provides that, for discharges occurring on or after October 1, 2004, a hospital's labor-related share of the standardized amount will be decreased to 62 percent of the standardized amount unless such a change will result in lower total payments to the hospital. This provision also applies to the labor-related share of the standardized amount for hospitals in Puerto Rico. The overall impact of implementing this provision is a 0.5 percent payment increase to all hospitals (approximately $500 million). Large urban hospitals would experience a 0.3 percent increase while other urban hospitals would experience a 0.7 percent increase. Rural hospitals are expected to benefit from this provision with a 1.1 percent increase in payments in FY 2005.</P>
                        <P>Among regions, hospitals in Puerto Rico experience the largest increase of 6.2 percent (due to the relatively low national wage index levels in Puerto Rico). The smallest change among urban hospitals is in the New England and Pacific regions with a 0.0 percent change. The largest increase among rural regions is expected to be East South Central, with a 2.0 percent increase in payments.</P>
                        <HD SOURCE="HD2">E. Impact of Changing to New Labor Market Areas (Core Based Statistical Areas) From MSAs (Column 4)</HD>
                        <P>In accordance with the broad discretion under section 1886(d)(3)(E) of the Act, we currently define hospital labor market areas based on the definitions of Metropolitan Statistical Areas (MSAs), Primary MSAs (PMSAs), and New England County Metropolitan Areas (NECMAs) issued by OMB. On June 6, 2003, OMB announced new Core Based Statistical Areas (CBSAs), comprised of MSAs and the new Micropolitan Statistical Areas based on Census 2000 data. CMS is proposing to adopt the new MSA definitions, including the 49 new Metropolitan areas designated under the new definitions. We are also proposing to adopt MSA definitions in New England in place of NECMAs. We are not adopting the newly defined Micropolitan Statistical Areas for use in the payment system: as a result, Micropolitan Statistical Areas will remain part of the statewide rural areas for purposes of IPPS payments. (However, as discussed in section III.B.1.d. of the preamble to this proposed rule, we are proposing a special transition policy for hospitals that were formerly in urban areas, but are now in areas considered rural or Micropolitan under the OMB definitions.) There are 46 counties with 72 hospitals that are currently in an MSA that would be treated as rural under our proposal to update the MSA definitions using only the new MSAs. To help alleviate the decreased payments for currently urban hospitals that would become rural, we are proposing to allow them to maintain their assignment to the MSA where they are currently located for the 3-year period including FY 2005, FY 2006, and FY 2007.</P>
                        <P>The impact of these changes to the new CBSAs is isolated in column 4 by holding the other payment parameters constant in this simulation. That is, column 4 shows the percentage changes in payments when going from a model using the current MSA designations to a model using the new CBSA designations (for Metropolitan areas only). Overall, the new CBSAs would lead to a zero percent change. Urban hospitals' wage indexes would increase by 0.1 percent. Rural hospitals would experience a 0.2 percent decrease in overall payments as a result of this provision. Among regions, the largest impact of updating the wage data is seen in the rural South Atlantic region (a 0.7 percent decrease). Rural hospitals in the Middle Atlantic would experience the next largest impact, with a 0.4 percent decrease.</P>
                        <P>Among urban hospitals, New England would experience a 0.4 percent decrease. These impacts result primarily from dividing the previously amalgamated Boston NECMA into four Metropolitan Divisions and several other small Metropolitan Statistical Areas. The counties that previously comprised the Boston MSA now form all or part of the Boston-Quincy, MA Metropolitan Division, the Cambridge-Newton-Framingham, MA Metropolitan Division, the Essex County, MA Metropolitan Division, the Rockingham County-Strafford County Metropolitan Division, the Manchester-Nashua Metropolitan Statistical Area, the Providence-New Bedford-Fall River, RI-MA Metropolitan Statistical Area, and the Worcester, MA Metropolitan Statistical Area. The Rockingham County-Strafford County Metropolitan Division, Manchester-Nashua MSA, and Boston-Quincy Metropolitan Division experience 9.4, 6.9, and 5.7 percent decreases, respectively.</P>
                        <P>As described in section III of the preamble to this proposed rule, to help alleviate the decreased payments for currently urban hospitals that would become rural, we are proposing to allow them to maintain their assignment to the MSA where they are currently located for the 3-year period including FY 2005, FY 2006, and FY 2007. The impact upon these hospitals is shown in the row labeled “Urban to Rural Hospitals.” Conversely, the row labeled “Rural to Urban Hospitals” displays formerly rural hospitals that are now in MSAs under the new definitions.</P>
                        <HD SOURCE="HD2">F. Impact of Proposed Wage Index Changes (Columns 5 and 6)</HD>
                        <P>Section 1886(d)(3)(E) of the Act requires that, beginning October 1, 1993, we annually update the wage data used to calculate the wage index. In accordance with this requirement, the proposed wage index for FY 2005 is based on data submitted for hospital cost reporting periods beginning on or after October 1, 2000 and before October 1, 2001. The impact of the new data on hospital payments is isolated in column 5 by holding the other payment parameters constant in this simulation. That is, column 5 shows the percentage changes in payments when going from a model using the FY 2004 wage index, based on FY 2000 wage data, to a model using the FY 2005 pre-reclassification wage index, based on FY 2001 wage data. The wage data collected on the FY 2001 cost report is the same as the FY 2000 wage data that were used to calculate the FY 2004 wage index. However, for the FY 2005 wage index, we added an occupational mix adjustment to the wage index. The occupational mix adjustment is based on data collected on the Medicare Wage Index Occupational Mix Survey, Form-CMS-10079. The data collection period for the survey was calendar year 2003 through February 7, 2004. The effects of the occupational mix adjustment are shown in the next column (6).</P>
                        <P>Column 5 shows the impacts of updating the wage data using FY 2001 cost reports. Overall, the new wage data would lead to a 0.0 percent change. Urban hospitals' wage indexes would not change (0.0 percent), and rural hospitals' wage indexes would also remain the same (0.0 percent). Among regions, the largest declines from updating the wage data are seen in urban Middle Atlantic and Mountain regions (a 0.7 and 0.4 percent decreases, respectively). In the Middle Atlantic, there are 352 hospitals (New York, Pennsylvania, and New Jersey) that are experiencing a drop in their wage index relative to last year with the introduction of the new wage data. Kingston, NY experiences a drop of 5.8 percent, while Buffalo sees a 2.8 percent drop. Additionally, two of the areas are divisions of New York City, including the Manhattan area (New York-Wayne-White Plains, NY) and Suffolk-Nassau, NY. While these areas do not necessarily experience a significant drop (2.5 and 1.5 percent), they include a large number of inpatient hospitals. Pittsburgh, PA, Rochester, NY, and Allentown, PA also see decreases due to this change. We note that this is due to below average increases in their average hourly wage and not as a result of real average hourly wage declines. Urban hospitals in the West South Central region would experience the next largest impact, with a 0.5 percent increase. The rural East South Central and Middle Atlantic regions experience 0.3 and 0.2 percent decreases, respectively while the Pacific, West South Central, and New England regions each experience a 0.3 percent increase.</P>
                        <P>The national average hourly wage increased 6.41 percent compared to FY 2004. Therefore, the only manner in which to maintain or exceed the previous year's wage index was to match the national 6.41 increase in average hourly wage. Of the 3,887 hospitals with wage index values in both FYs 2004 and 2005, 1,937, or 49.8 percent, also experienced an average hourly wage increase of 6.41 percent or more.</P>
                        <P>
                            The following chart compares the shifts in wage index values for hospitals for FY 2005 relative to FY 2004. Among urban hospitals, 89 would experience an increase of between 5 percent and 10 percent and 45 would experience an increase of more than 10 percent. A total of 7 rural hospitals would experience increases greater than 5 percent, but none would experience increases of greater than 10 percent. On the negative side, 36 urban hospitals would experience decreases in their wage index values of at least 5 percent, but less than 10 percent. Two urban hospitals would experience decreases in their wage index values greater than 10 percent.
                            <PRTPAGE P="28803"/>
                        </P>
                        <P>The following chart shows the projected impact for urban and rural hospitals.</P>
                        <GPOTABLE COLS="3" OPTS="L2,tp0,i1" CDEF="s25,6,6">
                            <TTITLE>  </TTITLE>
                            <BOXHD>
                                <CHED H="1">Percentage change in area wage index values </CHED>
                                <CHED H="1">
                                    No. of 
                                    <LI>hospitals </LI>
                                </CHED>
                                <CHED H="2">Urban </CHED>
                                <CHED H="2">Rural.</CHED>
                            </BOXHD>
                            <ROW>
                                <ENT I="01">Increase more than 10 percent </ENT>
                                <ENT>45 </ENT>
                                <ENT>0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Increase more than 5 percent and less than 10 percent </ENT>
                                <ENT>89 </ENT>
                                <ENT>7.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Increase or decrease less than 5 percent </ENT>
                                <ENT>2,625 </ENT>
                                <ENT>1,609.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Decrease more than 5 percent and less than 10 percent </ENT>
                                <ENT>36 </ENT>
                                <ENT>0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Decrease more than 10 percent </ENT>
                                <ENT>2 </ENT>
                                <ENT>1 </ENT>
                            </ROW>
                        </GPOTABLE>
                        <P>The next column (6) shows the impacts on the calculation of the FY 2005 wage index of adjusting for occupational mix. Section 1886(d)(3)(E) of the Act provides for the collection of data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index, beginning with the FY 2005 wage index. A complete discussion of the initial collection of these data and the occupational mix adjustment that we are proposing to apply, beginning October 1, 2004 (the FY 2005 wage index), appears under section III.C. of this preamble. The calculation of the wage index now includes a blended rate of 90 percent of an unadjusted wage index and 10 percent of a wage index adjusted for occupational mix. We project an overall change increase of 0.0 percent for all hospitals. The biggest change is in the rural urban hospitals in the South Atlantic, East South Central, and West South Central regions, which are projected to experience a 0.1 percent increase for FY 2005.</P>
                        <HD SOURCE="HD2">G. Combined Impact of Proposed DRG and Wage Index Changes, Including Budget Neutrality Adjustment (Column 7)</HD>
                        <P>The impact of the DRG reclassifications and recalibration on aggregate payments is required by section 1886(d)(4)(C)(iii) of the Act to be budget neutral. In addition, section 1886(d)(3)(E) of the Act specifies that any updates or adjustments to the wage index are to be budget neutral. As noted in the Addendum to this proposed rule, we compared simulated aggregate payments using the FY 2004 DRG relative weights and wage index to simulated aggregate payments using the proposed FY 2005 DRG relative weights and blended wage index.</P>
                        <P>We computed a proposed wage and recalibration budget neutrality factor of 0.994295. The 0.0 percent impact for all hospitals demonstrates that these proposed changes, in combination with the budget neutrality factor, are budget neutral. In Table I, the combined overall impacts of the effects of both the DRG reclassifications and recalibration and the updated wage index are shown in column 7. The proposed changes in this column are the sum of the final changes in columns 2, 5, and 6 combined with the budget neutrality factor and the wage index floor for urban areas required by section 4410 of Pub. L. 105-33, to be budget neutral (the change to the labor share in column 3 is not subject to budget neutrality. There also may be some variation of plus or minus 0.1 percentage point due to rounding.</P>
                        <P>Among urban regions, the largest impacts are in the Middle Atlantic and Puerto Rico, with 0.8 and 0.7 percent declines, respectively. The West South Central region experiences the largest increase of 0.5 percent. Among rural regions, the West North Central and Pacific regions benefit the most with 0.5 percent increases, while East South Central is the only region to experience a decline (0.1 percent).</P>
                        <HD SOURCE="HD2">H. Impact of MGCRB Reclassifications (Column 8)</HD>
                        <P>Our impact analysis to this point has assumed hospitals are paid on the basis of their actual geographic location (with the exception of ongoing policies that provide that certain hospitals receive payments on bases other than where they are geographically located, such as hospitals in rural counties that are deemed urban under section 1886(d)(8)(B) of the Act). The changes in column 8 reflect the per case payment impact of moving from this baseline to a simulation incorporating the MGCRB decisions for FY 2005. These decisions affect hospitals' standardized amount and wage index area assignments.</P>
                        <P>By February 28 of each year, the MGCRB makes reclassification determinations that will be effective for the next fiscal year, which begins on October 1. The MGCRB may approve a hospital's reclassification request for the purpose of using another area's wage index value. The proposed FY 2005 wage index values incorporate all of the MGCRB's reclassification decisions for FY 2005. The wage index values also reflect any decisions made by the CMS Administrator through the appeals and review process through February 28, 2004. Additional changes that result from the Administrator's review of MGCRB decisions or a request by a hospital to withdraw its application will be reflected in the final rule for FY 2005.</P>
                        <P>
                            The overall effect of geographic reclassification is required by section 1886(d)(8)(D) of the Act to be budget neutral. Therefore, we applied an adjustment of 0.994295 to ensure that the effects of reclassification are budget neutral. (
                            <E T="03">See</E>
                             section II.A.4.b. of the Addendum to this proposed rule.)
                        </P>
                        <P>As a group, rural hospitals benefit from geographic reclassification. Their payments would rise 1.9 percent in column 8. Payments to urban hospitals would decline 0.3 percent. Hospitals in other urban areas would experience an overall decrease in payments of 0.2 percent, while large urban hospitals would also lose 0.4 percent. Among urban hospital groups (that is, bed size, census division, and special payment status), payments generally would decline.</P>
                        <P>A positive impact is evident among most of the rural hospital groups. The smallest increases among the rural census divisions are 0.5 percent in the Mountain region and 1.3 percent each for the New England and West North Central regions. The largest increases are in the rural East South Central region, with an increase of 2.8 percent and in the West South Central region that would experience an increase of 3.0 percent.</P>
                        <P>Among all the hospitals that were reclassified for FY 2005 (including hospitals that received wage index reclassifications in FY 2003 or FY 2004 that extend for 3 years), the MGCRB changes are estimated to provide a 3.7 percent increase in payments. Urban hospitals reclassified for FY 2005 are expected to receive an increase of 3.8 percent, while rural reclassified hospitals are expected to benefit from the MGCRB changes with a 3.7 percent increase in payments. Payments to urban and rural hospitals that did not reclassify are expected to decrease slightly due to the MGCRB changes, decreasing by 0.5 percent for urban hospitals and 0.3 percent for rural hospitals.</P>
                        <HD SOURCE="HD2">I. Impacts of Implementing the Wage Index Adjustment for Out-Migration (Column 9)</HD>
                        <P>Section 505 of Public Law 108-173 established new section 1886(d)(13) of the Act. Section 1886(d)(13) requires that the Secretary establish a new process to make adjustments to the hospital wage index based on commuting patterns of hospital employees. The process provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different area with a higher wage index. Hospitals located in counties that qualify for the payment adjustment would receive an increase in the wage index that is equal to a weighted average of the difference between the wage index of the resident county and the higher wage index work area(s) weighted by the overall percentage of workers who are employed in an area with a higher wage index. Using our proposed criteria, 224 counties and 411 hospitals qualify to receive a commuting adjustment.</P>
                        <P>Due to the statutory formula to calculate the adjustment and the small number of counties that qualify, the impact on hospitals would be minimal, with an overall impact on all hospitals of 0.0 percent. However, some regions would experience a discernible impact. For example, urban hospitals in the Middle Atlantic region would experience a 0.1 percent increase due to this provision. This is due in part to the fact that a hospital in that region would experience the largest increase for any hospital under this provision. A hospital located in Ulster County, New York would receive an increase in its wage index value of 0.1014. Hospital employees living in Ulster County commute to Albany, Columbia, Dutchess, Greene, New York, Orange, Rockland, Sullivan, and Westchester counties. Dutchess, New York, Orange, Rockland and Westchester counties are located in higher wage index areas. Thus, for FY 2005, this hospital's wage index would increase from 0.8874 to 0.9888.</P>
                        <HD SOURCE="HD2">J. All Changes (Column 10)</HD>
                        <P>
                            Column 10 compares our estimate of payments per case, incorporating all changes reflected in this proposed rule for FY 2005 (including statutory changes), to our estimate of payments per case in FY 2004. This 
                            <PRTPAGE P="28804"/>
                            column includes all of the proposed policy changes. Because the reclassifications shown in column 8 do not reflect FY 2004 reclassifications, the impacts of FY 2005 reclassifications only affect the impacts from FY 2004 to FY 2005 if the reclassification impacts for any group of hospitals are different in FY 2005 compared to FY 2004.
