[Federal Register Volume 71, Number 95 (Wednesday, May 17, 2006)]
[Proposed Rules]
[Pages 28644-28653]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-4608]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1488-P2]
RIN 0938-AO12


Medicare Program; Hospital Inpatient Prospective Payment Systems 
Implementation of the Fiscal Year 2007 Occupational Mix Adjustment to 
the Wage Index

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise the methodology for 
calculating the occupational mix adjustment announced in the Fiscal 
Year (FY) 2007 Hospital Inpatient Prospective Payment System (IPPS) 
proposed rule by applying the occupational mix

[[Page 28645]]

adjustment to 100 percent of the wage index using the new occupational 
mix data collected from hospitals. This proposed rule also proposes to 
modify hospitals' procedures for withdrawing requests to reclassify for 
the FY 2007 wage index and for supplementing the FY 2008 
reclassification application with official data used to develop the FY 
2007 wage index. In addition, we are proposing to replace in full the 
descriptions of the data and methodology that would be used in 
calculating the occupational mix adjustment discussed in the FY 2007 
IPPS proposed rule.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on June 12, 2006.

ADDRESSES: In commenting, please refer to file code CMS-1488-P2. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click 
on the link ``Submit electronic comments on CMS regulations with an 
open comment period.'' (Attachments should be in Microsoft Word, 
WordPerfect, or Excel; however, we prefer Microsoft Word.)
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address only: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-1488-P2, P.O. Box 8012, Baltimore, MD 21244-8012. Please allow 
sufficient time for mailed comments to be received before the close of 
the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address only: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-1488-PN2, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-8012.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-4492 in advance to schedule your arrival 
with one of our staff members. Room 445-G, Hubert H. Humphrey Building, 
200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security 
Boulevard, Baltimore, MD 21244-1850. (Because access to the interior of 
the HHH Building is not readily available to persons without Federal 
Government identification, commenters are encouraged to leave their 
comments in the CMS drop slots located in the main lobby of the 
building. A stamp-in clock is available for persons wishing to retain a 
proof of filing by stamping in and retaining an extra copy of the 
comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by mailing your 
comments to the addresses provided at the end of the ``Collection of 
Information Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Valerie Miller, (410) 786-4535.

SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments 
from the public on all issues set forth in this rule to assist us in 
fully considering issues and developing CMS-1488-P2 and the specific 
``issue identifier'' that precedes the section on which you choose to 
comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on 
CMS Regulations'' on that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

I. Background

    [If you choose to comment on issues in this section, please include 
the caption ``BACKGROUND'' at the beginning of your comments.]

A. General Background

    On April 25, 2006, we published in the Federal Register the FY 2007 
IPPS proposed rule (71 FR 23996) that set forth the proposed changes to 
the Medicare IPPS for operating costs and for capital-related costs. In 
the FY 2007 IPPS proposed rule, we discussed our proposals for 
calculating the FY 2007 occupational mix adjustment. We proposed to use 
the same CMS Wage Index Occupational Mix Survey and Bureau of Labor 
Statistics (BLS) data that we used for the FY 2005 and FY 2006 wage 
indices, with a few exceptions. We also proposed to use a blend of the 
occupational mix adjusted wage index and the unadjusted wage index. 
Specifically, we proposed to adjust 10 percent of the FY 2007 wage 
index by a factor reflecting occupational mix. We stated that a 10 
percent adjustment for occupational mix was a prudent policy because we 
were proposing to rely on the same survey data used in FY 2005 and FY 
2006 wage indices.
    On April 3, 2006, in Bellevue Hosp. Ctr v. Leavitt, the Court of 
Appeals for the Second Circuit (the Court) ordered the Centers for 
Medicare & Medicaid Services (CMS) to apply the occupational mix 
adjustment to 100 percent of the wage index effective for FY 2007. The 
Court ordered CMS to ``immediately * * * collect data that are 
sufficiently robust to permit full application of the occupational mix 
adjustment.'' The Court also ordered that all ``data collection and 
measurement and any other preparations necessary for full application 
be completed by September 30, 2006, at which time the agency is to 
immediately apply the adjustment in full.'' For more information see 
WestLaw 2006 WL 851934 at *13.
    To comply with the Court's order, on April 21, 2006, we issued a 
Joint-Signature Memorandum (see JSM-06412) to all Medicare Fiscal 
Intermediaries (FIs) announcing our plans to collect new occupational 
mix data from hospitals.

B. Legislative History

    Section 1886(d)(3)(E) of the Social Security Act (the Act) requires 
that, as part of the methodology for determining prospective payments 
to hospitals, the Secretary must adjust the standardized amounts ``for 
area differences in

[[Page 28646]]

