[Federal Register Volume 71, Number 160 (Friday, August 18, 2006)]
[Rules and Regulations]
[Pages 48354-48434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-6694]



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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 412, 414, and 424



Medicare Program; Inpatient Rehabilitation Facility Prospective Payment 
System for Federal FY 2007; Provisions Concerning Competitive 
Acquisition for Durable Medical Equipment, Prosthetics, Orthotics, and 
Supplies (DMEPOS); Accreditation of DMEPOS Suppliers; Final Rule

  Federal Register / Vol. 71, No. 160 / Friday, August 18, 2006 / Rules 
and Regulations  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 414, and 424

[CMS-1540-F]
RIN 0938-AO16


Medicare Program; Inpatient Rehabilitation Facility Prospective 
Payment System for Federal Fiscal Year 2007; Certain Provisions 
Concerning Competitive Acquisition for Durable Medical Equipment, 
Prosthetics, Orthotics, and Supplies (DMEPOS); Accreditation of DMEPOS 
Suppliers

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

ACTION: Final rule.

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SUMMARY: This final rule will update the prospective payment rates for 
inpatient rehabilitation facilities (IRFs) for Federal fiscal year (FY) 
2007 (for discharges occurring on or after October 1, 2006 and on or 
before September 30, 2007) as required under section 1886(j)(3)(C) of 
the Social Security Act (the Act).
    We are revising existing policies regarding the prospective payment 
system within the authority granted under section 1886(j) of the Act. 
In addition, we are revising the current regulation text to reflect the 
changes enacted under section 5005 of the Deficit Reduction Act of 
2005.
    This final rule will also establish certain requirements related to 
competitive acquisition for durable medical equipment, prosthetics, 
orthotics, and supplies (DMEPOS) and establish accreditation of DMEPOS 
suppliers as required under section 302 of the Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003.

EFFECTIVE DATES: The regulatory changes to part 412 of 42 CFR are 
effective October 1, 2006. The regulatory changes to part 414 of 42 
CFR, other than Sec.  414.406(e), are effective August 31, 2006. The 
regulatory changes to part 424 of 42 CFR are effective October 2, 2006. 
The updated IRF prospective payment rates are effective October 1, 
2006, for discharges occurring on or after October 1, 2006 and on or 
before September 30, 2007 (that is, during FY 2007).

FOR FURTHER INFORMATION CONTACT: 

Pete Diaz, (410) 786-1235, for information regarding the IRF PPS 75 
percent rule.
Susanne Seagrave, (410) 786-0044, for information regarding the new 
IRF PPS payment policies.
Zinnia Ng, (410) 786-4587, for information regarding the wage index 
and the IRF prospective payment rate calculation.
Sandra Bastinelli, (410) 786-3630, for information regarding 
accreditation of DMEPOS suppliers.
LT Camille Soondar, (410) 786-9370, for information regarding 
accreditation of DMEPOS suppliers.
CDR Marie Casey, (410) 786-7861, for information regarding 
accreditation of DMEPOS suppliers.
Linda Smith, (410) 786-5650, for information regarding the DMEPOS 
quality standards.
Michael Keane, (410) 786-4495, for information on DMEPOS competitive 
bidding implementation contractors.
Alexis Meholic, (410) 786-2300, for issues related to education and 
outreach under the DMEPOS competitive bidding program.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
    A. Inpatient Rehabilitation Facility Prospective Payment System 
(IRF PPS)
    1. Historical Overview of the Inpatient Rehabilitation Facility 
Prospective Payment System (IRF PPS) for Fiscal Years (FYs) 2002 
Through 2006
    2. Requirements for Updating the IRF PPS Rates
    3. Operational Overview of the Current IRF PPS
    4. Summary of Revisions to the IRF PPS for FY 2007
    B. Durable Medical Equipment, Prosthetics, Orthotics, and 
Supplies (DMEPOS)
    1. The Medicare DMEPOS Competitive Bidding Program
    2. Implementation Contractors
    3. Quality Standards for Suppliers of DMEPOS
    4. Accreditation for Suppliers of DMEPOS and Other Items
    5. Summary of DMEPOS Provisions
II. Provisions of the Proposed Rule
    A. IRF PPS
    1. Section 412.23 Excluded Hospitals: Classifications
    2. Section 412.624 Methodology for Calculating the Federal 
prospective Payment Rates
    3. Additional Proposed Changes
    B. DMEPOS
III. Analysis of and Responses to Public Comments
    A. IRF PPS
    B. DMEPOS
IV. Refinements to the IRF Patient Classification System
    A. Changes to the Existing List of Tier Comorbidities
    B. Changes to the Case-Mix Group (CMG) Relative Weights
V. FY 2007 IRF Federal Prospective Payment Rates
    A. Reduction of the Standard Payment Amount To Account for 
Coding Changes
    B. FY 2007 IRF Market Basket Increase Factor and Labor-Related 
Share
    C. Area Wage Adjustment
    D. Description of the Standard Payment Conversion Factor and 
Payment Rates for FY 2007
    E. Example of the Methodology for Adjusting the Federal 
Prospective Payment Rates
VI. Update to Payments for High-Cost Outliers Under the IRF PPS
    A. Update to the Outlier Threshold Amount for FY 2007
    B. Update to the IRF Cost-to-Charge Ratio Ceilings and 
Clarification to the Regulation Text for FY 2007
VII. Revisions to the Classification Criteria Percentage for IRFs
VIII. IRF PPS: Other Issues
    A. Integrated Post Acute Care Payment
    B. Transparency and Health Information Technology Initiatives
IX. Miscellaneous IRF PPS Public Comments
X. DMEPOS Competitive Bidding Implementation Provisions and 
Accreditation for DMEPOS Suppliers
    A. Implementation Contractor
    1. Legislative Provisions
    2. Provisions of the May 1, 2006 Proposed Rule
    3. Public Comments Received and Our Responses
    B. Education and Outreach
    1. Supplier Education
    2. Beneficiary Education
    C. Quality Standards for Suppliers of DMEPOS
    D. Accreditation for Suppliers of DMEPOS and Other Items
    E. Special Payment Rules for Items Furnished by DMEPOS Suppliers 
and Issuance of DMEPOS Supplier Billing Privileges (Sec.  424.57)
    F. Accreditation (Sec.  424.58)
    G. Ongoing Responsibilities of CMS-Approved Accreditation 
Organizations
    H. Continuing Federal Oversight of Approved Accreditation 
Organizations
    1. Equivalency Review
    2. Validation Survey
    3. Notice of Intent To Withdraw Approval for Deeming Authority
    4. Withdrawal of Approval for Deeming Authority
    I. Reconsideration
XI. Provisions of the Final Rule
    A. IRF PPS
    B. Quality Standards and Accreditation for DMEPOS Suppliers
XII. Waiver of Delayed Effective Date
XIII. Collection of Information Requirements
XIV. Regulatory Impact Analysis for the IRF PPS
    A. Overall IRF PPS Impact
    B. Anticipated Effects of the IRF PPS Final Rule
    C. IRF PPS Accounting Statement
    D. IRF PPS Alternatives Considered
    E. IRF PPS Conclusion
XV. Regulatory Impact Analysis for DMEPOS Suppliers
    A. Overall Impact
    B. Anticipated Effects for DMEPOS Suppliers
    C. Alternatives Considered for DMEPOS Suppliers
    D. Accounting Statement for DMEPOS Suppliers
    E. Conclusion for DMEPOS Suppliers
Regulation Text
Addendum

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Acronyms

    Because of the many terms to which we refer by acronym in this 
final rule, we are listing the acronyms used and their corresponding 
terms in alphabetical order below.

ADC Average Daily Census
ASCA Administrative Simplification Compliance Act of 2002, Pub. L. 
107-105
BBA Balanced Budget Act of 1997, Pub. L. 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L. 
106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Pub. L. 106-554
CBA Competitive Bidding Area
CBIC Competitive Bidding Implementation Contractor
CBSA Core-Based Statistical Area
CCMO CMS Consortium Contractor Management Officer
CCR Cost-to-Charge Ratio
CFR Code of Federal Regulations
CMG Case-Mix Group
CY Calendar Year
DMERC Durable Medical Equipment Regional Carrier
DMEPOS Durable Medical Equipment, Prosthetics, Orthotics, and 
Supplies
DRA Deficit Reduction Act of 2005, Pub. L. 109-171
DRG Diagnosis-Related Group
DSH Disproportionate Share Hospital
ECI Employment Cost Indexes
FI Fiscal Intermediary
FR Federal Register
FTE Full-Time Equivalent
FY Federal Fiscal Year
GDP Gross Domestic Product
HCPCS Healthcare Common Procedure Coding System
HHH Hubert H. Humphrey Building
HIPAA Health Insurance Portability and Accountability Act, Pub. L. 
104-191
HIT Health Information Technology
ICD-9-CM International Classification of Diseases, Ninth Revision, 
Clinical Modification
IFMC Iowa Foundation for Medical Care
IIC Inflation Indexed Charge
IPPS Inpatient Prospective Payment System
IRF Inpatient Rehabilitation Facility
IRF-PAI Inpatient Rehabilitation Facility-Patient Assessment 
Instrument
IRF PPS Inpatient Rehabilitation Facility Prospective Payment System
IRVEN Inpatient Rehabilitation Validation and Entry
LCD Local Coverage Determination
LIP Low-Income Percentage
MEDPAR Medicare Provider Analysis and Review
MLN Medicare Learning Network
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173)
MSA Metropolitan Statistical Area
NAICS North American Industrial Classification System
NCMRR National Center for Medical Rehabilitation Research
NIH National Institutes of Health
NSC National Supplier Clearinghouse
OCI Organizational and Consultant Conflicts of Interest
OIG Office of Inspector General
OMB Office of Management and Budget
PAC Post Acute Care
PAI Patient Assessment Instrument
PAOC Program Advisory and Oversight Committee
PPS Prospective Payment System
RAND RAND Corporation
RFB Request for Bids
RFA Regulatory Flexibility Act, Pub. L. 96-354
RIA Regulation Impact Analysis
RIC Rehabilitation Impairment Category
RO Regional Office
RPL Rehabilitation, Psychiatric, and Long-Term Care Hospital Market 
Basket
SCHIP State Children's Health Insurance Program
SIC Standard Industrial Code
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-
248

I. Background

A. Inpatient Rehabilitation Facility Prospective Payment System (IRF 
PPS)

    We received approximately 58 timely items of correspondence on the 
FY 2007 Inpatient Rehabilitation Facility Prospective Payment System 
proposed rule (71 FR 28106, May 15, 2006). Summaries of the public 
comments and our responses to those comments are set forth below under 
the appropriate section heading of this final rule.
1. Historical Overview of the Inpatient Rehabilitation Facility 
Prospective Payment System (IRF PPS) for Fiscal Years (FYs) 2002 
Through 2006
    Section 4421 of the Balanced Budget Act of 1997 (BBA, Pub. L. 105-
33), as amended by section 125 of the Medicare, Medicaid, and SCHIP 
[State Children's Health Insurance Program] Balanced Budget Refinement 
Act of 1999 (BBRA, Pub. L. 106-113), and by section 305 of the 
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
of 2000 (BIPA, Pub. L. 106-554), provides for the implementation of a 
per discharge prospective payment system (PPS), through section 1886(j) 
of the Social Security Act (the Act), for inpatient rehabilitation 
hospitals and inpatient rehabilitation units of a hospital (hereinafter 
referred to as IRFs).
    Payments under the IRF PPS encompass inpatient operating and 
capital costs of furnishing covered rehabilitation services (that is, 
routine, ancillary, and capital costs) but not costs of approved 
educational activities, bad debts, and other services or items outside 
the scope of the IRF PPS. Although a complete discussion of the IRF PPS 
provisions appears in the August 7, 2001 final rule (66 FR 41316) as 
revised in the FY 2006 IRF PPS final rule (70 FR 47880), we are 
providing below a general description of the IRF PPS for fiscal years 
(FYs) 2002 through 2006.
    Under the IRF PPS from FY 2002 through FY 2005, as described in the 
August 7, 2001 final rule, the Federal prospective payment rates were 
computed across 100 distinct case-mix groups (CMGs). We constructed 95 
CMGs using rehabilitation impairment categories (RICs), functional 
status (both motor and cognitive), and age (in some cases, cognitive 
status and age may not be a factor in defining a CMG). In addition, we 
constructed five special CMGs to account for very short stays and for 
patients who expire in the IRF.
    For each of the CMGs, we developed relative weighting factors to 
account for a patient's clinical characteristics and expected resource 
needs. Thus, the weighting factors accounted for the relative 
difference in resource use across all CMGs. Within each CMG, we created 
tiers based on the estimated effects that certain comorbidities would 
have on resource use.
    We established the Federal PPS rates using a standardized payment 
conversion factor (formerly referred to as the budget neutral 
conversion factor). For a detailed discussion of the budget neutral 
conversion factor, please refer to our August 1, 2003 final rule (68 FR 
45674, 45684 through 45685). In the FY 2006 IRF PPS final rule (70 FR 
47880), we discussed in detail the methodology for determining the 
standard payment conversion factor.
    We applied the relative weighting factors to the standard payment 
conversion factor to compute the unadjusted Federal prospective payment 
rates. Under the IRF PPS from FYs 2002 through 2005, we then applied 
adjustments for geographic variations in wages (wage index), the 
percentage of low-income patients, and location in a rural area (if 
applicable) to the IRF's unadjusted Federal prospective payment rates. 
In addition, we made adjustments to account for short-stay transfer 
cases, interrupted stays, and high cost outliers.
    For cost reporting periods that began on or after January 1, 2002 
and before October 1, 2002, we determined the final prospective payment 
amounts using the transition methodology prescribed in section 
1886(j)(1) of the Act. Under this provision, IRFs transitioning into 
the PPS were paid a blend of the Federal IRF PPS rate and the payment 
that the IRF would have received had the IRF PPS not been