                        </P>
                        <P>Column 10 reflects all FY 2005 changes relative to FY 2004, shown in columns 2 through 9 and those not applied until the final rates are calculated. The average increase for all hospitals is approximately 4.9 percent. This increase includes the effects of the 3.3 percent market basket update. It also reflects the 0.7 percentage point difference between the projected outlier payments in FY 2004 (5.1 percent of total DRG payments) and the current estimate of the percentage of actual outlier payments in FY 2004 (4.4 percent), as described in the introduction to this Appendix and the Addendum to this proposed rule. As a result, payments are projected to be 0.7 percent lower in FY 2004 than originally estimated resulting in a 0.7 percent higher increase for FY 2005 than would otherwise occur. It also includes the impact of adjusting the labor share, shown in column 3, of approximately 0.5 percent. The remaining 0.4 percent increase is attributable to the indirect medical education formula changes for teaching hospitals; changes in payments due to the wage reclassifications under section 508 of the MMA, in effect for the whole year; and increased payments to Puerto Rico hospitals as a result of section 504 of the MMA, which changed the mix of the Federal standardized amount and the Puerto Rico-specific standardized amount. The overall increase also reflects changes to payments that resulted from implementing other changes as required by Public Law 108-173. These changes are discussed in other rules and in many sections of the preamble to this proposed rule.</P>
                        <P>Section 213 of Public Law 106-554 provides that all SCHs may receive payment on the basis of their costs per case during their cost reporting period that began during 1996. For FY 2005, eligible SCHs receive 100 percent of their 1996 hospital-specific rate. The impact of this provision is modeled in column 10 as well. Additionally, section 402 of Public Law 108-173 increases the disproportionate share hospital (DSH) adjustment for certain hospitals that serve a disproportionate share of low-income Medicare and Medicaid patients, which includes rural hospitals and urban hospitals with fewer than 100 beds, sole community hospitals, rural referral centers, and rural hospitals with less than 500 beds. The increase in DSH payments became effective for discharges occurring on or after April 1, 2004. As provided in the new Medicare law, the cap on DSH payment adjustments increase from 5.25 percent to 12 percent for urban hospitals fewer than 100 beds, sole community hospitals, and rural hospitals with less than 500 beds. There is no cap on rural referral centers, large urban hospitals over 100 beds, or rural hospitals over 500 beds.</P>
                        <P>
                            We are no longer required to ensure that any add-on payments for new technology under section 1886(d)(5)(K) of the Act are budget neutral. However, we are still providing an estimate of the payment increases here, as they will have a significant impact on total payments made in FY 2005. As discussed in section II.E. of the preamble of this proposed rule, we are proposing to maintain the new technology status of the InFUSE
                            <E T="51">TM</E>
                             Bone Graft/LT-CAGE
                            <E T="51">TM</E>
                             Lumbar Tapered Fusion Device for spinal fusions. We estimate the total add-on payments associated with cases involving this new device for FY 2005 would be $4.7 million. In addition, several other technologies may receive approval if we receive appropriate supplemental data from the applicants (as discussed in the preamble) and after public comments are taken into consideration for approval or denial of the technologies for FY 2005. If we receive the necessary supplemental data for all of the devices that could be approved were to be approved, the total estimated increase in payments for FY 2005 could be $369 million.
                        </P>
                        <P>There might also be interactive effects among the various factors comprising the payment system that we are not able to isolate. For these reasons, the values in column 10 may not equal the sum of the changes described above.</P>
                        <P>The overall change in payments per case for hospitals in FY 2005 would increase by 4.9 percent. Hospitals in urban areas would experience a 4.7 percent increase in payments per case compared to FY 2004. Hospitals in rural areas, meanwhile, would experience a 6.0 percent payment increase. Hospitals in large urban areas would experience a 4.5 percent increase in payments and hospitals in other urban areas would experience a 5.0 percent increase in payments.</P>
                        <P>Among urban census divisions, the largest payment increase would be 14.3 percent in Puerto Rico. This is due largely to the change in calculation of their payment rate to 75 percent of the National amount and the increase to the standardized amount to large urban hospitals. Additionally, the change to CBSAs makes all hospitals in Puerto Rico classify as urban hospitals instead of rural. (Because of these changes, we have deleted from Table I, the column included in prior years that shows the impacts on rural Puerto Rico hospitals.) Hospitals in the urban East South Central and West South Central regions would experience overall increases of 5.5 percent and 5.7 percent, respectively. The smallest increase would occur in the New England region, with an increase of 3.6 percent.</P>
                        <P>Among rural regions in column 10, no hospital category would experience overall payment decreases. The East South Central and West South Central regions would benefit the most, with 9.4 and 7.2 percent increases, respectively. The smallest increase would occur in the New England region, with 3.9 percent increases in payments.</P>
                        <P>Among special categories of rural hospitals in column 10, those hospitals receiving payment under the hospital-specific methodology (SCHs, MDHs, and SCH/RRCs) would experience payment increases of 4.0 percent, 8.1 percent, and 4.5 percent, respectively. This outcome is primarily related to the fact that, for hospitals receiving payments under the hospital-specific methodology, there were several increases to payments made in relation to implementation of the Public Law 108-173.</P>
                        <P>Hospitals that were reclassified for FY 2005 are estimated to receive a 5.2 percent increase in payments. Urban hospitals reclassified for FY 2005 are anticipated to receive an increase of 4.3 percent, while rural reclassified hospitals are expected to benefit from reclassification with a 5.9 percent increase in payments. Those hospitals located in rural counties but deemed to be urban under section 1886(d)(8)(B) of the Act are expected to receive an increase in payments of 4.4 percent.</P>
                        <GPOTABLE COLS="5" OPTS="L2(,0,),i1" CDEF="s50,12,12,12,12">
                            <TTITLE>Table II.—Impact Analysis of Proposed Changes for FY 2005 Operating Prospective Payment System </TTITLE>
                            <TDESC>[Payments per Case] </TDESC>
                            <BOXHD>
                                <CHED H="1">  </CHED>
                                <CHED H="1">
                                    Number of 
                                    <LI>hospitals </LI>
                                </CHED>
                                <CHED H="1">
                                    Average 
                                    <LI>FY 2004 </LI>
                                    <LI>payment </LI>
                                    <LI>
                                        per case 
                                        <SU>1</SU>
                                    </LI>
                                </CHED>
                                <CHED H="1">
                                    Average 
                                    <LI>FY 2005 </LI>
                                    <LI>payment </LI>
                                    <LI>
                                        per case 
                                        <SU>1</SU>
                                    </LI>
                                </CHED>
                                <CHED H="1">
                                    All FY 2005 
                                    <LI>changes </LI>
                                </CHED>
                            </BOXHD>
                            <ROW RUL="s">
                                <ENT I="25"> </ENT>
                                <ENT>(1)</ENT>
                                <ENT>(2)</ENT>
                                <ENT>(3)</ENT>
                                <ENT>(4).</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">By Geographic Location:.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">All hospitals</ENT>
                                <ENT>3,904</ENT>
                                <ENT>7812</ENT>
                                <ENT>8193</ENT>
                                <ENT>4.9.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Urban hospitals </ENT>
                                <ENT>2,696</ENT>
                                <ENT>8121</ENT>
                                <ENT>8504</ENT>
                                <ENT>4.7.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Large urban areas (populations over 1 million)</ENT>
                                <ENT>1,424</ENT>
                                <ENT>8513</ENT>
                                <ENT>8896</ENT>
                                <ENT>4.5.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Other urban areas (populations of 1 million of fewer) </ENT>
                                <ENT>1,272</ENT>
                                <ENT>7684</ENT>
                                <ENT>8067</ENT>
                                <ENT>5.0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Rural hospitals </ENT>
                                <ENT>1,208</ENT>
                                <ENT>6110</ENT>
                                <ENT>6475</ENT>
                                <ENT>6.0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Bed Size (Urban):.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">0-99 beds </ENT>
                                <ENT>684</ENT>
                                <ENT>5812</ENT>
                                <ENT>6142</ENT>
                                <ENT>5.7.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">100-199 beds </ENT>
                                <ENT>966</ENT>
                                <ENT>6914</ENT>
                                <ENT>7233</ENT>
                                <ENT>4.6.</ENT>
                            </ROW>
                            <ROW>
                                <PRTPAGE P="28805"/>
                                <ENT I="03">200-299 beds </ENT>
                                <ENT>500</ENT>
                                <ENT>7967</ENT>
                                <ENT>8316</ENT>
                                <ENT>4.4.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">300-499 beds </ENT>
                                <ENT>415</ENT>
                                <ENT>8839</ENT>
                                <ENT>9266</ENT>
                                <ENT>4.8.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">500 or more beds </ENT>
                                <ENT>131</ENT>
                                <ENT>10221</ENT>
                                <ENT>10718</ENT>
                                <ENT>4.9.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Bed Size (Rural):.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">0-49 beds </ENT>
                                <ENT>549</ENT>
                                <ENT>5199</ENT>
                                <ENT>5527</ENT>
                                <ENT>6.3.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">50-99 beds </ENT>
                                <ENT>393</ENT>
                                <ENT>5751</ENT>
                                <ENT>6100</ENT>
                                <ENT>6.1.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">100-149 beds </ENT>
                                <ENT>163</ENT>
                                <ENT>6048</ENT>
                                <ENT>6412</ENT>
                                <ENT>6.0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">150-199 beds </ENT>
                                <ENT>57</ENT>
                                <ENT>6636</ENT>
                                <ENT>7027</ENT>
                                <ENT>5.9.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">200 or more beds </ENT>
                                <ENT>46</ENT>
                                <ENT>7837</ENT>
                                <ENT>8275</ENT>
                                <ENT>5.6.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Urban by Region:.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">New England </ENT>
                                <ENT>137</ENT>
                                <ENT>8688</ENT>
                                <ENT>8997</ENT>
                                <ENT>3.6.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Middle Atlantic </ENT>
                                <ENT>397</ENT>
                                <ENT>8809</ENT>
                                <ENT>9136</ENT>
                                <ENT>3.7.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">South Atlantic </ENT>
                                <ENT>419</ENT>
                                <ENT>7762</ENT>
                                <ENT>8147</ENT>
                                <ENT>5.0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">East North Central </ENT>
                                <ENT>450</ENT>
                                <ENT>7830</ENT>
                                <ENT>8195</ENT>
                                <ENT>4.7.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">East South Central </ENT>
                                <ENT>175</ENT>
                                <ENT>7482</ENT>
                                <ENT>7896</ENT>
                                <ENT>5.5.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">West North Central </ENT>
                                <ENT>160</ENT>
                                <ENT>8008</ENT>
                                <ENT>8416</ENT>
                                <ENT>5.1.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">West South Central </ENT>
                                <ENT>346</ENT>
                                <ENT>7632</ENT>
                                <ENT>8063</ENT>
                                <ENT>5.7.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Mountain </ENT>
                                <ENT>140</ENT>
                                <ENT>8066</ENT>
                                <ENT>8376</ENT>
                                <ENT>3.8.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Pacific </ENT>
                                <ENT>421</ENT>
                                <ENT>9612</ENT>
                                <ENT>10080</ENT>
                                <ENT>4.9.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Puerto Rico </ENT>
                                <ENT>51</ENT>
                                <ENT>3525</ENT>
                                <ENT>4028</ENT>
                                <ENT>14.3.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Rural by Region:.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">New England </ENT>
                                <ENT>34</ENT>
                                <ENT>8037</ENT>
                                <ENT>8354</ENT>
                                <ENT>3.9.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Middle Atlantic </ENT>
                                <ENT>57</ENT>
                                <ENT>6138</ENT>
                                <ENT>6398</ENT>
                                <ENT>4.2.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">South Atlantic </ENT>
                                <ENT>176</ENT>
                                <ENT>6087</ENT>
                                <ENT>6439</ENT>
                                <ENT>5.8.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">East North Central </ENT>
                                <ENT>160</ENT>
                                <ENT>5998</ENT>
                                <ENT>6266</ENT>
                                <ENT>4.5.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">East South Central </ENT>
                                <ENT>192</ENT>
                                <ENT>5241</ENT>
                                <ENT>5735</ENT>
                                <ENT>9.4.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">West North Central </ENT>
                                <ENT>206</ENT>
                                <ENT>6514</ENT>
                                <ENT>6883</ENT>
                                <ENT>5.7.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">West South Central </ENT>
                                <ENT>228</ENT>
                                <ENT>5514</ENT>
                                <ENT>5913</ENT>
                                <ENT>7.2.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Mountain </ENT>
                                <ENT>93</ENT>
                                <ENT>6918</ENT>
                                <ENT>7219</ENT>
                                <ENT>4.4.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Pacific </ENT>
                                <ENT>62</ENT>
                                <ENT>8934</ENT>
                                <ENT>9336</ENT>
                                <ENT>4.5.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">By Payment Classification:.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Urban hospitals   </ENT>
                                <ENT>2,624</ENT>
                                <ENT>8148</ENT>
                                <ENT>8533</ENT>
                                <ENT>4.7.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Large urban areas (populations  over 1 million) </ENT>
                                <ENT>1,405</ENT>
                                <ENT>8530</ENT>
                                <ENT>8915</ENT>
                                <ENT>4.5.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Other urban areas (populations  of 1 million of fewer) </ENT>
                                <ENT>1,219</ENT>
                                <ENT>7716</ENT>
                                <ENT>8101</ENT>
                                <ENT>5.0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Rural areas </ENT>
                                <ENT>1,280</ENT>
                                <ENT>6104</ENT>
                                <ENT>6462</ENT>
                                <ENT>5.9.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Teaching Status:.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Non-teaching </ENT>
                                <ENT>2,787</ENT>
                                <ENT>6542</ENT>
                                <ENT>6880</ENT>
                                <ENT>5.2.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Fewer than 100 Residents </ENT>
                                <ENT>916</ENT>
                                <ENT>8172</ENT>
                                <ENT>8561</ENT>
                                <ENT>4.8.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">100 or more Residents </ENT>
                                <ENT>201</ENT>
                                <ENT>12131</ENT>
                                <ENT>12672</ENT>
                                <ENT>4.5.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Urban DSH:.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Non-DSH </ENT>
                                <ENT>1,156</ENT>
                                <ENT>7020</ENT>
                                <ENT>7347</ENT>
                                <ENT>4.7.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">100 or more beds </ENT>
                                <ENT>1,465</ENT>
                                <ENT>8695</ENT>
                                <ENT>9101</ENT>
                                <ENT>4.7.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Less than 100 beds </ENT>
                                <ENT>335</ENT>
                                <ENT>5540</ENT>
                                <ENT>5927</ENT>
                                <ENT>7.0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Rural DSH: </ENT>
                                <ENT>482</ENT>
                                <ENT>6592</ENT>
                                <ENT>6914</ENT>
                                <ENT>4.9.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Sole Community (SCH).</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Referral Center (RRC) </ENT>
                                <ENT>157</ENT>
                                <ENT>6735</ENT>
                                <ENT>7147</ENT>
                                <ENT>6.1.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="13">Other Rural:.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">100 or more beds</ENT>
                                <ENT>68</ENT>
                                <ENT>5131</ENT>
                                <ENT>5588</ENT>
                                <ENT>8.9.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Less than 100 beds</ENT>
                                <ENT>241</ENT>
                                <ENT>4483</ENT>
                                <ENT>4937</ENT>
                                <ENT>10.1.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Urban teaching and DSH: </ENT>
                                <ENT>800</ENT>
                                <ENT>9558</ENT>
                                <ENT>9997</ENT>
                                <ENT>4.6.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Both teaching and DSH.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Teaching and no DSH </ENT>
                                <ENT>250</ENT>
                                <ENT>8015</ENT>
                                <ENT>8399</ENT>
                                <ENT>4.8.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">No teaching and DSH </ENT>