hospital wage levels by a factor (established by the Secretary) 
reflecting the relative hospital wage level in the geographic area of 
the hospital compared to the national average hospital wage level.'' In 
accordance with the broad discretion conferred under the Act, we 
currently define hospital labor market areas based on the definitions 
of statistical areas established by the Office of Management and Budget 
(OMB). (See (71 FR 24074) for a discussion of the proposed FY 2007 
hospital wage index based on the statistical areas, including OMB's 
revised definitions of Metropolitan Areas).
    Beginning October 1, 1993, section 1886(d)(3)(E) of the Act 
requires that we update the wage index annually. Furthermore, the 
section provides that the Secretary base the update on a survey of 
wages and wage-related costs of short-term, acute care hospitals. The 
survey should measure the earnings and paid hours of employment by 
occupational category, and must exclude the wages and wage-related 
costs incurred in furnishing skilled nursing services. The provision 
also requires us to make any updates or adjustments to the wage index 
in a manner that ensures that aggregate payments to hospitals are not 
affected by the change in the wage index. See the FY 2007 IPPS proposed 
rule (71 FR 24148 through 24149) for a discussion of the original 
proposed adjustment for FY 2007.
    As discussed in the FY 2007 IPPS proposed rule (71 FR 24082), we 
also take into account the geographic reclassification of hospitals in 
accordance with sections 1886(d)(8)(B) and section 1886(d)(10) of the 
Act when calculating the wage index. Under section 1886(d)(8)(D) of the 
Act, the Secretary is required to adjust the standardized amounts to 
ensure that aggregate payments under the IPPS after implementation of 
the provisions of sections 1886(d)(8)(B) and section 1886(d)(8)(C) of 
the Act and section 1886(d)(10) of the Act are equal to the aggregate 
prospective payments that would have been made absent these provisions. 
See the FY 2007 IPPS proposed rule (71 FR 24149) for a discussion of 
the original proposed budget neutrality adjustment for FY 2007.

C. Revised Proposed Changes to the Occupational Mix Adjustment for the 
Proposed FY 2007 Wage Index

    Section 1886(d)(3)(E) of the Act provides for the collection of 
data every 3 years on the occupational mix of employees for each short-
term, acute care hospital participating in the Medicare program, in 
order to construct an occupational mix adjustment to the wage index, 
for application beginning October 1, 2004 (the FY 2005 wage index). The 
purpose of the occupational mix adjustment is to control for the effect 
of hospitals' employment choices on the wage index. For example, 
hospitals may choose to employ different combinations of registered 
nurses (RNs), licensed practical nurses (LPNs), nursing aides, and 
medical assistants for the purpose of providing nursing care to their 
patients. The varying labor costs associated with these choices reflect 
hospital management decisions rather than geographic differences in the 
costs of labor.
1. Development of Data for the Proposed Occupational Mix Adjustment
    [If you choose to comment on issues in this section, please include 
the caption ``DEVELOPMENT OF DATA FOR THE PROPOSED OCCUPATIONAL MIX 
ADJUSTMENT'' at the beginning of your comments.]
    Section 1886(d)(3)(E) of the Act requires us to conduct a new 
survey at least once every 3 years. On October 14, 2005, we published a 
notice in the Federal Register (70 FR 60092) proposing to use a new 
survey, the 2006 Medicare Wage Index Occupational Mix Survey, (the 2006 
survey) to apply an occupational mix adjustment to the FY 2008 wage 
index. In the proposed 2006 survey, we included several modifications 
based on the comments and recommendations we received on the 2003 
survey including (1) Allowing hospitals to report their own average 
hourly wage rather than using BLS data; (2) extending the prospective 
survey period; and (3) reducing the number of occupational categories 
but refining the subcategories for RNs.
    We made the changes to the occupational categories in response to 
MedPAC comments to the FY 2005 IPPS final rule (69 FR 49036). 
Specifically, MedPAC recommended that CMS assess whether including 
subcategories of RNs would result in a more accurate occupational mix 
adjustment. MedPAC believed that including all RNs in a single category 
may obscure significant wage differences among the subcategories of 
RNs, for example, the wages of surgical RNs and floor RNs may differ. 
Also, to offset additional reporting burden for hospitals, MedPAC 
recommended that CMS should combine the general service categories that 
account for only a small percentage of a hospital's total hours with 
the ``all other occupations'' category, since most of the occupational 
mix adjustment is correlated with the nursing general service category.
    Also, in response to the public comments on the October 14, 2005 
notice, we modified the 2006 survey. On February 10, 2006, we published 
a Federal Register notice (71 FR 7047) that solicited comments and 
announced our intent to seek OMB approval on the revised occupational 
mix survey (Form CMS-10079 (2006)).
    The revised 2006 survey provides for the collection of hospital-
specific wages and hours data, a 6-month prospective reporting period 
(that is, January 1, 2006 through June 30, 2006), the transfer of each 
general service category that comprised less than 4 percent of total 
hospital employees in the 2003 survey to the ``all other occupations'' 
category (the revised survey focuses only on the mix of nursing 
occupations), additional clarification of the definitions for the 
occupational categories, an expansion of the RN category to include 
functional subcategories, and the exclusion of average hourly rate data 
associated with advance practice nurses.
    The 2006 survey includes only 2 general occupational categories: 
Nursing and ``all other occupations.'' The Nursing category has 4 
subcategories: RNs, LPNs, Aides, Orderlies, Attendants, and Medical 
Assistants. The RN subcategory includes 2 functional subcategories: 
Management Personnel and Staff Nurses or Clinicians. As indicated 
above, the 2006 survey provides for a 6-month data collection period, 
from January 1, 2006 through June 30, 2006. However, we are allowing 
flexibility for the reporting period begin and end dates to accommodate 
some hospitals' bi-weekly payroll and reporting systems. That is, the 
6-month reporting period must begin on or after December 25, 2005, and 
must end before July 9, 2006.
    To comply with the Bellevue Court's order, as discussed above, we 
propose to collect new survey data, instead of using the 2003 survey 
data proposed in the FY 2007 IPPS proposed rule, to calculate the 
occupational mix adjustment for the FY 2007 wage index. Since hospitals 
are currently collecting data for the revised 2006 survey, we are 
proposing to use the first 3 months of that data (that is, from January 
1, 2006 through March 31, 2006) to calculate the FY 2007 occupational 
mix adjustment. In order to allow sufficient time for hospitals, FIs, 
and CMS to collect, review, and correct the new data, and for us to 
perform required analyses and apply the new data in calculating the FY 
2007 occupational mix adjustment, it would be impossible for us to 
apply the full 6-months of data by October 1, 2006. (See

