[Federal Register Volume 69, Number 194 (Thursday, October 7, 2004)]
[Rules and Regulations]
[Pages 60242-60272]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-22389]



[[Page 60241]]

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

Part III





Department of Health and Human Services





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



Centers for Medicare & Medicaid Services



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



42 CFR Part 403, et al.



Medicare Program; Changes to the Hospital Inpatient Prospective Payment 
Systems and Fiscal Year 2005 Rates; Correction of Final Rule

  Federal Register / Vol. 69, No. 194 / Thursday, October 7, 2004 / 
Rules and Regulations  

[[Page 60242]]


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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 403, 412, 413, 418, 460, 480, 482, 483, 485, and 489

[CMS-1428-CN2]
RIN 0938-AM80


Medicare Program; Changes to the Hospital Inpatient Prospective 
Payment Systems and Fiscal Year 2005 Rates; Corrections

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

ACTION: Correction of final rule.

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

SUMMARY: This document corrects technical errors in the final rule that 
appeared in the August 11, 2004 Federal Register entitled ``Medicare 
Program; Changes to the Hospital Inpatient Prospective Payment Systems 
and Fiscal Year 2005 Rates.''

DATES: Effective October 1, 2004.

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

SUPPLEMENTARY INFORMATION: 

I. Background

    In FR Doc. 04-17943 (69 FR 48916, August 11, 2004), the final rule 
entitled ``Medicare Program; Changes to the Hospital Inpatient 
Prospective Payment Systems and Fiscal Year 2005 Rates'' (hereinafter 
referred to as the FY 2005 final rule) there were a number of technical 
errors that are identified and corrected in section III of this 
correction notice. The provisions in this correction notice are 
effective as if they had been included in the FY 2005 final rule. 
Accordingly, the corrections are effective on October 1, 2004.

II. Summary of the Corrections to the FY 2005 Final Rule

A. Corrections to the FY 2005 Rule Contained in This Notice

    This correction notice makes a number of changes to the FY 2005 
final rule. Because of the number of corrections and the length of some 
of these corrections, we are providing a summary of the major 
corrections contained within this notice.
    On page 49022, in the summary of a public comment concerning the 
application for new technology add-on payments for the Intramedullary 
Skeletal Kinetic Distractor (ISKD), we did not accurately describe the 
issues raised by the applicant. Accordingly, in this correction notice, 
we are revising the summary of this comment to reflect more accurately 
the comment submitted. (See section III, item 11 of this notice.)
    On page 49061, we inadvertently omitted a comment and response with 
respect to geographic reclassifications under section 508 of Public Law 
108-173. However, we note that the comment was considered before 
finalization of our policy. (See item 13 in section III of this 
notice.)
    On pages 49070 through 49075, we discuss our postacute care 
transfer payment policy. In this discussion, we inadvertently omitted 
several comments and responses from this section. However, we note that 
we did consider these comments before we finalized our policy. Several 
comments were related to the proposal to include DRG 430 in the policy 
under the proposed alternate criteria (which we did not adopt in the 
final rule). Many others raised arguments that CMS has responded to in 
the past, but which these commenters raised again in response to the FY 
2005 proposed rule (69 FR 28196). In addition, we inadvertently omitted 
from the final rule a summation of and our response to a comment 
relating to the postacute care transfer policy that was outside the 
scope of the proposed rule.
    In the interests of clarity and convenience, we are reprinting the 
discussion of comments on this section in its entirety, including all 
comments that were inadvertently omitted from the final rule, as well 
as appropriate responses to those comments. (See items 14 and 15 in 
section III of this notice.)
    On page 49105, we inadvertently omitted portions of our policy 
discussion with respect to our decision to make an exception for 
hospitals that failed to reclassify as an urban group under 42 CFR 
412.234. On page 49107, we also inadvertently omitted part of our 
policy discussion with respect to the special circumstances of sole 
community hospitals in low population density States. In addition, on 
page 49249, there were technical and typographical errors in two 
sections (Sec.  412.230 and Sec.  412.232) of the regulations text 
regarding criteria for hospitals seeking redesignation. We note that 
one of the errors was a result of not revising the timeframe in Sec.  
412.230(d)(3)(iii)(B) in conjunction with adding a new provision in 
Sec.  412.230(d)(3)(iii)(C). (See items 18, 19, 21, and 43 in section 
III of this notice.)
    On page 49090, we inadvertently duplicated a comment and response 
that were appropriately included on page 49155 of the FY 2005 final 
rule. Also on pages 49130 through 49132, we inadvertently omitted 
clarifications to the preamble discussion of our policy regarding the 
treatment of hospitals that are members of the same affiliated group as 
of July 1, 2003, under section 1886(h)(7)(A)(iii) of the Act for the 
purposes of payment adjustments for indirect medical education (IME) 
and graduate medical education (GME) costs. In addition, on page 49132, 
we inadvertently omitted clarifications to the preamble discussion of 
our policies regarding the criteria for determining hospitals that will 
receive increases to their FTE resident caps under section 
1886(h)(7)(B) of the Act. In section III of this notice we correct 
these errors (see section III items 16, 25, and 26 of this notice).
    On pages 49221, 49224, and 49271, we made technical errors in our 
preamble discussion and regulatory text regarding the grandfathering of 
certain critical access hospitals (CAHs) due to the new metropolitan 
statistical areas (MSA) definitions for the geographic classification 
of hospitals. As a result, we are making corrections to two dates and 
removing an erroneous paragraph of regulations text. (See items 39, 42, 
and 47 of section III of this notice.)
    On page 49240, we made a technical error in the regulations text of 
Sec.  412.22(e)(1) regarding hospitals-within-hospitals. In this 
paragraph, we erroneously stated the timeframe for which the provision 
is applicable. (See item 41 section III of this notice.)
    On page 49250, in the regulatory text changes for Sec.  
412.312(e)(3), we incorrectly cited the cross-reference to the 
offsetting amounts established for extraordinary circumstances 
exception payments under the capital-related costs under IPPS. As we 
had indicated in the preamble to the final rule (69 FR 49185 and 
49186), the correct cross-reference in both cases in the regulatory 
text should have been Sec.  412.348(e). (See section III. item 44 of 
this notice.)
    On page 49290, we incorrectly stated the FY 2005 special capital 
rate for Puerto Rico as $199.02. Consistent with the capital rate for 
Puerto Rico that was stated in Table 1D in the Addendum of the final 
rule (69 FR 49294), the rate in the narrative of the Addendum should 
have been $199.01. (See section III. item 50 of this notice.)
    On pages 49738 through 49754, in Table 11-FY 2005 LTC-DRGs, 
Relative Weights, Geometric Average Length of Stay, and \5/6\ of the 
Geometric Average Length of Stay, there were inadvertent typographical 
in the published table with respect to the geometric average length of 
stay and the \5/6\ geometric average length of stay (columns 4 and 5 of 
the table) for a number of the long-term care diagnostic-related groups

[[Page 60243]]

(LTC-DRGs). There were no errors in the other columns of the published 
table. However, for clarity and ease of reference, we are reprinting 
the table in its entirety. (See item 56 in section III of this notice.)
    We are also correcting typographic, formatting, or other errors 
that appear on other pages of the FY 2005 final rule, as cited in 
section III. of this notice.

B. Additional Corrections to the FY 2005 Final Rule

    We made technical errors in the tables related to the wage indexes, 
geographic reclassifications, and IPPS payment rates. In section IV. of 
this notice, we discuss these errors in detail. However, we are posting 
the corrected tables on the CMS Web site and will issue a separate 
Federal Register document that contains corrected tables and addendum 
language and a revised impact analysis.

III. Correction of Errors

    In FR Doc. 04-17943 (69 FR 48916), make the following corrections:

A. Corrections to Errors in the Preamble

    1. On page 48928, second column, lines 39 through 43, the sentence 
``The proposed restructured DRG 103 included any principal diagnosis in 
MDC 5, plus one of the following surgical procedure codes:'' is 
corrected to read ``The proposed restructured DRG 103 is procedure-
driven and not based on any specific principal diagnosis. Assignment to 
DRG 103 will be based on one of the following surgical procedure 
codes:''
    2. On page 48938, second column, at the end of line 42 and before 
line 43, add the following sentence: ``We are also assigning code 84.59 
and codes 84.60 through 84.69 to the following DRGs as discussed above 
and shown in Table 6B: MDC 1, DRGs 531-532; MDC 21, DRGs 442-443; MDC 
24, DRG 486.''
    3. On page 48952, first column, lines 10 through 26, these lines 
are deleted and the following new text in their place:
    ``The logic for DRG 315 is modified as follows:
O.R. Procedures
    This list remains the same as V21.0 of the GROUPER
     OR
    Principal diagnosis of renal failure from DRG 315
     AND
Non-Operating Room Procedure
    86.07, Insertion of totally implantable vascular access device 
[VAD]
     OR
    Principal Diagnosis
    250.41, Diabetes with renal manifestations, type 1, [insulin 
dependent type] [IDDM] [juvenile type], not stated as uncontrolled
    250.43, Diabetes with renal manifestations, type 1, [insulin 
dependent type] [IDDM] [juvenile type], uncontrolled
     AND
Non-Operating Room Procedures
    52.84, Autotransplantation of cells of islets of Langerhans
    52.85, Allotransplantation of cells of islets of Langerhans''.
    4. On page 48975, second column, line 56, the term ``diotrecogin'' 
is corrected to read ``drotrecogin''.
    5. On page 48976, first column, line 3, the term ``diotrecogin'' is 
corrected to read ``drotrecogin''.
    6. On page 49002, second column,
    a. Lines 2 through 5, the sentence ``The comment regarding the DRG 
assignment of the treatment for AIP is addressed in section II.B.16.i. 
of this final rule.'' is deleted.
    b. Line 45, the cross-reference ``section II.B.16.c.'' is corrected 
to read ``section II.B.16.d.''; and
    c. Line 48, the cross-reference ``section II.B.16.i.'' is corrected 
to read ``section II.B.16.j.''.
    7. On page 49003, second column, lines 42, the term ``begins'' is 
corrected to read ``begin''.
    8. On page 49008,
    a. First column,
    (1) Line 6, the date ``July 2, 2003'' is corrected to read ``July 
2, 2002''.
    (2) After line 63 insert the following paragraph ``We are 
finalizing that proposal in this final rule.''
    b. Second column, lines 5 and 6, the paragraph ``We are finalizing 
that proposal in this final rule'' is deleted.
    9. On page 49009, third column, lines 61 through 64, the phrase 
``(Craniotomy with implantation of chemotherapeutic agent or acute 
complex central nervous system principle diagnosis) to which Gliadel 
cases will be assigned.'' is corrected to read ``(Craniotomy with 
Implantation of Chemotherapeutic Agent or Acute Complex Central Nervous 
System Principal Diagnosis) to which cases involving GLIADEL[supreg] 
will be assigned.''
    10. On page 49018, second column, line 63, the phrase ``stated that 
that based'' is corrected to read ``stated that based''.
    11. On page 49022, first column, lines 22 through 55, the paragraph 
beginning with the phrase ``Comment: The applicant noted that it'' is 
corrected to read:
    ``Comment: The applicant stated that it was inappropriate to use 
the date of FDA approval (May 2, 2001) as the date the device was 
commercially available, which the applicant believes should be February 
2002. The commenter stated that the `delay between FDA approval and 
commercial availability was due to a halt in the production while 
certain changes on the ISKD were validated.' It also noted that the 
company `conducted a comprehensive review of its sales database' and 
has determined that the first commercial sales of the device were made 
in February 2002, and as such, the costs of the device were not 
included in the FY 2001 MedPAR. The applicant reiterated the reasons 
the device met the cost and substantial clinical improvement criteria. 
The applicant also stated that if CMS had asked for market data in the 
application, it would have provided that information to us sooner, and 
would have had the opportunity to present its argument that the device 
did, in fact, have a delay between FDA approval and coming to the 
market and respectfully requested that we reconsider the application, 
taking these points into consideration.''
    12. On page 49028, second column, line 35, the term ``OMB'' is 
corrected to read ``Census''.
    13. On page 49061, second column, after line 25 and before line 26 
insert the following 2 paragraphs:
    ``Comment: One commenter requested that we clarify whether 
hospitals that were approved for reclassification under the section 508 
of Public Law 108-173 provision for urban groups could also reclassify 
under the policy, which we proposed in our discussion of the 
standardized amount reclassification provisions, under which certain 
hospitals that previously were part of failed urban group 
reclassification applications for FYs 2004 and 2005 would be assigned 
to the MSAs to which they had applied in their applications for FYs 
2004 and 2005. The commenter stated that the proposal should be 
construed to provide all section 508 hospitals with such an assignment 
and that to do so would allow theses hospitals to extend their section 
508 reclassifications for a 6-month period, from April 1, 2007 through 
September 1, 2007. Finally, the commenter recommended that, in 
effecting the extension, `the section 508 reclassifications should be 
deemed to take precedence over the assignment of the wage index by CMS 
so any dilution of the target wage index would not occur until the 6-
month extension begins'.
    ``Response: In the proposed rule, we proposed to exercise the 
Secretary's authority to provide for `exceptions and adjustments' to 
payments under the

[[Page 60244]]

IPPS. Specifically, we proposed to assign a different wage index to a 
group of hospitals that were unable to reclassify because of a 
reclassification criterion that is no longer appropriate due to a 
statutory change. Several hospitals, including those described above, 
notified us that they have met the requirements that we announced in 
the proposed rule. We acknowledge that we had not contemplated a 
situation such as the one described by the commenter. Even in light of 
this circumstance, we do not intend to modify our proposal because the 
intent of the proposal was to assign a different wage index to a group 
of hospitals that `were unable to reclassify' (69 FR 28288) (emphasis 
added). The hospitals described by the commenter were approved for 
reclassification under section 508 of Public Law 108-173. Finally, 
section 508(a)(3) of Public Law 108-173 provides: `Such 
reclassification shall apply with respect to discharges occurring 
during the 3-year period beginning with April 1, 2004.' Because the 
section 508 reclassifications have been implemented in accordance with 
Congressional intent, we are clarifying in this final rule that the 
assignment of a different wage index, as proposed, is applicable only 
to those applicants that were unable to reclassify because of a 
reclassification criterion that is no longer appropriate.''.
    14. On page 49072, third column, line 33, the phrase ``postacute 
transfer policy'' is corrected to read ``postacute care transfer 
policy''.
    15. On pages 49073 through 49075 the text beginning on page 49073, 
first column, first full paragraph and ending on page 49075, first 
column, fourth full paragraph, is revised to read as follows:
    ``Comment: Several commenters objected to the proposed alternate 
criteria for DRGs to be included in the postacute care transfer policy. 
Some commenters believed that the proposed criteria were inappropriate 
because they appeared contrived to ensure that cases in the former DRG 
483, which had a very high DRG weight and resulted in significant 
Medicare payments, would not be paid at the higher rate associated with 
those cases. One commenter stated that if CMS' creation of the two new 
DRGs for tracheostomies with and without surgical procedures does not 
create less variation in length of stay and cost per case, there is no 
need to split DRG 483 and no need to expand the transfer policy 
criteria. The commenters argued that if the split of DRG 483 into more 
specific DRGs will better account for variations in the original DRG, 
then the historical logic behind the transfer policy in these cases is 
no longer valid. Some commenters also believed that the alternate 
criteria did not meet the objective of the provision, which is to 
ensure that the postacute care transfer policy only subjects high-
volume DRGs to this payment method.
    ``Some commenters objected to the method by which we proposed the 
change in the criteria for DRGs to qualify to be included in the 
postacute transfer policy. They argued that CMS should have proposed 
the criteria and accepted comment on the alternate criteria and made 
appropriate changes based on those comments before applying them to any 
additional DRGs. The commenters were concerned that CMS had seemingly 
arbitrarily created the alternate set of criteria and applied them to 
new DRGs in the same rule. Many commenters also noted that CMS did not 
provide enough evidence or substantial analysis to warrant such a 
change in policy prior to proposing the alternate criteria and 
proposing to apply them. Commenters argued that no analysis has been 
done to determine the impacts of last year's changes to the criteria 
for the postacute care transfer policy and that to alter the criteria 
again the following year, without any analysis of last year's changes, 
would be premature.
    ``Several commenters took issue with changes to the DRG system 
having impacts on the postacute care transfer policy. One commenter 
stated that, from a clinical perspective, many of the tracheostomy 
patients can be `weaned' from the ventilator, and the highest success 
rate occurs when the patients are moved `in an expedient fashion' to 
postacute care settings where `weaning protocols can be applied.' Other 
commenters asked CMS to recognize that `there is no other institute to 
transfer these [tracheostomy] patients to' and that `acute hospitals 
are the only settings in which they can be cared for.' One commenter 
stated that the different case weights of the new DRGs may have 
significant financial impacts on providers and that we should 
reconsider the assignment of these new DRGs in the policy until 
sufficient data are available to determine if they would meet the 
existing criteria for inclusion in the policy.
    ``Some commenters recognized the need to develop an `alternative 
method for historic, qualifying transfer DRGs that are eliminated and 
remapped into another existing DRG and/or split into two new DRGs due 
to annual coding changes or DRG service refinements' to be included in 
the postacute care transfer policy. However, they still objected to the 
use of the proposed alternate criteria when the first set of criteria 
are not met and recommended, as a compromise, that CMS adopt the use of 
the alternate criteria only when: (1) Cases in an existing DRG are 
remapped or split into two new DRGs, as is the situation with DRG 483; 
(2) these cases would remain subject to the postacute care transfer 
policy during a `transitional year'; (3) the existing criteria would 
apply at the end of this `transitional year'; and (4) the individual 
codes or sets of ICD-9-CM diagnosis or procedure codes that are 
remapped would not automatically qualify the new DRGs for inclusion in 
the postacute care transfer policy unless such mapping would result in 
all cases within the new DRG(s) qualifying under the existing criteria. 
This approach would exclude the criterion that the DRG(s) meet these 
criteria for both of the two most recent fiscal years, as the new 
DRG(s) would not have been in existence, and could not have met the 
criteria in those years.
    ``Response: We disagree with some of the points raised by these 
commenters. In the proposed rule (69 FR 28273), we clearly indicated 
that the alternate criteria to be included in the postacute care 
transfer policy still required relatively high volumes of postacute 
care transfer cases, as well as very high proportions of short-stay 
transfer cases. We specifically chose a very high threshold for the 
percent of these postacute care transfer cases that are short-stay 
cases in order to avoid including inappropriate DRGs within the 
postacute care transfer policy. In many areas of Medicare program 
policy, we employ a threshold of one standard deviation or less in 
order to qualify for inclusion to or exclusion from certain provisions. 
In this instance, we deliberately chose a much higher threshold in 
order to ensure that only those DRGs with the highest rate of short-
stay postacute care transfers would be included in the policy.
    ``However, in light of these and other comments, we are not 
adopting the proposed alternate criteria in this final rule. We note 
that the postacute care transfer policy was not considered at the time 
the decision was made to split DRG 483. We do not intend to change our 
rationale for reorganizing DRGs into more coherent groups or to 
compromise the clinical cohesiveness of the DRG system in order to 
ensure cases are included in or excluded from the postacute care 
transfer policy or other CMS policies. We have discussed the reasons 
for splitting DRG 483 in section II.B.9. of the proposed rule and in 
this final rule. However, we do note that, while these cases will 
continue to be