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implemented. This provision also allowed IRFs to elect to bypass this 
blended payment and immediately be paid 100 percent of the Federal IRF 
PPS rate. The transition methodology expired as of cost reporting 
periods beginning on or after October 1, 2002 (FY 2003), and payments 
for all IRFs now consist of 100 percent of the Federal IRF PPS rate.
    In the FY 2006 IRF PPS final rule (70 FR 47880), we implemented 
refinements that became effective for discharges beginning on or after 
October 1, 2005. We published correcting amendments to the FY 2006 IRF 
PPS final rule in the Federal Register on September 30, 2005 (70 FR 
57166). Any reference to the FY 2006 IRF PPS final rule in this rule 
also includes the provisions effective in the correcting amendments.
    In the FY 2006 final rule (70 FR 47880 and 70 FR 57166), we 
finalized a number of refinements to the IRF PPS case-mix 
classification system (the CMGs and the corresponding relative weights) 
and the case-level and facility-level adjustments. These refinements 
were based on analyses by the RAND Corporation (RAND), a non-partisan 
economic and social policy research group, using calendar year 2002 and 
FY 2003 data. These were the first significant refinements to the IRF 
PPS since its implementation. In conducting the analysis, RAND used 
claims and clinical data for services furnished after the 
implementation of the IRF PPS. These newer data sets were more 
complete, and reflected improved coding of comorbidities and patient 
severity by IRFs. The researchers were able to use new data sources for 
imputing missing values and more advanced statistical approaches to 
complete their analyses. The RAND reports supporting the refinements 
made to the IRF PPS are available on the CMS Web site at: http://www.cms.hhs.gov/InpatientRehabFacPPS/09_Research.asp.
    The final key policy changes, effective for discharges occurring on 
or after October 1, 2005, are discussed in detail in the FY 2006 IRF 
PPS final rule (70 FR 47880 and 70 FR 57166). The following is a brief 
summary of the key policy changes:
     We adopted the Office of Management and Budget's (OMB's) 
Core-Based Statistical Area (CBSA) market area definitions in a budget 
neutral manner. We made this geographic adjustment using the most 
recent final wage data available (that is, pre-reclassification and 
pre-floor hospital wage index based on FY 2001 hospital wage data). In 
addition, we implemented a budget-neutral 3-year hold harmless policy 
for IRFs that were considered rural in FY 2005, but became urban in FY 
2006 under the CBSA definitions, as described in the FY 2006 IRF PPS 
final rule (70 FR 47880, 47923 through 47925).
     We also implemented a payment adjustment to account for 
changes in coding that did not reflect real changes in case mix. Thus, 
we reduced the standard payment amount by 1.9 percent to account for 
these changes in coding following implementation of the IRF PPS. Our 
contractors conducted a series of analyses to identify real case mix 
change over time and the effect of this change on aggregate IRF PPS 
payments. A detailed discussion of the analysis and research appears in 
the FY 2006 IRF PPS final rule (70 FR 47880).
     In addition, we made modifications to the CMGs, tier 
comorbidities, and relative weights in a budget-neutral manner. The 
final rule included a number of adjustments to the IRF classification 
system that are designed to improve the system's ability to predict IRF 
costs. The data indicated that moving or eliminating some comorbidity 
codes from the tiers, redefining the CMGs, and other minor changes to 
the system would improve the ability of the classification system to 
ensure that Medicare payments to IRFs continue to be aligned with the 
costs of care. These refinements resulted in 87 CMGs using 
Rehabilitation Impairment Categories (RICs), functional status (motor 
and cognitive scores), and age (in some cases, cognitive status and age 
may not be factors in defining CMGs). The five special CMGs remained 
the same as they had been before FY 2006 and continue to account for 
very short stays and for patients who expired in the IRF.
     In addition, we implemented a new teaching status 
adjustment for IRFs, similar to the one adopted for inpatient 
psychiatric facilities. We implemented the teaching status adjustment 
in a budget neutral manner.
     We also revised and rebased the market basket. We 
finalized the use of a new market basket reflecting the operating and 
capital cost structures for rehabilitation, psychiatric, and long term 
care (RPL) hospitals to update IRF payment rates. The RPL market basket 
excludes data from cancer hospitals, children's hospitals, and 
religious non-medical institutions. In addition, we rebased the market 
basket to account for 2002-based cost structures for RPL hospitals. 
Further, we calculated the labor-related share using the RPL market 
basket.
     In addition, we updated the rural adjustment (from 19.14 
percent to 21.3 percent), the low-income percentage (LIP) adjustment 
(from an exponent of 0.484 to an exponent of 0.6229), and the outlier 
threshold amount (from $11,211 to $5,129, as further revised in the FY 
2006 IRF PPS correction notice (70 FR 57166, 57168)). We implemented 
the changes to the rural and LIP adjustments in a budget neutral 
manner. Since the implementation of the IRF PPS, we have maintained a 
CMS Web site as a primary information resource for the IRF PPS. The Web 
siteURL is http://www.cms.hhs.gov/InpatientRehabFacPPS/ and may be 
accessed to download or view publications, software, data 
specifications, educational materials, and other information pertinent 
to the IRF PPS.
2. Requirements for Updating the IRF PPS Rates
    On August 7, 2001, we published a final rule titled ``Medicare 
Program; Prospective Payment System for Inpatient Rehabilitation 
Facilities'' in the Federal Register (66 FR 41316) that established a 
PPS for IRFs as authorized under section 1886(j) of the Act and 
codified at subpart P of part 412 of the Medicare regulations. In the 
August 7, 2001 final rule, we set forth the per discharge Federal 
prospective payment rates for FY 2002, which provided payment for 
inpatient operating and capital costs of furnishing covered 
rehabilitation services (that is, routine, ancillary, and capital 
costs) but not costs of approved educational activities, bad debts, and 
other services or items that are outside the scope of the IRF PPS. The 
provisions of the August 7, 2001 final rule were effective for cost 
reporting periods beginning on or after January 1, 2002. On July 1, 
2002, we published a correcting amendment to the August 7, 2001 final 
rule in the Federal Register (67 FR 44073). Any references to the 
August 7, 2001 final rule in this final rule include the provisions 
effective in the correcting amendment.
    Section 1886(j)(5) of the Act and 42 CFR 412.628 of the regulations 
require the Secretary to publish in the Federal Register, on or before 
the August 1 that precedes the start of each new FY, the 
classifications and weighting factors for the IRF CMGs and a 
description of the methodology and data used in computing the 
prospective payment rates for the upcoming FY. On August 1, 2002, we 
published a notice in the Federal Register (67 FR 49928) to update the 
IRF Federal prospective payment rates from FY 2002 to FY 2003

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using the methodology as described in Sec.  412.624. As stated in the 
August 1, 2002 notice, we used the same classifications and weighting 
factors for the IRF CMGs that were set forth in the August 7, 2001 
final rule to update the IRF Federal prospective payment rates from FY 
2002 to FY 2003. We continued to update the prospective payment rates 
in accordance with the methodology set forth in the August 7, 2001 
final rule for each succeeding FY up to and including FY 2005. For FY 
2006, however, we published a final rule that revised several IRF PPS 
policies (70 FR 47880), as summarized in section I.A.1 of this final 
rule. The provisions of the FY 2006 IRF PPS final rule became effective 
for discharges occurring on or after October 1, 2005.
    On May 15, 2006, we published a proposed rule in the Federal 
Register (71 FR 28106) to update the IRF Federal prospective payment 
rates from FY 2006 to FY 2007. In this final rule for FY 2007, we 
update the IRF Federal prospective payment rates. In addition, we 
update the outlier threshold amount and the cost-to-charge ratio 
ceilings from FY 2006 to FY 2007. We are also implementing a 2.6 
percent reduction to the FY 2007 standard payment amount to account for 
changes in coding practices that do not reflect real changes in case 
mix. (See section V.A of this final rule for further discussion of the 
reduction of the standard payment amount to account for coding 
changes.)
    We are also implementing revisions to the tier comorbidities and 
the relative weights to ensure that IRF PPS payments reflect, as 
closely as possible, the costs of caring for patients in IRFs. (See 
section IV for a detailed discussion of these changes.) The FY 2007 
Federal prospective payment rates are effective for discharges 
occurring on or after October 1, 2006 and on or before September 30, 
2007.
    In addition, we are revising the regulation text in Sec.  
412.23(b)(2)(i) and Sec.  412.23(b)(2)(ii) pursuant to our authority in 
section 5005 of the Deficit Reduction Act of 2005 (DRA, Pub. L. 109-
171) and section 1886(d)(1)(B) of the Act. Section 5005 of the DRA 
required that we revise the applicable percentages stipulated in the 
May 7, 2004 final rule (69 FR 25752). The effect of this change 
prolongs by an additional year the duration of the phased transition to 
the full 75 percent threshold established in current regulation text. 
In addition, under the authority in section 1886(d)(1)(B) of the Act, 
we are similarly extending by an additional year the use of comorbid 
conditions that meet the criteria outlined in the regulations to count 
for purposes of determining compliance with the classification criteria 
in Sec.  412.23(b)(2)(i).
3. Operational Overview of the Current IRF PPS
    As described in the August 7, 2001 final rule and subsequent rules, 
upon the admission and discharge of a Medicare Part A fee-for-service 
patient, the IRF is required to complete the appropriate sections of 
the Inpatient Rehabilitation Facility-Patient Assessment Instrument 
(IRF-PAI). Generally, the encoded IRF-PAI software product includes 
patient grouping programming called the GROUPER software. The GROUPER 
software uses specific Patient Assessment Instrument (PAI) data 
elements to classify (or group) patients into distinct CMGs and account 
for the existence of any relevant comorbidities.
    The GROUPER software produces a five-digit CMG number. The first 
digit is an alpha-character that indicates the comorbidity tier. The 
last four digits represent the distinct CMG number. (Free downloads of 
the Inpatient Rehabilitation Validation and Entry (IRVEN) software 
product, including the GROUPER software, are available on the CMS Web 
site at http://www.cms.hhs.gov/InpatientRehabFacPPS/06_Software.Asp.)
    Once a patient is discharged, the IRF completes the Medicare claim 
(UB-92 or its equivalent) using the five-digit CMG number and sends it 
to the appropriate Medicare fiscal intermediary (FI). Claims submitted 
to Medicare must comply with both the Administrative Simplification 
Compliance Act (ASCA, Pub. L. 107-105), and the Health Insurance 
Portability and Accountability Act of 1996 (HIPAA, Pub. L. 104-191). 
For a detailed discussion on this issue and additional legal citations, 
please visit the electronic billing & electronic data interchange (EDI) 
transactions Web site at: http://www.cms.hhs.gov/ElectronicBillingEDITrans/.
    The Medicare FI processes the claim through its software system. 
This software system includes pricing programming called the PRICER 
software. The PRICER software uses the CMG number, along with other 
specific claim data elements and provider-specific data, to adjust the 
IRF's prospective payment for interrupted stays, transfers, short 
stays, and deaths, and then applies the applicable adjustments to 
account for the IRF's wage index, percentage of low-income patients, 
rural location, and outlier payments. For discharges occurring on or 
after October 1, 2005, the IRF PPS payment also reflects the new 
teaching status adjustment that became effective as of FY 2006, as 
discussed in the FY 2006 IRF PPS final rule (70 FR 47880).
4. Summary of Revisions to the IRF PPS for FY 2007
    In this final rule, we make the following revisions and updates:
     Update the relative weight and average length of stay 
tables based on re-analysis of the data by CMS and our contractor, the 
RAND Corporation, as discussed in section IV of this final rule. This 
update will be reflected in the IRF GROUPER software and other 
applicable CMS publications.
     Reduce the standard payment amount by 2.6 percent to 
account for coding changes that do not reflect real changes in case 
mix, as discussed in section V.A of this final rule.
     Update the FY 2007 IRF PPS payment rates by the market 
basket, as discussed in section V.B of this final rule.
     Update the FY 2007 IRF PPS payment rates by the labor 
related share, the wage indexes, and the second year of the hold 
harmless policy in a budget neutral manner, as discussed in section V.C 
of this final rule.
     Update the outlier threshold for FY 2007 to $5,534, as 
discussed in section VI.A of this final rule.
     Update the urban and rural national cost-to-charge ratio 
ceilings for purposes of determining outlier payments under the IRF PPS 
and clarify the methodology described in the regulation text, as 
discussed in section VI.B of this final rule.
     Revise the regulation text at Sec.  412.23(b)(2)(i) and 
Sec.  412.23(b)(2)(ii) in the following manner so that the compliance 
thresholds reflect section 5005 of the DRA: (1) For cost reporting 
periods starting on or after July 1, 2006, and before July 1, 2007, the 
compliance threshold is 60 percent. (2) For cost reporting periods 
starting on or after July 1, 2007 and before July 1, 2008, the 
compliance threshold is 65 percent. (3) For cost reporting periods 
starting on or after July 1, 2008, the compliance threshold is 75 
percent. In addition, comorbidities may not be used to determine if the 
75 percent compliance threshold is met. However, comorbidities meeting 
the criteria outlined in the regulations may be used to determine if 
the applicable compliance threshold is met for cost reporting periods 
beginning on or after July 1, 2004 and before July 1, 2008.