[[Page 28647]]

section II.C.2 below for proposed detailed data collection, review, and 
correction process.)
2. Timeline for the Collection, Review, and Correction of the 
Occupational Mix Data
    [If you choose to comment on issues in this section, please include 
the caption ``TIMELINE'' at the beginning of your comments.]
    On April 21, 2006, we issued a Joint-Signature Memorandum (JSM-
06412) instructing all FIs to immediately alert the hospitals they 
service to the changes in the schedule for submitting the occupational 
mix data files. The Joint-Signature Memorandum is available on the CMS 
Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS. Click on ``Wage 
Index Files'' and the link is titled: 2006 Occupational Mix Survey--
Interim Data Collection--CMS Memo to Fiscal Intermediaries.
    The Joint-Signature Memorandum provides hospitals and FIs with the 
revised schedule for the occupational mix survey data that would be 
used in the FY 2007 wage index. The schedule includes deadlines for--
     Hospitals to submit occupational mix data. The deadline is 
June 1, 2006.
     FI review of the submitted data. The deadline is June 22, 
2006.
     Availability of the submitted data on the CMS Web site. 
The deadline is June 29, 2006.
     Hospitals to submit requests to their FIs for corrections 
to their interim occupational mix data. The deadline is July 13, 2006.
     FIs to submit corrected interim occupational mix survey 
data for the January 1, 2006 through March 31, 2006 period. The 
deadline is July 27, 2006.
    We note that it is critical that hospitals provide information 
according to the dates provided in this schedule in order to be able to 
appeal any disputed calculations at a later point to the Provider 
Review Reimbursement Board (PRRB). The final deadline for the FIs to 
make occupational mix data available to CMS is July 27, 2006. These 
data would reflect FI review and the resolution of any errors or 
adjustments between the hospitals and FI. Once these data are available 
on the CMS Web site, changes to a hospital's occupational mix data 
would be allowed only in those very limited situations involving an 
error by the FI or CMS that the hospital could not have known about 
before its review of the final occupational mix data file. 
Specifically, neither the FI nor CMS would approve the following types 
of requests:
     Requests for occupational mix data corrections that were 
submitted too late to be included in the data transmitted to CMS by FIs 
on or before July 27, 2006.
     Requests for correction of errors that were not, but could 
have been, identified during the hospital's review of the June 29, 2006 
occupational mix file.
    Verified corrections to the occupational mix received by the FIs 
and CMS (that is, by July 13, 2006) would be incorporated into the 
final wage index for FY 2007, to be effective October 1, 2006.
    We created the process described above to resolve all substantive 
occupational mix correction disputes before we finalize the wage and 
occupational mix data for the FY 2007 payment rates. Accordingly, 
hospitals that do not meet the procedural deadlines set forth above 
would not be afforded a later opportunity to submit occupational mix 
data corrections or to dispute the FI's decision with respect to 
requested changes. Specifically, our policy is that hospitals that do 
not meet the procedural deadlines set forth above would not be 
permitted to challenge later, before the PRRB, the failure of CMS to 
make a requested data revision. (See W.A. Foote Memorial Hospital v. 
Shalala, No. 99-CV-75202-DT (E.D. Mich. 2001) and Palisades General 
Hospital v. Thompson, No. 99-1230 (D.D.C. 2003)). We also refer the 
reader to the FY 2000 IPPS final rule (64 FR 41513) for a discussion of 
the parameters for appealing to the PRRB for wage index data 
corrections.
    We believe the occupational mix data correction process described 
above provides hospitals with the opportunity to bring errors in their 
occupational mix data to the FI's attention.
    Since hospitals would have access to the final occupational mix 
data by June 29, 2006, they would have the opportunity to detect any 
data entry or tabulation errors made by the FI or CMS before the 
development and publication of the final FY 2007 wage index and the 
implementation of the FY 2007 wage index on October 1, 2006. We believe 
that if hospitals avail themselves of the opportunities afforded to 
provide and make corrections to the occupational mix data, the wage 
index implemented on October 1, 2006 should be accurate. In the event 
that errors are identified by hospitals and brought to our attention 
after July 13, 2006, we would only make mid-year changes to the wage 
index in accordance with Sec.  412.64(k). For a detailed discussion see 
the FY 2007 IPPS proposed rule (71 FR 24089). However, note that a 
hospital's deadline for making corrections to the proposed occupational 
mix data is July 13, 2006.
3. Calculation of the Proposed FY 2007 Occupational Mix Adjustment 
Factor and the Proposed FY 2007 Occupational Mix Adjusted Wage Index
    [If you choose to comment on issues in this section, please include 
the caption ``CALCULATION OF THE PROPOSED FY 2007 OCCUPATIONAL MIX 
ADJUSTMENT'' at the beginning of your comments.]
    We are proposing to use the following steps for calculating the 
proposed FY 2007 occupational mix adjustment factor for the proposed FY 
2007 wage index:
    Step 1--For each hospital, determine the percentage of the total 
nursing category attributable to a nursing subcategory by dividing the 
nursing subcategory hours by the total nursing category's hours (RN 
Management Personnel and RN Staff Nurses or Clinicians are treated as 
separate nursing subcategories). Repeat this computation for each of 
the 5 nursing subcategories: RN Management Personnel, RN Staff Nurses 
or Clinicians, LPNs; Nursing Aides, Orderlies, and Attendants; and 
Medical Assistants.
    Step 2--Determine a national average hourly rate for each nursing 
subcategory by dividing a subcategory's total salaries for all 
hospitals in the occupational mix survey database by the subcategory's 
total hours for all hospitals in the occupational mix survey database.
    Step 3--For each hospital, determine an adjusted average hourly 
rate for each nursing subcategory by multiplying the percentage of the 
total nursing category (from Step 1) by the national average hourly 
rate for that nursing subcategory (from Step 2). Repeat this 
calculation for each of the 5 nursing subcategories.
    Step 4--For each hospital, determine the adjusted average hourly 
rate for the total nursing category by summing the adjusted average 
hourly rate (from Step 3) for each of the nursing subcategories.
    Step 5--Determine the national average hourly rate for the total 
nursing category by dividing total nursing category salaries for all 
hospitals in the occupational mix survey database by total nursing 
category hours for all hospitals in the occupational mix survey 
database.
    Step 6--For each hospital, compute the occupational mix adjustment 
factor for the total nursing category by dividing the national average 
hourly rate for the total nursing category (from Step 5) by the 
hospital's adjusted average hourly rate for the total nursing category 
(from Step 4).
    If the hospital's adjusted average hourly rate is less than the 
national