[[Page 60245]]

included in the postacute care transfer policy and subject to per diem 
payments, we anticipate that fewer cases will actually receive these 
reduced payments as the new DRGs better reflect the resources required 
to treat these patients. As a result, hospitals will have less 
incentive to discharge these patients to postacute care.
    ``We also note that, if acute care settings are the only 
appropriate place that tracheostomy patients can receive proper care, 
as reported by one commenter, then DRG 483 into which these claims fall 
would not have a high percentage of short-stay transfers (they 
currently account for 42 percent of all transfer cases in this DRG), 
and it would not have been included in the postacute care transfer 
policy. This commenter's statement is also contrary to another 
commenter's statement that we summarized, which stated that the 
appropriate place for these patients to be weaned from ventilators is 
at postacute care facilities. Lastly, since the postacute care transfer 
policy was implemented in FY 1999, we have accumulated 5 years' worth 
of data containing these cases. These data show that these cases are 
appropriate candidates for the postacute care transfer policy.
    ``Comment: Other commenters continued to argue that the postacute 
care transfer policy goes against the premise of the DRG system that is 
intended to pay the average of the costs of all cases in a DRG, short 
lengths of stay and longer lengths of stay. The commenters asserted 
that to reduce the payment for the shorter stay cases without providing 
a mechanism to recover the costs associated with the longer stay cases 
(other than outlier payments) is unfair to hospitals. One commenter 
quoted the Medicare Guide, which has acknowledged `division of a 
prospective payment amount, on a per diem or other basis, undercuts the 
principles and objectives of the prospective payment system.' 
Commenters also continued to argue that the premise behind the transfer 
policy is biased, based on an assumption of gaming by providers, and 
that it punishes providers for providing the appropriate level of care 
at the right time and place. Commenters argued that the policy creates 
an administrative burden on claims processing that has caused payment 
delays and `inappropriate denials of hospital bills.' They also noted a 
geographic bias against regions that have access to greater capital, 
resources, and postacute care facilities, and that traditionally have 
had shorter lengths of stay for their patients than other regions of 
the country.
    ``Commenters also argued that the policy should be repealed in its 
entirety, rather than expanded, because it creates a perverse incentive 
for hospitals to keep patients longer and to deny them appropriate care 
in postacute care facilities when it is needed. Many commenters also 
argued that CMS has failed to provide analysis showing the continued 
need for the postacute care transfer policy, much less the need to 
expand it, especially considering that the majority of postacute care 
facilities are now paid for in their own prospective payment systems. 
Commenters continued to argue that `CMS has presented no evidence that 
hospitals are discharging patients before they are ready.'
    ``Response: We have addressed many of these concerns in previous 
rules and continue to find them unconvincing. We again note that the 
requirement to treat certain qualified discharges to postacute care as 
transfers was added by section 4407 of the Balanced Budget Act of 1997. 
That law initially required CMS to identify DRGs with high volumes of 
transfer cases to postacute care settings. Since then, we have found 
that the policy is quite appropriate and analysis of the use of 
postacute care has consistently demonstrated that the frequency of use 
of postacute care facilities continues to rise. Although many of the 
postacute care facilities are now paid under their own prospective 
payment systems, we continue to find that is inappropriate for Medicare 
to make two full payments for the treatment of these patients. 
Furthermore, we do not believe it is appropriate to reimburse acute 
care hospitals at the full DRG amount when many patients who are 
transferred to postacute care early do not receive the full care and 
build up the same costs at the acute care facility. Therefore, because 
the majority of patients comprising short-stay transfers receive the 
majority of their care at postacute care facilities, we continue to 
believe that full payment to those postacute care facilities and 
reduced payment to acute facilities for these cases are merited.
    ``Comment: Commenters argued that because no analysis had been done 
to see if the postacute care transfer policy led to unnecessarily 
extended hospital stays in order to avoid the adjustment, no further 
expansion of the policy should occur until a full impact analysis is 
performed. Commenters asked specifically that the analysis include a 
focus on payments, quality of service, and behavioral changes.
    ``Response: Many studies have been done to analyze the postacute 
care transfer policy by MedPAC, the Office of Inspector General, and 
others. These studies all support the need for the policy and generally 
support expansion of the policy to additional DRGs where appropriate. 
The OIG reports specifically address hospital compliance with the 
original 10 DRG policy. These reports frequently cite examples of 
hospitals that try to avoid the policy requirements by miscoding 
transfers as regular discharges. Because medical review is not 
frequently done in these audits, the reports do not usually examine 
whether hospitals are keeping patients too long to avoid the reduced 
payments. We have strongly warned hospitals that keeping patients in 
acute care merely to avoid application of the postacute care transfer 
policy is inappropriate. Further, we note that the reference to 
hospitals gaming the system is the opposite of the gaming that we 
normally reference with the policy, but leads to the same result: 
inappropriate payments. The commenters' reference to such practices 
further demonstrates that we have grounds to believe gaming still 
occurs and, therefore the postacute care transfer policy should be 
continued and further expansions as indicated by our analysis, should 
be considered.
    ``Comment: Some commenters suggested that in place of the proposed 
alternate criteria, we should adopt a policy of keeping cases within 
the scope of the postacute care transfer policy permanently once they 
initially qualify for inclusion in the policy. These commenters noted 
that removing DRGs from the postacute care transfer policy makes the 
payment system less stable and results in inconsistent incentives over 
time. They also argued that ``a drop in the number of transfers to 
postacute settings is to be expected after the transfer policy is 
applied to a DRG, but the frequency of transfers may well rise again if 
the DRG is removed from the policy.'' Other commenters expressed 
concern about our changing of the policy criteria in 2 consecutive 
years. These commenters argued that such frequent changes in policy 
give the appearance that the policy has been contrived to achieve 
certain desired results and make the regulatory process unpredictable 
and unfair. They further imply that these ``band-aid fixes'' to the 20-
year old Medicare system do not bode well for the confidence of outside 
organizations in regards to the program.
    ``Response: We did consider grandfathering cases already included 
in the policy because this approach is, on the surface, the simplest 
method of ensuring these cases continue to be paid

[[Page 60246]]

appropriately. However, we determined that in order to adopt this 
approach, we would also need to determine an appropriate timeframe for 
the grandfathering period. We did not believe that we could adequately 
predict or project what timeframe would be appropriate, not only in the 
case of the splitting of DRG 483 into DRGs 541 and 542, but also for 
future situations where this kind of split may occur. Therefore, we 
tried to develop appropriate, alternative criteria based on actual case 
data that could be monitored and applied from year to year.
    ``However, due to the large number of comments received and the 
strong arguments they have raised in favor of a more straightforward 
approach, we have decided not to adopt the alternate criteria proposed 
in the May 18, 2004 proposed rule. Instead, in this final rule, we are 
adopting the policy of simply grandfathering, for a period of 2 years, 
any cases that were previously included within a DRG that has split, 
when the split DRG qualified for inclusion in the postacute care 
transfer policy for both of the previous 2 years. Under this policy, 
the cases that were previously assigned to DRG 483, and that will now 
fall into DRGs 541 and 542, will continue to be subject to the 
postacute care transfer policy for the next 2 years. We will monitor 
the frequency with which these cases are transferred to postacute care 
settings and the percentage of these cases that are short-stay transfer 
cases. Because we are not adopting the proposed alternate criteria for 
DRG inclusion in the postacute care transfer policy at this time, DRG 
430 (Psychoses) does not meet the criteria for inclusion and will not 
be subject to the postacute care transfer policy for FY 2005.
    ``We appreciate the recommendation to address situations such as 
the splitting of DRGs by simply including all cases within the 
postacute care transfer policy permanently once they have initially 
qualified. While we are not adopting this policy at this time, we will 
actively consider it for adoption at a later date. Meanwhile, we 
believe that grandfathering the cases formerly included in DRG 483 for 
2 years is an appropriate interim measure that ensures a consistent 
payment approach to these cases while affording us sufficient time to 
undertake a thorough review of this issue. In the meantime, we welcome 
comments on how to treat the cases formerly included in a split DRG 
after the grandfathering period. We note that, if we were to adopt the 
policy recommended by the commenter, cases in DRGs 263 and 264 would 
again become subject to the policy. As noted above, these DRGs are 
already very close to meeting the criteria required to be re-included 
in the policy. However, we will monitor cases until next year or until 
such time that another change to this policy is warranted.
    ``Comment: Several commenters disagreed with our proposal to add 
DRG 430 to the list of DRGs subject to the postacute care transfer 
policy. They argued that DRG 430 has been in existence since the start 
of the postacute care transfer policy and CMS has never previously 
considered it appropriate to include this DRG in the policy. Only now 
that CMS has proposed to add alternative criteria does it qualify for 
inclusion in the policy. Furthermore, they argued that it is unfair for 
CMS to remove the potential for $25 million in payments at a time when 
hospitals are already having staff shortages and difficulty keeping 
nurses and accessing capital to treat patients.
    ``Response: We note that the number of transfer cases in this DRG 
was already near the 14,000 threshold (12,202 transfer cases in our 
analysis in the proposed rule using the FY 2003 MedPAR) necessary to 
meet the existing criteria. The percentage of short-stay transfer cases 
in DRG 430 easily meets the criteria for both the existing criterion 
(10 percent) and the proposed alternative criterion (2 standard 
deviations above the mean across all DRGs, or 37 percent in FY 2005). 
Therefore, we do not believe the addition of this DRG under the 
proposed alternative criteria was unjustified. However, as we discuss 
in this final rule, we are modifying our proposal in a way that this 
DRG will not be added to the postacute care transfer policy.
    ``The table below displays the 30 DRGs that we are including in the 
postacute care transfer policy, effective for discharges occurring on 
or after October 1, 2004. This table includes the effects of dropping 
DRG 483, which we are deleting from the DRG list, and adding the two 
new DRGs 541 and 542 that will now incorporate the cases formerly 
assigned to DRG 483. As discussed above, these cases are being 
grandfathered into the policy for 2 years. The other DRGs meet the 
criteria specified above during both of the 2 most recent years for 
which data were available prior to the publication of this final 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.