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B. Durable Medical Equipment, Prosthetics, Orthotics, and Supplies 
(DMEPOS)

    On May 1, 2006, we issued a proposed rule to implement the Medicare 
DMEPOS Competitive Bidding Program and other issues (71 FR 25654). To 
ensure timely implementation of the Medicare DMEPOS Competitive Bidding 
Program, we are choosing to respond in this final rule to comments 
submitted on certain provisions of the May 1, 2006 proposed rule. These 
provisions include DMEPOS competitive bidding implementation 
contractors, DMEPOS competitive bidding education and outreach, quality 
standards for DMEPOS suppliers, and accreditation of DMEPOS suppliers. 
We received approximately 600 timely comments on these provisions of 
the May 1, 2006 proposed rule. Summaries of the public comments and our 
responses to those comments are set forth below under the appropriate 
section headings of this final rule.
1. The Medicare DMEPOS Competitive Bidding Program
    Section 302(b)(1) of the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003 (MMA, Pub. L. 108-173) amended section 
1847 of the Act to require the Secretary to establish and implement 
programs under which competitive bidding areas are established 
throughout the United States for contract award purposes for the 
furnishing of certain competitively priced items for which payment is 
made under Part B (the ``Medicare DMEPOS Competitive Bidding 
Program''). Section 1847(a)(2) of the Act provides that the items and 
services that may be furnished under the competitive bidding programs 
include certain DME and associated supplies, enteral nutrition and 
associated supplies, and off-the-shelf orthotics. In addition, section 
1847 of the Act specifies the requirements and conditions for 
implementation of the Medicare DMEPOS Competitive Bidding Program. 
Competitive bidding provides a way to harness marketplace dynamics to 
create incentives for suppliers to provide quality items in an 
efficient manner and at a reasonable cost.
2. Implementation Contractors
    Section 1847(b)(9) of the Act provides that the Secretary may 
contract with appropriate entities to implement the Medicare DMEPOS 
Competitive Bidding Program. Section 1847(a)(1)(C) of the Act also 
authorizes the Secretary to waive provisions of the Federal Acquisition 
Regulation (FAR) as necessary for the efficient implementation of this 
section, other than provisions relating to confidentiality of 
information and other provisions as the Secretary determines 
appropriate.
    In the May 1, 2006 proposed rule (71 FR 25661), we proposed to 
designate one or more competitive bidding implementation contractors 
(CBICs) for the purpose of implementing the Medicare DMEPOS Competitive 
Bidding Program (proposed Sec.  414.406(a)). We also discussed the six 
primary functions of the program (see 71 FR 25661), which include 
overall oversight and decision-making, operation design functions 
(including the design of both bidding and outreach material templates, 
as well as program processes), bidding and evaluation, access and 
quality monitoring, outreach and education, and claims processing. We 
respond to comments on our proposal in section X.A of this preamble.
3. Quality Standards for Suppliers of DMEPOS
    Section 302(a)(1) of the MMA added section 1834(a)(20) to the Act, 
which requires the Secretary to establish and implement quality 
standards for suppliers of certain items, including consumer service 
standards, to be applied by recognized independent accreditation 
organizations. Suppliers of DMEPOS must comply with the DMEPOS quality 
standards in order to furnish any item for which Part B makes payment, 
and also in order to receive or retain a supplier billing number used 
to submit claims for reimbursement for any such item for which payment 
can be made by Medicare. Section 1834(a)(20)(D) of the Act requires us 
to apply these DMEPOS quality standards to suppliers of the following 
items for which we deem the standards to be appropriate:
     Covered items, as defined in section 1834(a)(13), for 
which payment may be made under section 1834(a);
     Prosthetic devices and orthotics and prosthetics described 
in section 1834(h)(4); and
     Items described in section 1842(s)(2) of the Act, which 
include medical supplies, home dialysis supplies and equipment, 
therapeutic shoes, parenteral and enteral nutrients, equipment, and 
supplies, electromyogram devices, salivation devices, blood products, 
and transfusion medicine.
    Section 1834(a)(20)(E) of the Act explicitly authorizes the 
Secretary to establish the DMEPOS quality standards by program 
instructions or otherwise after consultation with representatives of 
relevant parties. After consulting with such representatives, including 
the Program Advisory and Oversight Committee (PAOC) (please see 71 FR 
25658 for a discussion of this committee) and a wide range of other 
stakeholders, we published the draft quality standards on the CMS Web 
sitein September 2005 (see http://www.cms.hhs.gov/competitiveAcqforDMEPOS/) and provided for a 60-day public comment 
period. We received more than 5,600 public comments on the draft DMEPOS 
quality standards. After careful consideration of all comments, these 
quality standards will be published shortly on the CMS Web site. They 
will appear on the CMS Web site at http://www.cms.hhs.gov/competitiveAcqforDMEPOS/. The quality standards will become effective 
for use as part of the accreditation selection process when posted on 
the Web site. All suppliers of DMEPOS and other items to which section 
1834(a)(20) of the Act applies will be required to meet the DMEPOS 
quality standards established under that section. Finally, section 
1847(b)(2)(A)(i) of the Act requires an entity (a DMEPOS supplier) to 
meet the DMEPOS quality standards specified by the Secretary under 
section 1834(a)(20) of the Act before being awarded a contract under 
the Medicare DMEPOS Competitive Bidding Program.
4. Accreditation for Suppliers of DMEPOS and Other Items
    Section 1834(a)(20)(B) of the Act requires the Secretary, 
notwithstanding section 1865(b) of the Act, to designate and approve 
one or more independent accreditation organizations to apply the DMEPOS 
quality standards established under section 1834(a)(20) of the Act to 
suppliers of DMEPOS and other items. The Medicare program currently 
contracts with State agencies to perform survey and review functions 
for providers and suppliers to approve their participation in or 
coverage under the Medicare program. Additionally, section 1865(b) of 
the Act sets forth the general procedures for CMS to designate national 
accreditation organizations to deem providers or suppliers to meet 
Medicare conditions of participation or coverage if they are accredited 
by a national accreditation organization approved by CMS. Many types of 
providers and suppliers have a choice between having the State agency 
or the CMS-approved accreditation organization survey them. If the 
supplier selects the CMS-approved accreditation organization and is in 
compliance with the accreditation organization standards, it is 
generally

[[Page 48359]]

deemed to meet the Medicare conditions of participation or coverage. We 
are responsible for the oversight and monitoring of the State agencies 
and the approved accreditation organizations. The procedures, 
implemented by the Secretary, for designating private and national 
accreditation organizations and the Federal review process for 
accreditation organizations appear in regulations at 42 CFR parts 422 
(for Medicare Advantage organizations) and 488 (for most providers and 
suppliers). To accommodate suppliers that want to participate in the 
Medicare DMEPOS Competitive Bidding Program, we will phase-in the 
accreditation process and give preference to accreditation 
organizations that prioritize their surveys to accredit suppliers in 
the selected MSAs and competitive bidding areas. We will provide 
further guidance in a Federal Register notice on the submission 
procedures for accreditation.
5. Summary of DMEPOS Provisions
    This final rule responds to public comments on the following 
provisions of the May 1, 2006 proposed rule (71 FR 25654):
     Requirements for competitive bidding implementation 
contractors, as discussed in section X.A of this final rule.
     Our plans for DMEPOS competitive bidding education and 
outreach, as discussed in section X.B of this final rule.
     Issues related to the DMEPOS quality standards for DMEPOS 
suppliers, as discussed in section X.C of this final rule.
     Accreditation requirements for DMEPOS suppliers as 
discussed in section X.D of this final rule.

II. Provisions of the Proposed Rule

A. IRF PPS

    In the FY 2007 IRF PPS proposed rule (71 FR 28106), we proposed to 
make revisions to the regulation text in order to implement the 
proposed policy changes for IRFs for FY 2007 and subsequent fiscal 
years. Specifically, we proposed to make conforming changes in 42 CFR 
part 412. These proposed revisions and other proposed changes are 
discussed in detail below.
1. Section 412.23 Excluded Hospitals: Classifications
    As discussed in section VI of the FY 2007 IRF PPS proposed rule (71 
FR 28106), we proposed to revise the regulation text in paragraphs 
(b)(2)(i) and (b)(2)(ii) to reflect the applicable percentages 
specified in this section as amended by the DRA. To summarize, for cost 
reporting periods--
    (a) Beginning on or after July 1, 2005 and before July 1, 2007, the 
hospital has served an inpatient population of whom at least 60 
percent;
    (b) Beginning on or after July 1, 2007 and before July 1, 2008, the 
hospital has served an inpatient population of whom at least 65 
percent; and
    (c) Beginning on or after July 1, 2008, the hospital has served an 
inpatient population of whom at least 75 percent require intensive 
rehabilitative services for treatment of one or more of the conditions 
specified at paragraph (b)(2)(iii) of this section.
    Under the proposal to revise the transition timeframes in order to 
implement the DRA provision, a facility would not have to meet the 75 
percent compliance threshold until its first cost reporting period 
beginning on or after July 1, 2008. In addition to the above DRA 
requirements pertaining to the applicable compliance percentage 
requirements under Sec.  412.23(b)(2), we proposed to permit a 
comorbidity that meets the criteria as specified in Sec.  
412.23(b)(2)(i) to continue to be used to determine the compliance 
threshold for cost reporting periods that begin before July 1, 2008. 
However, for cost reporting periods beginning on or after July 1, 2008, 
a comorbidity specified in Sec.  412.23(b)(2)(i) cannot be used to 
determine compliance at the 75 percent threshold.
2. Section 412.624 Methodology for Calculating the Federal Prospective 
Payment Rates
    In section IV of the FY 2007 IRF PPS proposed rule, we proposed to 
revise the current regulation text in paragraph (e)(5) to clarify that 
the cost-to-charge ratio for IRFs is a single overall (combined 
operating and capital) cost-to-charge ratio. We wish to emphasize that 
we follow the methodology described in Sec.  412.84(i) and Sec.  
412.84(m) except that the IRF PPS uses a single overall (combined 
operating and capital) cost-to-charge ratio, and uses national averages 
instead of statewide averages.
3. Additional Proposed Changes
     Update the tier comorbidities, the relative weights, and 
the average length of stay tables based on a reconsideration of the 
data used in the FY 2006 IRF classification refinements, as discussed 
in section II of the FY 2007 IRF PPS proposed rule (71 FR 28106). This 
update will be reflected in the IRF GROUPER software and the FY 2007 
payment rates.
     Reduce the FY 2007 standard payment amount by 2.9 percent 
to account for coding changes when the IRF PPS was implemented that do 
not reflect real changes in case mix, as discussed in detail in section 
III.A of the FY 2007 IRF PPS proposed rule (71 FR 28106).
     Update payment rates for rehabilitation facilities using 
the IRF market basket, IRF labor-related share, and CBSA urban and 
rural wage indexes, as discussed in sections III.B and C of the FY 2007 
IRF PPS proposed rule (71 FR 28106).
     Update the outlier threshold amount for FY 2007 to $5,609, 
as discussed in section IV.A of the FY 2007 IRF PPS proposed rule (71 
FR 28106).
     Update the national average urban and rural cost-to-charge 
ratios (CCR) used for new IRFs, IRFs whose overall CCR is in excess of 
3 standard deviations above the national geometric mean, and IRFs for 
whom accurate data are not available to calculate a CCR, as discussed 
in detail in section IV.B of the FY 2007 IRF PPS proposed rule (71 FR 
28106).