[[Page 28648]]

average hourly rate (indicating the hospital employs a less costly mix 
of nursing employees), the occupational mix adjustment factor would be 
greater than 1.0000.
    If the hospital's adjusted average hourly rate is greater than the 
national average hourly rate, the occupational mix adjustment factor 
would be less than 1.0000.
    Step 7--For each hospital, calculate the occupational mix adjusted 
salaries and wage-related costs for the total nursing category by 
multiplying the hospital's total salaries and wage-related costs (from 
Step 5 of the unadjusted wage index calculation in section III.F. of 
the preamble of the FY 2007 IPPS proposed rule (71 FR 24081), by the 
percentage of the hospital's total workers attributable to the total 
nursing category (using the occupational mix survey data, this 
percentage is determined by dividing the hospital's total nursing 
category hours by the hospital's total hours for ``nursing and all 
other'') and by the total nursing category's occupational mix 
adjustment factor (from Step 6 above).
    The remaining portion of the hospital's total salaries and wage-
related costs that is attributable to all other employees of the 
hospital is not adjusted by the occupational mix. A hospital's all 
other portion is determined by subtracting the hospital's nursing 
category percentage from 100 percent.
    Step 8--For each hospital, calculate the total occupational mix 
adjusted salaries and wage-related costs for a hospital by summing the 
occupational mix adjusted salaries and wage-related costs for the total 
nursing category (from Step 7) and the portion of the hospital's 
salaries and wage-related costs for all other employees (from Step 7).
    To compute a hospital's occupational mix adjusted average hourly 
wage, divide the hospital's total occupational mix adjusted salaries 
and wage-related costs by the hospital's total hours (from Step 4 of 
the unadjusted wage index calculation in section III.F. of the preamble 
of the FY 2007 IPPS proposed rule (71 FR 24080).
    Step 9--To compute the occupational mix adjusted average hourly 
wage for an urban or rural area, sum the total occupational mix 
adjusted salaries and wage-related costs for all hospitals in the area, 
then sum the total hours for all hospitals in the area. Next, divide 
the area's occupational mix adjusted salaries and wage-related costs by 
the area's hours.
    Step 10--To compute the national occupational mix adjusted average 
hourly wage, sum the total occupational mix adjusted salaries and wage-
related costs for all hospitals in the Nation, then sum the total hours 
for all hospitals in the Nation. Next, divide the national occupational 
mix adjusted salaries and wage-related costs by the national hours.
    Step 11--To compute the occupational mix adjusted wage index, 
divide each area's occupational mix adjusted average hourly wage (Step 
9) by the national occupational mix adjusted average hourly wage (Step 
10).
    Step 12--To compute the Puerto Rico specific occupational mix 
adjusted wage index, follow Steps 1 through 11 above.
    Table 1 below is an illustrative example of the occupational mix 
adjustment.

                                                    Table 1.--Example of Occupational Mix Adjustment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Step 1       Step 2      Step 3      Step 5       Step 6      In Step 7
                                                                             ---------------------------------------------------------------------------
                                                                                                                     National-
                                                                                Provider     National    Provider-   adjusted      Nursing
                                                                               percentage    average     adjusted     nursing   occupational   Provider
                                                                                   by         hourly      average     average        mix      percentage
                                                                              subcategory    wages by     hourly      hourly     adjustment    by total
                                                                                           subcategory     wage        wage        factor
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Hospital A
========================================================================================================================================================
       Provider Occupational Mix Hours
Nursing Hours:
    RN Management............................         202,387.00  ..........         9.84       $50.00       $4.92
    RN Staff.................................       1,439,742.00  ..........        70.00        30.00       21.00
    LPNs.....................................          67,860.00  ..........         3.30        20.00        0.66
    Nurse Aides..............................         259,177.00  ..........        12.60        13.00        1.64
    Medical Assistants.......................          87,622.00  ..........         4.26        12.00        0.51
Total Nursing Hours..........................       2,056,788.00  ..........  ...........  ...........       28.73      $27.00       0.9398        29.15
All Other Employees Hours....................       5,000,000.00  ..........  ...........  ...........      step 4  ..........  ............       70.85
    Total Hours..............................       7,056,788.00
========================================================================================================================================================
Wage Data from Cost Report:
    Wages (From S-3, Parts II and III).......     $83,312,942.55
    Hours (From S-3, Parts II and III).......       3,836,299.60
Hospital A Unadjusted Average Hourly Wage....             $21.72
Nursing Occupational Mix Wages...............        $22,821,141      step 7
All Other Employees Unadjusted Occupational          $59,030,357      step 7
 Mix Wages...................................
Total Occupational Mix Wages.................        $81,851,498      step 8