                                <ENT>1,000</ENT>
                                <ENT>6963</ENT>
                                <ENT>7315</ENT>
                                <ENT>5.1.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">No teaching and no DSH </ENT>
                                <ENT>574</ENT>
                                <ENT>6512</ENT>
                                <ENT>6810</ENT>
                                <ENT>4.6.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Rural Hospital Types:.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Non special status hospitals</ENT>
                                <ENT>400</ENT>
                                <ENT>4754</ENT>
                                <ENT>5163</ENT>
                                <ENT>8.6.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">RRC </ENT>
                                <ENT>137</ENT>
                                <ENT>6179</ENT>
                                <ENT>6572</ENT>
                                <ENT>6.4.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">SCH </ENT>
                                <ENT>454</ENT>
                                <ENT>7181</ENT>
                                <ENT>7467</ENT>
                                <ENT>4.0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Medicare-dependent hospitals (MDH)</ENT>
                                <ENT>211</ENT>
                                <ENT>4434</ENT>
                                <ENT>4792</ENT>
                                <ENT>8.1.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">SCH and RRC </ENT>
                                <ENT>73</ENT>
                                <ENT>7676</ENT>
                                <ENT>8019</ENT>
                                <ENT>4.5.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Type of Ownership:.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Voluntary</ENT>
                                <ENT>2,343</ENT>
                                <ENT>7926</ENT>
                                <ENT>8298</ENT>
                                <ENT>4.7.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Proprietary </ENT>
                                <ENT>717</ENT>
                                <ENT>7125</ENT>
                                <ENT>7503</ENT>
                                <ENT>5.3.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Government </ENT>
                                <ENT>776</ENT>
                                <ENT>7958</ENT>
                                <ENT>8385</ENT>
                                <ENT>5.4.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Unknown </ENT>
                                <ENT>68</ENT>
                                <ENT>7853</ENT>
                                <ENT>8256</ENT>
                                <ENT>5.1.</ENT>
                            </ROW>
                            <ROW>
                                <PRTPAGE P="28806"/>
                                <ENT I="22">Medicare Utilization as a Percent of Inpatient Days:.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">0-25</ENT>
                                <ENT>227</ENT>
                                <ENT>10405</ENT>
                                <ENT>10866</ENT>
                                <ENT>4.4.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">25-50 </ENT>
                                <ENT>1,122</ENT>
                                <ENT>8578</ENT>
                                <ENT>8985</ENT>
                                <ENT>4.7.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">50-65 </ENT>
                                <ENT>1,445</ENT>
                                <ENT>6956</ENT>
                                <ENT>7307</ENT>
                                <ENT>5.1.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Over 65 </ENT>
                                <ENT>937</ENT>
                                <ENT>6900</ENT>
                                <ENT>7240</ENT>
                                <ENT>4.9.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Unknown </ENT>
                                <ENT>173</ENT>
                                <ENT>9887</ENT>
                                <ENT>10358</ENT>
                                <ENT>4.8.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Rural Converted to Urban </ENT>
                                <ENT>164</ENT>
                                <ENT>6473</ENT>
                                <ENT>6888</ENT>
                                <ENT>6.4.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Urban Converted to Rural</ENT>
                                <ENT>69</ENT>
                                <ENT>6097</ENT>
                                <ENT>6387</ENT>
                                <ENT>4.8.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Hospitals Reclassified by the Medicare Geographic Classification Review Board: FY 2005 Reclassifications:.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">All Reclassified Hospitals</ENT>
                                <ENT>485</ENT>
                                <ENT>7316</ENT>
                                <ENT>7699</ENT>
                                <ENT>5.2.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">All Nonreclassified Hospitals</ENT>
                                <ENT>3,326</ENT>
                                <ENT>7909</ENT>
                                <ENT>8291</ENT>
                                <ENT>4.8.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">All Reclassified Urban Hospitals </ENT>
                                <ENT>118</ENT>
                                <ENT>8258</ENT>
                                <ENT>8612</ENT>
                                <ENT>4.3.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Urban Nonreclassified Hospitals</ENT>
                                <ENT>2,486</ENT>
                                <ENT>8151</ENT>
                                <ENT>8538</ENT>
                                <ENT>4.7.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">All Reclassified Rural Hospitals</ENT>
                                <ENT>367</ENT>
                                <ENT>6816</ENT>
                                <ENT>7215</ENT>
                                <ENT>5.9.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Rural Nonreclassified Hospitals</ENT>
                                <ENT>840</ENT>
                                <ENT>5402</ENT>
                                <ENT>5734</ENT>
                                <ENT>6.2.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Other Reclassified Hospitals (Section 1886(d)(8)(B))</ENT>
                                <ENT>93</ENT>
                                <ENT>5971</ENT>
                                <ENT>6237</ENT>
                                <ENT>4.4 </ENT>
                            </ROW>
                            <TNOTE>
                                <SU>1</SU>
                                 These payment amounts per case do not reflect any estimates of annual case-mix increase. 
                            </TNOTE>
                        </GPOTABLE>
                        <P>Table II presents the projected impact of the proposed changes for FY 2005 for urban and rural hospitals and for the different categories of hospitals shown in Table I. It compares the estimated payments per case for FY 2004 with the average estimated per case payments for FY 2005, as calculated under our models. Thus, this table presents, in terms of the average dollar amounts paid per discharge, the combined effects of the changes presented in Table I. The percentage changes shown in the last column of Table II equal the percentage changes in average payments from column 10 of Table I.</P>
                        <HD SOURCE="HD1">VII. Impact of Other Proposed Policy Changes</HD>
                        <P>In addition to those proposed changes discussed above that we are able to model using our IPPS payment simulation model, we are proposing various other changes in this proposed rule. Generally, we have limited or no specific data available with which to estimate the impacts of these proposed changes. Our estimates of the likely impacts associated with these other proposed changes are discussed below.</P>
                        <HD SOURCE="HD2">A. Impact of Proposed Change to Postacute Care Transfer Payment Policy</HD>
                        <P>Existing regulations at § 412.4(b) define transfers from one acute care hospital to another, and § 412.4(c) defines transfers to certain postacute care providers. The per diem rate paid to a transferring hospital is calculated by dividing the full DRG payment by the geometric mean length of stay for the DRG. The transferring hospital receives a per diem payment for cases that are transferred prior to the geometric mean length of stay for the DRG (§ 412.4(f)(1)). Under section IV.A. of the preamble of this proposed rule, we discuss our proposal to provide alternate criteria for determining which DRGs are included within the scope of the postacute care transfer policy. The occasion for this proposed revision is our decision to delete DRG 483, and to assign the cases that previously were included within DRG 483 to two new DRGs, 541 and 542. As a result of these proposed revised criteria, three additional DRGs would fall within the scope of the policy. These are the two proposed new DRGs, 541 and 542, along with DRG 430. We estimate that the net effect of these proposed changes will be to reduce Medicare program payments by approximately $25 million per year. The proposed change is entirely due to the effect of adding DRG 430 to the policy. The proposed inclusion of proposed new DRGs 541 and 542 will have no effect on payments, because all of the cases included within those proposed DRGs were previously included within DRG 483 and, thus, already fall within the policy.</P>
                        <HD SOURCE="HD1">B. Impact of Proposed LTC-DRG Reclassifications and Relative Weights for LTCHs</HD>
                        <P>In section II.D. of the preamble of this proposed rule, we discuss the proposed changes in the LTC-DRG relative weights for FY 2005 on the proposed version 22.0 of the CMS GROUPER. We estimate that the proposed changes would result in an aggregate decrease in LTCH payments of approximately a $55 million based on LTCH cases in the FY 2003 MedPAR file. As we discuss in further detail in the 2005 LTCH PPS rate year final rule published on May 7, 2004, based on an analysis of LTCH claims data in the FY 2003 MedPAR file. We have found that the average LTC-DRG relative weight has increased due to an increase of cases being assigned to LTC-DRGs with higher relative weights. This increase may be attributable to a number of factors, including improvements in coding practices, which are typically found when moving from a reasonable cost-based payment system to a PPS. The impact of including cases with relatively lower charges into LTC-DRGs that have a relatively higher relative weight in the GROUPER version 21.0 (FY 2004) is a decrease in the average relative weight for those LTC-DRGs in proposed GROUPER version 22.0. We believe that the proposed changes in the LTC-DRG relative weights, which include a number of proposed LTC-DRGs with lower proposed relative weights, would result in a slight decrease in LTCH PPS payments.</P>
                        <HD SOURCE="HD2">C. Impact of Proposed Policy on Payments for Inpatient Care in Providers That Change Classification Status During a Patient Stay</HD>
                        <P>
                            In section IV.B. of the preamble to this proposed rule, we discuss our proposal to change our policy to preclude making more than one payment under Medicare for cases in which a Medicare provider changes its Medicare payment classification during a patient's stay. Although this situation may occur in other settings, this payment issue is most prevalent for services furnished to cross-over patients in a newly established LTCH. Currently, when this situation arises, Medicare makes two payments for what is essentially only one beneficiary episode of care, one under the IPPS and one under the LTCH PPS. The intent of this proposed policy is to eliminate the Medicare payments for the single episode of care of such patients. While we believe that this proposed policy may generate savings for the Medicare program, we do not have readily available data to precisely estimate the effect of this proposed change. Because these proposed revisions would only affect new hospitals, we are unable to estimate the number of hospitals that would be affected. Furthermore, we cannot estimate the specific 
                            <PRTPAGE P="28807"/>
                            DRGs that would be affected at those hospitals.
                        </P>
                        <HD SOURCE="HD2">D. Impact on Proposed Policy Reporting of Hospital Quality Data for Annual Hospital Payment Update</HD>
                        <P>In section IV.E. of the preamble to this proposed rule, we discuss the implementation of section 501(a) of Public Law 108-173, which provides that, the update factor for the operating payments for FY 2005 and subsequent fiscal years is the market basket percentage increase. Section 501(b) also provides that, for FYs 2005 through 2007, the update factor will be the market basket percentage increase minus 0.4 percentage points for any hospital that does not submit quality data as specified in the law. We are unable to precisely estimate the effect of this provision because, while receiving the full update for those years is conditional upon the submission of quality data by a hospital, submission of the data is not mandated unconditionally. Furthermore, hospitals will not begin to submit the quality data until very late in the process of developing the final rule for FY 2005. The Congressional Budget Office, in its analysis of Public Law 108-173, assumed that a significant number of hospitals would not provide the data required for a full payment update, and therefore estimated savings to the Medicare program of approximately $100 million per year. However, there has been a steady increase in the number of hospitals that are voluntarily submitting the specified quality data under the National Voluntary Hospital Reporting Initiative. We have also made efforts to ensure that QIOs provide assistance to all hospitals that wish to submit data. Therefore, we believe that a high proportion of hospitals will respond to the incentive provided by section 501(b) and submit quality data in order to receive the full update. For purposes of this proposed rule, we are assuming that no appreciable savings will result from this provision.</P>
                        <HD SOURCE="HD2">E. Impact of Proposed Policy on Threshold Criteria for Add-On Payments for New Technology and Medical Services</HD>
                        <P>
                            In section IV.H. of the preamble of this proposed rule, we discuss our proposal to revise the threshold amount for determining whether a new technology or medical service is an appropriate candidate for an add-on payment if it is inadequately paid otherwise under the DRG system. Furthermore, we are no longer required to ensure that any add-on payments for new technology under section 1886(d)(5)(K) of the Act are budget neutral. However, these payments will have a significant impact on total payments made in FY 2005. As discussed in section II.E. of the preamble of this proposed rule, we are proposing to maintain the new technology status of the INFUSE 
                            <E T="51">TM</E>
                             Bone Graft/LT-CAGE 
                            <E T="51">TM</E>
                             Lumbar Tapered Fusion Device for spinal fusions. We estimate the total add-on payments associated with cases involving this new device for FY 2005 would be $4.7 million. In addition, several other technologies may receive approval if we receive appropriate supplemental data from the applicants (as discussed in the preamble) and other interested parties. Therefore, if we approve all the devices that may warrant approval, the total estimated increase in payments for FY 2005 could be $369 million.
                        </P>
                        <HD SOURCE="HD2">F. Impact of Proposed Policy on Additional Payments to Hospitals With High Percentage of End-Stage Renal Disease Discharge</HD>
                        <P>In section IV.J. of the preamble of this proposed rule, we discuss our proposal to revise our regulations to state that, in determining whether a hospital qualifies for additional Medicare payments for hospitals with high percentages of ESRD discharges, only discharges involving ESRD Medicare beneficiaries who have received a dialysis treatment during an inpatient hospital stay are to be counted.</P>
                        <P>This proposed revision to the policy would reduce the number of hospitals that will qualify for this additional payment. Specifically, discharges of Medicare ESRD beneficiaries who have not received dialysis treatment during the course of their hospital stays will no longer be counted in determining whether hospitals meet the threshold for receiving this additional payment. Some hospitals that have previously qualified for this extra payment would not qualify under this proposed revised policy. Therefore, the effect of this change would be a reduction in Medicare program expenditures. However, we are unable to quantify the level of program savings because we lack data on the proportion of the discharges previously counted toward the threshold determination under this provision that involved Medicare ESRD beneficiaries who did not receive dialysis services during their hospital stays. Overall program expenditures under this provision have been approximately $15 million annually to approximately 41 hospitals. We estimate that, the savings due to this policy change will only be some proportion of that figure since some portion of these hospitals, which currently qualify for the adjustment, will no longer qualify for these payments under the revised criteria.</P>
                        <HD SOURCE="HD2">G. Impact of Proposed Policy on Payment Adjustments for Low-Volume Hospitals</HD>
                        <P>In section IV.M. of the preamble of this proposed rule, we discuss our proposal to implement section 406 of Public Law 108-173, which provides for a new payment adjustment to account for the higher costs per discharge of low-volume hospitals under the IPPS.</P>
                        <P>Based on the empirical analysis, we are limiting the adjustment to hospitals with 500 or fewer discharges. It is difficult to estimate precisely the impact of this provision. While there were approximately 400 hospitals with 500 or fewer total discharges in the most recent year for which we have data, many of these hospitals may qualify for CAH status under the revised bed count threshold (under section 405(e) of Pub. L. 108-173). Furthermore, we have not yet determined which hospitals satisfy the requirement that the hospital be located more than 25 road miles from another subsection (d) hospital. We are proposing to require that a hospital that wishes to qualify for the adjustment must provide its fiscal intermediary with evidence that it meets this distance requirement. Until intermediaries are able to make these determinations, we are unable to determine how many hospitals qualify for the adjustment.</P>
                        <P>However, the aggregate impact of this provision is likely to be relatively small. Hospitals with fewer than 500 total discharges in a year are likely to have correspondingly few Medicare discharges, perhaps 200 Medicare discharges or fewer. The largest percentage adjustments under the proposed formula that we have developed would be realized by the smallest hospitals. For example, a hospital with 50 total discharges will receive an adjustment on each Medicare discharge (probably 20 to 25 Medicare discharges annually) of 22.5 percent. A hospital with 499 total discharges would receive an adjustment of only 0.05 percent on each Medicare discharge. The Congressional Budget Office's estimated that this provision would increase Medicare program expenditures by less than $50 million annually. In the absence of a more precise estimate for the reasons indicated above, we agree with the Congressional Budget Office's determination.</P>
                        <HD SOURCE="HD2">H. Impact of Proposed Policy on MGCRB Hospital Reclassifications</HD>
                        <P>Sections 1886(d)(2)(D) and (d)(3) of the Act previously required the Secretary to compute two average standardized amounts for discharges occurring in a fiscal year: one for hospitals located in large urban areas and one for hospitals located in other areas. In addition, under sections 1886(d)(9)(B)(iii) and (d)(9)(C)(i) of the Act, the average standardized amount per discharge was determined for hospitals located in large urban and other areas in Puerto Rico. In accordance with section 1886(b)(3)(B)(i) of the Act, the large urban average standardized amount was 1.6 percent higher than the other area average standardized amount.</P>
                        <P>
                            Section 402(b) of Public Law 108-7 required that, effective for discharges occurring on or after April 1, 2003, and before October 1, 2003, the Federal rate for all IPPS hospitals would be based on the large urban standardized amount. Subsequently, Public Law 108-89, extended section 402(b) of Public Law 108-7 beginning with fiscal year 2004 and thereafter, and equal standardized amount is to be computed for all hospitals at the level computed for large urban hospitals during FY 2003, updated by the applicable percentage update. This provision in effect makes permanent the equalization of the standardized amounts at the level of the previous standardized amount for large urban hospitals. As a result of this legislative change, the standardized amount reclassification criterion is no longer necessary or appropriate. Therefore, as discussed in section IV.N. of this proposed rule, we are proposing to remove all standardize amount criteria provisions from the regulations governing geographic reclassification. Specifically, we are proposing to remove the provisions that contain the criterion requiring individual hospitals and urban hospital groups to demonstrate that their costs are more comparable to the average amount they would be paid if they were reclassified than 
                            <PRTPAGE P="28808"/>
                            the amount they would be paid if they were reclassified than the amount they would be paid under their current classification.