B. DMEPOS

    On May 1, 2006, we published in the Federal Register (71 FR 23654) 
a proposed rule that would, in part, implement the Medicare DMEPOS 
Competitive Bidding Program for certain DMEPOS items, as required by 
sections 1847(a) and (b) of the Social Security Act (the Act). As 
indicated in section I.B of this final rule, to ensure timely 
implementation of the Medicare DMEPOS Competitive Bidding Program, we 
are choosing to respond to comments on the following proposals in the 
May 1, 2006 proposed rule. In summary, we proposed to--
     Designate one or more competitive bidding implementation 
contractors (CBICs) for the purpose of implementing the Medicare DMEPOS 
Competitive Bidding Program (proposed Sec.  414.406(a)).
     Implement an outreach and education plan to ensure the 
effective implementation of the Medicare DMEPOS Competitive Bidding 
Program.
     Establish requirements for accreditation of DMEPOS 
suppliers.
    In addition, we are clarifying in this final rule certain issues 
related to the establishment of quality standards for suppliers of 
certain DMEPOS items, which will be applied by recognized independent 
accreditation organizations under section 1834(a)(20) of the Act.
    These provisions are described in detail in sections X.A. through I 
of this preamble.

[[Page 48360]]

III. Analysis of and Response to Public Comments

A. IRF PPS

    In response to the publication of the FY 2007 IRF PPS proposed 
rule, we received approximately 58 timely items of correspondence from 
the public. We received numerous comments from various trade 
associations and major organizations. Comments also originated from 
inpatient rehabilitation facilities, members of Congress, health care 
industry organizations, State health departments, and health care 
consulting firms. The following discussion, arranged by subject area, 
includes a summary of the public comments that we received, and our 
responses to the comments appear under the appropriate heading.

B. DMEPOS

    We received approximately 600 pieces of correspondence on a timely 
basis that contained comments on the provisions of the May 1, 2006 
proposed rule (71 FR 25654) that are included in this final rule. The 
remainder of this preamble sets forth a detailed discussion of the 
proposed provisions concerning implementation contractors, education 
and outreach, and accreditation; a summary of the public comments 
received on each subject area; our responses to those comments; and a 
presentation of the final policies. This preamble also contains a 
discussion of certain issues relating to the quality standards that 
will be applied by the independent accrediting organizations.

IV. Refinements to the IRF Patient Classification System

A. Changes to the Existing List of Tier Comorbidities

    The IRF PPS uses a patient's principal diagnosis or impairment to 
classify the patient into a rehabilitation impairment category (RIC), 
and then uses the patient's comorbidities (secondary diagnoses) to 
determine whether to classify the patient into a higher-paying tier. In 
the FY 2007 proposed rule (71 FR 28106), we proposed revisions to the 
tier comorbidities in the IRF GROUPER for FY 2007 to ensure that IRF 
PPS payments continue to reflect as accurately as possible the costs of 
care. In addition, we proposed to indicate ongoing changes to the IRF 
GROUPER software to reflect the most current national coding 
guidelines, by posting a complete ICD-9 table (including new, 
discontinued, and modified codes) on the IRF PPS Web site, because we 
realized that we did not have a mechanism for ensuring that the IRF 
GROUPER would reflect the latest guidelines. We also proposed to 
continue to report the complete list of ICD-9 codes associated with the 
tiers in the IRF GROUPER documentation, which is also posted on the IRF 
PPS Web site.
    We received several comments on the proposed changes to the 
existing list of tier comorbidities, which are summarized below.
    Comment: Comments were generally favorable regarding our proposed 
revisions to the existing list of tier comorbidities. In particular, 
several commenters expressed support for our proposed deletion of 
certain category codes, which they indicated would increase clarity and 
accuracy in coding. Further, several commenters supported our proposal 
to continue to update the IRF GROUPER to reflect ICD-9-CM national 
coding guidelines, and to make any substantive changes to the tier 
comorbidities (that is, changes other than those that merely ensure 
that the list of tier comorbidities continues to reflect the annual 
updates to the ICD-9 national coding guidelines) through notice and 
comment procedures. These commenters also supported our proposal to 
update Appendix C to reflect current policies.
    Response: We agree that our proposal to delete certain category 
codes should help to eliminate any confusion that providers might have 
experienced regarding the appropriate codes to use in recording patient 
comorbidities.
    We also agree with the commenters that updating Appendix C each 
year, and making it a Web-based document rather than including it in 
the IRF regulations, will provide a more comprehensive solution that 
will allow providers to stay informed of any changes to the IRF GROUPER 
as soon as they occur. Any document, such as Appendix C, that contains 
such an extensive list of ICD-9 codes runs the risk of becoming out-of-
date quickly when it is published in regulations. We believe that 
making the document available on the IRF PPS Web site (http://www.cms.hhs.gov/InpatientRehabFacPPS/) will make it easier for CMS to 
give providers the most current information and, more importantly, will 
allow providers easier access to the latest information.
    Comment: Several commenters expressed reservations about particular 
revisions that we had proposed. In particular, several commenters asked 
that CMS retain ICD-9 codes 453.40, 453.41, and 453.42 (various types 
of venous thrombosis) on the list of tier comorbidities for which 
providers receive additional payments because of the increased costs 
associated with these comorbidities, and one commenter asked that we 
retain ICD-9 codes 799.01 and 799.02 for similar reasons. One commenter 
also noted recent increases in the rate at which providers are using 
ICD-9 code 453.41 and asked that CMS delay deleting this code from the 
IRF grouper until the underlying clinical reasons for its recent 
increased use could be determined. One commenter requested that the 
original ICD-9 code (453.8) associated with codes 453.40, 453.41, and 
453.42 be added to the list of tier comorbidities in the IRF GROUPER.
    Response: In Appendix C of the August 7, 2001 final rule (66 FR 
41316, 41414 through 41427), we provided the list of comorbidity codes 
to be used in the original IRF GROUPER, based on the statistical 
analysis conducted by RAND for CMS in developing the IRF PPS. On 
October 1, 2004, the ICD-9-CM Coordination and Maintenance Committee 
created ICD-9 codes 453.40, 453.41, and 453.42 to represent more 
specific clinical conditions related to the clinical condition 
associated with ICD-9 code 453.8 (Venous Thrombosis). Effective October 
2004, we inadvertently added codes 453.40 (Ven Embol Thrmbs unspec DP 
vsls lower extremity), 453.41 (Ven Embol Thrmbs DP vsls prox lower 
extremity), and 453.42 (Ven Embol Thrmbs DP vsls distal lower 
extremity) to the IRF GROUPER, even though code 453.8 was never 
included in the IRF payment algorithm, and therefore was not listed in 
Appendix C of the August 7, 2001 final rule. The addition of these 
codes to the IRF GROUPER was not based on any evidence that these codes 
should have been included on the list, but resulted instead from a 
simple miscommunication.
    Similarly, ICD-9 codes 799.01 (Asphyxia) and 799.02 (Hypoxemia) 
were created in October 2005 in association with code 799.0. However, 
code 799.0 (Asphyxia) was never included in the IRF payment algorithm, 
and therefore was not listed in Appendix C of the August 7, 2001 final 
rule. Thus, codes 799.01 and 799.02 were also inadvertently added 
through a simple miscommunication, and the addition of these codes to 
the IRF GROUPER was not based on any evidence that these codes should 
have been included on the list.
    RAND's regression analysis of the tier comorbidities for both the 
FY 2002 and FY 2006 final rules focused on the additional costs that an 
IRF would be expected to incur in caring for a patient with a 
particular comorbidity (using FY 2003 data). Neither RAND's statistical

[[Page 48361]]

analysis for the FY 2002 final rule, nor the subsequent statistical 
analysis for the FY 2006 final rule, showed that the additional costs 
of the comorbidities associated with ICD-9 codes 453.8, 453.40, 453.41, 
453.42, 799.0, 799.01, or 799.02 are sufficient to warrant inclusion in 
a tier. In addition, RAND sought advice from a technical expert panel 
that it convened. The technical expert panel reviewed all of RAND's 
findings regarding the tier comorbidities and generally agreed with 
RAND's findings and recommendations. RAND did not recommend that we add 
these codes to the IRF GROUPER.
    Further, since code 453.41 was first approved in October 2004, we 
do not believe it is surprising that use of this code increased in 
2005, especially because providers were made more aware of the code due 
to its inadvertent inclusion in the IRF GROUPER.
    Thus, we are finalizing our decision to delete ICD-9 codes 453.40, 
453.41, 453.42, 799.01, and 799.02 from the IRF GROUPER, and we are not 
adding code 453.8. However, we will continue monitoring the costs 
associated with various patient comorbidities. If future analyses 
indicate that any of these ICD-9 codes should be included in one of the 
tiers in the IRF GROUPER, we will consider adding them through notice 
and comment procedures.
    Comment: One commenter suggested that we consider adding ICD-9 code 
282.69 (other sickle cell disease with crisis) to the IRF GROUPER 
because the commenter believes that this code should be treated as a 
pair with code 282.68 (other sickle cell disease w/o crisis), which we 
proposed to add to the IRF GROUPER for FY 2007.
    Response: We agree with the commenter, and we note that code 282.69 
is already included as one of the comorbidities that generates an 
additional tier 3 payment in the IRF GROUPER. In fact, this code has 
always been included in the IRF payment algorithm, and is therefore 
listed in Appendix C of the August 7, 2001 final rule (66 FR 41423). We 
are not proposing any changes regarding code 282.69. For FY 2007, we 
will add code 282.68.
    Comment: Several commenters recommended that CMS publish the final 
changes to the tier comorbidities in the IRF-PAI training manual and in 
Appendix C.
    Response: We agree with the commenters' recommendation and will 
update both the IRF-PAI training manual and Appendix C with the most 
current list of tier comorbidities for FY 2007.
    In reviewing the refinements that we made to the tier comorbidities 
for FY 2006, we realized that we did not have an explicit mechanism for 
updating the IRF GROUPER to account for annual changes to the ICD-9-CM 
national coding guidelines or to alert providers to these changes. 
Thus, we believe that the best way to accomplish both of these goals, 
and to ensure that providers have access to the most up-to-date IRF 
GROUPER information possible is to make the documents containing the 
final list of ICD-9 codes used in the IRF GROUPER Web-based, rather 
than publishing each technical update in regulation. The ICD-9 code 
updates might occur more frequently than CMS publishes an IRF rule in 
the Federal Register, so it would be impractical to keep Appendix C 
updated based on annual ICD-9 national coding guideline changes if we 
were to try to publish Appendix C in the Federal Register each time 
Appendix C is updated to reflect new codes. We believe a Web-based 
product will allow providers to have the most convenient and timely 
possible access to the latest available information. Therefore, both 
updated documents will be available on the IRF PPS Web site(located at 
http://www.cms.hhs.gov/InpatientRehabFacPPS/) before October 1, 2006.
    To clarify, as discussed in the FY 2007 IRF PPS proposed rule (71 
FR 28106, 28111), we will update these Web-based documents regularly to 
reflect changes in the ICD-9 national coding guidelines that are 
technical in nature. For example, the ICD-9 national coding guidelines 
added ICD-9 codes 341.20 through 341.22 for October 2006 to correspond 
to codes 323.8 and 323.9 that are currently in the IRF Grouper. Thus, 
we will add codes 341.20 through 341.22 to the IRF Grouper and to 
Appendix C on the IRF PPS Web site as soon as the changes become 
effective. However, any substantive changes to the comorbid conditions 
on the list of tier comorbidities in the IRF GROUPER will be proposed 
through notice and comment procedures. Thus, hypothetically speaking, 
if we were to discover later through our ongoing analysis of the IRF 
classification and payment systems that one (or possibly more than one) 
of these ICD-9 codes does not belong on the list of tier 
comorbidities--either because it does not substantially increase the 
IRFs' costs of caring for patients with that comorbidity, or because it 
is not clinically relevant as discussed in the August 7, 2001 final 
rule--then we would later propose to delete this code (or codes) 
through notice and comment procedures. To reiterate, this is only a 
hypothetical example. We have no intent to delete codes 341.20 through 
341.22 at this time.
    The finalized list of tier comorbidities for FY 2007 that we are 
posting on the IRF PPS Web site and in the IRF GROUPER documentation as 
of October 1, 2006 will generally reflect the August 7, 2001 final rule 
(66 FR 41316, 41414 through 41427) as modified by the tier comorbidity 
changes adopted in this final rule, as well as changes adopted due to 
ICD-9 national coding guideline updates. This version will constitute 
the baseline for any future updates to the tier comorbidities.
    Comment: One commenter expressed confusion over the listing of ICD-
9 code 250.01 in the FY 2006 IRF GROUPER, while the FY 2006 IRF PPS 
final rule indicated that CMS was adding code 250.1, which was not 
listed in the FY 2006 IRF GROUPER.
    Response: On September 30, 2005, we published a correction notice 
(70 FR 57166) that implemented some technical corrections to the FY 
2006 IRF PPS final rule. One of these technical corrections was to 
change code 250.1 to 250.01.
    Comment: One commenter requested that CMS add an ICD-9 code that 
represents the condition HYPOALBUMINEMIA to the list of tier 
comorbidities to account for the added costs of patients with this 
condition.
    Response: We would need to conduct further statistical analysis to 
determine whether this condition should be included in the list of tier 
comorbidities. We will take the commenter's recommendation into 
consideration for the future.
    Final Decision: After carefully considering all of the comments 
that we received on the proposed changes to the existing list of tier 
comorbidities, we are finalizing our decision to implement all of the 
changes as proposed, including the additions listed in Table 1, the 
deletions listed in Table 2, and the movement of the codes listed in 
Table 3 from tier 2 to tier 3.