------------------------------------------------------------------------
                       DRG                               DRG title
------------------------------------------------------------------------
12..............................................  Degenerative Nervous
                                                   System Disorders.
14..............................................  Intracranial
                                                   Hemorrhage and Stroke
                                                   with Infarction.
24..............................................  Seizure and Headache
                                                   Age > 17 With CC.
25..............................................  Seizure and Headache
                                                   Age > 17 Without CC.
88..............................................  Chronic Obstructive
                                                   Pulmonary Disease.
89..............................................  Simple Pneumonia and
                                                   Pleurisy Age > 17
                                                   With CC.
90..............................................  Simple Pneumonia and
                                                   Pleurisy Age > 17
                                                   Without CC.
113.............................................  Amputation for
                                                   Circulatory System
                                                   Disorders Except
                                                   Upper Limb and Toe.
121.............................................  Circulatory Disorders
                                                   With AMI and Major
                                                   Complication,
                                                   Discharged Alive.
122.............................................  Circulatory Disorders
                                                   With AMI Without
                                                   Major Complications
                                                   Discharged Alive.
127.............................................  Heart Failure & Shock.
130.............................................  Peripheral Vascular
                                                   Disorders With CC.
131.............................................  Peripheral Vascular
                                                   Disorders Without CC.
209.............................................  Major Joint and Limb
                                                   Reattachment
                                                   Procedures of Lower
                                                   Extremity.
210.............................................  Hip and Femur
                                                   Procedures Except
                                                   Major Joint Age > 17
                                                   With CC.
211.............................................  Hip and Femur
                                                   Procedures Except
                                                   Major Joint Age > 17
                                                   Without CC.
236.............................................  Fractures of Hip and
                                                   Pelvis.
239.............................................  Pathological Fractures
                                                   and Musculoskeletal
                                                   and Connective Tissue
                                                   Malignancy.
277.............................................  Cellulitis Age > 17
                                                   With CC.
278.............................................  Cellulitis Age > 17
                                                   Without CC.
294.............................................  Diabetes Age > 35.
296.............................................  Nutritional and
                                                   Miscellaneous
                                                   Metabolic Disorders
                                                   Age > 17 With CC.
297.............................................  Nutritional and
                                                   Miscellaneous
                                                   Metabolic Disorders
                                                   Age > 17 Without CC.

[[Page 60247]]

 
320.............................................  Kidney and Urinary
                                                   Tract Infections Age
                                                   > 17 With CC.
321.............................................  Kidney and Urinary
                                                   Tract Infections Age
                                                   > 17 Without CC.
395.............................................  Red Blood Cell
                                                   Disorders Age > 17.
429.............................................  Organic Disturbances
                                                   and Mental
                                                   Retardation.
468.............................................  Extensive O.R.
                                                   Procedure Unrelated
                                                   to Principal
                                                   Diagnosis.
541 (formerly 483)..............................  Tracheostomy with
                                                   Mechanical
                                                   Ventilation 96+ Hours
                                                   or Principal
                                                   Diagnosis Except
                                                   Face, Mouth and Neck
                                                   Diagnoses With Major
                                                   O.R. Procedure.
542 (formerly 483)..............................  Tracheostomy with
                                                   Mechanical
                                                   Ventilation 96+ Hours
                                                   or Principal
                                                   Diagnosis Except
                                                   Face, Mouth and Neck
                                                   Diagnoses Without
                                                   Major O.R. Procedure.
------------------------------------------------------------------------

    ``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.
    ``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 proposed to continue the 
special payment methodology for DRGs 209, 210, and 211 for FY 2005 (69 
FR 28274).
    ``We received no comments on this proposal. Therefore, we will 
continue the special payment methodology for these DRGs in FY 2005.

Out-of-Scope Comments

    ``Comment: One commenter requested that we require physicians and 
postacute care facilities to notify the original treating hospital that 
a patient has been treated within 3 days at another facility. The 
commenter indicated that this step would reduce the burden on hospitals 
in relation to the postacute transfer policy.
    ``Response: While we appreciate the commenter's concern to reduce 
the burdens on hospitals, we are reluctant to impose this burden on 
other entities, especially since these other entities are not affected 
by the payment decisions that are involved.
    ``Comment: One commenter asked that CMS clarify if the services 
included within the scope of the postacute care transfer policy include 
activities of daily living, or if the intent of the regulation is only 
for skilled services as provided by a SNF (such as physical therapy and 
wound care).
    ``Response: This comment was outside the scope of the proposed 
rule. Nevertheless, as stated above, the regulation defines a qualified 
discharge for purposes of the postacute care transfer policy as 
including a discharge to `[h]ome 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).' We have specified the appropriate time 
period during which we will consider a discharge to home health 
services to constitute a transfer as within 3 days of the date of 
discharge from the hospital. We also believe that, because the service 
is required to be related to the condition or diagnosis for which the 
individual received inpatient hospital services, the treatment received 
from a home health agency that would fall within the purview of the 
postacute care transfer policy would be specialized, skilled services 
(for example, physical therapy is a standard of care following hip 
replacement surgery). However, because some patients are discharged to 
home after receiving inpatient care, and because some patients live in 
nursing homes that provide assisted living services, these claims would 
still be considered transfers if the nursing facility's provider number 
indicates that the services provided are skilled in nature (that is, an 
SNF rather than a nursing home).''
    16. On page 49090, first column, lines 4 through 45, the lines are 
deleted.
    17. On page 49103, third column, lines 46 through 58, the two 
sentences ``In light of its concerns, the commenter recommends that CMS 
establish a separate exception for major rural teaching hospitals by 
revising Sec.  412.230 to add two provisions. The commenter believes 
that adoption of the suggested rules would allow a major teaching 
hospital to reclassify to an MSA where a substantial number of its 
competing hospitals are located within the same census region, thus 
affording them the flexibility to reclassify to an appropriate MSA.'' 
are corrected to read ``In light of its concerns, the commenter 
recommends that CMS establish a separate exception for major rural 
teaching hospitals by revising Sec.  412.230 to eliminate the proximity 
requirement for rural, major teaching hospitals who seek 
reclassification to a large urban area within their census region that 
includes 5 or more major teaching hospitals. The commenter also 
recommended elimination of the wage comparability test of Sec.  
412.230(e)(1)(iii) for rural hospitals that were major teaching 
hospitals as of September 30, 2004.''.
    18. On page 49104,
    a. First column,
    (1) Line 48, the phrase ``proximity criteria because'' is corrected 
to read ``proximity criteria in Sec.  412.230(b) because'';
    (2) Line 55, after the parenthetical phrase ``(Sec.  
412.230(a)(3))'', insert the following phrase ``and will generally be 
reclassified to the urban area closest to the hospital''; and
    (3) Lines 55 through 58, the sentence ``In addition, rural referral 
centers (and SCHs) may also reclassify to any MSA to which they qualify 
under Sec.  412.230(b).'' is corrected to read ``In the alternative, 
RRCs (and SCHs) also have the opportunity to meet the proximity 
criteria of Sec.  412.230(b) and seek reclassification to an area for 
which they met the proximity rules.''.
    b. Second column,

[[Page 60248]]