                        </P>
                        <P>In conjunction with this change, we are proposing under the Secretary's general authority to make exceptions that any hospital whose urban county group application under § 412.234 would have been approved by the MGCRB for FY 2004 and FY 2005, but for the failure to meet the requirements in § 412.234(c), will be assigned the wage index for the MSA identified in the FY 2004 and FY 2005 group application (in cases where the group identified more than one preference, the hospital will be assigned the wage index that is most advantageous).</P>
                        <P>For our proposal to remove all standardized amount criteria provisions from the regulations, we are unable to quantify the impact of this change precisely. The deletion of the standardized amount criterion may allow more hospital group applications to qualify for reclassification. However, we cannot determine how many groups would be affected by this change, and, of those, how many groups would actually organize to apply under the revised standard. This change would not affect the aggregate level of Medicare expenditures since reclassification decisions are budget neutral under section 1886(d)(8)(B) of the Act. However, the exercise of the Secretary's exception authority to assign a new wage index to certain hospitals that failed to be approved for reclassification in FY 2004 and FY 2005 is not budget neutral. Our review of the group reclassification applications for those years indicates that only a very small number of hospitals would qualify for a new wage index assignment under this proposed exception. While we are unable to be certain about the exact number of hospitals that would qualify, we believe that the aggregate impact on program payments would be in the range of $10 million to $20 million annually for the three years during which this exception would be in place.</P>
                        <P>In addition, we are unable to quantify the precise impact of the proposed change precisely to the average hourly wage threshold for rural referral centers. Only a limited number of rural referral centers are actually located in urban areas. Effective October 1, 2000, if a hospital located in what is now an urban area was ever a rural referral center, it is reinstated to rural referral center status (65 FR 47089). We are unable to determine how many of these rural referral centers that would not otherwise have qualified for reclassification would now be able to meet the 82 percent threshold. However, this change would not affect the aggregate level of Medicare expenditures since reclassification decisions are budget neutral under section 1886(d)(8)(B) of the Act. The exercise of the Secretary's exception authority to assign a new wage index to certain rural referral centers that failed to be approved for reclassification in FY 2005 is not budget neutral. Our review of the reclassification applications indicates that only a very small number of hospitals would qualify for a new wage index assignment under this proposed exception. While we are unable to be certain about the exact number of hospitals that would qualify, we believe that the aggregate impact on program payments would be in the range of $10 million to $20 million for the one-year during which this exception would be in effect.</P>
                        <P>Further, we anticipate that our proposed use of the authority in section 1886(d)(5)(I)(i) of the statute, to provide special protection to a small number of hospitals in States with fewer than 10 people per square mile (as determined using 2000 census data) would only increase Medicare program expenditures by $3 million to $5 million at the maximum. We believe that Medicare expenditures associated with this change would not exceed this level because many of the SCHs in the States where the exception would be applied have already qualified for reclassification effective for discharges on or after October 1, 2004. Furthermore, these hospitals are relatively small, and some of them are paid under their hospital specific rates, which restricts the gain from reclassification in most cases to capital PPS payments and payments for outpatient services.</P>
                        <HD SOURCE="HD2">I. Impact of Proposed Policy on Payment for Direct Costs of Graduate Medical Education</HD>
                        <HD SOURCE="HD3">1. Redistribution of Unused Resident Slots</HD>
                        <P>As discussed in section IV.O.2.b. of this preamble, section 422 of Public Law 108-173 added a new section 1886(h)(7) to the Act that provides for reductions in the statutory FTE resident caps under Medicare for certain hospitals and authorizes a “redistribution” of the FTE resident slots resulting from the reduction in the FTE resident caps to other hospitals.</P>
                        <P>For purposes of this proposed rule, we have estimated the impact of section 422 on hospitals for FY 2005, making assumptions about update factors, geographic (locality) adjustment factors, and the number of unused residency positions for each hospital. For purposes of calculating the impact for direct GME payments, we used the projected national average per resident amount (PRA) for FY 2005 of $82,249, as determined in accordance with existing § 413.86(e)(4)(ii)(B) (proposed to be redesignated as § 413.77(d)(2)(ii) in this proposed rule), since section 1886(h)(7)(B)(v) of the Act requires that a hospital that receives an increase in its direct GME FTE resident cap under section 1886(h)(7)(B) of the Act will receive direct GME payments with respect to those additional FTE residents using the locality-adjusted national average PRA. Based on our analysis of hospitals' FTE resident caps and FTE resident counts from the Hospital Cost Report Information System (HCRIS) for the most recent cost reporting periods ending on or before September 30, 2002, and making assumptions for hospitals that submit a timely request to use their cost report that includes July 1, 2003, we estimate that approximately 2,600 FTE resident slots that were previously unfilled (and therefore, no direct GME or IME payments were made for those slots) would be redistributed to and filled by hospitals that request an increase to their FTE residents caps under section 1886(h)(7)(B). (We note that this estimate of 2,600 slots is not necessarily the same as the estimate we would ultimately use to redistribute resident positions under section 1886(h)(7)(B)). Since payments for direct GME are determined based on a hospital's Medicare inpatient utilization, for purposes of this impact, we have applied a factor of .35 as the average Medicare inpatient utilization. Accordingly, for FY 2005, we estimate an increase of $75.6 million in direct GME payments.</P>
                        <P>For purposes of estimating the impact on IME payments, we used an IME formula multiplier of 0.66, since section 1886(d)(5)(B)(ix) states that for a hospital whose FTE resident cap is increased as a result of a redistribution of unused resident positions, the IME adjustment factor is to be calculated using a formula multiplier of 0.66 with respect to any additional residents counted by the hospital as a result of that increase in the hospital's FTE resident cap. Based on an estimate of unused resident positions using FTE resident data from HCRIS for the most recent cost reporting periods ending on or before September 30, 2002, and making assumptions for hospitals that submit a timely request to use their cost report that includes July 1, 2003, we estimate that for FY 2005, IME payments would increase by approximately $66.5 million. Thus, since section 422 is not effective until the fourth quarter of FY 2005 (that is, July 1, 2005), the estimated total increase in Medicare payments for FY 2005 attributable to section 422 is $35.53 million ([$75.6 million + $66.5 million] divided by 4).</P>
                        <HD SOURCE="HD3">2. Per Resident Amount: Extension of Update Limitation on High-Cost Programs</HD>
                        <P>In section IV.O.4. of the preamble of this proposed rule, we discuss our proposal to implement section 711 of Public Law 108-173, which freezes the annual CPI-U inflation factors to hospital-specific PRAs for direct GME payments for those PRAs that exceed the established ceiling for FYs 2004 through 2013. Under existing regulations, for FY 2005, if a hospital's PRA for the previous cost reporting period would be greater than 140 percent of the locality-adjusted national average PRA for that same previous cost reporting period, the hospital's PRA would be updated for inflation, except that the CPI-U applied for a 12-month period is reduced by 2 percentage points. Under the new provisions of section 711 of Pub. L. 108-173 for FY 2005, if a hospital-specific PRA for the previous cost period would be greater than 140 percent of the locality-adjusted national average PRA for that same previous cost reporting period, the hospital-specific PRA would be frozen at the FY 2004 PRA, and not updated for inflation. Therefore, the impact in direct GME payments for FY 2005 (attributable to section 711 of the Public Law 108-173) is the difference between updating the PRAs by the applicable CPI-U inflation factor minus 2 percentage points, and not updating the PRAs by any CPI-U inflation factor. We have calculated an impact for this provision, but the resulting savings are negligible (less than $100,000).</P>
                        <HD SOURCE="HD3">3. Residents Training in Nonhospital Settings</HD>
                        <P>
                            In section IV.O.5. of the preamble of this proposed rule, we discuss our proposal to implement section 713 of Public Law 108-173, which, through a moratorium, allows hospitals to count allopathic or osteopathic 
                            <PRTPAGE P="28809"/>
                            family practice residents training in nonhospital settings for IME and direct GME without regard to the financial arrangements between the hospital and the teaching physician practicing in the nonhospital setting in which the resident is assigned. We are unable to quantify the impact of these provisions because we do not know the number of residents or programs that are affected by these changes.
                        </P>
                        <P>In addition, under IV.O.5. of this preamble, we discuss our proposed changes related to requirements for written agreements for residency training in nonhosital settings. We are proposing to revise the regulations to remove the requirement for a written agreement between the hospital and the nonhospital setting as a precondition for a hospital to count residents training in nonhospital settings for purposes of direct GME and IME payments. We are also proposing that, in order for the hospital to count residents training in a nonhospital setting, the hospital must pay for the nonhospital site training costs concurrently with the training that occurs during the cost reporting period. There is no monetary impact related to this proposed change because this proposal is administrative in nature, and does not affect a hospital's direct GME or IME payments.</P>
                        <HD SOURCE="HD2">J. Impact of Proposed Policy on Rural Community Hospital Demonstration Program</HD>
                        <P>In section IV.P. of the preamble of this proposed rule, we discuss our proposal to implement section 410A of Public Law 108-173 requiring the Secretary to establish a demonstration that will modify reimbursement for inpatient services for up to 15 small rural hospitals. Section 410A(c)(2) requires that “in conducting the demonstration program under this section, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount which the Secretary would have paid if the demonstration program under this section was not implemented.” As discussed in section IV.P. of this proposed rule, we are proposing to satisfy this requirement by adjusting national IPPS rates by a factor that is sufficient to account for the added costs of this demonstration. We estimate that the average additional annual payment that would be made to each participating hospital under the demonstration would be approximately $1,120,000. We based this estimate on the recent historical experience of the difference between inpatient cost and reasonable cost payment for hospitals that would be eligible for the demonstration. For 15 participating hospitals, the total annual impact of the demonstration program is estimated to be $16,820,148. We estimate that there will be an average decrease in payment per discharge of approximately $0.83 in order to achieve budget neutrality. We describe the budget neutrality adjustment required for this purpose in the Addendum to this proposed rule.</P>
                        <HD SOURCE="HD2">K. Impact of Proposed Criteria for Hospitals-Within-Hospitals</HD>
                        <P>In section VI.B. of the preamble of this proposed rule, we discuss three options for revising and strengthening the criteria to be used to classify hospitals-within-hospitals for purposes of payments that are excluded from the IPPS. The intent of our policies requiring separateness of administrative and medical governance and decision-making between the hospital-within-a-hospital and its host has been to discourage patient shifting between the excluded hospital-within-a-hospital and its host for financial rather than medical purposes. In 2002, there were 114 hospitals-within-hospitals, and these entities are increasing at an average annual rate of 30 percent (MedPAC, June 2003, p.85). To the extent that these proposed revisions would eliminate hospital-within-hospital arrangements that circumvented our existing requirements, the Medicare program would avoid making unnecessary payments under the more costly excluded hospital PPSs. We cannot estimate the numbers of existing entities that would be affected by these proposed revisions, nor can we estimate the specific DRGs that would be affected at those hospitals. In addition, we do not know the number of new applications for this status that would be subject to review under these new proposed standards. Therefore, we are unable to quantify the effect these propose changes would have upon Medicare expenditures. However, we believe that this proposed change in policy would likely result in a savings to the Medicare program.</P>
                        <HD SOURCE="HD2">L. Impact of Proposed Policy Changes Related to CAHs</HD>
                        <P>In section VI.C.2. through VI.C.5. of the preamble of this proposed rule, we discuss our proposal to implement provisions in section 405 of Public Law 108-173 relating to payments to CAHs which include the percentage of change in the reasonable cost payment amount for certain services; the revised condition for a CAH's election of the optional payment method; the availability to CAHs of the periodic interim payment method (PIP); and expansion of types of emergency room providers who may be on call at CAHs.</P>
                        <P>These changes, taken together with the increase in the number of beds permitted to CAHs for acute care inpatient services discussed below, increase the incentive for conversion to CAH status by allowing larger rural hospitals and those with specialized units to become CAHs without materially reducing the size and scope of their activities. The added 1 percent reimbursement and flexibility to allow some physicians to opt out of method 2 for CAH billing should also increase the rate of conversion, while at the same time increasing the cost of CAHs to the Medicare program. The two payment methods are described in detail in section V.I.D.3. of the preamble and at § 413.70(b). The Congressional Budget Office's official estimate was that section 405 of Public Law 108-173 would increase Medicare program expenditures by approximately $100 million annually. We do not have the information to quantify the extent of the anticipated increase more precisely or to determine how much each provision of section 405 might contribute to that increase.</P>
                        <P>In section VI.C.6. of this preamble, we discuss our proposal to our regulations to reflect the provisions of section 405(e) of Pub. L. 108-173, which provides for an increase in the number of beds permitted to CAHs for acute care inpatient services, from 15 to 25 beds. We anticipate that both Medicare providers and beneficiaries would welcome this change. The increase in the number of beds would benefit CAHs that experience seasonal increases in patient census due to weather conditions and tourism. With the increase, more Medicare beneficiaries may have access to health care in their communities without the need to be transferred to another hospital because the CAH is at capacity for acute care beds. In addition, the bed size increase would eliminate an obstacle for some small rural hospitals that, except for the bed size restriction of 15 acute care beds, could qualify for CAH status. Although we anticipate that these changes would increase the rate at which hospitals convert to CAH status we do not have the information needed to make quantitative estimates of the extent of this increase.</P>
                        <P>In section VI.C.7. of the preamble of this proposed rule, we discuss our proposal to implement section 405(g) of Public Law 108-173, which grants authority for CAHs to establish psychiatric and rehabilitation distinct part units. This proposed rule would allow CAHs the option of providing rehabilitation and psychiatric services in such units.</P>
                        <P>Although we view the anticipated results of the proposed regulations as beneficial to the Medicaid and Medicare programs as well as to Medicare and Medicaid beneficiaries and State governments, we recognize that some of the provisions could be controversial and that some affected entities may respond unfavorably. We also recognize that not all of the potential effects of these provisions can definitely be anticipated, especially in view of their interaction with other Federal, State, and local activities regarding outpatient services. In particular, considering the effects of our simultaneous efforts to improve the delivery of outpatient services, it is impossible to quantify meaningfully a projection of the future effect of these provisions on a CAH's operating costs or on the frequency of substantial noncompliance and termination procedures.</P>
                        <P>
                            We estimate that only those facilities that have the capabilities to operate a distinct part unit prior to becoming a CAH will elect to operate such a unit. Hospitals that currently operate a distinct part unit and wish to continue providing psychiatric and rehabilitation services to the community can continue to do so after converting to a CAH. Allowing a facility that converts to a CAH to continue providing inpatient rehabilitation and psychiatric services in rural areas would help to ensure availability of services that are disproportionately located in urban areas. Distinct-part units may be less common in rural areas due to the challenge of finding the resources needed to operate a distinct part unit. The United States General Accounting Office (GAO), in its September 2003 Report to Congress, entitled “Modest Eligibility Expansion for Critical Access Hospital Program Should Be Considered,” reported that a distinct part unit might provide a 
                            <PRTPAGE P="28810"/>
                            financial benefit to the hospital because it enables the hospital to spread its fixed costs over more services. CAHs potentially can experience a net gain on their Medicare payments.