[[Page 48362]]



      Table 1.--ICD-9 Codes That We Will Add to the IRF PPS GROUPER
------------------------------------------------------------------------
    ICD-9-CM           ICD-9-CM Label          Tier      RIC  Exclusion
------------------------------------------------------------------------
466.11..........  ACU BRONCHOLITIS D/T               3  15
                   RSV.
466.19..........  ACU BRNCHLTS D/T OTH               3  15
                   ORG.
282.68..........  OTH SICKLE-CELL DISEASE            3  None.
                   W/O CRISIS.
567.29..........  OTH SUPPURATIVE                    3  None.
                   PERITONITIS.
------------------------------------------------------------------------


   Table 2.--ICD-9 Codes That We Will Delete From the IRF PPS GROUPER
------------------------------------------------------------------------
         ICD-9-CM                   ICD-9-CM Label               Tier
------------------------------------------------------------------------
453.40...................  VEN EMBOL THRMBS UNSPEC DP VSLS             3
                            LWR EXTREM.
453.41...................  VEN EMBOL THRMBS DP VSLS PROX               3
                            LWR EXTREM.
453.42...................  VEN EMBOL THRMBS DP VSLS DIST               3
                            LWR EXTREM.
799.01...................  ASPHYXIA........................            3
799.02...................  HYPOXEMIA.......................            3
------------------------------------------------------------------------


Table 3.--ICD-9 Codes That We Will Move From Tier 2 to Tier 3 in the IRF
                               PPS GROUPER
------------------------------------------------------------------------
    ICD-9-CM           ICD-9-CM Label          Tier      RIC  Exclusion
------------------------------------------------------------------------
112.4...........  CANDIDIASIS OF LUNG....            3  15
112.5...........  DISSEMINATED                       3  None.
                   CANDIDIASIS.
112.81..........  CANDIDAL ENDOCARDITIS..            3  14
112.83..........  CANDIDAL MENINGITIS....            3  03, 05
112.84..........  CANDIDAL ESOPHAGITIS...            3  None.
785.4...........  GANGRENE...............            3  10, 11
995.90..........  SIRS NOS...............            3  None.
995.91..........  SIRS INF W/O ORG DYS...            3  None.
995.92..........  SIRS INF W ORG DYS.....            3  None.
995.93..........  SIRS NON-INF W/O ORG               3  None.
                   DYS.
995.94..........  SIRS NON-INF W ORG DYS.            3  None.
------------------------------------------------------------------------

B. Changes to the Case-Mix Group (CMG) Relative Weights

    As specified in Sec.  412.620(b)(1), we calculate a relative weight 
for each CMG that is proportional to the resources needed by an average 
inpatient rehabilitation case in that CMG. (For example, cases in a CMG 
with a relative weight of 2, on average, will cost twice as much as 
cases in a CMG with a relative weight of 1.) Relative weights account 
for the variance in cost per discharge and resource utilization among 
the payment groups, and their use helps to ensure that IRF PPS payments 
support beneficiary access to care as well as provider efficiency. In 
the FY 2007 IRF PPS proposed rule (71 FR 28106), we proposed to update 
the relative weights for FY 2007 based on a revised analysis of the 
data used to construct the relative weights for FY 2006, which had 
revealed certain minor discrepancies.
    We received numerous comments on the proposed changes to the CMG 
relative weights, which are summarized below.
    Comment: Numerous commenters expressed concern that the proposed 
CMG relative weights for FY 2007 were based on the same FY 2003 data 
used to compute the FY 2006 CMG relative weights. These commenters 
asked that CMS recalculate the CMG relative weights for FY 2007 using 
the latest available data.
    Response: We asked RAND to recalculate the CMG relative weights for 
FY 2007 to correct some minor discrepancies found in the tier 
comorbidities used in the analysis of the FY 2006 relative weights. 
After we published the FY 2006 IRF PPS final rule (70 FR 47880), we 
conducted a post-implementation review to ensure that the FY 2006 
revisions were implemented correctly. Because the revisions for FY 2007 
are merely designed to resolve some of the minor discrepancies 
identified in this post-implementation review and not to implement 
additional refinements, we believe it is appropriate to continue to use 
the same data that we used for the FY 2006 IRF PPS final rule. We agree 
that, in the future, any rebasing or recalibration of the system should 
be done using the most current available data.
    Comment: Several commenters requested copies of the updated RAND 
analysis that produced the revised CMG relative weights for FY 2007.
    Response: The updated analysis that RAND performed in recalculating 
the CMG relative weights for this final rule was identical to its 
analysis for the FY 2002 and FY 2006 IRF PPS final rules, with the 
exception of correcting some of the minor discrepancies in the data 
used in the FY 2006 analysis. For a detailed description of the 
methodology that RAND used to calculate the CMG relative weights for 
the FY 2002, FY 2006, and current final rules, please refer to pages 
41351 through 41353 of the August 7, 2001 final rule (66 FR 41316). The 
data that RAND used for the FY 2006 and FY 2007 CMG relative weight 
calculations are the FY 2003 IRF MEDPAR data merged with the FY 2003 
IRF-PAI and cost report data. The analysis that RAND conducted for us 
for FY 2007 produced the updated CMG relative weight and average length 
of stay figures displayed in Table 4 of this final rule.
    Comment: We received some comments expressing concerns about the 
accuracy of the average length of stay values. One commenter suggested 
that the average length of stay values for the different tiers should 
be

[[Page 48363]]

proportional to payment and that, for example, the average length of 
stay values for tier 1 (the highest paying tier) should always be 
higher than the average lengths of stay for tiers 2 and 3 and the ``no 
comorbidity'' tier. Another commenter asked that we re-examine the 
average length of stay value for the traumatic spinal cord injury 
patients in tier 1 to ensure that it is consistent with medical 
practice, stating that these patients require relatively long 
rehabilitation periods.
    Response: We have reviewed the average length of stay values, in 
general and for the traumatic spinal cord injury CMGs in particular, 
and we believe they are correct. The average length of stay values 
shown in Table 4 are entirely driven by the data. Whereas we impose a 
constraint on the CMG relative weights under which the relative weight 
for a higher-paying tier can never be lower than the relative weight 
for a lower-paying tier, we do not constrain the average length of stay 
values. They represent the average number of days that patients in a 
given CMG and tier were in an IRF.
    As we indicated in the FY 2006 IRF PPS final rule (70 FR 47901), 
the relative weights for each of the CMGs and tiers represent the 
relative costliness of patients in those CMGs and tiers compared with 
patients in other CMGs and tiers. The average length of stay for each 
CMG and tier, however, represents the average number of days that 
patients in that CMG and tier were treated in IRFs, based on the FY 
2003 data. We determine IRF PPS payments on a per-discharge basis, 
meaning that providers receive a pre-determined payment amount 
according to an individual patient's CMG and tier classification, 
regardless of the number of days that patient is treated in the IRF. 
The only exceptions to this general policy are for very short-stay 
cases and for certain transfer cases. Because payments are made on a 
per-discharge basis, there is not necessarily a correlation between the 
number of days a patient is treated in an IRF and the payment amount 
for that patient. If, for example, the relative weight for a particular 
CMG in tier 1 is higher than the relative weight for that same CMG in 
the ``no comorbidity'' tier, this means that cases in that CMG in tier 
1 are expected to be more costly for the IRF to treat than cases in 
that CMG in the ``no comorbidity'' tier. However, the average length of 
stay of patients in that CMG in tier 1 might sometimes actually be 
lower than the average length of stay of patients in that CMG in the 
``no comorbidity'' tier; for example, the ``tier 1'' patients could 
require significantly more intensive treatment for a shorter period of 
time, while the ``no comorbidity'' patients could require less 
intensive treatment over a longer period of time. Thus, the relative 
weights may not bear a proportional relationship to the average length 
of stay values.
    We do not require IRFs to treat the average length of stay values 
as goals or targets for particular cases. IRFs are generally free to 
treat particular patients for as few or as many days as is medically 
appropriate. We encourage IRFs to admit patients for the length of time 
that results in the best quality of care for the patient.
    Final Decision: After carefully reviewing all of the comments that 
we received on the proposed changes to the CMG relative weights, we are 
finalizing our decision to update the CMG relative weights and the 
average length of stay values for FY 2007, as shown in Table 4.
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BILLING CODE 4120-01-C

V. FY 2007 IRF Federal Prospective Payment Rates

A. Reduction of the Standard Payment Amount to Account for Coding 
Changes

    According to research conducted by the RAND Corporation under 
contract with CMS, changes in provider coding practices increased 
Medicare payments to IRFs between 1999 and 2002 by at least 1.9 percent 
and as much as 5.8 percent. (We note that RAND revised its report in 
late 2005 to reflect an upper bound (high-end estimate) of 5.9 percent, 
instead of the 5.8 percent that we reported in the FY 2006 IRF PPS 
proposed and final rules. However, because our FY 2006 proposed rule 
refers to a 5.8 percent upper bound, we will continue to use the 5.8 
percent figure for this final rule.) In the FY 2007 proposed rule (71 
FR 28106), we proposed to apply a 2.9 percent reduction to the standard 
payment amount for FY 2007 to adjust for changes in coding that, 
according to RAND's research, did not reflect real changes in IRF case 
mix. This proposed reduction would be in addition to the 1.9 percent 
adjustment implemented for FY 2006 and would result in a total 
adjustment of 4.8 percent (1.9 + 2.9 = 4.8), which still falls well 
within the range that RAND estimated.
    However, we stated in the proposed rule that we were continuing to 
analyze the data and, therefore, the specific amount of the final 
payment adjustment was subject to change for this final rule based on 
the results of the ongoing analysis. As noted below, we also received a 
significant number of comments that uniformly recommended no reduction 
for FY 2007. Accordingly, we have revised the amount of the proposed 
reduction for this final rule, as discussed below, and will implement a 
reduction of 2.6 percent.
    Public comments and our responses on the proposed reduction of the 
standard payment amount to account for coding changes are summarized 
below.
    Comment: The majority of commenters expressed significant concerns 
about the proposed 2.9 percent reduction to the standard payment amount 
for FY 2007, and all who commented on this proposal indicated that CMS 
should not implement any reduction to the standard payment amount for 
FY 2007. Although they expressed a number of specific concerns (which 
we address separately below), the commenters generally indicated that 
IRFs are currently experiencing a significant amount of volatility and, 
for this reason, CMS should not implement an additional reduction to 
the standard payment amount for FY 2007. Further, many commenters 
asserted that RAND expressed more confidence in the findings at the low 
end of its estimated range (1.9 percent), and that CMS had already used 
RAND's analysis to justify the 1.9 percent coding adjustment for FY 
2006. Several commenters also questioned CMS' conclusion that real case 
mix in IRFs had not increased substantially.