[[Page 28649]]

 
Hospital A Final Occupational Mix Adj. Avg.               $21.34      step 8
 Hourly Wage.................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Hospital B
--------------------------------------------------------------------------------------------------------------------------------------------------------
Provider Occupational Mix Hours:
Nursing Hours:
    RN Management............................          70,333.00  ..........         3.01        50.00        1.51
    RN Staff.................................       1,430,114.00  ..........        61.27        30.00       18.38
    LPNs.....................................         159,795.00  ..........         6.85        20.00        1.37
    Nurse Aides..............................         391,201.00  ..........        16.76        13.00        2.18
    Medical Assistants.......................         282,728.00  ..........        12.11        12.00        1.45
Total Nursing Hours..........................       2,334,171.00  ..........  ...........  ...........       24.89       27.00       1.0848        31.83
All Other Employees Hours....................       5,000,000.00  ..........  ...........  ...........      step 4  ..........  ............       70.85
    Total Hours..............................       7,334,171.00
========================================================================================================================================================
Wage Data from Cost Report
    Wages (From S-3, Parts II and III).......        $25,979,714
    Hours (From S-3, Parts II and III).......          1,097,585
Hospital B Unadjusted Average Hourly Wage....             $23.67
Nursing Occupational Mix Wages...............         $8,969,717      step 7
All Other Employees Unadjusted Occupational          $17,711,418      step 7
 Mix Wages...................................
Total Occupational Mix Wages.................        $26,681,135      step 8
Hospital B Final Occupational Mix Adj. Avg.               $24.31     step 8
 Hourly Wage.................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The numbers used in this example are hypothetical.

    Because the occupational mix adjustment is required by statute, all 
hospitals that are subject to payments under the IPPS, or any hospital 
that would be subject to the IPPS if not granted a waiver, must 
complete the occupational mix survey, unless the hospital has no 
associated cost report wage data that are included in the FY 2007 wage 
index.
    For the FY 2005 and FY 2006 final wage indices, we used the 
unadjusted wage data for hospitals that did not submit occupational mix 
survey data. For calculation purposes, this equates to applying the 
national nursing mix to the wage data for these hospitals, because 
hospitals having the same mix as the Nation would have an occupational 
mix adjustment factor equaling 1.0000. However, an adjustment may not 
be equitable in situations where the hospital has a higher or lower 
than average occupational mix than the Nation as a whole. If the 
hospital's occupational mix is higher than the average for the nation 
as a whole, hospitals in other areas are disadvantaged by the hospital 
not providing occupational mix information. If the hospital's 
occupational mix is lower than the average for the Nation as a whole, 
other hospitals in the same geographic area would be disadvantaged by 
the hospital not providing the information.
    In the FY 2005 and FY 2006 IPPS final rules (69 FR 49035 and 70 FR 
47368), we noted that we would revisit this matter with subsequent 
collections of the occupational mix data. For the FY 2007 wage index, 
we are proposing to use 1 of 4 options for treating the occupational 
mix data for non-responsive hospitals: (1) Assign the hospital an 
occupational mix adjustment factor of 1.0000 as we did for FY 2005 and 
FY 2006; (2) assign the hospital the average occupational mix 
adjustment factor for its labor market area; (3) assign the hospital 
the lowest occupational mix adjustment factor for its labor market 
area; or (4) assign the hospital the average occupational mix factor 
for similar hospitals, based on factors such as, geographic location, 
bed size, teaching versus non-teaching status and case mix. We are 
requesting comments on these or other alternatives for equitably 
addressing the situation of hospitals that are not responsive to the 
occupational mix survey.

D. Implementation of the Proposed FY 2007 Occupational Mix Adjusted 
Wage Index

    [If you choose to comment on issues in this section, please include 
the caption ``IMPLEMENTATION OF

[[Page 28650]]

PROPOSED FY 2007 OCCUPATIONAL MIX ADJUSTMENT'' at the beginning of your 
comments.]
    In the FY 2007 IPPS proposed rule, we proposed to adjust 10 percent 
of the FY 2007 wage index by the occupational mix adjustment factor. 
However, to comply with the Court's order, we would apply the 
occupational mix adjustment to 100 percent of the FY 2007 wage index. 
Therefore, we are proposing to calculate the FY 2007 occupational mix 
adjustment using the first 3 months of the 2006 survey data and apply 
that adjustment to 100 percent of the FY 2007 wage index. We also 
believe that, with the modifications we included in the 2006 survey, 
hospitals' experience with collecting occupational mix survey data, and 
the review and correction process described in section C.2 of this 
preamble, a 100 percent adjustment is reasonable.
    Since the 2006 survey data is currently being collected by 
hospitals, we are unable to estimate how the new data would affect the 
FY 2007 wage index. Due to the short time frame for implementing the 
Court's order, we do not expect to be able to provide the occupational 
mix adjusted wage index tables, rates, and impacts with the FY 2007 
IPPS final rule. We are proposing to post the FY 2007 occupational mix 
adjusted wage index tables and related impacts on the CMS Web site 
shortly after we publish the FY 2007 IPPS final rule, and in advance of 
October 1, 2006. We believe these procedures would comply with section 
1886(d)(6) of the Act because, by August 1, we would describe our data 
and methods for calculating the wage index and IPPS rates in the FY 
2007 IPPS final rule, but the actual rates and wage tables would not be 
issued until a later date. Further, we expect to discuss in the IPPS 
final rule that the new occupational mix data should have a 
redistributive effect on hospital payments and should not increase or 
decrease total payments, as the wage index is budget neutral. Also, due 
to the unusual circumstances imposed by the Court's order, we therefore 
would depart from our normal practice of providing the weights and 
factors that would be used in calculating the IPPS rates along with the 
final rule. Given the short timeframe for collecting and properly 
allowing for corrections of occupational mix data, for FY 2007, these 
weights and factors would be published on the CMS Web site after the 
final rule, but in advance of October 1, 2006.