                        </P>
                        <P>
                            Among the existing CAHs, 25 previously operated a distinct part unit but had to close it as part of becoming a CAH. GAO identified 683 rural hospitals as “potential CAHs” based on their having an annual average of no more than 15 acute care patients per day. About 14 percent (93) of these potential CAHs operate an inpatient psychiatric or rehabilitation distinct part unit, which they previously would have had to close to convert to CAH status. Among the potential CAHs that operate a distinct part, about half had a net loss on Medicare services, indicating they might benefit from CAH conversion.
                            <SU>8</SU>
                            <FTREF/>
                        </P>
                        <FTNT>
                            <P>
                                <SU>8</SU>
                                 Information from United States General Accounting Office's Report to Congress, “Modest Eligibility Expansion for Critical Access Hospital Program Should be Considered,” GAO-03-948, September 2003.
                            </P>
                        </FTNT>
                        <P>Based on the GAO data, we estimate that approximately 50 hospitals that currently operate distinct part units would not incur any additional expense to convert to a CAH and, in fact, may increase their revenue. Therefore, we are only estimating burden for current CAHs (approximately 27) that might want to operate a distinct part unit due to their previous experience in operating a distinct part unit.</P>
                        <P>Inpatient psychiatric services in a CAH's distinct-part unit must be under the supervision of a clinical director, service chief, or equivalent who is qualified to provide the leadership required for an intensive treatment program, and who is board certified in psychiatry. The distinct part unit must also have a director of nursing services who is a registered nurse with a master's degree in psychiatric or mental health nursing or its equivalent from a school of accreditation by the National League of Nursing, who is qualified by education and experience in the care of persons with mental illness, and a director of social services. There must also be an adequate number of registered nurses to provide 24-hour coverage as well as licensed practical nurses and mental health workers.</P>
                        <P>A rehabilitation distinct-part unit of a CAH would be required to provide rehabilitation nursing, physical and occupational therapy, and, as needed, speech therapy, social services or psychological services and orthotics and prosthetics. The distinct part unit also must have a director of rehabilitation who, among other requirements, is experienced in rehabilitation and is a doctor of medicine or a doctor of osteopathy.</P>
                        <P>In addition, a CAH must comply with the common requirements for excluded units at § 412.25. Therefore, both psychiatric and rehabilitation distinct part units would be required to meet those requirements, including written admission criteria that are applied uniformly to both Medicare and non-Medicare having patients and have admission and discharge records that are separately identified from those of the CAH in which it is located and are readily available. Both of these distinct part units also must have policies specifying that necessary clinical information be transferred to the unit and have utilization review standards applicable for the type of care offered in the unit. Psychiatric distinct part units would also have to meet requirements of § 412.22, including maintenance of medical records that permit determination of the degree and intensity of the treatment provided to individuals who are furnished services in the unit. Each patient must also have an individual comprehensive treatment plan. Section 412.29 requires individuals having rehabilitation distinct part units to also have to meet the criteria of a preadmission screening procedure under which each prospective patient's condition and medical history are reviewed to determine whether the patient is likely to benefit significantly from an inpatient program. The unit must have also a plan of treatment for each inpatient. Notwithstanding the above discussion, we are not attributing burden for these requirements because they are industry standards for providing quality care and are already required conditions for both rehabilitation and psychiatric units.</P>
                        <GPOTABLE COLS="2" OPTS="L2,tp0,i1" CDEF="s150,12">
                            <TTITLE>  </TTITLE>
                            <BOXHD>
                                <CHED H="1">Hours/estimated salary/number of CAHs </CHED>
                                <CHED H="1">Annual cost </CHED>
                            </BOXHD>
                            <ROW EXPSTB="01" RUL="s">
                                <ENT I="21">
                                    <E T="02">Estimated Costs for Psychiatric Distinct Part Units</E>
                                </ENT>
                            </ROW>
                            <ROW EXPSTB="00">
                                <ENT I="01">Clinical Director or service chief; annual salary of $75,000 × 27 CAHs </ENT>
                                <ENT>$2,025,000</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">24-hours nursing coverage—1 RN per 12 hour shift (2 RNs total) = Annual salary of $52,120 × 2; </ENT>
                                <ENT>2,814,480</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">One LPN per 12 hour shift = Annual salary of $32,500 × 2 = $65,000 × 27 CAHs; </ENT>
                                <ENT>1,755,000</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Director of nursing—Annual salary of $60,000 × 27 = $1,620,000 </ENT>
                                <ENT>1,620,000</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Director of social services—Annual salary of $53,000 × 27 = $1,431,000 </ENT>
                                <ENT>1,431,000 </ENT>
                            </ROW>
                            <ROW RUL="n,s">
                                <ENT I="01">Psychiatric aides—Annual salary of $25,650 x 2=$51,300 × 27 CAHs </ENT>
                                <ENT>1,385,100 </ENT>
                            </ROW>
                            <ROW RUL="s">
                                <ENT I="03">Total </ENT>
                                <ENT>11,050,580 </ENT>
                            </ROW>
                            <ROW EXPSTB="01" RUL="s">
                                <ENT I="21">
                                    <E T="02">Estimated Costs for Rehabilitation Distinct Part Units</E>
                                </ENT>
                            </ROW>
                            <ROW EXPSTB="00">
                                <ENT I="01">Director of Rehabilitation—Annual salary $75,000 × 27 = $2,025,000 </ENT>
                                <ENT>2,025,000</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Occupational Therapist—Annual salary $53,300 × 27 = $1,439,100</ENT>
                                <ENT>1,439,100</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Physical Therapist—Annual salary $55,800 × 27 = $1,506,600 </ENT>
                                <ENT>1,506,600</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Speech Therapist—Annual salary $52,800 × 27 = $1,425,600 </ENT>
                                <ENT>1,425,600 </ENT>
                            </ROW>
                            <ROW RUL="n,s">
                                <ENT I="01">Rehabilitation nurse—Annual salary $32,500 × 27 = </ENT>
                                <ENT>877,500</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Total </ENT>
                                <ENT>7,273,800 </ENT>
                            </ROW>
                        </GPOTABLE>
                        <P>In section VI.C.8. of the preamble of this proposed rule, we are proposing to implement section 405(h) of Public Law 108-173 which terminates a State's authority to waive the location requirement of more than a 35-mile drive (or in the case of mountainous terrain or secondary roads, a 15-mile drive) for a CAH by designating the CAH as a necessary provider. We do not have the information to quantify the extent of the anticipated increase more precisely or to determine how much this provision might contribute to that increase.</P>
                        <HD SOURCE="HD2">M. Impact of Proposed Policy Change Regarding Disclosure of Information by QIOs.</HD>
                        <P>
                            In section VII.A. of this proposed rule, we are proposing to revise our regulations to add provisions to allow QIOs to disclose information about practitioners and institutions and information from quality review studies if the practitioner or institution consents to or requests the disclosure of the information in writing. This disclosure would be in addition to the existing disclosure previously based on written consent of the institution or practitioner. In addition, we are proposing exceptions to the 30-day advance notice requirement to an institution or practitioner by a QIO of its intent to disclose confidential and nonconfidential information on a practitioner or an institution is at the request of or consent of the institution or practitioner. We are proposing to specify that the notification requirements would not apply if the institution or practitioner has requested in writing that the QIO make the disclosure, has provided written consent for the disclosure, or the information is public information.
                            <PRTPAGE P="28811"/>
                        </P>
                        <P>We believe that these proposed revisions would reduce the existing burden on practitioners, institutions, and QIOs and, at the same time, ensure that necessary protections on information are retained. These provisions would allow QIOs, institutions, and practitioners to share vital information in an effective manner and further our efforts to ensure the highest quality of care for Medicare beneficiaries.</P>
                        <HD SOURCE="HD2">N. Impact of Policy Change for Medicare Hospital Conditions of Participation for Discharge Planning</HD>
                        <P>In section VIII.A. of the preamble of this proposed rule, we discuss our proposal to amend the regulations at § 482.43 to incorporate the provisions of section 4321(a) of Public Law 105-33 and section 926(b) of Public Law 108-173 into the hospital conditions of participation. We are proposing to include the requirement for hospitals to provide lists of Medicare-certified HHAs and SNFs to patients or their representatives as part of the discharge planning process. We are proposing to require the SNF list to include Medicare-certified SNFs located in a geographic area chosen by the patient. We are not requiring that the list of Medicare-certified SNFs contain only those SNFs that are located in the area in which the patient resides. Because many available Medicare-certified SNFs are not located near where the patient resides, especially in rural areas, we believe that a requirement that restricts a patient to SNFs in areas where the patient resides is too restrictive and would limit the choices of posthospital extended care services for Medicare beneficiaries.</P>
                        <P>The nature of the proposed regulatory provision is such that this minimal regulatory burden would be placed upon hospitals, HHAs and SNFs exclusively. Therefore, we did not consider any regulatory relief options. We also certify that this proposed provision would not have a significant economic impact on a substantial number of small entities or a significant impact on the operations of a substantial number of small rural hospitals.</P>
                        <P>
                            Compliance with section 4321(a) of the BBA and section 926(b) of Public Law 108-173 requires a hospital to collect on an initial and ongoing basis information to develop and maintain a current list of HHAs and SNFs available to Medicare beneficiaries. We anticipate that this effort would be minimal because hospitals currently access this information as an essential component of the discharge planning process. We do not anticipate that the operations of a substantial number of small rural hospitals would be significantly impacted. The impact would be even further minimized if a hospital chooses to access this information via the Home Health Compare or Nursing Home Compare tools on the CMS Web site, 
                            <E T="03">http://www.medicare.gov,</E>
                             or if the hospital calls 1-800-MEDICARE (1-800-633-4227) to request a printout of the HHAs or SNFs in the desired geographic area.
                        </P>
                        <P>The anticipated effects on patients would be an enhanced ability to make informed choices about the care they receive from HHAs or SNFs upon discharge from a hospital. Based on 2003 CMS data, there are approximately 6,000 Medicare-certified hospitals, 6,900 Medicare-certified HHAs, and 17,000 SNFs.</P>
                        <P>The requirements set forth in this proposed provision would place minimal burdens on hospitals, HHAs, and SNFs. A possible outcome of the implementation of all parts of the rule may be to influence hospital referral patterns, thus having an impact on HHAs and SNFs receiving post-hospitalization referrals. The information made available to maintain compliance with the statute and this proposed provision might impact patient choices about who furnishes Medicare services to them and, in turn, may have an indeterminable impact on entities that provide, or do not provide services to Medicare beneficiaries as a result.</P>
                        <P>This proposed provision would improve our information campaign to assist beneficiaries in making informed choices for health care delivery. Patient choice under the Medicaid program may be similarly affected if the providers on these lists also participate in that program.</P>
                        <P>
                            We considered developing a standardized process, format, and timeframe for all hospitals to use in developing, maintaining, and updating a current list of HHAs and SNFs. Instead, we have chosen a less prescriptive approach. Hospitals have the flexibility to define a process for developing, maintaining, and updating their list of HHAs or SNFs in a manner that makes the most sense for both the hospital and the patients they serve. The hospital would have the flexibility to develop and maintain their own list of HHAs and SNFs, or simply print a list from the Home Health Compare or Nursing Home Compare site at the CMS Web site, 
                            <E T="03">http://www.medicare.gov,</E>
                             based on the geographic area requested by the patient. Or, in the rare instance when a hospital does not have Internet access, the hospital can call 1-800-MEDICARE (1-800-633-4227) to request a printout of the list of HHAs or SNFs in the desired geographic area. In this way, hospitals would be able to develop and implement systems and processes that are the most effective and efficient in providing quality care and meeting the needs of their patients, as well as complying with the requirements of the proposed regulation.
                        </P>
                        <P>In summary, this proposed provision would establish a process for implementing the statutory requirements under section 4321(a) of the BBA and section 926(b) of the MMA. This approach would enhance the information made available to Medicare beneficiaries and place minimal burdens on all entities that may be directly or indirectly affected.</P>
                        <HD SOURCE="HD2">O. Impact of Proposed Policy Changes Relating to Medicare Provider Agreements for Compliance with Bloodborne Pathogens Standards for Medicare-Participating Hospitals</HD>
                        <P>In section VIII.B. of the preamble to this proposed rule, we discuss our proposal to implement section 947 of Public Law 108-173 under which hospitals not otherwise subject to the Occupational Safety and Health Act (OSHA) (or a State occupational safety and health plan that is approved under section 18(b) of that Act) must comply with the OSHA bloodborne pathogens standard as part of their Medicare provider agreements, effective July l, 2004.</P>
                        <P>Given that the Occupational Safety and Health Administration (OSHA) has already prepared a Regulatory Impact and Regulatory Flexibility Analysis for the Bloodborne Pathogens standard that was published December 6, 1991 (56 FR 64004), we have included relevant portions of their analyses in our estimate. However, we have pulled out the numbers that are relevant to this regulation and up-dated the numbers to make them current as of January, 2004. Thus, the impact of this proposed rule on the public hospitals included in the 26 States without state plans, as well as the District of Columbia, and Guam has been assessed.</P>
                        <P>OSHA noted that most hospitals perform a great variety of services, and there are many different exposure scenarios. One frequently reported exposure was needlestick, with the greatest potential for exposure occurring during needle recapping. Other hospital procedures that are associated with frequent exposure include phlebotomy, IV line placement, bronchoscopy, intubation, airway suction, endoscopy, colonoscopy, and proctosigmoidoscopy. Areas with the greatest potential for exposure include the emergency room, surgical suite, hemodialysis center, and intensive care unit. Laundry workers and janitors may also be exposed, particularly when handling soiled linen or refuse.</P>
                        <P>OSHA's standard for reducing worker exposure to bloodborne pathogens is based on the adoption of universal precautions as a method of infection control. This approach, which is fundamentally different from traditional procedures that isolate known infectious individuals and materials in the health care setting, assumes that all human blood and body fluids are potentially infectious for HIV, HBV, and other bloodborne pathogens. The rationale for this approach is that carriers of these diseases are not always identifiable in the health care setting, and that contaminated materials are not always properly labeled. Thus, the exposed worker can be at great risk without warning.</P>
                        <P>OSHA estimated that 6,197 hospitals with a total of 2,386,165 employees would be affected by the BBP standards. However, OSHA found that most hospitals had already implemented measures to protect workers from occupational exposure to blood and other potentially infectious materials, and that many were very close to full compliance with the standard. OSHA's estimates of the number of affected hospitals and the number of employees did not include state and local government hospitals located in states without occupational safety and health plans in place, that is, the hospitals that would be affected by our proposed rule.</P>
                        <P>
                            Net compliance costs were estimated for each provision of the standard based on OSHA surveys and information submitted in response to the rulemaking docket. The costs represented the additional costs of fully complying with the requirements of the standard, after deducting from total cost the current baseline activities that already voluntarily occurred at affected facilities. Personal protective equipment accounted for 
                            <PRTPAGE P="28812"/>
                            the largest amount of net compliance costs. Training, vaccine and post-exposure follow-up, and housekeeping were also found to be significant cost components. One-time costs were annualized to reflect the opportunity cost of capital. OSHA estimated the total annual costs to the affected hospitals to be approximately $321,913,697 or $51,947 per hospital annually.