    (1) Line 4, preceding the sentence that begins ``Therefore we are 
not'' insert the following sentence:
    ``We note that under Sec.  412.230(e)(3), RRCs are already exempt 
from the criterion in Sec.  412.230(e)(1)(iii) regarding the average 
hourly wage.''.
    (2) Lines 27 through 33, the sentence ``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 
Sec.  412.230 will be applicable to New England hospitals seeking to 
reclassify.'' is corrected to read ``In keeping with our policy of 
defining labor market areas as MSAs, including those in New England, 
the criteria and conditions for redesignation set forth in Sec.  
412.230 will be applicable to individual New England hospitals seeking 
to reclassify and the conditions for reclassification as a group set 
forth in Sec.  412.234 will be applicable to New England hospitals 
seeking to reclassify as a group.''.
    (3) Lines 56 through 58, the phrase ``we believe it would be 
appropriate to make an adjustment to the hospital's wage index by 
assigning,'' is corrected to read ``we proposed to make an adjustment 
to certain hospitals' wage indexes by assigning,''.
    c. Third column,
    (1) Line 10, the phrase ``failed to reclassify'' is corrected to 
read ``applied but failed to reclassify'';
    (2) Line 15, the phrase ``any hospital whose'' is corrected to read 
``we proposed that any hospital whose'';
    (3) Line 27, the phrase ``wish to'' is corrected to read ``wished 
to''; and
    (4) Lines 35 through 48, the text beginning with the phrase ``We 
further stated that the notification should only contain:'' and ending 
with the phrase ``and FY 2005.'' is corrected by deleting that text; 
and
    (5) Lines 60 through 68, the two sentences ``We proposed to 
exercise the Secretary's authority to provide for `exceptions and 
adjustments' to payments under the IPPS. To assign a different wage 
index to a group of hospitals that were unable to reclassify because of 
a reclassification criterion that is no longer appropriate due to a 
statutory change.'' is corrected to read ``We proposed to exercise the 
Secretary's authority to provide for `exceptions and adjustments' to 
payments under the IPPS to assign a different wage index to a group of 
hospitals that applied but were unable to reclassify solely because of 
a reclassification criterion that is no longer appropriate due to a 
statutory change.''
    19. On page 49105,
    a. First column,
    (1) After line 12 and before line 13, insert the following 
paragraph:
    ``By providing relief only to hospitals that applied but failed to 
reclassify as a group under Sec.  412.234 for FYs 2004 and 2005, we are 
applying meaningful limits to the scope of the exception. We are 
limiting our relief only to hospitals who previously demonstrated the 
intent to reclassify and met all of the criteria for group 
reclassification but not for the standardized amount reclassification 
criterion under Sec.  412.234(c). Moreover, hospitals that submitted a 
group application specified their preferences regarding the MSA or MSAs 
to which they sought to be reclassified and in this final rule we are 
allowing hospitals that qualify under this exception to reclassify only 
to the MSA or MSAs specified in the previously submitted group 
application. By limiting the exception in this way, hospitals that had 
no intent to reclassify in the past will be prevented from submitting 
an application for reclassification now based on the reconfiguration of 
the MSAs. We note that we did not receive any comments regarding our 
decision to limit the scope of the exception to hospitals that had 
previously submitted a group application for reclassification.''; and
    (2) Lines 15 through 18, the phrase ``hospitals that were unable to 
reclassify as a group solely because they failed to meet the 
standardized amount criterion in either FY 2004 or FY 2005.'' is 
corrected to read ``hospitals with failed applications for either FY 
2004 or FY 2005.'';
    (3) After line 68, add the following three sentences: ``We believe 
these criteria are reasonable because the hospitals that failed to 
reclassify are required to compete in their counties with a high number 
of hospitals that were successful in reclassifying and who may be able 
to pay significantly higher wages because of their higher indexes. In 
addition, these hospitals applied for reclassification for FY 2004 or 
FY 2005 but failed to receive it solely on the basis of a criterion 
that no longer exists due to changes in the statute. (Since 
reclassification lasts for a 3-year period, we have allowed hospitals 
that sought group reclassification for either FY 2004 or FY 2005, and 
who also meet all of the other criteria above, to receive this special 
exception.)''.
    b. Third column, lines 1 through 8, the phrase ``that are, under 
the new MSA designations and the same CMSA under the former MSA 
designations qualify as meeting the proximity requirement for 
reclassification to the urban area to which they seek redesignation.'' 
' is corrected to read ``that are in the same Combined Statistical Area 
(CSA) (under the MSA definitions announced by the OMB on June 6, 2003); 
or in the same Consolidated Metropolitan Statistical Area (CMSA) under 
the standards published by the OMB on March 30, 1990) as the urban area 
to which they seek redesignation qualify as meeting the proximity 
requirement for reclassification to the urban area to which they seek 
redesignation.'' '.
    20. On page 49106, second column,
    (a) Line 57, the phrase ``adjacency and'' is deleted;
    (b) Lines 58 and 59, the phrase ``Sec.  412.230(a)(2) therefore, `` 
is corrected to read ``Sec.  412.230(a)(2). Therefore, ``; and
    (c) Line 62, after the phrase ``to reclassify.'' insert the 
following sentence: ``However, RRCs and SCHs, if they wish to, can --in 
the alternative-- seek reclassification to an area for which they can 
demonstrate close proximity under Sec.  412.230(b).''.
    21. On page 49107, third column, line 66, after the phrase ``is 
warranted.'' insert the following 2 sentences: ``In addition, given 
that many of the hospitals in the low population density States were 
already reclassified in accordance with section 508 of Pub. L. 108-173, 
we believe it is reasonable to ensure that the SCHs that were not 
reclassified are not put at a significant disadvantage. Hospitals that 
were not in the low-population density States identified in the section 
508 notice will not suffer the same competitive disadvantage vis-
[agrave]-vis other hospitals in their State.''
    22. On page 49108, first column,
    a. Line 30, the phrase ``hospitals in the area.'' is corrected to 
read ``hospitals in the area (not including the hospital itself).''; 
and
    b. Line 37, the phrase ``hospitals in the area.'' is corrected to 
read ``hospitals in the area (not including the hospital itself).''.
    23. On page 49115, first column, line 4, the phrase ``with less 
than 250 beds'' is corrected to read ``has less than 250 beds''.
    24. On page 49116, third column,
    a. Line 2, the phrase ``that lent financial support to the 
subject'' is corrected to read ``to lend financial support to the 
distressed''.
    b. Lines 3 through 20, the four sentences ``A formal merger between 
the two hospitals has been opposed by the state's Attorney General. The 
subject hospital's residency programs have not grown to the level 
maintained prior to the petition for closure and the hospital was 
training residents well below its FTE resident cap during the reference

[[Page 60249]]

cost reporting period. As such, the hospital believes that its FTE 
resident caps will be reduced pursuant to section 422. The commenter 
requests that the hospital be exempt from FTE resident cap reductions 
and that this exemption extend to the Medicare GME affiliated group of 
which the hospital is a part of to preserve the group's future ability 
to build their teaching programs.'' are corrected to read ``A formal 
merger between the two hospitals was desired by the hospitals, but has 
been opposed by the State's Attorney General. The distressed hospital's 
residency programs have not grown to the level that was maintained 
prior to the petition for closure and, thus, the number of FTE 
residents the hospital was training is well below its FTE resident cap 
during the reference cost reporting period. As such, the hospital 
believes that its FTE resident caps will be reduced in accordance with 
section 1886(h)(7)(A) of the Act. The commenter requested that the 
hospital be exempt from the FTE resident cap reductions and that this 
exemption extend to the Medicare GME affiliated group of which the 
hospital is a part in order to preserve the group's future ability to 
build its teaching programs.''.
    25. On page 49130,
    a. First column, entire columns (lines 1 through 64) the text 
beginning with the phrase ``regarding affiliated groups (63 FR 26338)'' 
and ending with the phrase ``basis, a hospital had trained fewer'' is 
corrected to read ``regarding affiliated groups at Sec. Sec.  413.86(b) 
and (g)(4)(iv), (also described at 63 FR 26338, May 12, 1998), we note 
that a single hospital could have several Medicare GME affiliation 
agreements with several different `affiliated groups.' However, for 
purposes of applying the provision at section 1886(h)(7)(A)(iii) of 
Act, we will use a broader definition of the affiliated group. 
Specifically, for purposes of comparing aggregate FTE resident caps to 
aggregate FTE counts, we will include every hospital that has an 
affiliation agreement (as of July 1, 2003) in common with any other 
hospital (the commonly affiliated group). Then, for direct GME and IME 
respectively, the fiscal intermediaries will identify the `1996' FTE 
resident caps (subject to permanent adjustments for new programs, if 
applicable), and the unweighted allopathic and osteopathic FTE resident 
counts for each hospital that is part of that commonly affiliated group 
for each affiliated hospital's cost report that includes July 1, 2003. 
(Note that since the 1996 cap and FTE count information from the cost 
report that includes July 1, 2003 is being used for purposes of section 
1886(h)(7)(iii) of the Act, the caps as amended in accordance with the 
July 1, 2003 affiliation agreement are irrelevant for this portion of 
the analysis). In many cases, the hospitals in the commonly affiliated 
group will not all have the same fiscal year end (FYE). Therefore, for 
example, for a hospital with a FYE of June 30, the fiscal intermediary 
will identify the FTE resident cap (that is, the `1996' cap, subject to 
permanent adjustments for new programs, if applicable) and the 
unweighted allopathic and osteopathic FTE resident count from the 
hospital's FYE June 30, 2004 cost report. For a hospital with a FYE of 
December 31, the fiscal intermediary will identify, for IME and direct 
GME, respectively, the FTE resident cap (that is, the `1996' cap, 
subject to permanent adjustments for new programs, if applicable) and 
the unweighted allopathic and osteopathic FTE resident count from the 
hospital's FYE December 31, 2003 cost report. Next, the fiscal 
intermediary will add the FTE resident caps for all the hospitals in 
the commonly affiliated group to determine the aggregate FTE resident 
cap, and will add the FTE resident counts from all those hospitals' 
cost reports that include July 1, 2003, to determine the aggregate FTE 
resident count for the commonly affiliated group. If the aggregate FTE 
resident count for the commonly affiliated group is equal to or exceeds 
the aggregate FTE resident cap, then no reductions would be made under 
section 1886(h)(7)(A)(i) of the Act to the FTE resident caps of any of 
the hospitals in the commonly affiliated group. Each hospital's FTE 
resident cap would not be reduced effective July 1, 2005, even if, on a 
hospital-specific basis, a hospital trained fewer'';
    b. Second column, the entire column (lines 1 through 63), the text 
beginning with the phrase ``residents in its cost report that 
includes'' and ending with the figure ``3.04.'' is corrected to read 
``residents in its cost reporting period that includes July 1, 2003, 
than its adjusted `affiliated' cap. However, if the aggregate FTE 
resident count for the commonly affiliated group is below its aggregate 
FTE resident cap, there would be a reduction in FTE resident cap(s) 
that is equal to 75 percent of the difference between the aggregate FTE 
resident cap and the aggregate FTE resident count for the commonly 
affiliated group. In these cases, for each hospital in the commonly 
affiliated group, the fiscal intermediary will determine the following 
information for the cost report that includes July 1, 2003:
    (1) The individual hospital's `1996' FTE resident cap (subject to 
permanent adjustments for new programs, if applicable)--for IME from 
worksheet E, Part A of the Medicare cost report, the sum of lines 3.04 
and 3.05; for direct GME from worksheet E-3, Part IV of the Medicare 
cost report, the sum of lines 3.01 and 3.02.
    (2) The individual hospital's `affiliated' FTE resident cap--for 
IME, line 3.07 of worksheet E, Part A; for direct GME, line 3.04 of 
worksheet E-3 Part IV.
    (3) The individual hospital's total number of allopathic and 
osteopathic FTE residents--for IME, line 3.08; for direct GME, line 
3.05.
    (4) For IME and GME, respectively, the difference between the 
aggregate 1996 FTE resident cap and the aggregate FTE resident count 
for all of the commonly affiliated hospitals--for IME, [Sigma] line 
3.08 minus [Sigma] (lines 3.04 + 3.05); for direct GME, [Sigma] line 
3.05 minus [Sigma] (lines 3.01 + 3.02). Note, if the aggregate FTE 
resident count is greater than or equal to the aggregate 1996 FTE 
resident cap, stop here; there will be no reduction under section 
1886(h)(7)(A)(i) of the Act to the FTE resident cap of any individual 
hospital within the commonly affiliated group. Alternatively, if the 
aggregate FTE resident count is less than the aggregate 1996 FTE 
resident cap, the aggregate reduction under section 1886(h)(7)(A)(i) of 
the Act to the FTE resident caps for hospitals in the commonly 
affiliated group will be based on this calculation; reductions to 
individual hospitals are calculated as indicated below.
    (5) For IME, for those hospitals whose FTE resident count from line 
3.08 is greater than or equal to the `affiliated' FTE resident cap on 
line 3.07, indicate 'zero.' For direct GME, for those hospitals whose 
FTE resident count from line 3.05 is greater than or equal to the 
``affiliated'' FTE resident cap on line 3.04, indicate `zero.' For IME, 
for those hospitals whose FTE resident count from line 3.08 is less 
than the `affiliated' FTE resident cap on line 3.07, calculate the 
difference between the hospital's `affiliated' FTE resident cap and the 
hospital's FTE resident count--line 3.08 minus line 3.07. For direct 
GME, for those hospitals whose FTE resident count from line 3.05 is 
less than the `affiliated' FTE resident cap on line 3.04, calculate the 
difference between the hospital's `affiliated' FTE resident cap and the 
hospital's FTE resident count--line 3.05 minus line 3.04.
    c. Third column, the entire column (lines 1 through 63), the text 
beginning with the phrase ``(6) For IME and direct GME'' and ending 
with the phrase ``table below.'' is corrected to read as follows:

[[Page 60250]]

    ``(6) For IME and direct GME, respectively, determine the total 
amount by which the aggregate `affiliated' FTE resident count for the 
commonly affiliated group is below the aggregate FTE resident cap for 
the group by adding together the amounts determined for each hospital 
under step 5.
    ``(7) For IME and direct GME, respectively, calculate a pro rata 
cap reduction for each hospital by dividing the hospital-specific 
amount calculated in step 5 by the total for all of the commonly 
affiliated hospitals calculated in step 6, and multiply by the total 
amount calculated in step 4 (that is, (step 5/step 6) x step 4)).
    ``(8) For IME and direct GME, respectively, determine the reduction 
to the FTE resident cap for each hospital under section 
1886(h)(7)(A)(i) of the Act by multiplying the pro rata cap reduction 
from step 7 by 0.75.
    ``(9) For IME and direct GME, respectively, determine the FTE 
resident cap for each hospital by subtracting the reduction to the FTE 
resident cap calculated in step 8 from the `1996' FTE resident cap in 
step 1. This is the hospital's FTE resident cap effective July 1, 2005.
    ``The following is an example of how the reductions to the FTE 
resident caps will be determined where the aggregate FTE resident 
counts for hospitals in a commonly affiliated group as of July 1, 2003 
are below the hospitals' aggregate FTE resident caps for the hospitals' 
cost reporting periods that include July 1, 2003. (This example 
illustrates reductions to the IME caps only, but the methodology is the 
same for reductions to the direct GME caps):
    ``Hospitals A, B, and C are affiliated for the academic year 
beginning July 1, 2003. Hospital C is also affiliated with Hospitals D 
and E for the academic year beginning July 1, 2003. Thus, the commonly 
affiliated group for purposes of determining possible FTE cap 
reductions under section 1886(h)(7)(A)(iii) of the Act consists of 
Hospitals A, B, C, D, and E. Hospital A's and B's cost report that 
includes July 1, 2003 is their FYE June 30, 2004. Hospital C's and D's 
cost report that includes July 1, 2003 is their FYE December 31, 2003, 
and Hospital E's cost report that includes July 1, 2003 is its FYE 
September 30, 2003. Using steps 1 through 9 above, the reductions to 
the FTE resident caps of those hospitals in the affiliated group that 
trained a number of FTE residents in their cost reporting period that 
includes July 1, 2003, that is below their `affiliated' FTE resident 
caps are determined in the table below.''
    26. On page 49131,
    a. First column,
    (1) Lines 1 and 2, the phrase ``trained residents'' is corrected to 
read ``trained a number of residents'';
    (2) Lines 16 through 18, the phrase ``minimizes the reductions to 
Hospital D's and E's `1996' FTE resident caps through the calculation 
of a pro rata'' is corrected to read ``partially offsets the reduction 
to Hospital D's and E's FTE resident caps through the application of a 
pro rata'';
    (3) Line 22, the phrase ``the actual cap reduction'' is corrected 
to read `` the cap reduction'';
    (4) Lines 33 through 44, the sentence ``We note that the total 
final FTE resident cap effective July 1, 2005 is 410 FTEs ( the total 
under step 9), which, mathematically, is the same as subtracting 400 
(the total FTEs trained in the group) from 440 (the aggregate ``1996'' 
FTE residents caps) multiplying by 75 percent, and subtracting the 
result from the original aggregate cap of 440 (that is, [440-(0.75 
(440-400))] = 410).'' is corrected to read ``We note that the aggregate 
total final FTE resident cap for the hospitals in the commonly 
affiliated group, effective July 1, 2005, is 410 (the total under step 
9), which, mathematically, is the same as subtracting 400 (the 
aggregate total FTE residents trained in the group) from 440 (the 
aggregate ``1996'' FTE resident caps), multiplying by 75 percent, and 
subtracting the result from the original aggregate FTE resident cap of 
440 (440-(0.75(440-400))] = 410).''; and
    (5) Lines 44 through 49 and second column, lines 1 through 11, 
delete the paragraph that begins ``We also note that the reductions 
to''.
    b. Second column, lines 12 through 49 and third column lines 1 
through 12, the paragraph that begins with the phrase ``We believe'' 
and ends with the phrase ``of the Act.'' is corrected to read ``We 
believe this final policy concerning the application of sections 
1886(h)(7)(A)(i) and (iii) of the Act to hospitals that are affiliated 
`as of July 1, 2003' addresses the commenters' concerns in that it 
protects hospitals from any reduction in their FTE resident caps if the 
aggregate FTE resident counts for the commonly affiliated group equal 
or exceed the aggregate FTE resident caps, and, in some cases, can 
limit the reductions in FTE resident caps. We believe this final policy 
also addresses the commenters' concerns that hospitals in an affiliated 
group as of July 1, 2003, should be allowed to modify their affiliation 
agreements as late as June 30, 2004, in order to reflect the resident 
rotations that actually occurred among the affiliated hospitals, and 
that the policy should be applied using a contemporaneous comparison of 
FTE resident counts and affiliated caps. Under our final policy, we 
will use the hospitals' affiliated FTE resident caps as reported on the 
cost report, which allows for modifications to the July 1, 2003, 
affiliation agreement by June 30, 2004, and a comparison of 
contemporaneous FTE resident caps and counts. The commenters also 
requested that we provide an extra opportunity for hospitals that were 
affiliated ``as of July 1, 2003'' to modify their affiliation 
agreements after publication of the final rule, if the final policy is 
significantly different from the proposed policy. We do not believe it 
is appropriate to allow hospitals to modify their affiliation 
agreements after publication of the final rule. The only reason we 
allow hospitals to modify their agreements by June 30 of an academic 
year is to allow adjustment to the FTE counts of each hospital in the 
affiliation to reflect the realities of the cross-training that 
occurred within that academic year. Thus, the decision as to whether or 
not an affiliation agreement should be modified should be based solely 
on whether the FTE counts first reflected in the affiliation agreement 
on July 1 of a year differ from the actual FTEs that trained at each 
hospital during the year. We expect that if affiliated hospitals 
experienced changes in resident rotations during the academic year that 
were not reflected in their affiliation agreement, they would have 
modified their affiliation agreement by the conclusion of the academic 
year as is permitted under our current policy. We do not believe it is 
appropriate to allow an additional opportunity for hospitals to modify 
their affiliation agreements for other purposes.''.
    c. Third column,
    (1) Lines 15 through 17, the phrase ``located in an other than 
large urban area is part of an affiliated group as of July 1, 2003 with 
a rural hospital that has'' is corrected to read ``located in an `other 
than large' urban area is part of an affiliated group as of July 1, 
2003, that includes a rural hospital that has'';
    (2) Lines 18 through 26, the sentence ``The commenter stated that 
while the rural hospital is exempt from reductions to its FTE resident 
caps, the urban hospital could be `penalized' because of the slots 
acquired under the affiliation agreement with the rural hospital, if 
the urban hospital did not fill all of those slots in its reference 
cost reporting period.'' is corrected to read ``The commenter stated 
that, while the rural hospital is exempt from reductions to its FTE 
resident caps, the urban hospital could be `penalized' if, in its 
reference cost reporting period, the urban hospital

[[Page 60251]]