E. Impact of the Proposed FY 2007 Occupational Mix Adjusted Wage Index 
on the Out-migration Adjustment and Hospital Reclassifications

    [If you choose to comment on issues in this section, please include 
the caption ``OUT-MIGRATION'' at the beginning of your comments.]
1. FY 2007 Wage Index Adjustment Based on Commuting Patterns of 
Hospital Employees
    In accordance with section 505 of Public Law 108-173, beginning 
with FY 2005, we established a process to make adjustments to the 
hospital wage index based on commuting patterns of hospital employees. 
The process, outlined in the FY 2005 IPPS final rule (69 FR 49061), 
provides for an increase in the wage index for hospitals located in 
certain counties that have a relatively high percentage of hospital 
employees who reside in the county but work in a different county (or 
counties) with a higher wage index. The adjustments to the wage index 
are effective for 3 years, unless a hospital requests to waive the 
application of the adjustment. A county would not lose its status as a 
qualifying county due to wage index changes during the 3-year period, 
and counties would receive the same wage index increase for those 3 
years. Hospitals that receive the adjustment to their wage index are 
not eligible for reclassification under section 1886(d)(8) of the Act 
or section 1886(d)(10) of the Act.
    Hospitals located in counties that qualify for the wage index 
adjustment are to receive an increase in the wage index that is equal 
to the average of the differences between the wage indices of the labor 
market area(s) with higher wage indices and the wage index of the 
resident county, weighted by the overall percentage of hospital workers 
residing in the qualifying county who are employed in any labor market 
area with a higher wage index. We employ the pre-reclassified wage 
indices in making these calculations.
    In the FY 2007 IPPS proposed rule (71 FR 24264 through 24272), in 
the Out-Migration Adjustment table, Table 4J, we identified hospitals 
located in qualifying counties. Table 4J also lists the proposed 
adjustments calculated for qualifying hospitals. Hospitals that newly 
qualified for the adjustment in FY 2005 or FY 2006 are eligible to 
receive the same adjustment in FY 2007. In the FY 2007 IPPS proposed 
rule, we determined county eligibility based on a 10 percent 
occupational mix adjustment to the wage index. However, under this 
proposed rule, we would apply the occupational mix adjustment to 100 
percent of the FY 2007 wage index. Therefore, we must re-evaluate which 
counties are newly eligible for the out-migration adjustment in FY 2007 
using the 100 percent occupational mix adjusted wage index data. We are 
proposing to publish an updated version of Table 4J showing eligible 
hospitals and their corresponding wage index adjustments on the CMS Web 
site shortly after we publish the IPPS final rule, and in advance of 
October 1, 2006.
2. Proposed Procedures for Withdrawing Reclassifications in FY 2007
    [If you choose to comment on issues in this section, please include 
the caption ``WITHDRAWING RECLASSIFICATIONS'' at the beginning of your 
comments.]
    Under section 1886(d)(10) of the Act, the Medicare Geographic 
Classification Review Board (MGCRB) considers applications by hospitals 
for geographic reclassification for purposes of payment under the IPPS. 
The specific procedures and rules that apply to the geographic 
reclassification process are outlined in Sec.  412.230 through Sec.  
412.280.
    In the FY 2007 IPPS proposed rule (71 FR 24377), we identified 
hospitals that have reclassifications effective in FY 2007. As 
specified in Sec.  412.273, hospitals that have been reclassified by 
the MGCRB are permitted to withdraw an application for reclassification 
or terminate an existing 3-year reclassification for FY 2007. The 
request must be received by the MGCRB within 45 days of publication of 
the IPPS proposed rule.
    However, as a result of the Court order that we collect new 
occupational mix data and calculate a 100 percent occupational mix 
adjustment, information in the IPPS proposed rule that hospitals use to 
make these decisions regarding reclassification withdrawals is now 
obsolete. In addition, the necessary data (including wage indices and 
out-migration adjustments) hospitals utilize in evaluating whether to 
accept or terminate a previously approved reclassification would not be 
available until after the IPPS final rule has been published. 
Therefore, in this limited circumstance, we are proposing to suspend 
the 45-day deadline and are proposing to establish the new procedure 
described below to withdraw from reclassifications for FY 2007. Some 
hospitals may have adhered to the established process and notified the 
MGCRB of their decision to withdraw or terminate a reclassification in 
accordance with Sec.  412.273 before publication of this proposed rule.