                        </P>
                        <P>The magnitude of cost increases associated with the standard was estimated to be relatively small, and OSHA stated that they should not create significant economic hardship for most affected hospitals. OSHA predicted that the costs would be passed through the system, with resultant minor price increases to patients, customers and other downstream recipients of health services. However, OSHA noted that without the BBP standards, the economic impact of inadequate protections from BBP would fall on hospital employees and the general public.</P>
                        <P>OSHA stated that, in general, the economic impacts of the standard were not judged to be of sufficient magnitude to threaten the existence of any affected sector, nor were impacts judged sufficient to disrupt or otherwise adversely alter industry structure. OSHA did not believe that productivity of hospital employees would be significantly affected by the BBP requirements. OSHA stated that it believed familiarization with the requirements and techniques would restrict time lost and that any decrease in productivity would be offset by the peace of mind associated with a safer work setting.</P>
                        <P>Based on OSHA'S conclusions, we did not deem it necessary to update the 1989 cost data used in their analysis. Although the costs of meeting the BBP standards would have increased over time, we note that at the time, OSHA found most hospitals had already implemented measures to protect workers from exposure to blood and other potentially infectious materials and that many hospitals were very close to full compliance. We expect that hospitals not covered under the BBP standards (that is, hospitals that would be affected by our proposed rule) also had implemented measures to protect their employees from exposure to blood and other potentially infectious materials and that many hospitals were already close to full compliance with the BBP standards. We also expect that in the intervening years, hospitals that would be affected by this proposed rule would have further increased their worker protections. It is likely that many of the hospitals that would be affected by this proposed rule are already very close to full compliance with the BBP standards.</P>
                        <P>While smaller hospitals' limited ability to diversify could be a potential disadvantage in their attempts to pass compliance costs forward, OSHA concluded that it did not appear that they would lag behind larger hospitals to any significant extent in their ability to provide employees with protection against infectious hazards.</P>
                        <P>On January 18, 2001, OSHA published a final rule that added two new recordkeeping requirements to the BBP standards (66 FR 48250). First, the amended standard requires employers to “establish and maintain a sharps injury log for the recording of percutaneous injuries”. Second, any employer “who is required to establish an Exposure Control Plan” must “solicit input from non-managerial employees responsible for direct patient care who are potentially exposed to injuries from contaminated sharps in the identification, evaluation, and selection of effective engineering and work practice controls and shall document the solicitation in the exposure-control plan.</P>
                        <P>According to OSHA's analysis, the maximum total annual cost of the two requirements would be $33,892,653, consisting of $1,294,352 associated with maintaining a sharps injury log and $32,598,300 associated with soliciting and documenting employee input into the Exposure Control Plan. This would amount to $67 per hospital annually, which would not cause significant economic impact on either large or small affected establishments.</P>
                        <P>The requirements set forth in this proposed rule would place minimal burden on hospitals. A possible outcome of the implementation of all parts of the rule may be to influence hospitals' use of proper mechanisms and supplies necessary to ensure employee protection from BBPs.</P>
                        <P>The anticipated effects on employees would be the assurance that provisions are made to reduce the potential for contact with BBPs when performing work-related duties. Based on 2003 CMS data, there are approximately 6,000 Medicare-certified hospitals of which 849 are non-federal, government-owned hospitals located in states that do not have their own health and safety standards.</P>
                        <P>This proposed rule would improve the quality of working conditions for employees who care for Medicare beneficiaries in these non-federal, government-owned hospitals and would ensure hospital employee safety while performing their duties in Medicare participating hospitals while placing minimal burden on all affected entities directly and on entities that may be indirectly affected.</P>
                        <HD SOURCE="HD2">P. Impact of Proposed Fire Safety Requirements for Certain Health Care Facilities.</HD>
                        <P>In section VIII. of the preamble of this proposed rule, we discuss our proposal to clarify that long-term care facilities must be in compliance with Chapter 19.2.9, Emergency Lighting, beginning March 13, 2006. In addition, we also specify that beginning March 13, 2006, Chapter 19.3.6.3.2, exception number 2 will no longer apply to these facilities.</P>
                        <P>
                            In the January 10, 2003 final rule adopting the 2000 edition of the Life Safety Code, we examined the overall economic impact and the impact on small entities and rural hospitals 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. We also examined the anticipated effects of the rule. We determined that the 2003 final rule did not meet the criteria to be considered economically significant or to be a major rule. Furthermore, we examined the Federalism implication of the 2003 final rule and determined that the rule would not have a substantial effect on State, local, or tribal governments. The correcting amendments in this proposed rule would merely bring the Code of Federal Regulations language into conformity with the analyses that we have already conducted and described in the Regulatory Impact Statement section of the 2003 final rule. (
                            <E T="03">See</E>
                             68 FR 1374, January 10, 2003).
                        </P>
                        <HD SOURCE="HD1">VIII. Impact of Proposed Changes in the Capital PPS</HD>
                        <HD SOURCE="HD2">A. General Considerations</HD>
                        <P>
                            Fiscal year 2001 was the last year of the 10-year transition period established to phase in the PPS for hospital capital-related costs. During the transition period, hospitals were paid under one of two payment methodologies: fully prospective or hold harmless. Under the fully prospective methodology, hospitals were paid a blend of the capital Federal rate and their hospital-specific rate (
                            <E T="03">see</E>
                             § 412.340). Under the hold-harmless methodology, unless a hospital elected payment based on 100 percent of the capital Federal rate, hospitals were paid 85 percent of reasonable costs for old capital costs (100 percent for SCHs) plus an amount for new capital costs based on a proportion of the capital Federal rate (see § 412.344). As we state in section V. of the preamble of this proposed rule, with the 10-year transition period ending with hospital cost reporting periods beginning on or after October 1, 2001 (FY 2002), beginning in FY 2002 capital prospective payment system payments for most hospitals are based solely on the capital Federal rate. Therefore, we no longer include information on obligated capital costs or projections of old capital costs and new capital costs, which were factors needed to calculate payments during the transition period, for our impact analysis.
                        </P>
                        <P>In accordance with § 412.312, the basic methodology for determining a capital prospective payment system payment is:</P>
                        <FP>(Standard Federal Rate) × (DRG weight) × (Geographic Adjustment Factor (GAF)) × (Large Urban Add-on, if applicable) × (COLA adjustment for hospitals located in Alaska and Hawaii) × (1 + Disproportionate Share (DSH) Adjustment Factor + Indirect Medical Education (IME) Adjustment Factor, if applicable).</FP>
                        <P>In addition, hospitals may also receive outlier payments for those cases that qualify under the threshold established for each fiscal year.</P>
                        <P>
                            The data used in developing the impact analysis presented below are taken from the December 2003 update of the FY 2003 MedPAR file and the December 2003 update of the Provider Specific File that is used for payment purposes. Although the analyses of the changes to the capital prospective payment system do not incorporate cost data, we used the December 2003 update of the most recently available hospital cost report data (FY 2001) to categorize hospitals. Our analysis has several qualifications. First, we do not make adjustments for behavioral changes that hospitals may adopt in response 
                            <PRTPAGE P="28813"/>
                            to policy changes. Second, due to the interdependent nature of the PPS, it is very difficult to precisely quantify the impact associated with each change. Third, we draw upon various sources for the data used to categorize hospitals in the tables. In some cases (for instance, the number of beds), there is a fair degree of variation in the data from different sources. We have attempted to construct these variables with the best available sources overall. However, for individual hospitals, some miscategorizations are possible.
                        </P>
                        <P>Using cases from the December 2003 update of the FY 2003 MedPAR file, we simulated payments under the capital PPS for FY 2004 and FY 2005 for a comparison of total payments per case. Any short-term, acute care hospitals not paid under the general IPPS (Indian Health Service Hospitals and hospitals in Maryland) are excluded from the simulations.</P>
                        <P>As we explain in section III.A.4. of the Addendum of this proposed rule, payments will no longer be made under the regular exceptions provision under §§ 412.348(b) through (e). Therefore, we are no longer using the actuarial capital cost model (described in Appendix B of the August 1, 2001 final rule (66 FR 40099)). We modeled payments for each hospital by multiplying the capital Federal rate by the GAF and the hospital's case-mix. We then added estimated payments for indirect medical education, disproportionate share, large urban add-on, and outliers, if applicable. For purposes of this impact analysis, the model includes the following assumptions:</P>
                        <P>• We estimate that the Medicare case-mix index would increase by 1.0 percent in both FY 2004 and FY 2005.</P>
                        <P>• We estimate that the Medicare discharges will be 14.5 million in FY 2004 and 14.0 million in FY 2005 for a 3.4 percent decrease from FY 2004 to FY 2005. (We are projecting a decrease in Medicare Part A fee-for-service admissions, in part, because we are projecting an increase in Medicare managed care enrollment as a result of the implementation of several provisions of Public Law 108-173.</P>
                        <P>
                            • The capital Federal rate was updated beginning in FY 1996 by an analytical framework that considers changes in the prices associated with capital-related costs and adjustments to account for forecast error, changes in the case-mix index, allowable changes in intensity, and other factors. The proposed FY 2005 update is 0.7 percent (
                            <E T="03">see</E>
                             section III.A.1.a. of the Addendum to this proposed rule).
                        </P>
                        <P>• In addition to the proposed FY 2005 update factor, the proposed FY 2005 capital Federal rate was calculated based on a GAF/DRG budget neutrality factor of 1.0015, an outlier adjustment factor of 0.9497, and a (special) exceptions adjustment factor of 0.9996.</P>
                        <HD SOURCE="HD3">Results</HD>
                        <P>In the past, in this impact section we presented the redistributive effects that were expected to occur between “hold-harmless” hospitals and “fully prospective” hospitals and a cross-sectional summary of hospital groupings by the capital PPS transition period payment methodology. We are no longer including this information because all hospitals (except new hospitals under § 412.324(b) and under § 412.304(c)(2)) are paid 100 percent of the capital Federal rate in FY 2005.</P>
                        <P>We used the actuarial model described above to estimate the potential impact of our proposed changes for FY 2005 on total capital payments per case, using a universe of 3,871 hospitals. As described above, the individual hospital payment parameters are taken from the best available data, including the December 2003 update of the FY 2003 MedPAR file, the December 2003 update to the Provider-Specific File, and the most recent cost report data from the December 2003 update of HCRIS. In Table III, we present a comparison of total payments per case for FY 2004 compared to FY 2005 based on the proposed FY 2005 payment policies. Column 2 shows estimates of payments per case under our model for FY 2004. Column 3 shows estimates of payments per case under our model for FY 2005. Column 4 shows the total percentage change in payments from FY 2004 to FY 2005. The change represented in Column 4 includes the 0.7 percent update to the capital Federal rate, a 1.0 percent increase in case-mix, changes in the adjustments to the capital Federal rate (for example, the effect of the new hospital wage index on the geographic adjustment factor), and reclassifications by the MGCRB, as well as changes in special exception payments. The comparisons are provided by: (1) Geographic location; (2) region; and (3) payment classification.</P>
                        <P>The simulation results show that, on average, capital payments per case can be expected to increase 4.3 percent in FY 2005. In addition to the 0.7 percent increase due to the capital market basket update, this projected increase in capital payments per case is largely attributable to the proposed changes in the GAF values (which include the increase to hospital wage index values provided for by sections 505 and 508 of Pub. L. 108-173) and estimated increase in outlier payments in FY 2005. Our comparison by geographic location shows that urban hospitals are expected to experience a 4.6 percent increase in capital payments per case, while rural hospitals are only expected to experience a 2.1 percent increase in capital payments per case. This difference is mostly due to a projection that urban hospitals will experience a larger increase in payments due to changes in the proposed GAF values and larger projected increase in outlier payments from FY 2004 to FY 2005 compared to rural hospitals.</P>
                        <P>Most regions are estimated to receive an increase in total capital payments per case. Changes by region vary from a minimum increase of 0.7 percent (South Atlantic rural region) to a maximum increase of 5.5 percent (Pacific urban region). This relatively small increase in projected capital payments per discharge for hospitals located in the South Atlantic rural region is largely attributable to the proposed changes in the GAF values (that is, the proposed GAFs for most of these hospitals for FY 2005 are lower than the average of the GAFs for FY 2004) and a projected decrease in DSH payments (mostly because the rural hospitals that previously qualified for capital DSH payments because they reclassified for the purpose of the operating IPPS standardized amounts would no longer be eligible to receive capital DSH payments with the equalization of the operating IPPS standardized amounts, as discussed in section IV.D. of the preamble of this proposed rule). The relatively large increase in capital payments per discharge for hospitals located in the Pacific urban region is largely due to the proposed changes in the GAF values (that is, the proposed GAFs for most of these hospitals for FY 2005 are higher than the average of the GAFs for FY 2004) and an increase in projected outlier payments.</P>
                        <P>Hospitals located in Puerto Rico are expected to experience an increase in total capital payments per case of 8.0 percent. This relatively large increase in payment per case for hospitals located in Puerto Rico is largely due to the proposed change in the Federal portion (from 50 percent to 75 percent) of the blended payments to Puerto Rico hospitals beginning in FY 2005.</P>
                        <P>By type of ownership, proprietary hospitals are projected to have the largest rate of increase of total payment changes (4.7 percent). Similarly, payments to voluntary and government hospitals are expected to increase 4.3 percent. As noted above, this slightly larger projected increase in capital payments per case for proprietary hospitals is mostly due to the proposed changes in the GAF values for FY 2005.</P>
                        <P>Section 1886(d)(10) of the Act established the MGCRB. Previously, hospitals could apply for reclassification for purposes of the standardized amount, wage index, or both. Section 401(c) of Public Law 108-173 equalized the standardized amounts under the operating IPPS. Therefore, beginning in FY 2005, there is no longer reclassification for the purposes of the standardized amounts; hospitals may apply for reclassification for purposes of the wage index in FY 2005. Reclassification for wage index purposes also affects the geographic adjustment factor because that factor is constructed from the hospital wage index.</P>
                        <P>To present the effects of the hospitals being reclassified for FY 2005 compared to the effects of reclassification for FY 2004, we show the average payment percentage increase for hospitals reclassified in each fiscal year and in total. The reclassified groups are compared to all other nonreclassified hospitals. These categories are further identified by urban and rural designation.</P>
                        <P>
                            Hospitals reclassified for FY 2005 as a whole are projected to experience a 2.8 percent increase in payments. Payments to nonreclassified hospitals in FY 2005 are expected to increase 4.5 percent. Hospitals reclassified during both FY 2004 and FY 2005 are projected to experience a slight increase in payments of 2.6 percent. Hospitals reclassified during FY 2005 only are projected to receive an increase in payments of 4.9 percent. This increase is primarily due to proposed changes in the GAF (wage index).