[[Page 48371]]

    Response: In light of recent changes to the IRF PPS that affect 
utilization trends, including the phase-in of the IRF 75 percent rule 
compliance percentage, we have chosen to take an incremental approach 
to adjusting for changes in coding that do not reflect real changes in 
case mix. In the FY 2006 final rule (70 FR 47880), we implemented a 1.9 
percent reduction to the standard payment amount, and noted that it was 
the ``lowest possible amount of change attributable to coding 
changes,'' as determined by RAND's analysis. In that final rule, we 
decided to implement the lowest possible amount to account for the 
possibility that some of the observed changes may have been 
attributable to factors other than coding changes or could be temporary 
changes associated with the transition to a new payment system. 
However, we indicated that we would continue to review the need for any 
further reduction in the standard payment amount in subsequent years as 
part of our overall monitoring and evaluation of the IRF PPS.
    Based on our continued review, we believe a further reduction is 
warranted. Since publication of the FY 2006 final rule, we have 
continued our fiscal oversight of the IRF PPS and have conducted 
detailed analyses of IRF payment and utilization practices. We re-
examined RAND's analysis of the 1999 and 2002 data (contained in RAND's 
report entitled ``Preliminary Analyses of Changes in Coding and Case 
Mix Under the Inpatient Rehabilitation Facility Prospective Payment 
System''). We believe it is appropriate to base our decision to 
implement a further reduction on RAND's analysis because the additional 
adjustment is intended to reflect more fully the impact of coding 
changes (that do not reflect real changes in case mix) from the same 
period for which we implemented the 1.9 percent reduction in FY 2006 
(that is, 2002).
    We disagree with the commenters who believe that the lower end of 
RAND's estimate is more valid than the higher end. We further believe 
that our decision for FY 2006 to make an adjustment of 1.9 percent is 
indicative only of our intent to adjust incrementally for coding 
changes, and is not an indication that the higher end of the estimate 
is less valid than the lower. Indeed, in contrast to some of the 
commenters, we find it compelling that RAND found that coding changes 
accounted for at least 1.9 percent of the increases in payment in 2002. 
In our view, this means that the actual amount was likely somewhat 
higher than 1.9 percent. As we discussed in the FY 2006 final rule, a 
separate analysis by RAND found that if all IRFs had been paid based on 
100 percent of the IRF PPS payment rates throughout all of 2002, PPS 
payments during 2002 would have been 17 percent higher than IRFs' 
costs. We stated that we believed this suggested that we could have 
proposed a reduction greater than 1.9 percent. We continue to believe 
this is the case. Further, if RAND's analysis did not support a 
conclusion that coding change likely accounted for more than 1.9 
percent of the increase in payments, RAND would not have provided a 
range of estimates. However, RAND reported that IRF payments were at 
least 1.9 percent and as much as 5.8 percent higher than expected as a 
result of changes in coding that did not reflect real changes in case 
mix.
    As the commenters noted, several portions of RAND's report discuss 
the difficulty of estimating with precision the amount of change in 
case mix that is real and the amount that is a result of changes in 
coding that do not reflect real changes in case mix. However, we 
believe this discussion was merely an acknowledgement of the complexity 
of the analysis, and did not represent a lack of confidence in the 
upper end of RAND's estimated range (1.9 to 5.8 percent).
    Further, the technical expert panel (consisting of representatives 
from industry groups, other government entities, academia, and other 
researchers) that RAND assembled to advise it on its methodology and 
review its findings expressed general agreement with RAND's analytical 
approaches. We have also carefully reviewed RAND's report, and we 
continue to believe that the analyses that support both the upper- and 
lower-bounds of RAND's range of estimates are analytically sound. In 
particular, we believe the approach that RAND used in examining IRF 
patients' acute care hospital records before admission to the IRF 
provides a good indication of IRF patients' acuity because the vast 
majority of IRF patients are referred to the IRF from the acute care 
hospital setting. As detailed in RAND's report, most of the changes in 
case mix that RAND documented from the acute care hospital records 
indicated that IRF patients should have been less costly to treat in 
2002 than in 1999. This analysis produced RAND's upper-bound estimate 
that as much as 5.8 percent of the changes in aggregate payments were a 
result of changes in coding that did not reflect real changes in case 
mix. For the reasons discussed in its report, RAND acknowledged that 
the 5.8 percent estimate was an upper-bound estimate and that, 
therefore, the actual change in aggregate payments as a result of 
coding change was likely lower than this. However, we believe it is an 
incorrect interpretation of RAND's results to suggest that RAND only 
expressed confidence in its 1.9 percent estimate. If RAND had believed 
that 1.9 percent was the final result of its analysis, RAND would have 
recommended that CMS implement a coding adjustment of exactly 1.9 
percent, not at least 1.9 percent, and would not have given a range of 
up to 5.8 percent. We interpret the 1.9 percent figure to be a floor 
for our adjustment for coding changes that do not reflect real changes 
in case mix, rather than an upper limit for such an adjustment.
    As noted previously, we initially chose to adopt a conservative 
approach by implementing only a 1.9 percent adjustment for FY 2006, 
even though we believe that RAND's analysis suggested that the actual 
effects of coding changes that do not reflect a real change in case mix 
were likely larger than 1.9 percent. We chose this more conservative 
approach for FY 2006 because we believed that an incremental approach 
to implementing the payment reduction was appropriate in view of all of 
the other recent Medicare policy changes, such as the phase in of the 
75 percent rule compliance percentage. We continue to favor an 
incremental approach, for this same reason. However, as described in 
the FY 2007 proposed rule and for the reasons described below, we are 
convinced that an additional coding adjustment is needed to adjust the 
impact of coding changes not related to real changes in case mix. As 
part of our ongoing assessment, we examined a recent MedPAC analysis of 
trends in IRF costs that we believe indicates that case mix changes had 
a lower impact on payment than we initially thought, and therefore that 
coding changes had a larger impact on payments than we initially 
thought. In its March 2006 report, MedPAC reported that IRFs' cost 
increases in 2003 and 2004 (2.4 percent and 3.6 percent respectively) 
lagged far behind payment increases. During 2002 and 2003, MedPAC 
reported that IRF PPS payments were increasing at a rate of ``more than 
10 percent per year.'' From this, MedPAC concluded that ``payments have 
far outpaced cost growth'' during the first years of the IRF PPS. We 
believe that the relatively low cost increases that MedPAC found 
suggest that case mix was not increasing as rapidly as IRF PPS 
payments, because if case mix had been increasing substantially, this 
would have led to rapidly rising costs.
    As we discussed in the proposed rule, we also analyzed changes in 
the distribution of patients across the four

[[Page 48372]]

IRF payment tiers from calendar year 2002 through calendar year 2005. 
The purpose of this analysis was to evaluate whether an additional 
adjustment was needed to eliminate the effects of coding changes that 
do not represent real changes in case mix from payments in the initial 
implementation year of the IRF PPS, and we analyzed the calendar year 
2002 through calendar year 2005 data because it was the most complete 
post-PPS data available. For determining IRF PPS payments, we classify 
patients into one of four tiers within a CMG, based on the presence of 
any relevant comorbidities. One of the tiers contains patients with no 
relevant comorbidities. The other three tiers contain patients with 
increasingly costly comorbidities. For this reason, an IRF will receive 
higher payments for patients in one of the three more-costly tiers than 
for patients in the ``no comorbidity'' tier.
    As indicated in Table 6 of the proposed rule, we found that the 
proportion of IRF patients in the lowest-paying tier (the tier for 
patients with ``no comorbidities'') decreased by 6 percentage points 
between calendar years 2002 and 2005. Conversely, the proportion of 
patients in each of the three higher-paying tiers increased each year. 
As we indicated previously, we do not believe real case mix was 
increasing substantially, because MedPAC's findings indicate that costs 
were not rising as rapidly as we would have expected if case mix had 
been increasing significantly during this period. Thus, we believe this 
potential disparity lends further support to the conclusion that a 
substantial portion of the unexpected increase in IRF payments when we 
first implemented the IRF PPS was a result of changes in provider 
coding practices that do not reflect real changes in case mix. We 
believe the MedPAC and CMS analyses, taken together, combined with our 
interpretation of the RAND report suggesting that the amount of coding 
change likely represented more than 1.9 percent of the aggregate 
payment increases, suggest that our FY 2006 decision to reduce the 
standard payment by only 1.9 percent, the lowest possible amount, was a 
very conservative approach. As we indicated previously, we intended to 
take a conservative approach for FY 2006 because we believed, and 
continue to believe, that an incremental approach to the coding 
adjustment is best given the other recent Medicare policy changes that 
we have implemented for IRFs. As part of that incremental approach, we 
believe making the additional adjustment for FY 2007 is warranted based 
on the mandate of Section 1886(j)(2)(C)(ii) of the Act.
    Comment: Many commenters expressed specific concerns about the 
effects of the recent phase-in of the 75 percent rule compliance 
percentage, including concerns that the enforcement of the 75 percent 
rule was having a larger effect on the population of patients being 
admitted to IRFs than CMS's 75 percent rule impact analysis would have 
predicted. These commenters indicated that it would be inappropriate to 
implement any reduction to the standard payment amount to account for 
coding changes, not only for FY 2007 but also until the 75 percent rule 
is fully phased in and CMS has had an opportunity to analyze the data 
that reflect the full phase-in of the compliance percentage.
    Response: We do not agree with the commenters that CMS should delay 
the implementation of a reduction to the standard payment amount to 
account for coding changes that do not reflect real changes in case mix 
that occurred when we first began implementing the IRF PPS, as required 
by statute and for the reasons outlined immediately above. For FY 2006, 
we implemented a very conservative adjustment of 1.9 percent in 
recognition that IRFs' current cost structures may be changing as they 
strive to comply with other recent Medicare policy changes, such as the 
75 percent rule. As described in further detail below, in further 
recognition of these changes and in response to comments, we are 
lowering our proposed reduction from 2.9 percent to 2.6 percent. 
However, the 75 percent rule and the reduction to the standard payment 
amount to account for coding change involve separate statutory 
mandates. The purpose of the 75 percent rule is to adhere to the 
statutory requirement to differentiate IRF facilities from IPPS 
hospitals and other types of inpatient hospital facilities. The purpose 
of the reduction to the standard payment amount is to adhere to the 
statutory requirement to adjust the standard payment amount to account 
for changes in coding that affect aggregate payments and do not reflect 
real changes in case mix. We believe that the statute requires us to 
establish policies for both purposes.
    The impact analysis contained in the May 7, 2004 IRF classification 
criteria final rule used the best available data to estimate the 
effects of the revised regulations. However, although we strive to be 
as accurate as possible in our estimation of the effects of the 
policies we implement, an impact analysis is always a projection of 
what we believe will happen in the future based on historical data, and 
therefore uncertain. Because we understand the commenters' concerns 
regarding the effects of the 75 percent rule on beneficiaries and on 
providers, we are continuing our close monitoring of the impact of the 
multi-year phase in of the 75 percent rule compliance percentage on 
beneficiaries' access to IRF services and on IRFs' costs of treating 
various types of patients. As detailed in CMS' November 30, 2005 
memorandum entitled ``Inpatient Rehabilitation Facility PPS and the 75 
Percent Rule,'' (available on the IRF PPS Web site at http://www.cms.hhs.gov/InpatientRehabFacPPS/), our analysis indicates that the 
effects of the 75 percent rule have been focused on a few specific 
conditions, but have resulted in improved access to care for certain 
types of patients, such as those being treated for a stroke, for which 
IRF services can be particularly beneficial.
    As discussed in detail in the IRF classification criteria final 
rule (69 FR 25752), published May 7, 2004, we implemented a phase-in 
schedule for the 75 percent compliance threshold to give providers 
ample time to adjust their admission practices to comply with the full 
threshold. Further, as discussed in section VII of this final rule, in 
accordance with section 5005 of the DRA, we are revising the compliance 
thresholds that must be met for certain cost reporting periods, which 
effectively allows providers an additional cost reporting period to 
meet the 60 percent compliance threshold and delays the full phase-in 
of the 75 percent compliance threshold. In addition, patient 
comorbidities will continue to be used to determine compliance for an 
additional cost reporting period, until the full 75 percent compliance 
threshold becomes effective. Thus, we believe that both of these 
measures, along with our decision to implement a 2.6 percent reduction 
instead of a 2.9 percent reduction, will ease the transition for 
providers by allowing them more time to adjust their practices to 
comply with the regulations.
    Comment: Some commenters expressed concerns about the local 
coverage determinations (LCDs) being used by some of the fiscal 
intermediaries in denying some IRF claims. They said that these 
policies were creating instability in the system that would be 
intensified by the imposition of the additional reduction to the 
standard payment amount for FY 2007.
    Response: Because LCDs were not discussed in the proposed rule, a 
substantive discussion of LCD policies