did not fill all of the slots it acquired under the affiliation 
agreement with the rural hospital.'';
    (3) Line 18, the phrase ``that CMS carve out'' is corrected to read 
``that CMS `carve out.'''; and
    (4) Line 34, the phrase ``of unused residency slots'' is corrected 
to read ``of ``unused'' residency slots''.
    (5) Lines 39 through 41, the phrase ``we cannot exempt other 
hospitals outright from possible reductions to their FTE resident 
caps.'' is corrected to read ``section 1886(h)(7)(A) of the Act does 
not provide for exemptions from possible reductions to FTE resident 
caps.'';
    (6) Line 44, the phrase ``part of an affiliated group'' is 
corrected to read ``part of a commonly affiliated group''; and
    (7) Line 50, the phrase ```1996''' FTE resident caps'' is corrected 
to read ``FTE resident caps''.
    27. On page 49132,
    a. First column
    (1) Lines 3 through 11, the sentence ``But if the aggregate FTE 
resident counts are below the aggregate ``affiliated'' FTE resident 
caps, then (except for rural hospitals with less than 250 beds), a 
hospital in the affiliated group that trained less FTE residents than 
its individual ``affiliated'' FTE resident cap would have its ``1996'' 
FTE resident cap reduced'' is corrected to read ``However, if the 
group's aggregate FTE resident count is below its aggregate FTE 
resident cap, then (except for rural hospitals with less than 250 
beds), a hospital in the affiliated group that trained fewer FTE 
residents than its individual ``affiliated'' FTE resident cap would 
have its FTE resident cap reduced under section 1886(h)(7)(A)(i) of the 
Act.'';
    (2) Lines 15 through 21, the phrase ``the hospital(s) with which it 
was affiliated as of July 1, 2003, the aggregate FTE resident counts 
were below the aggregate `affiliated' FTE resident caps and the urban 
hospital was also training fewer residents than its `affiliated' cap.'' 
is corrected to read ``the hospital(s) that are part of its commonly 
affiliated group as of July 1, 2003, the aggregate FTE resident counts 
were below the aggregate FTE resident caps and the urban hospital was 
also training fewer residents than its `affiliated' cap.''; and
    (3) Lines 21 through 38, the two sentences ``However, since the 
rural hospital's FTE resident caps are protected from reductions under 
section 1886(h)(7)(A)(i)(II) of the Act, the urban hospital could 
continue to affiliate with the rural hospital on and after July 1, 
2005, and, to the extent that the rural hospital has FTE slots 
available to ``lend'' to the urban hospital, the urban hospital could 
receive a temporary increase to its FTE resident caps via the 
affiliation agreement with the rural hospital. Therefore, although this 
urban hospital may lose slots under section 1886(h)(7)(A)(i) of the 
Act, it may be able to receive additional slots temporarily by 
affiliating with the rural hospital.'' are corrected to read ``Since 
the rural hospital's FTE resident caps are protected from reductions 
under section 1886(h)(7)(A)(i)(II) of the Act, its FTE resident cap 
would not be reduced regardless of the comparison between its FTE 
resident counts and caps. Thus, the urban hospital could continue to 
affiliate with the rural hospital on and after July 1, 2005, and, to 
the extent that the rural hospital has FTE slots available within its 
FTE resident cap to ``lend'' to the urban hospital, the urban hospital 
could receive a temporary increase to its FTE resident caps via an 
affiliation agreement with the rural hospital. Therefore, although this 
urban hospital's FTE resident cap may be subject to reduction under 
section 1886(h)(7)(A)(i) of the Act, the hospital may be able to 
receive a temporary adjustment to its FTE resident cap by affiliating 
with the rural hospital in subsequent academic years.''
    (4) Lines 43 through 69 and the second column lines 1 through 30, 
the text beginning with the phrase ``Comment: One commenter noted 
that'' and ending with the phrase ``the reference affiliated resident 
FTE cap.'' is corrected to read:
    ``Comment: One commenter noted that in the May 18, 2004 proposed 
rule (69 FR 28297), a hospital's reference resident level would be 
compared to the hospital's reference FTE resident cap as adjusted by 
applicable Medicare GME affiliation agreements. The commenter asked for 
clarification regarding the treatment of a hospital that, absent an 
affiliation agreement, has an FTE resident cap of zero, but the 
hospital received a temporary increase to its FTE resident cap by 
participating in a Medicare GME affiliated group. The commenter stated 
that in its reference period, the hospital's resident level was below 
its FTE cap as adjusted by the affiliation agreement and asked if, as a 
result, CMS would reduce its FTE resident cap below zero.''
    ``Response: An FTE resident cap would not be reduced below zero. 
That is, if the hospital's cap without any adjustment under an 
affiliation agreement is zero, the hospital's FTE resident cap would 
not be reduced to a negative number if its reference resident level is 
below the affiliated resident FTE cap for the reference period.''.
    28. On page 49139, first column, lines 15 and 16, the phrase ``As 
we have stated in this final rule, each application by a hospital'' is 
corrected to read ``Each application by a hospital''.
    29. On page 49148, first column, lines 36 and 37, the phrase 
``score of 4 (expanding geriatrics program, Medicare physician scarcity 
area, residents'' is corrected to read ``score of 5 (expanding 
geriatrics program, which is also a primary care program, Medicare 
physician scarcity area, residents''.
    30. On page 49149, first column, line 12, the citation ``Sec.  
413.75(b)'' is corrected to read ``existing Sec.  413.86(b)''.
    31. On page 49158, second column,
    a. Line 47, the phrase ``a criterion'' is corrected to read ``a 
`bright line ` criterion''.
    b. Line 56, at the end of the sentence add the following sentence 
``The commenter stated that contrary to the authority provided to CMS 
in section 422 of Pub. L. 108-173, the agency's proposal would result 
in the redistribution of these resident positions in `some wholesale 
manner'.''
    32. On page 49159, second column, lines 55 through 61, the sentence 
``The Congress did, however, recognize the unique status of reductions 
in FTE resident counts attributable to a hospital's participation in a 
demonstration project or the VRRP in the statute at section 
1886(h)(7)(B)(vi) of the Act.'' is deleted.
    33. On page 49165, last bulleted item, last line, the phrase ``in 
its existing programs.'' is corrected to read `` in its existing 
programs or the 2004 fill rate information of all of the programs at 
the hospital.''
    34. On page 49168, fourth boxed paragraph C11, last line, the 
phrase ``defined under 413.75(b)'' is corrected to read ``defined under 
existing Sec.  413.86(b).''
    35. On page 49172,
    a. Second column, lines 26 through 38, the phrase ``effective 
October 1, 2004, if a hospital can document that a particular resident 
matches simultaneously for a first year of training in a clinical base 
year, and for a second year of training in the specialty program in 
which the resident intends to seek board certification, the resident's 
initial residency period would be based on the specific specialty 
program for the subsequent year(s) of training in which the resident 
matches and not on the clinical base year program.'' is corrected to 
read ``effective for portions of cost reporting periods beginning on or 
after October 1, 2004, if a hospital can document that a particular 
resident

[[Page 60252]]

matches simultaneously for a first year of training in a clinical base 
year, and for a second year of training in a different specialty 
program, the resident's initial residency period would be based on the 
specific specialty program for the subsequent year(s) of training in 
which the resident matches and not on the clinical base year program.''
    b. Third column, line 44, the phrase ``we are able to'' is 
corrected to read ``under current policy, we have been able to''.
    c. Third column, line 65, ``effective October 1, 2004'' is 
corrected to read, ``effective for portions of cost reporting periods 
beginning on or after October 1, 2004.''
    36. On page 49178, third column, lines 48 and 49, the phrase ``to 
financial intermediaries'' is corrected to read ``to fiscal 
intermediaries''.
    37. On page 49180,
    a. First column, line 3, the phrase ``we are also proposing'' is 
corrected to read ``we also proposed''.
    b. Third column, lines 18 and 19, the phrase ``because we are 
proposing to'' is corrected to read ``because we proposed to''.
    38. On page 49219,
    a. Second column, line 62, the citation ``Sec.  485.649'' is 
corrected to read ``Sec.  485.647'';
    b. Third column, line 1, the phrase ``to clarify that. Payment to 
the CAH for'' is corrected to read ``to clarify that payment to the CAH 
for''.
    39. On page 49221, third column, line 53, the date ``December 31, 
2005'' is corrected to read ``September 30, 2006''.
    40. On page 49222, first column, line 22, the phrase ``Sec.  
489.24(d) to Sec.  489.24(d)'' is corrected to read ``Sec.  489.24(d) 
to Sec.  489.24(e)''.

Corrections to the Regulations Text


Sec.  412.22  [Corrected]

0
41. On page 49240, third column, in Sec.  412.22 paragraph (e)(1) 
introductory text is corrected to read:
* * * * *
    (1) Except as specified in paragraph (f) of this section, for cost 
reporting periods beginning on or after October 1, 1997--
* * * * *


Sec.  412.103  [Corrected]

0
42. On page 49244, third column, line 2, in Sec.  412.103(a)(4), the 
date ``January 1, 2004'' is corrected to read ``October 1, 2006''.


Sec.  412.230  [Corrected]

0
43. On page 49249,
0
a. First column, 1. In the amendatory instruction 21 for Sec.  412.230, 
the instruction, ``I. Revising redesignated paragraphs (d)(3)(i), 
(d)(3)(ii), and adding (d)(3)(iii(C).'' is corrected to read ``I. 
Revising redesignated paragraphs (d)(3)(i), (d)(3)(ii), revising 
paragraph (d)(3)(iii) (B) and adding paragraph (d)(3)(iii)(C).''; and
0
2. In Sec.  412.230(a)(1)(ii), lines 3 and 4, the phrase ``from a rural 
area to another urban area'' is corrected to read ``from an urban area 
to another urban area''.
0
b. Second column,
    1. Section 412.230(d)(3)(ii) is corrected by adding the following 
paragraph (d)(3)(ii)(B):
* * * * *
    (B) With respect to redesignations for Federal fiscal years 2002 
through 2005, the hospitals average hourly wage is, in the case of a 
hospital located in a rural area, at least 106 percent and in the case 
of a hospital located in an urban area, at least 108 percent of the 
average hourly wage of hospitals in the area in which the hospital is 
located.
* * * * *
0
2. In Sec.  412.230(d)(3)(iii) (C), the phrase ``108 percent'' is 
corrected to read ``at least 108 percent''.


Sec.  412.232  [Corrected]

0
3. In Sec.  412.232(a)(1)(i), the year ``2005'' is corrected to read 
``2006'';
0
4. In Sec.  412.232(a)(1)(ii), the phrase ``fiscal years 2005'' is 
corrected to read ``fiscal year 2006''; and

0
5. In Sec.  412.232(a)(4)(ii), the year ``2005'' is corrected to read 
``2006''.


Sec.  412.312  [Corrected]

0
44. On page 49250, second column, in Sec.  412.312(e)(3), the cross-
reference ``Sec.  412.348(c)'' is corrected to read ``Sec.  
412.348(e)'' in two places.