[[Page 28651]]

    Since hospitals made these decisions based on information in the FY 
2007 IPPS proposed rule that is now obsolete, we are proposing that the 
MGCRB not act on these withdrawal requests. Instead, we are proposing 
to apply the following procedures for withdrawal determinations for all 
hospital reclassifications for FY 2007. Specifically, the FY 2007 IPPS 
rates must go into effect on October 1, 2006. Based on our current 
schedule, we do not expect to calculate the final occupational mix 
adjusted wage indices until sometime after August 1, 2006 and before 
October 1, 2006. For this reason, we do not believe there is sufficient 
time for CMS to make the final occupational mix adjusted wage indices 
available and allow hospitals a 45-day period to make a final decision 
regarding whether to withdraw a reclassification for FY 2007. In the 
interim, we propose to make reclassification withdrawal determinations 
based on what we perceive would be most advantageous to the hospital 
based on the 100 percent occupational adjusted wage index data and the 
out-migration adjustment, if applicable.
    We also propose to make the final occupational mix adjusted wage 
indices and out-migration adjustments and our interim decisions on 
hospital reclassifications available to the public on the CMS Web site 
sometime after August 1, 2006, but before October 1, 2006. We would 
allow hospitals a 30-day period from the date the 100 percent 
occupational mix adjusted wage index data is made available where they 
can make final, informed determinations regarding whether to maintain 
or revise the decision made by CMS regarding its reclassification 
status.
    Hospitals would have 30 days after the data is made available on 
the CMS Web site to submit, in writing, whether they wish to reverse 
the reclassification decision made by CMS. We will make every effort to 
provide the final data before September 1, 2006 so that the 30 day 
period to make these determinations would end before October 1, 2006 
and no retroactive adjustments would be necessary. The request for a 
withdrawal of a reclassification or termination of an existing 3-year 
reclassification that would be effective in FY 2007 must be received by 
the MGCRB, in writing with a copy to CMS, no later 30 days after the 
data is made available on the CMS Web site. The mailing address is: 
2520 Lord Baltimore Drive, Suite L, Baltimore, MD 21244-2670.
3. Procedures for Hospitals Applying for Reclassification Effective in 
FY 2008 and Reinstating Reclassifications in FY 2008.
    [If you choose to comment on issues in this section, please include 
the caption ``RECLASSIFICATION FOR FY 2008'' at the beginning of your 
comments.]
    Applications for FY 2008 reclassifications are due to the MGCRB by 
September 1, 2006. We note that this deadline also applies for 
canceling a previous wage index reclassification withdrawal or 
termination under Sec.  412.273(d). As we noted in the FY 2007 IPPS 
proposed rule (71 FR 24083), applications and other information about 
MGCRB reclassifications may be obtained, beginning in mid-July, on the 
CMS Web site at: http://www.cms.hhs.gov/mgcrb/, or by calling the MGCRB 
at (410) 786-1174.
    The MGCRB, in evaluating a hospital's request for reclassification 
for FY 2008 for the wage index, must utilize the official data used to 
develop the FY 2007 wage index. The wage data used to support the 
hospital's wage comparisons must be from the CMS hospital wage survey. 
Generally, the source for this data would be the IPPS final rule that 
is expected to be published on or about August 1, 2006. However, under 
this rule, the wage tables identifying the 3-year average hourly wage 
of hospitals would not be available for the FY 2007 IPPS final rule. 
Therefore, we are proposing to make the data available subsequent to 
August 1, 2006 but before October 1, 2006.
    Section 1886(d)(10)(C)(ii) of the Act indicates that a hospital 
requesting a change in geographic classification for a FY must submit 
its application to the MGCRB not later than the first day of the 13-
month period ending on September 30 of the preceding FY. Thus, the 
statute requires that FY 2008 reclassification applications be 
submitted to the MGCRB by no later than September 1, 2006. For this 
reason, hospitals must file an FY 2008 reclassification application by 
the September 1, 2006 deadline even though the average hourly wage data 
used to develop the final FY 2007 wage indices may not yet be 
available. We note that, under Sec.  412.256(c), the MGCRB must review 
applications and notify the hospital if it determines that the 
application is incomplete.
    As outlined in Sec.  412.256(c)(2), hospitals with incomplete 
applications have the opportunity to request that the MGCRB grant a 
hospital that has submitted an application by September 1, 2006 an 
extension beyond September 1, 2006 to complete its application. Thus, 
while hospitals must file an application for reclassification to the 
MGCRB by September 1, 2006, they would be able to supplement the 
reclassification application with official data used to develop the FY 
2007 wage index after filing their initial application. We are 
proposing that hospitals file a supplement to the reclassification 
application with official data used to develop the FY 2007 wage index 
no later than 30 days after the data is made available on the CMS 
website.

II. Provisions of the Proposed Rule

    This proposed rule replaces in full the descriptions of the data 
and methodology that would be used in calculating the occupational mix 
adjustment discussed in the FY 2007 IPPS proposed rule (71 FR 23996). 
Readers should refer to this proposed rule on the occupational mix 
adjustment and reclassification deadlines and procedures.
    Consistent with the Court's order to collect new occupational mix 
data and apply the ``adjustment in full,'' we are proposing to apply 
the occupational mix adjustment to 100 percent, rather than 10 percent, 
of the wage index using the new occupational mix data we are collecting 
from hospitals.
    We are proposing to modify procedures for withdrawing requests to 
reclassify for the FY 2007 wage index so that hospitals would be able 
to make these decisions after we publish the new occupational mix 
adjusted average hourly wages and wage index values. In addition, we 
are proposing that hospitals applying for reclassification in FY 2008 
file a supplement that includes the official data used to develop the 
FY 2007 wage index no later than 30 days after the data is made 
available on the CMS website.
    We are proposing to calculate the FY 2007 occupational mix 
adjustment using the first 3 months of the 2006 survey data.
    We are proposing 4 options for treating the occupational mix data 
for non-responsive hospitals: (1) Assign the hospital an occupational 
mix adjustment factor of 1.0000 as we did for FYs 2005 and 2006; (2) 
assign the hospital the average occupational mix adjustment factor for 
its labor market area; (3) assign the hospital the lowest occupational 
mix adjustment factor for its labor market area; or (4) assign the 
hospital the average occupational mix factor for similar hospitals, 
based on factors such as, geographic location, bed