[[Page 48373]]

is outside the scope of this final rule. However, to the extent that 
the commenters believe CMS should delay implementation of the reduction 
to the standard payment amount for FY 2007 because of the LCD issues, 
we disagree with the commenters. We continue to believe that we have an 
obligation to implement a reduction to the standard payment amount to 
account for coding changes that do not reflect real changes in case mix 
that occurred when we first began implementing the IRF PPS, as required 
by statute and for the reasons outlined above. We will continue to 
monitor the effects of the LCDs closely and will take these effects 
into account in our ongoing analyses of IRF payment policies. We note 
that the FIs have discretion in formulating and implementing the most 
appropriate LCDs for their areas, as long as they are not inconsistent 
with the national policies defined by CMS, and we fully support their 
efforts in this regard.
    Comment: Numerous commenters questioned why CMS was using older 
data to support the proposed reduction to the standard payment amount 
for FY 2007. They asked CMS to collect and analyze FY 2005 and FY 2006 
data (which would be representative of the changes under the 75 percent 
rule) before implementing any reductions in payments.
    Response: We agree with the commenters that it will be important to 
continue to analyze the most current available data over the coming 
years, especially when complete data from the full phase-in of the 75 
percent rule become available, to ensure that IRF payments continue to 
reflect as closely as possible the costs of care in IRFs. If our 
analysis of this data shows that additional refinements need to be made 
to the system, we will propose them in the future. However, we do not 
believe that this precludes us from making current refinements to the 
system that adjust payments for the effects of coding changes (that do 
not reflect real changes in case mix) that occurred when the IRF PPS 
was first implemented, for the reasons described in detail above.
    Comment: Several commenters incorrectly cited a 16 percent 
behavioral offset that was implemented at the start of the IRF PPS, 
which they believed had already accounted for the expected changes in 
IRF payments due to changes in coding. These commenters suggested that 
this behavioral offset eliminated the need for the FY 2006 and FY 2007 
coding adjustments.
    Response: As described in the August 7, 2001 final rule (66 FR 
41316, 41366 through 41367), we applied a 1.16 percent (not 16 percent) 
behavioral offset to IRF PPS payments to account for the inherent 
incentives of a discharge-based prospective payment system to discharge 
patients earlier than under the previous cost-based IRF payment system. 
In that final rule, we expressed our expectation that reductions in IRF 
lengths of stay under the IRF PPS would lead to lower costs for the 
facilities and that, in the absence of a behavioral offset, payments 
would be too high because they would continue to reflect IRFs' higher 
costs with the longer lengths of stay under the previous payment 
system. We have, in fact, observed rapid decreases in lengths of stay 
for IRF patients since we implemented the IRF PPS.
    In addition, as explained in detail in RAND's report titled 
``Preliminary Analyses of Changes in Coding and Case Mix Under the 
Inpatient Rehabilitation Facility Prospective Payment System'' 
(available on RAND's Web site at http://www.rand.org/publications/TR/TR213/), RAND accounted for the 1.16 percent behavioral offset 
adjustment when estimating the amount of observed case mix change that 
was a result of real case mix change and the amount that was a result 
of coding changes that do not reflect real changes in case mix. The 
range of estimates for the amount of case mix and coding change that 
RAND developed (1.9 percent to 5.8 percent) contains an adjustment to 
account for this behavioral offset.
    Comment: Several commenters stated that one effect of the FY 2006 
refinements to the IRF classification system was to lower IRF payments 
by 2.2 percent, and recommended that CMS restore 2.2 percent to the IRF 
PPS payments for FY 2007.
    Response: As described in detail in the FY 2006 IRF PPS final rule 
(70 FR 47880, 47886 through 47904), we implemented several refinements 
to the IRF classification system for FY 2006, based on analysis 
conducted by RAND, to ensure that payments are aligned as closely as 
possible with the costs of care in IRFs. The FY 2006 refinements 
included a redefinition of the IRF case mix groups (CMGs), so that the 
new CMGs were based on the most current and complete post-PPS data 
available. We implemented these revisions in a budget-neutral manner, 
so that aggregate payments to providers were not estimated to increase 
or decrease as a result of these refinements. However, in the impact 
section of the FY 2006 IRF PPS final rule, we discussed the 
redistribution of payments that we estimated would occur in FY 2006 as 
a result of the implementation of these refinements. We estimated that 
some providers would experience increases in payments and that some 
providers would experience decreases in payments as a result of these 
refinements.
    Many of the commenters cited a report titled ``Evaluation of the 
Proposed Coding Adjustment to the Standardized Payment Amount for FY 
2007,'' prepared by the Lewin Group for the HealthSouth Corporation in 
July 2006, as the source of the 2.2 percent estimate of the decrease in 
payments resulting from the FY 2006 IRF classification refinements. The 
report contained two separate analyses of changes in IRFs' case mix 
indexes (CMIs) between 2002 and 2006 that the authors of the report 
believe are due to the changes to the classification system that we 
implemented for FY 2006. The first analysis did not use the same 
methodology for computing the CMI that RAND and CMS use, and the 
authors of the report indicated that they had less confidence in this 
analysis for that reason. The second analysis, from which Lewin's 2.2 
percent estimate is derived, used the same methodology that RAND and 
CMS use to calculate the CMI, but the analysis used IRF-PAI data from 
only 592 facilities (out of a total of about 1,240 IRFs nationwide). 
Lewin obtained data on these 592 facilities from the database 
maintained by the Uniform Data System for Medical Rehabilitation 
(UDSmr).
    In contrast, our estimates of the effects of the FY 2006 
refinements to the classification system are based on analysis of 1,188 
IRFs nationwide, for which we had complete data at the time that we 
were conducting the impact analysis for the FY 2006 IRF PPS final rule. 
We believe that our estimates of the effects of the FY 2006 refinements 
are more representative of the effects on the industry than Lewin's 
analysis because our database includes all IRFs for which we were able 
to match claims and IRF-PAI data. As illustrated in the first row of 
column 7 in Table 13 of the IRF PPS final rule, we estimated that 
aggregate payments to all IRFs would neither increase nor decrease as a 
result of the FY 2006 refinements to the IRF classification system, 
because we implemented these changes in a budget neutral manner, as 
described in detail in that final rule. However, in that final rule, we 
also indicated that we estimated that the refinements to the 
classification system would result in some redistribution of payments 
among different types of providers, with some groups estimated to 
experience payment increases and some groups estimated to experience 
payment decreases. For example, we estimated that these refinements 
could result in an estimated

[[Page 48374]]

2.7 percent decrease in payments to rural providers in the Pacific 
region and an estimated 2.6 percent increase in payments to rural 
providers in the Mountain region. In Table 13 of the FY 2006 IRF PPS 
final rule, we provide additional information on the estimated effects 
on IRF PPS payments of the policy changes implemented in that final 
rule.
    In contrast to our analysis, the report by the Lewin Group 
suggested that the refinements to the classification system resulted in 
an across-the-board decrease to aggregate IRF payments of about 2.2 
percent because, they contend, the refinements caused a decrease in 
IRFs' CMIs. To assist CMS in analyzing the differences between CMS's 
impact analysis and the findings contained in Lewin's report, 
UDSmr gave CMS the provider numbers for 589 of the 
facilities that Lewin used in the analysis on which Lewin's 2.2 percent 
estimate is based. Out of these 589 facilities, we were able to match 
551 to our IRF database. Some of the 38 provider numbers that did not 
match appeared to be Medicare provider numbers for skilled nursing 
facilities, acute care hospital facilities, or other types of 
providers. We repeated the same analysis that we had conducted for the 
FY 2006 IRF PPS final rule, as detailed on pages 47944 through 47952 of 
that final rule, with the 551 provider numbers that we could match. 
From this analysis, we determined that these 551 IRFs were more likely 
to experience expected decreases in payment as a result of the FY 2006 
refinements to the classification system than the other IRFs in our 
database. However, we found that other IRFs experienced corresponding 
increases in payments as a result of the FY 2006 classification 
refinements. Thus, we disagree with the Lewin report's finding that the 
FY 2006 classification refinements reduced IRF payments across the 
board by 2.2 percent and believe that the impact analysis we published 
in the FY 2006 IRF PPS final rule continues to represent our best 
estimate of the effects of these changes. However, when we have 
complete data from FY 2006 to analyze, we will revisit our analysis and 
determine whether additional refinements to the system are necessary in 
the future.
    Comment: Several commenters expressed concerns that the revised 
average length of stay values in the FY 2006 IRF PPS final rule may 
have affected payments for short-stay transfer cases and thereby 
contributed to a reduction in IRF payments. These commenters urged CMS 
to take this into account when considering whether an additional 
reduction to the standard payment amount is necessary for FY 2007.
    Response: The average length of stay values published in the FY 
2006 IRF PPS final rule (70 FR 47880, 47902 through 47904) and in 
section IV.B of this final rule are not used to determine payments to 
IRFs other than to determine payments for short-stay transfer cases. 
These values are entirely driven by the data that providers submit and 
have been falling consistently in recent years as the average number of 
days that patients spend in IRFs continues to decline. The overall 
decline in the average length of stay values likely has resulted in 
fewer cases qualifying for the per diem short-stay transfer payments, 
meaning that more cases have likely received the full CMG payments 
rather than the per diem payments.
    Because the average length of stay values that we estimate are 
entirely data-driven, then, we believe that any changes in payments 
that result from updated average length of stay values are 
appropriately reflecting changes in the costs of care in IRFs.
    Comment: Several commenters suggested that the FY 2006 refinements 
should serve as a new baseline for evaluating payments in the system, 
and that CMS should wait until the data are available to assess how 
providers respond to the FY 2006 changes before implementing an 
additional coding adjustment.
    Response: As the commenters suggested, the FY 2006 refinements were 
intended to establish a new baseline for payments in the system, and we 
will be analyzing this new data for FY 2006 and beyond as part of our 
ongoing monitoring of the system to ensure that payments reflect as 
closely as possible the costs of caring for patients in IRFs. However, 
because, as noted above, the statute requires us to adjust payment 
rates for IRF services if we determine that changes in coding (that do 
not reflect real changes in case mix) have resulted in or will result 
in changes in aggregate payments under the IRF classification system, 
we do not believe that we should defer implementing the additional 
adjustment for FY 2007.
    Comment: Several commenters expressed concerns that the calendar 
year 2002 data that RAND used to analyze changes in coding and case mix 
may have been based on HealthSouth cost report data that, for reasons 
detailed in the FY 2006 IRF PPS final rule, were not complete.
    Response: As we discussed in detail in the FY 2006 IRF PPS final 
rule (70 FR 47880, 47884), RAND's analysis included 98 IRF providers 
affiliated with HealthSouth that omitted home office cost data from the 
2002 and 2003 cost reports filed with CMS. However, we detailed in the 
FY 2006 final rule how RAND and CMS accounted for this data in the 
analyses for that final rule. In that final rule, we also stated that 
the omission of the home office cost data would have no effect on the 
1.9 percent coding adjustment for FY 2006, because the only data 
affected by the omission of the home office costs were the cost report 
data and these data were not used in the analysis that supported the 
1.9 percent coding adjustment. The same RAND analysis is used to 
support the additional coding adjustment for FY 2007, so the home 
office cost omission similarly has no effect on the FY 2007 coding 
adjustment.
    Comment: Several commenters questioned CMS's legal authority to 
make the FY 2007 coding adjustment, claiming that the statute does not 
include review of Medicare margins as a reason for a coding adjustment.
    Response: We disagree with the commenters' interpretation of our 
authority under the statute. We interpret section 1886(j)(2)(C)(ii) of 
the Act as requiring the Secretary to apply a coding adjustment to the 
payment rate when the evidence shows that such an adjustment is 
necessary to ensure that changes in aggregate payments are the result 
of real changes in case mix and do not reflect changes in coding that 
are unrelated to real changes in case mix. As noted previously, we have 
based our assessment of the amount that changes in aggregate payments 
in the first year of the implementation of the IRF PPS were a result of 
real case mix changes and the amount that they were a result of coding 
changes that do not reflect real changes in case mix on RAND's 
analysis, not on an analysis of IRF margins. However, we have used 
MedPAC's analysis of IRF margins to inform our understanding of growth 
in IRF costs over time, which we believe has direct bearing on our 
understanding of trends in IRFs' real case mix. We believe that actual 
increases in IRF case mix in the early years of the IRF PPS would have 
been accompanied by larger increases in the costs associated with 
treating higher acuity patients.
    Comment: Some commenters questioned the CMS analyses of changes in 
coding practices, believing that providers were being penalized for 
reacting to changes in the IRF PPS coding structure.
    Response: The coding adjustments for FY 2006 and FY 2007 are not 
intended to penalize providers for reacting to