                            <PRTPAGE P="28814"/>
                        </P>
                        <GPOTABLE COLS="5" OPTS="L2,i1" CDEF="s50,10,10,10,10">
                            <TTITLE>Table III.—Comparison of Total Payments Per Case </TTITLE>
                            <TDESC>[FY 2004 Payments Compared to Proposed FY 2005 Payments] </TDESC>
                            <BOXHD>
                                <CHED H="1">  </CHED>
                                <CHED H="1">
                                    Number of 
                                    <LI>hospitals </LI>
                                </CHED>
                                <CHED H="1">
                                    Average 
                                    <LI>FY 2004 </LI>
                                    <LI>payments/case </LI>
                                </CHED>
                                <CHED H="1">
                                    Average 
                                    <LI>FY 2005</LI>
                                    <LI>payments/case </LI>
                                </CHED>
                                <CHED H="1">Change.</CHED>
                            </BOXHD>
                            <ROW>
                                <ENT I="22">By Geographic Location:.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">All hospitals </ENT>
                                <ENT>3,871 </ENT>
                                <ENT>709 </ENT>
                                <ENT>740</ENT>
                                <ENT>4.3</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Large urban areas (populations over 1 million) </ENT>
                                <ENT>1,411 </ENT>
                                <ENT>790 </ENT>
                                <ENT>838</ENT>
                                <ENT>6.1</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Other urban areas (populations of 1 million of fewer) </ENT>
                                <ENT>1,253 </ENT>
                                <ENT>704 </ENT>
                                <ENT>723</ENT>
                                <ENT>2.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Rural areas </ENT>
                                <ENT>1,207 </ENT>
                                <ENT>485 </ENT>
                                <ENT>495</ENT>
                                <ENT>2.1</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Urban hospitals </ENT>
                                <ENT>2,664 </ENT>
                                <ENT>750 </ENT>
                                <ENT>784</ENT>
                                <ENT>4.6</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">0-99 beds </ENT>
                                <ENT>674 </ENT>
                                <ENT>540 </ENT>
                                <ENT>563</ENT>
                                <ENT>4.4</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">100-199 beds </ENT>
                                <ENT>945 </ENT>
                                <ENT>642 </ENT>
                                <ENT>670</ENT>
                                <ENT>4.2</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">200-299 beds </ENT>
                                <ENT>499 </ENT>
                                <ENT>736 </ENT>
                                <ENT>766</ENT>
                                <ENT>4.2</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">300-499 beds </ENT>
                                <ENT>415 </ENT>
                                <ENT>812 </ENT>
                                <ENT>851</ENT>
                                <ENT>4.8</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">500 or more beds </ENT>
                                <ENT>131 </ENT>
                                <ENT>934 </ENT>
                                <ENT>982</ENT>
                                <ENT>5.2</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Rural hospitals </ENT>
                                <ENT>1,207 </ENT>
                                <ENT>485 </ENT>
                                <ENT>495</ENT>
                                <ENT>2.1</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">0-49 beds </ENT>
                                <ENT>548 </ENT>
                                <ENT>406 </ENT>
                                <ENT>416</ENT>
                                <ENT>2.5</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">50-99 beds </ENT>
                                <ENT>393 </ENT>
                                <ENT>452 </ENT>
                                <ENT>462</ENT>
                                <ENT>2.2</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">100-149 beds </ENT>
                                <ENT>163 </ENT>
                                <ENT>492 </ENT>
                                <ENT>501</ENT>
                                <ENT>1.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">150-199 beds </ENT>
                                <ENT>57 </ENT>
                                <ENT>536 </ENT>
                                <ENT>545</ENT>
                                <ENT>1.6</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">200 or more beds </ENT>
                                <ENT>46 </ENT>
                                <ENT>610 </ENT>
                                <ENT>622</ENT>
                                <ENT>2.0</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">By Region:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Urban by Region </ENT>
                                <ENT>2,664 </ENT>
                                <ENT>750 </ENT>
                                <ENT>784</ENT>
                                <ENT>4.6</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">New England </ENT>
                                <ENT>134 </ENT>
                                <ENT>815 </ENT>
                                <ENT>839</ENT>
                                <ENT>2.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Middle Atlantic </ENT>
                                <ENT>390 </ENT>
                                <ENT>813 </ENT>
                                <ENT>848</ENT>
                                <ENT>4.2</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">South Atlantic </ENT>
                                <ENT>407 </ENT>
                                <ENT>720 </ENT>
                                <ENT>752</ENT>
                                <ENT>4.4</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">East North Central </ENT>
                                <ENT>442 </ENT>
                                <ENT>742 </ENT>
                                <ENT>777</ENT>
                                <ENT>4.8</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">East South Central </ENT>
                                <ENT>175 </ENT>
                                <ENT>677 </ENT>
                                <ENT>709</ENT>
                                <ENT>4.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">West North Central </ENT>
                                <ENT>160 </ENT>
                                <ENT>752 </ENT>
                                <ENT>786</ENT>
                                <ENT>4.5</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">West South Central </ENT>
                                <ENT>344 </ENT>
                                <ENT>698 </ENT>
                                <ENT>734</ENT>
                                <ENT>5.2</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Mountain </ENT>
                                <ENT>140 </ENT>
                                <ENT>746 </ENT>
                                <ENT>772</ENT>
                                <ENT>3.5</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Pacific </ENT>
                                <ENT>421 </ENT>
                                <ENT>850 </ENT>
                                <ENT>897</ENT>
                                <ENT>5.5</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Puerto Rico </ENT>
                                <ENT>51 </ENT>
                                <ENT>321 </ENT>
                                <ENT>346</ENT>
                                <ENT>8.0</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Rural by Region </ENT>
                                <ENT>1,207 </ENT>
                                <ENT>485 </ENT>
                                <ENT>495</ENT>
                                <ENT>2.1</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">New England </ENT>
                                <ENT>34 </ENT>
                                <ENT>618 </ENT>
                                <ENT>629</ENT>
                                <ENT>1.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Middle Atlantic </ENT>
                                <ENT>57 </ENT>
                                <ENT>511 </ENT>
                                <ENT>516</ENT>
                                <ENT>1.0</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">South Atlantic </ENT>
                                <ENT>176 </ENT>
                                <ENT>479 </ENT>
                                <ENT>483</ENT>
                                <ENT>0.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">East North Central </ENT>
                                <ENT>160 </ENT>
                                <ENT>514 </ENT>
                                <ENT>522</ENT>
                                <ENT>1.4</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">East South Central </ENT>
                                <ENT>192 </ENT>
                                <ENT>446 </ENT>
                                <ENT>457</ENT>
                                <ENT>2.6</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">West North Central </ENT>
                                <ENT>206 </ENT>
                                <ENT>500 </ENT>
                                <ENT>517</ENT>
                                <ENT>3.3</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">West South Central </ENT>
                                <ENT>228 </ENT>
                                <ENT>434 </ENT>
                                <ENT>446</ENT>
                                <ENT>2.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Mountain </ENT>
                                <ENT>92 </ENT>
                                <ENT>486 </ENT>
                                <ENT>500</ENT>
                                <ENT>2.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Pacific </ENT>
                                <ENT>62 </ENT>
                                <ENT>558 </ENT>
                                <ENT>578</ENT>
                                <ENT>3.6</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">By Payment Classification:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">All hospitals </ENT>
                                <ENT>3,871 </ENT>
                                <ENT>709 </ENT>
                                <ENT>740</ENT>
                                <ENT>4.3</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Large urban areas (populations over 1 million) </ENT>
                                <ENT>1,399 </ENT>
                                <ENT>791 </ENT>
                                <ENT>839</ENT>
                                <ENT>6.1</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Other urban areas (populations of 1 million or fewer) </ENT>
                                <ENT>1,216 </ENT>
                                <ENT>707 </ENT>
                                <ENT>726 </ENT>
                                <ENT>2.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Rural areas </ENT>
                                <ENT>1,256 </ENT>
                                <ENT>484 </ENT>
                                <ENT>494</ENT>
                                <ENT>2.0</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="13">Teaching Status:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Non-teaching </ENT>
                                <ENT>2,759 </ENT>
                                <ENT>588 </ENT>
                                <ENT>610</ENT>
                                <ENT>3.8</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Fewer than 100 Residents </ENT>
                                <ENT>911 </ENT>
                                <ENT>750 </ENT>
                                <ENT>782</ENT>
                                <ENT>4.3</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">100 or more Residents </ENT>
                                <ENT>201 </ENT>
                                <ENT>1,090 </ENT>
                                <ENT>1,151</ENT>
                                <ENT>5.6</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="15">Urban DSH:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="07">100 or more beds </ENT>
                                <ENT>1,457 </ENT>
                                <ENT>786 </ENT>
                                <ENT>822</ENT>
                                <ENT>4.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="07">Less than 100 beds </ENT>
                                <ENT>335 </ENT>
                                <ENT>494 </ENT>
                                <ENT>517</ENT>
                                <ENT>4.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="15">Rural DSH:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="07">Sole Community (SCH/EACH) </ENT>
                                <ENT>478 </ENT>
                                <ENT>440 </ENT>
                                <ENT>451</ENT>
                                <ENT>2.4</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="07">Referral Center (RRC/EACH) </ENT>
                                <ENT>149 </ENT>
                                <ENT>548 </ENT>
                                <ENT>558</ENT>
                                <ENT>1.8</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="17">Other Rural:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="09">100 or more beds </ENT>
                                <ENT>64 </ENT>
                                <ENT>464 </ENT>
                                <ENT>470</ENT>
                                <ENT>1.3</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="09">Less than 100 beds </ENT>
                                <ENT>241 </ENT>
                                <ENT>411 </ENT>
                                <ENT>419</ENT>
                                <ENT>1.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="13">Urban teaching and DSH:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Both teaching and DSH </ENT>
                                <ENT>800 </ENT>
                                <ENT>862 </ENT>
                                <ENT>903</ENT>
                                <ENT>4.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Teaching and no DSH </ENT>
                                <ENT>250 </ENT>
                                <ENT>773 </ENT>
                                <ENT>808</ENT>
                                <ENT>4.5</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">No teaching and DSH </ENT>
                                <ENT>992 </ENT>
                                <ENT>631 </ENT>
                                <ENT>658</ENT>
                                <ENT>4.3</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">No teaching and no DSH </ENT>
                                <ENT>573 </ENT>
                                <ENT>642 </ENT>
                                <ENT>669</ENT>
                                <ENT>4.3</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="13">Rural Hospital Types:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Non special status hospitals </ENT>
                                <ENT>394 </ENT>
                                <ENT>439 </ENT>
                                <ENT>446</ENT>
                                <ENT>1.6</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">RRC/EACH </ENT>
                                <ENT>129 </ENT>
                                <ENT>559 </ENT>
                                <ENT>565</ENT>
                                <ENT>1.2</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">SCH/EACH </ENT>
                                <ENT>451 </ENT>
                                <ENT>454 </ENT>
                                <ENT>465</ENT>
                                <ENT>2.5</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Medicare-dependent hospitals (MDH) </ENT>
                                <ENT>209 </ENT>
                                <ENT>408 </ENT>
                                <ENT>419</ENT>
                                <ENT>2.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">SCH, RRC and EACH </ENT>
                                <ENT>70 </ENT>
                                <ENT>551 </ENT>
                                <ENT>566</ENT>
                                <ENT>2.9</ENT>
                            </ROW>
                            <ROW>
                                <PRTPAGE P="28815"/>
                                <ENT I="22">Hospitals Reclassified by the Medicare Geographic Classification Review Board:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="13">Reclassification Status During FY 2004 and FY 2005:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Reclassified During Both FY 2004 and FY 2005 </ENT>
                                <ENT>423 </ENT>
                                <ENT>615 </ENT>
                                <ENT>631</ENT>
                                <ENT>2.6</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="07">Reclassified During FY 2005 Only </ENT>
                                <ENT>62 </ENT>
                                <ENT>547 </ENT>
                                <ENT>574</ENT>
                                <ENT>4.9</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="07">Reclassified During FY 2004 Only </ENT>
                                <ENT>186 </ENT>
                                <ENT>672 </ENT>
                                <ENT>687</ENT>
                                <ENT>2.2</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="15">FY 2005 Reclassifications:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="07">All Reclassified Hospitals </ENT>
                                <ENT>485 </ENT>
                                <ENT>610 </ENT>
                                <ENT>627</ENT>
                                <ENT>2.8</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="07">All Nonreclassified Hospitals </ENT>
                                <ENT>3,325 </ENT>
                                <ENT>724 </ENT>
                                <ENT>757</ENT>
                                <ENT>4.5</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="07">All Urban Reclassified Hospitals </ENT>
                                <ENT>118 </ENT>
                                <ENT>748 </ENT>
                                <ENT>773</ENT>
                                <ENT>3.4</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="07">Urban Nonreclassified Hospitals </ENT>
                                <ENT>2,486 </ENT>
                                <ENT>752 </ENT>
                                <ENT>787</ENT>
                                <ENT>4.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="07">All Reclassified Rural Hospitals </ENT>
                                <ENT>367 </ENT>
                                <ENT>536 </ENT>
                                <ENT>548</ENT>
                                <ENT>2.3</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="07">Rural Nonreclassified Hospitals </ENT>
                                <ENT>839 </ENT>
                                <ENT>433 </ENT>
                                <ENT>441</ENT>
                                <ENT>1.8</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="15">Other Reclassified Hospitals (Section 1886(D)(8)(B))</ENT>
                                <ENT>61 </ENT>
                                <ENT>487 </ENT>
                                <ENT>490</ENT>
                                <ENT>0.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="13">Type of Ownership:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Voluntary </ENT>
                                <ENT>2,322 </ENT>
                                <ENT>727 </ENT>
                                <ENT>758</ENT>
                                <ENT>4.3</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Proprietary </ENT>
                                <ENT>717 </ENT>
                                <ENT>647 </ENT>
                                <ENT>677</ENT>
                                <ENT>4.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Government </ENT>
                                <ENT>764 </ENT>
                                <ENT>676 </ENT>
                                <ENT>705</ENT>
                                <ENT>4.3</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="13">Medicare Utilization as a Percent of Inpatient Days:</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">0-25 </ENT>
                                <ENT>226 </ENT>
                                <ENT>888 </ENT>
                                <ENT>939</ENT>
                                <ENT>5.7</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">25-50 </ENT>
                                <ENT>1,122 </ENT>
                                <ENT>772 </ENT>
                                <ENT>809</ENT>
                                <ENT>4.8</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">50-65 </ENT>
                                <ENT>1,428 </ENT>
                                <ENT>630 </ENT>
                                <ENT>654</ENT>
                                <ENT>3.8</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Over 65 </ENT>
                                <ENT>922 </ENT>
                                <ENT>630 </ENT>
                                <ENT>654</ENT>
                                <ENT>3.7 </ENT>
                            </ROW>
                        </GPOTABLE>
                    </APPENDIX>
                    <APPENDIX>
                        <HD SOURCE="HED">Appendix B: Recommendation of Update Factors for Operating Cost Rates of Payment for Inpatient Hospital Services</HD>
                        <FP>[If you choose to comment on issues in this section, please include the caption “Update Factors” at the beginning of your comment.]</FP>
                        <HD SOURCE="HD1">I. Background</HD>
                        <P>Section 1886(e)(4)(A) of the Act requires that the Secretary, taking into consideration the recommendations of the Medicare Payment Advisory Commission (MedPAC), recommend update factors for inpatient hospital services for each fiscal year that take into account the amounts necessary for the efficient and effective delivery of medically appropriate and necessary care of high quality. Under section 1886(e)(5) of the Act, we are required to publish the proposed update factors recommended by the Secretary in the proposed rule, and the final update factors recommended by the Secretary in the final rule. Accordingly, this Appendix provides the recommendations of appropriate update factors for the IPPS standardized amount, the hospital-specific rates for SCHs and MDHs, and the rate-of-increase limits for hospitals and hospital units excluded from the IPPS. We also discuss our update framework and respond to MedPAC's recommendations concerning the update factors.</P>
                        <HD SOURCE="HD1">II. Secretary's Recommendations</HD>
                        <P>Section 1886(b)(3)(B)(i)(XIX) of the Act sets the FY 2005 percentage increase in the operating cost standardized amount equal to the rate of increase in the hospital market basket for IPPS hospitals in all areas. Based on the Office of the Actuary's first quarter 2004 forecast of the FY 2005 market basket increase, the proposed update to the standardized amount is 3.3 percent (that is, the market basket rate of increase) for hospitals in all areas.</P>
                        <P>Section 1886(b)(3)(B)(iv) of the Act sets the FY 2005 percentage increase in the hospital-specific rates applicable to SCHs and MDHs equal to the rate set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same update factor as all other hospitals subject to the IPPS, or the rate of increase in the market basket). Therefore, the proposed update to the hospital-specific rate applicable to SCHs and MDHs is also 3.3 percent.</P>
                        <P>Section 1886(b)(3)(B)(ii) of the Act sets the FY 2005 percentage increase in the rate-of-increase limits for hospitals and hospital units excluded from the IPPS (psychiatric hospitals and units (now referred to as inpatient psychiatric facilities (IPFs)), rehabilitation hospitals and units (now referred to as IRFs), LTCHs, cancer hospitals, and children's hospitals) equal to the market basket percentage increase. In the past, hospitals and hospital units excluded from the IPPS have been paid based on their reasonable costs subject to limits as established by TEFRA. However, some of these categories of excluded hospitals and units have begun to be paid under their own prospective payment systems. Hospitals and units that receive any hospital-specific payments will have those payments subject to TEFRA limits for FY 2005. For these hospitals, the proposed update is the percentage increase in the excluded hospital market basket (currently estimated at 3.3 percent).</P>
                        <P>IRFs are paid under the IRF PPS for cost reporting periods beginning on or after January 1, 2002. For cost reporting periods beginning during FY 2004, the Federal prospective payment for IRFs is based on 100 percent of the adjusted Federal IRF prospective payment amount, updated annually.</P>
                        <P>Effective for cost reporting periods beginning during FY 2003, LTCHs are paid under the LTCH PPS under which they receive payment based on a 5-year transition period (see the August 30, 2002 final rule (67 FR 55954)). A LTCH may elect to be paid on 100 percent of the Federal prospective rate at the start of any of its cost reporting periods during the 5-year transition period. For purposes of the update factor, the portion of the LTCH PPS transition blend payment based on reasonable costs for inpatient operating services is determined by updating the LTCH's TEFRA limit by the current estimate of the excluded hospital market basket (or 3.3 percent).</P>
                        <P>
                            CMS recently published a proposed regulation regarding inpatient psychiatric facilities (IPFs) in which CMS would compute a Federal per diem base rate to be paid to all IPFs based on the sum of the average routine operating, ancillary, and capital costs for each patient day of psychiatric care in an IPF adjusted for budget neutrality. The Federal per diem base rate would be adjusted to reflect certain patient characteristics such as age, specified DRGs, and selected high-cost comorbidities, and certain facility characteristics such as a wage index adjustment, rural location, and indirect teaching costs. The November 28, 2003 proposed rule assumed an April 1, 2004 effective date for the purpose of ratesetting and calculating impacts. However, we are still in the process of analyzing public comments and developing a final rule for publication. The effective date of the IPF PPS would occur 5 months following publication of the final rule.