Sec.  413.77  [Corrected]

0
45. On page 49258, first column, Sec.  413.77(f) is corrected to read 
as follows:
* * * * *
    (f) Residency match. Effective for portions of cost reporting 
periods beginning on or after October 1, 2004, with respect to a 
resident who matches simultaneously for a first year of training in a 
primary care specialty, and for an additional year(s) of training in a 
nonprimary care specialty, the per resident amount that is used to 
determine direct GME payment with respect to that resident is the 
nonprimary care per resident amount for the first year of training in 
the primary care specialty and for the duration of the resident's 
training in the nonprimary care specialty.
* * * * *


Sec.  413.79  [Corrected]

0
46. On page 49259, second column, Sec.  413.79(a)(10) is corrected to 
read as follows:
* * * * *
    (a) * * *
    (10) Effective for cost reporting periods beginning on or after 
October 1, 2004, if a hospital can document that a resident 
simultaneously matched for one year of training in a particular 
specialty program, and for a subsequent year(s) of training in a 
different specialty program, the resident's initial residency period 
will be determined based on the period of board eligibility associated 
with the program for which the resident matched for the subsequent 
year(s) of training.
* * * * *


Sec.  485.610  [Corrected]

0
47. On page 49271,
0
a. Second column, Sec.  485.610 is corrected by deleting paragraph 
(b)(3).
0
b. Third column,
0
1. In Sec.  485.610(c), in the last line, the phrase ``after October 1, 
2006'' is corrected to read ``after January 1, 2006''; and


Sec.  485.620  [Corrected]

0
2. In Sec.  485.620(a), the cross-reference ``Sec.  485.646'' is 
corrected to read ``Sec.  485.647''.

Corrections to the Addendum

    48. On page 49277,
    a. First column,
    (1) Lines 17 and 18, the phrase ``hearings and investigations, 
significant charge increases by hospitals, charges'' is corrected to 
read ``hearings and investigations concerning significant charge 
increases by hospitals, charges''; and
    (2) Second full paragraph, lines 61 through 65, the sentence, 
``This problem has now been resolved and along with the reasons stated 
above recommended that revert to a methodology using costs when 
calculating the annual outlier threshold.'' is corrected to read 
``Because this problem has now been resolved, and for the reasons 
stated above, the commenter recommended that we revert to a methodology 
using costs when calculating the annual outlier threshold.''
    b. Third column, line 69, the phrase ``data in updating charges, 
themselves.'' is corrected by removing the comma to read ``data in 
updating charges themselves.''
    49. On page 49278, third column,
    a. Line 35 the figure ``3.5'' is corrected to read ``3.6''; and
    b. Line 36, the figure ``1.6'' is corrected to read ``1.5''.

[[Page 60253]]

    50. On page 49290, second column, line 22 the figure ``$199.02'' is 
corrected to read ``$199.01''.
    51. On pages 49612 through 49622, in Table 6A--New Diagnosis Codes 
the table is corrected by revising column 4 for listed entries to read 
as follows:
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR07OC04.000


[[Page 60254]]


[GRAPHIC] [TIFF OMITTED] TR07OC04.001


[[Page 60255]]


[GRAPHIC] [TIFF OMITTED] TR07OC04.002


[[Page 60256]]


[GRAPHIC] [TIFF OMITTED] TR07OC04.003


[[Page 60257]]


[GRAPHIC] [TIFF OMITTED] TR07OC04.004


[[Page 60258]]


[GRAPHIC] [TIFF OMITTED] TR07OC04.005


[[Page 60259]]


[GRAPHIC] [TIFF OMITTED] TR07OC04.006


[[Page 60260]]


[GRAPHIC] [TIFF OMITTED] TR07OC04.007


[[Page 60261]]


[GRAPHIC] [TIFF OMITTED] TR07OC04.008


[[Page 60262]]


[GRAPHIC] [TIFF OMITTED] TR07OC04.009


[[Page 60263]]


[GRAPHIC] [TIFF OMITTED] TR07OC04.010


[[Page 60264]]


[GRAPHIC] [TIFF OMITTED] TR07OC04.011


[[Page 60265]]


[GRAPHIC] [TIFF OMITTED] TR07OC04.012


[[Page 60266]]


    52. On page 49628, in Table 6C.--Invalid Diagnosis Codes, the table 
is corrected by adding the following footnote at the end of the table:

    109 Assigned to the Secondary Diagnosis list that 
defines a Major Complication.

    53. On page 49631, in Table 6E.--Revised Diagnosis Code Titles, 
fourth entry, the MDC (column 4) is revised to read as follows:

----------------------------------------------------------------------------------------------------------------
           Diagnosis code                   Description              CC            MDC               DRG
----------------------------------------------------------------------------------------------------------------
250.63..............................  Diabetes with            Y              PRE            512,513
                                       neurological                           1              18,19.
                                       manifestations, type I
                                       [juvenile type],
                                       uncontrolled.
----------------------------------------------------------------------------------------------------------------

    54. On page 49640, in Table 6E.--Revised Diagnosis Code Titles, the 
table is corrected by adding the two footnotes at the end of the table 
to read as follows:

    1 Classified as a Major Problem.
    2 Classified as a Major Related Condition.
    55. On page 49641, in Table 6F.--Revised Procedure Code Titles, 
second and third entry, the MDC (column 4) is revised to read as 
follows:

----------------------------------------------------------------------------------------------------------------
          Procedure code                 Description            OR         MDC                 DRG
----------------------------------------------------------------------------------------------------------------
01.22.............................  Removal of             Y                  1  1, 2, 3.
                                     intracranial                            17  406, 407, 539, 540.
                                     neurostimulator
                                     lead(s).
02.93.............................  Implantation or        Y                  1  1, 2, 3.
                                     replacement of                          17  406, 407, 539, 540.
                                     intracranial                            21  442, 443.
                                     neurostimulator                         24  486.
                                     lead(s).
----------------------------------------------------------------------------------------------------------------

    56. On pages 49738 through 49754, Table 11.--FY 2005 LTC-DRGs, 
Relative Weights, Geometric Average Length Of Stay, and \5/6\ths of the 
Geometric Average Length of Stay, the table is corrected to read as 
follows:

[[Page 60267]]

[GRAPHIC] [TIFF OMITTED] TR07OC04.013


[[Page 60268]]


[GRAPHIC] [TIFF OMITTED] TR07OC04.014


[[Page 60269]]


[GRAPHIC] [TIFF OMITTED] TR07OC04.015


[[Page 60270]]


[GRAPHIC] [TIFF OMITTED] TR07OC04.016


[[Page 60271]]


[GRAPHIC] [TIFF OMITTED] TR07OC04.017

BILLING CODE 4120-01-C

IV. Correction of Errors in Wage Index, Geographic Reclassification, 
and IPPS Payment Rate Tables and Related Addendum Language

    We are correcting technical errors in the tables and addendum 
language of the FY 2005 final rule relating to the wage indexes, 
geographic reclassifications, IPPS payment rates. CMS and the fiscal 
intermediaries made errors in handling the data used to calculate 
certain average hourly wages, wage indexes, and capital geographic 
adjustment factors published in Tables 2, 3A1, 
3A2, 3B1, 3B2, 4A1, 
4A2, 4B1, 4B2, 4C1, 
4C2, 4G, 4H. This mishandling of data also caused technical 
errors in the average hourly wage data comparison used to formulate the 
list of counties qualifying for the out-migration adjustment published 
in Table 4J.
    In addition, there were technical errors in hospital geographic 
reclassification data displayed in Tables 9A1 and 
9A2. We also inadvertently omitted information and made 
typographical errors in several of the entries published in Table 9B.
    We have corrected the errors in the wage tables and geographic 
reclassification tables. These corrected tables are posted and 
available on the CMS Web site at: http://www.cms.hhs.gov/providers/hipps/ippswage.asp. These corrected tables are effective for discharges 
occurring on or after October 1, 2004. We note that the corrected 
tables, addendum language and revised impact analysis, will be included 
in a forthcoming correction notice to be published in the Federal 
Register.
    As a result of the revisions to the wage index tables, the FY 2005 
hospital inpatient PPS operating and capital payment rates, published 
in Table 1A, 1B, 1C, and 1D also have been revised. The revised rates 
are posted and available on the CMS Web site at: http://www.cms.hhs.gov/providers/hipps/. The corrections to the hospital 
inpatient PPS operating and capital payment rates are effective for 
discharges occurring on or after October 1, 2004. We note that the 
corrected payment rate tables will also be published in the Federal 
Register.

V. Waiver of Proposed Rulemaking and Delay in Effective Date

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register to provide a period for public comment before the 
provisions of a rule take effect in accordance with section 553(b) of 
the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). We also 
ordinarily provide a 30-day delay in the effective date of the 
provisions of a

[[Page 60272]]

notice in accordance with section 553(d) of the APA (5 U.S.C. 553(d)). 
However, we can waive both the notice and comment procedure and the 30-
day delay in effective date if the Secretary finds, for good cause, 
that a notice and comment process is impracticable, unnecessary or 
contrary to the public interest, and incorporates a statement of the 
finding and the reasons therefore in the notice.
    The policies and payment methodology expressed in the FY 2005 final 
rule have previously been subjected to notice and comment procedures. 
This correction notice merely provides technical corrections to the FY 
2005 final rule that was promulgated through notice and comment 
rulemaking, and does not make substantive changes to the policies or 
payment methodology that were expressed in the final rule. For example, 
this notice corrects typographical errors, inserts comments and 
responses that were inadvertently omitted from the final rule, makes 
clarifications to the preamble and regulations text, and revises 
inaccurate tabular data. Therefore, we find it unnecessary to undertake 
further notice and comment procedures with respect to this correction 
notice. We also believe it is in the public interest to waive notice 
and comment procedures and the 30-day delay in effective date for this 
notice. This correction notice is intended to ensure that the FY 2005 
final rule accurately reflects the policies expressed in the final 
rule, and that the corrected information is made available to the 
public prior to October 1, 2004, the date on which the final rule 
becomes effective.
    For the reasons stated above, we find that both notice and comment 
and the 30-day delay in effective date for this correction notice are 
unnecessary and impracticable, and that it is in the public interest to 
make this notice effective in conjunction with the final rule to which 
the corrections apply (and would be contrary to the public interest to 
do otherwise). Therefore, we find there is good cause to waive notice 
and comment procedures and the 30-day delay in effective date for this 
correction notice.

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

    Dated: September 30, 2004.
Ann C. Agnew,
Executive Secretary to the Department.
[FR Doc. 04-22389 Filed 9-30-04; 4:44 pm]
BILLING CODE 4120-01-P