[[Page 28652]]

size, teaching versus nonteaching status and case mix.
    We are proposing to respond to public comments in the FY 2007 IPPS 
final rule.
    We are proposing to post the FY 2007 occupational mix adjusted wage 
index tables and related impacts on the CMS Web site shortly after we 
publish the FY 2007 IPPS final rule, and in advance of October 1, 2006.

III. Collection of Information Requirements

    [If you choose to comment on issues in this section, please include 
the caption ``COLLECTION OF INFORMATION REQUIREMENTS'' at the beginning 
of your comments.]
    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 35).''

IV. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

V. Waiver of 60-Day Comment Period

    [If you choose to comment on issues in this section, please include 
the caption ``WAIVER OF 60-DAY COMMENT PERIOD'' at the beginning of 
your comments.]
    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and permit a 60-day comment period. This period, 
however, may be shortened when the agency finds good cause that a 60-
day comment period would be impracticable, unnecessary, or contrary to 
the public interest and incorporates a statement of the finding and its 
reasons in the rule issued. For this proposed rule, we are waiving the 
60-day comment period for good cause and allowing a 30-day comment 
period that coincides with the comment period on the FY 2007 IPPS 
proposed rule.
    Ordinarily, we begin our preparations for issuing an IPPS proposed 
rule early in a calendar year so that our proposals may be on public 
display in early spring of that year. This schedule allows for a 60-day 
comment period closing in either late spring or early summer, as well 
as a one-to-two-month period to consider all comments and appropriately 
respond to them.
    In this case, we received the Court's order after almost all of the 
IPPS proposed rule had already been prepared and finalized. The Court's 
order requiring that we collect new occupational mix data by September 
30, 2006 with immediate application necessitated this modification to 
the original FY 2007 IPPS proposed rule. A 60-day comment period on 
this proposal for how we plan to implement the Court's order would be 
both impracticable and contrary to the public interest, because the 
comment period would end on July 11, 2006 and would not allow the 
agency sufficient time to process the comments and respond to them by 
the August 1, 2006 date for the final rule. In addition, we do not 
believe it would be appropriate to review comments relating to the 
occupational mix in isolation from comments received on the remainder 
of the FY 2007 IPPS proposed rule.
    Because the FY 2007 IPPS proposed rule is an inter-dependent system 
(for example, occupational mix adjustments affect wage indices, which 
affect reclassifications and budget neutrality) extending the comment 
period to take account of this occupational mix proposal would 
necessarily entail not being able to consider the comments on the 
remainder of the proposed rule until July 11, 2006. We believe it would 
be contrary to the public interest to delay consideration of comments 
that were received timely on the original FY 2007 IPPS proposed rule, 
solely due to an intervening Court order. If we did delay 
consideration, timely filed comments would receive a shorter period of 
time for consideration by the agency. It also would be impracticable to 
consider all FY 2007 IPPS comments by July 11, 2006, as doing so would 
leave insufficient time for the agency to properly respond to comments 
and appropriately consider and resolve whether any of the proposed 
policies would be modified in light of comments received. Therefore, we 
find good cause to waive the 60-day comment period for this rule of 
proposed rulemaking.

VI. Regulatory Impact Statement

    [If you choose to comment on issues in this section, please include 
the caption ``IMPACT'' at the beginning of your comments.]
    We have examined the impacts of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
    Executive Order 12866 (as amended by Executive Order 13258, which 
merely reassigns responsibility of duties) directs agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year). 
This proposed rule is not a major rule, rather it modifies the 
occupational mix adjustment to the wage index, which is budget neutral, 
as published in the FY 2007 IPPS proposed rule (71 FR 23996). While 
there may be a redistributive effect on payments to hospitals, total 
program payments would neither increase nor decrease as a result of 
this proposed rule.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$6 million to $29 million in any 1 year. (For details, see the Small 
Business Administration's regulation that set forth size standards for 
health care industries at 65 FR 69432). For purposes of the RFA, all 
hospitals and other providers and suppliers are considered to be small 
entities. Individuals and States are not included in the definition of 
a small entity. This proposed rule may result in a redistributive 
effect on payments to hospitals, therefore, it could result in a 
significant impact on small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. This proposed rule may 
result in a redistributive effect on payments to hospitals, therefore, 
it could result in a significant impact on small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also

[[Page 28653]]

requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $120 million. This proposed rule will 
not have an effect on State, local, or tribal governments in the 
aggregate nor will private sector costs be greater than the $120 
million threshold, since this rule is purely budget neutral.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. This proposed rule would not have a substantial effect on 
State or local governments.
    This proposed rule does not include analyses for either the RFA or 
section 1102(b) of the Act because the data are currently being 
collected for the 2006 occupational mix survey. Therefore, in this 
proposed rule, we are unable to estimate how the new occupational mix 
data would affect the FY 2007 wage index.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)

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

    Dated: May 9, 2006.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: May 11, 2006.
Michael O. Leavitt,
Secretary.
[FR Doc. 06-4608 Filed 5-12-06; 4:00 pm]
BILLING CODE 4120-01-P