                            <PRTPAGE P="28816"/>
                        </P>
                        <HD SOURCE="HD1">III. Update Framework</HD>
                        <P>Consistent with current law, we are proposing an update recommendation equal to the full market basket percentage increase for the IPPS operating cost standardized amounts for FY 2005. We also have analyzed changes in hospital productivity, scientific and technological advances, practice pattern changes, changes in case-mix, the effect of reclassification on recalibration, and forecast error correction. A discussion of this analysis is below.</P>
                        <HD SOURCE="HD2">A. Productivity</HD>
                        <P>Service level labor productivity is defined as the ratio of total service output to full-time equivalent employees (FTEs). While we recognize that productivity is a function of many variables (for example, labor, nonlabor material, and capital inputs), we use the portion of productivity attributed to direct labor since this update framework applies to operating payment. To recognize that we are apportioning the short-run output changes to the labor input and not considering the nonlabor inputs, we weight our productivity measure by the share of direct labor services in the market basket to determine the expected effect on cost per case.</P>
                        <P>Our recommendation for the service productivity component is based on historical trends in productivity and total output for both the hospital industry and the general economy, and projected levels of future hospital service output. MedPAC's predecessor, the Prospective Payment Assessment Commission (ProPAC), estimated cumulative service productivity growth to be 4.9 percent from 1985 through 1989 or 1.2 percent annually. At the same time, ProPAC estimated total output growth at 3.4 percent annually, implying a ratio of service productivity growth to output growth of 0.35.</P>
                        <P>Absent a productivity measure specific to Medicare patients, we examined productivity (output per hour) and output (gross domestic product) for the economy. Depending on the exact time period, annual changes in productivity range from 0.30 to 0.35 percent of the change in output (that is, a 1.0 percent increase in output would be correlated with a 0.30 percent to a 0.35 percent change in output per hour).</P>
                        <P>Under our framework, the recommended update is based in part on expected productivity—that is, projected service output during the year, multiplied by the historical ratio of service productivity to total service output, multiplied by the share of direct labor in total operating inputs, as calculated in the hospital market basket. This method estimates an expected productivity improvement in the same proportion to expected total service growth that has occurred in the past and assumes that, at a minimum, growth in FTEs changes proportionally to the growth in total service output. Thus, the recommendation allows for unit productivity to be smaller than the historical averages in years during which output growth is relatively low and larger in years during which output growth is higher than the historical averages. Based on the above estimates from both the hospital industry and the economy, we have chosen to employ the range of ratios of productivity change to output change of 0.30 to 0.35.</P>
                        <P>The expected change in total hospital service output is the product of projected growth in total admissions (adjusted for outpatient usage), projected real case-mix growth, expected quality-enhancing intensity growth, and net of expected decline in intensity due to reduction of cost-ineffective practice. Case-mix growth and intensity numbers for Medicare are used as proxies for those of the total hospital, since case-mix increases (used in the intensity measure as well) are unavailable for non-Medicare patients. Normally, the expected FY 2005 hospital output growth would be simply the sum of the expected change in intensity (zero percent), projected admissions change (0.9 percent), and projected real case-mix growth (1.0 percent—a definition of real case mix growth appears below), or 1.9 percent. As discussed below and in relation to the proposed capital update, we believe our intensity estimate is skewed by hospitals' charge data. We are including only the projected changes in admissions and real case-mix in our calculation of productivity gains. However, the expected change in intensity is zero. Therefore, excluding the intensity estimate has no effect on the result. This results in an estimate of 1.9 percent.</P>
                        <P>The share of direct labor services in the market basket (consisting of wages, salaries, and employee benefits) is 61.7 percent. Multiplying the expected change in total hospital service output (1.9 percent) by the ratio of historical service productivity change to total service growth of 0.30 to 0.35 and by the direct labor share percentage of 61.7 provides our productivity standard of −0.8 to −0.7 percent. Because productivity gains hold down the rate of increase in hospitals' costs, this factor is applied as a negative offset to the market basket increase.</P>
                        <HD SOURCE="HD2">B. Intensity</HD>
                        <P>The intensity factor for the operating update framework reflects how hospital services are utilized to produce the final product, that is, the discharge. This component accounts for changes in the use of quality-enhancing services, changes in within-DRG severity, and expected modification of practice patterns to remove non-cost-effective services. Under the capital IPPS framework, we also make an adjustment for changes in intensity. We calculate this adjustment using the same methodology and data that are used in the framework for the operating IPPS.</P>
                        <P>We calculate case-mix constant intensity as the change in total Medicare charges per admission, adjusted for price level changes (the Consumer Price Index (CPI) for hospital and related services) and changes in real case-mix. The use of total charges in the calculation of the intensity factor makes it a total intensity factor, that is, charges for both operating and capital services are already built into the calculation of the factor.</P>
                        <P>However, as discussed above in relation to the proposed capital update, because our intensity calculation relies heavily upon charge data and we believe that this charge data may be inappropriately inflated due to manipulation of charges to maximize outlier payments, we are proposing a zero percent adjustment for intensity in FY 2005. In past fiscal years (1996 through 2000) when we found intensity to be declining, we believed a zero (rather than negative) intensity adjustment was appropriate. Similarly, we believe that it is appropriate to propose a zero intensity adjustment for FY 2005 until we determine that any increase in charges can be tied to intensity, rather than to attempts to maximize outlier payments.</P>
                        <HD SOURCE="HD2">C. Change in Case-Mix</HD>
                        <P>Our analysis takes into account projected changes in real case-mix, less the changes attributable to improved coding practices. We define real case-mix change as actual changes in the mix (and resource requirements) of Medicare patients, as opposed to changes in coding behavior that result in assignment of cases to higher-weighted DRGs but do not reflect greater resource requirements. For our FY 2005 update recommendation, we are projecting a 1.0 percent increase in the case-mix index. We do not believe changes in coding behavior will impact the overall case-mix in FY 2005. As such, for FY 2005, we estimate that real case-mix is equal to projected change in case-mix. Thus, we are recommending a 1.0 percent adjustment for case-mix.</P>
                        <HD SOURCE="HD2">D. Effect of FY 2003 DRG Reclassification and Recalibration</HD>
                        <P>We estimate that DRG reclassification and recalibration for FY 2003 (GROUPER version 20.0) resulted in a zero percent change in the case-mix index when compared with the case-mix index that would have resulted if we had not made the reclassification and recalibration changes to the GROUPER (version 19.0). Therefore, we are recommending a zero percent adjustment for the effect of FY 2003 DRG reclassification and recalibration.</P>
                        <HD SOURCE="HD2">E. Forecast Error Correction</HD>
                        <P>We make a forecast error correction if the actual market basket changes differ from the forecasted market basket by 0.25 percentage points or more. There is a 2-year lag between the forecast and the measurement of forecast error. The estimated market basket percentage increase used to update the FY 2003 payment rates was 3.5 percent. Our most recent data indicates the actual FY 2003 increase was 3.9 percent. The resulting forecast error in the FY 2003 market basket rate of increase is 0.4 percentage points. This underestimate was due largely to an underestimation of increases in the compensation components in the market basket. More specifically, the burden for benefit costs was expected to shift more to workers, given the soft job market. However, not as much of a shift occurred as was expected, and the measure for benefits increased faster than originally forecast. In addition, higher than expected growth in natural gas prices, mainly due to higher than expected demand last winter that depleted surplus reserves, caused the energy component to be underestimated.</P>
                        <P>
                            The following is a summary of the update range supported by our analyses:
                            <PRTPAGE P="28817"/>
                        </P>
                        <GPOTABLE COLS="2" OPTS="L2,p1,8/9,il" CDEF="s150,13C">
                            <TTITLE>HHS's FY 2005 Update Recommendation</TTITLE>
                            <BOXHD>
                                <CHED H="1">  </CHED>
                                <CHED H="1"> .</CHED>
                            </BOXHD>
                            <ROW>
                                <ENT I="01">Projected FY 2005 Market Basket Increase </ENT>
                                <ENT>3.3.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Policy Adjustment Factors </ENT>
                                <ENT>0.0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Productivity </ENT>
                                <ENT>−0.8 to −0.7 </ENT>
                            </ROW>
                            <ROW RUL="n,s">
                                <ENT I="03">Intensity </ENT>
                                <ENT>0.0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Subtotal </ENT>
                                <ENT>−0.8 to −0.7.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="22">Case-Mix Adjustment Factors:.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="03">Projected Case-Mix Change </ENT>
                                <ENT>1.0 </ENT>
                            </ROW>
                            <ROW RUL="n,s">
                                <ENT I="03">Real Across DRG Change </ENT>
                                <ENT>−1.0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="05">Subtotal </ENT>
                                <ENT>0.0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Effect of FY 2003 DRG Reclassification and Recalibration </ENT>
                                <ENT>0.0.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Forecast Error Correction </ENT>
                                <ENT>0.4.</ENT>
                            </ROW>
                            <ROW>
                                <ENT I="01">Total Recommendation Update </ENT>
                                <ENT>2.9 to 3.0 </ENT>
                            </ROW>
                        </GPOTABLE>
                        <HD SOURCE="HD1">IV. MedPAC Recommendations for Assessing Payment Adequacy and Updating Payments in Traditional Medicare</HD>
                        <P>In the past, MedPAC has suggested specific adjustments to its update recommendation for each of the factors discussed under section III. of this Appendix. In its March 2004 Report to Congress, MedPAC assesses the adequacy of current payments and costs and the relationship between payments and an appropriate cost base, utilizing an established methodology used by the Commission in the past few years. MedPAC stresses that the issue at hand is whether payments are too high or too low, and not how they became either too high or too low.</P>
                        <P>In the first portion of MedPAC's analysis on the assessment of payment adequacy, the Commission reviews the relationship between costs and payments (typically represented as a margin). Based on the latest cost report data available, MedPAC estimated an inpatient hospital Medicare operating margin for FY 2002 of 4.7 percent (down from 8.1 percent and 10.7 percent for FY 2001 and FY 2000, respectively).</P>
                        <P>MedPAC also projects margins through FY 2003, making certain assumptions about changes in payments and costs. On the payment side, MedPAC applied the annual payment updates (as specified by law for FYs 2001 through 2003) and then modeled the effects of other policy changes that have affected the level of payments. On the cost side, MedPAC estimated the increases in cost per unit of output over the same time period at the rate of inflation as measured by the applicable market basket index generated by CMS, adjusted downward, anticipating improvements in productivity.</P>
                        <P>In addition to considering the relationship between estimated payments and costs, MedPAC also considered the following three factors to assess whether current payments are adequate:</P>
                        <P>• Changes in access to or quality of care, </P>
                        <P>• Changes in the volume of services or number of providers; and</P>
                        <P>• Change in providers access to capital.</P>
                        <P>MedPAC s assessment of aggregate Medicare payments finds that payments were at least adequate as of FY 2004.</P>
                        <P>MedPAC's recommendation is to update payments under the IPPS by the full rate of increase in the hospital market basket for FY 2005. MedPAC focuses on the fact that it is extremely difficult to determine the status of cost growth among hospitals, given the complexity of ascertaining the impact of the implementation of provisions of Pub. L. 108-173. MedPAC believes it is sensible to refrain from applying their expected net effect based on their standard model, as there is a great deal of uncertainty regarding the costs and payments faced by providers. MedPAC is not abandoning its methodology regarding the update framework, but it has concluded that, under the circumstances, the current market conditions and factors that determine the cost behavior and outcomes of hospitals are too uncertain to rely on current trends for estimation.</P>
                        <P>
                            <E T="03">Response:</E>
                             As described above, we are recommending a full market basket update for FY 2005 consistent with current law. We believe this will appropriately balance incentives for hospitals to operate efficiently with the need to provide sufficient payments to maintain access to quality care for Medicare beneficiaries.
                        </P>
                        <P>Because the operating and capital prospective payment systems remain separate, CMS continues to use separate updates for operating and capital payments. The proposed update to the capital payment rate is discussed in section III. of the Addendum to this proposed rule.</P>
                    </APPENDIX>
                </SUPLINF>
                <FRDOC>[FR Doc. 04-10932 Filed 5-11-04; 1:00 pm]</FRDOC>
                <BILCOD>BILLING CODE 4120-01-P</BILCOD>
            </PRORULE>
        </PRORULES>
    </NEWPART>
</FEDREG>