[[Page 48375]]

changes in the IRF PPS coding structure. We encourage providers to 
improve the accuracy with which they are recording patient's clinical 
information. However, we are required by statute to adjust payments if 
we determine that changes in payments are a result of changes in coding 
that do not reflect real changes in case mix. Further, we believe it is 
appropriate to consider provider responses to changes in IRF coding as 
part of our efforts to evaluate the need for payment adjustments 
because a rapid change in provider coding practices could reflect 
changes in IRF payment policies rather than a change in patient 
severity.
    Comment: One commenter asked whether the data presented in Table 6 
on page 28124 of the proposed rule was based on calendar year or fiscal 
year data.
    Response: We used calendar year IRF-PAI data in the analysis for 
Table 6 on page 28124 of the proposed rule.
    Comment: One commenter noted that the ICD-9 code 278.02 
(overweight) was not recommended by the ICD-9-CM Committee and approved 
by the National Center for Health Care Statistics for use until October 
2005, and therefore it was not surprising that this code was used fewer 
than 10 times before that date.
    Response: We do not find the fact that the code was new as of 
October 2005 to have any bearing on our conclusion that the dramatic 
increase in its use likely reflected changes in the IRF payment 
structure rather than in patient severity levels. Indeed, the fact that 
the code was new in October 2005 and its level of use rose immediately 
upon its introduction, indicates to us that providers are able to adapt 
their coding practices quickly to reflect coding changes. Thus, the 
increase in the code's use, in our view, continues to suggest that 
providers respond more rapidly to coding changes than we initially 
believed.
    Final Decision: After carefully considering all of the comments 
that we received on the proposed reduction to the standard payment 
amount to account for coding changes that do not reflect real changes 
in case mix, we have decided to decrease the amount of the reduction to 
2.6 percent, rather than the 2.9 percent that we had proposed. As we 
indicated in the proposed rule, we considered both 2.9 percent and 2.3 
percent as possible reductions to the standard payment amount for FY 
2007. However, in view of the industry's rapid adaptation to coding 
changes, we chose to propose a 2.9 percent reduction to the standard 
payment amount instead of the 2.3 percent reduction we had considered. 
The additional analyses the commenters offered in response to the 
proposed rule did not express a preference for either 2.9 percent or 
2.3 percent, but were designed to show that we should not implement any 
additional reduction to the standard payment amount for FY 2007. In 
fact, some commenters presented analyses to show that CMS should 
provide a net increase to the standard payment amount for FY 2007 to 
compensate for the 2.2 percent reduction they contend occurred because 
of the FY 2006 refinements to the classification system (as discussed 
above). Further, commenters said that they did not believe that either 
the lower 2.3 percent reduction or the proposed 2.9 percent reduction 
were appropriate. Instead, commenters generally rejected any reduction 
to the standard payment amount. As explained previously, no reduction 
to the standard payment amount was not a reasonable option in light of 
RAND's analysis and the additional data we evaluated (as described 
above). Consequently, because we continue to believe a 2.3 percent 
reduction is too low, and in view of the significant concerns raised by 
commenters about the proposed 2.9 percent reduction, we have decided to 
implement a 2.6 percent reduction. The 2.6 percent reduction represents 
the midpoint between the 2.9 percent we had proposed and the 2.3 
percent reduction we also had considered proposing, which would have 
fallen at approximately the middle of RAND's range of estimates.
    In view of the significant concerns that commenters raised, and in 
continuing recognition of the significant changes in IRFs' patient 
populations that may be occurring as a result of the current phase in 
of the 75 percent rule compliance percentage, we have decided that the 
best approach at this time is to continue to exercise caution by 
adopting a slightly more conservative approach to further reducing the 
standard payment amount. In this way, we provide IRFs more flexibility 
in adapting their admission practices and cost structures to the recent 
regulatory changes.
    However, as the commenters suggested, we intend to continue 
analyzing changes in coding and case mix closely using the most current 
available data, as part of our ongoing monitoring of the IRF PPS. If, 
based on updated analysis, we determine that additional adjustments are 
needed to ensure that changes in aggregate payments are the result of 
real changes in case mix and not merely the result of changes in coding 
that do not reflect real changes in case mix, we intend to propose 
additional payment refinements.
    For FY 2007, therefore, we are continuing our incremental approach 
to adjusting payments for coding changes that occurred when we first 
began implementing the IRF PPS in 2002. Together with the 1.9 percent 
reduction that we implemented for FY 2006, the 2.6 percent reduction 
for FY 2007 will result in a total adjustment of 4.5 percent (1.9 + 2.6 
= 4.5). Because 4.5 percent is still well within the range of RAND's 
estimates of the effects of coding changes that do not reflect real 
changes in case mix on IRF PPS payments that occurred between 1999 and 
2002, we continue to believe that we are still providing flexibility to 
account for the possibility that some of the observed changes may be 
attributable to factors other than coding changes.
    We will use the same methodology that we used in the FY 2006 IRF 
PPS final rule (70 FR 47880, 47908) to reduce the standard payment 
amount to adjust for coding changes that affect payment. To reduce the 
standard payment amount by 2.6 percent for FY 2007, we will multiply 
the standard payment amount by 0.974 (obtained by subtracting 0.026 
from 1.000).
    In section V.D of this final rule, we further describe how we will 
adjust the standard payment amount by the budget neutrality factors for 
the wage index, the second year of the hold harmless policy, and the 
revisions to the CMG relative weights and tier comorbidities to produce 
the final FY 2007 standard payment conversion factor. In Table 6 of 
this final rule, we provide a step-by-step calculation that results in 
the FY 2007 standard payment conversion factor.

B. FY 2007 IRF Market Basket Increase Factor and Labor-Related Share

    Section 1886(j)(3)(C) of the Act requires the Secretary to 
establish an increase factor that reflects changes over time in the 
prices of an appropriate mix of goods and services included in the 
covered IRF services, which is referred to as a market basket index. 
Accordingly, in updating the FY 2007 payment rates set forth in this 
final rule, we apply an appropriate increase factor to the FY 2006 IRF 
PPS payment rates that is based on the rehabilitation, psychiatric, and 
long-term care hospital (RPL) market basket. In constructing the RPL 
market basket, we used the methodology set forth in the FY 2006 IRF PPS 
final rule (70 FR 47880, 47908 through 47915) and described in the FY 
2007 proposed rule.
    Most of the comments that we received on the market basket and 
labor-

[[Page 48376]]

related share support the update to the market basket increase and 
labor-related share based on more recent data as discussed in the FY 
2007 proposed rule. We did not receive any comments on the continued 
use of the Bureau of Labor Statistics (BLS) Employment Cost Indexes 
(ECI) data in light of the BLS change in system usage to the North 
American Industrial Classification Systems based ECI.
    Final Decision: For this final rule, the FY 2007 IRF market basket 
increase factor is 3.3 percent. This is based on the Global Insight, 
Inc. (GII) forecast for the second quarter of 2006 (2006q2) with 
historical data through the first quarter of 2006 (2006q1). The 3.3 
percent market basket increase factor is 0.1 percentage point lower 
than the increase that we published in the proposed rule, which was 
based on GII's forecast for the first quarter of 2006 (2006q1).
    In addition, we used the methodology described in the FY 2006 IRF 
PPS final rule to update the labor-related share for FY 2007. As shown 
in Table 5, the final FY 2007 IRF labor-related share (which is based 
on GII's forecast for the second quarter of 2006) is 75.612 percent in 
this final rule. This is approximately 0.1 percentage point lower than 
the labor-related share that we published in the proposed rule, which 
reflected GII's forecast for the first quarter of 2006 (2006q1).
    Comment: One commenter believes that Global Insight, Inc.'s (GII's) 
market basket projection for FY 2007 underestimates the inflation 
pressure that hospitals face in serving Medicare beneficiaries. The 
commenter indicates that GII's latest forecast of the RPL market basket 
for FY 2006 is 3.8 percent compared to the final IRF PPS FY 2006 update 
of 3.6 percent.
    Response: The FY 2007 IRF update of 3.3 percent is based on GII's 
most recent forecast, which includes the latest available historical 
data through 2006q1. This forecast reflects the expected inflation 
pressures that hospitals will face in FY 2007. The GII figure will not 
be final until the release of GII's 2006q4 forecast, which will include 
historical data through 2006q3. We continue to work closely with GII to 
ensure the most accurate projections possible.

      Table 5.--FY 2007 IRF Labor-Related Share Relative Importance
------------------------------------------------------------------------
                                                            FY 2007 IRF
                                                           Labor-related
                      Cost category                          relative
                                                            importance
------------------------------------------------------------------------
Wages and salaries......................................          52.406
Employee benefits.......................................          14.084
Professional fees.......................................           2.898
All other labor intensive services......................           2.142
                                                         ---------------
    Subtotal............................................          71.530
Labor-related share of capital costs....................           4.082
                                                         ---------------
    Total...............................................          75.612
------------------------------------------------------------------------
Source: Global Insight, Inc. 2nd Qtr 2006, @USMACRO/CONTROL0606 @CISSIM/
  TL0506.SIM.

C. Area Wage Adjustment

    Section 1886(j)(6) of the Act requires the Secretary to adjust the 
proportion (as estimated by the Secretary from time to time) of 
rehabilitation facilities' costs attributable to wages and wage-related 
costs by a factor (established by the Secretary) reflecting the 
relative hospital wage level in the geographic area of the 
rehabilitation facility compared to the national average wage level for 
those facilities. The Secretary is required to update the wage index on 
the basis of information available to the Secretary on the wages and 
wage-related costs to furnish rehabilitation services. Any adjustments 
or updates made under section 1886(j)(6) of the Act for a FY are made 
in a budget neutral manner.
    In the FY 2007 proposed rule, we proposed to maintain the 
methodology and policies described in the FY 2006 IRF PPS final rule to 
determine the wage index, labor market area definitions, areas with 
missing hospital data, and hold harmless policy consistent with the 
rationales outlined in that final rule (70 FR 47880, 47917 through 
47933).
    In our review of Table 1 in the Addendum of the proposed rule, we 
found that the wage index published for Hinesville, Georgia (CBSA 
25980) is incorrect. The corrected wage index for this area can be 
found in Table 1 of the Addendum in this final rule.
    We received only a few comments on maintaining the methodology 
described in the FY 2006 final rule (70 FR 47880) for FY 2007. The 
comments and our responses are summarized below.
    Comment: We received comments supporting our transition to the full 
CBSA-based labor market area definitions. However, we received several 
comments that recommended extending the blended wage index for another 
year to protect certain IRFs that would otherwise experience wage index 
reductions of 8 percent or more.
    Response: In the FY 2006 proposed rule, we had not proposed a 
transition to the CBSA-based labor market area designations. However, 
after a review of the comments, we provided a budget neutral transition 
to the CBSAs, which will expire for discharges occurring on or after 
October 1, 2006. We agreed with commenters that it is appropriate to 
assist providers in adapting to the changes from MSA to CBSA in a 
manner that provides the most benefit to the largest number of 
providers. Therefore, our FY 2006 final rule adopted a transition 
policy that provided measurable relief to the greatest number of 
adversely affected IRFs with the least impact to the rest of the 
facilities. In the FY 2006 final rule, we discuss other transition 
policies recommended by the public in order to transition from the MSA 
to CBSA-based designations. A full discussion of the alternative 
transition policies that we considered and our decision to adopt the 1-
year blended wage index appears in the FY 2006 final rule (70 FR 47880, 
47922 through 47923).
    We also adopted a hold harmless policy specifically for rural IRFs 
whose labor market designations changed from rural to urban under the 
CBSA-based labor market area designations. This policy specifically 
applied to IRFs that had previously been designated rural and which, 
effective October 1, 2005, would otherwise have become ineligible for 
the 19.14 percent rural adjustment. For FY 2007, the second year of the 
3-year phase out of the budget-neutral hold harmless policy, the 
adjustment will be up to 6.38 percent for IRFs that meet the criteria 
described in the FY 2006 final rule (70 FR 47880, 47923 through 47926).
    As stated in our FY 2006 final rule, we did not extend the hold 
harmless policy to encompass facilities that remain in an urban area, 
because we believe that the transition wage index mitigated the impact 
of the change from MSAs to CBSAs. We note that periodic updating of the 
wage data routinely produces a certain degree of fluctuation in wage 
index values, which would occur even in the absence of a conversion to 
the CBSA-based structure.
    In reviewing the data, we found that updating the wage data by 
itself produced similar levels of fluctuation in wage index values 
under either the MSA or CBSA designations. In general, we found that 
approximately 1 percent of IRFs would experience a decrease of 8 
percent or more in the wage index under either the MSA or CBSA

[[Page 48377]]

designations. However, under the CBSA designations, 57 percent either 
remained the same or had an increase in the wage index. We also 
examined the impact of the wage index if we had remained under the MSA-
based designations. Under this scenario, we find that only 48 percent 
of IRFs would have remained the same or would have had an increase in 
the wage index. Thus, we find that more providers would expect to have 
no change or an increase in the wage index under the CBSA designations. 
We also note that the decrease or increase in the wage index fluctuates 
from year to year based on the updated wage data. Therefore, we are not 
revising our current wage index policy at this time.
    Comment: A few commenters requested that we adopt wage index 
policies like those under the acute inpatient prospective payment 
systems (IPPS). The IPPS wage index policies would allow IRFs to 
benefit from the IPPS reclassification and/or rural floor policies. (A 
discussion of the IPPS reclassification and rural floor policies may be 
found on our Web site at http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp.)
    In addition, we were also urged to use the most recent hospital 
cost report wage data available for FY 2007 instead of the most recent 
final hospital cost report wage data available. Several commenters 
recommended that we engage in wage index discussions with the industry, 
but recognized that legislative action may be necessary to accomplish 
some or all of the changes that they recommended.
    Response: For FY 2007, we did not propose changes in the IRF PPS 
methodology relating to the wage index, either to use more recent 
hospital wage data or to adopt the reclassification or rural floor 
provisions used in IPPS. Therefore, we are not revising the IRF 
methodology described in the FY 2006 IRF PPS final rule. The rationale 
for our current wage index policies may be found in the FY 2006 final 
rule (70 FR 47880, 47927 through 47928). However, we agree that we 
should engage in further discussions with the industry to evaluate 
possible wage index alternatives.
    Final Decision: The FY 2007 wage index will be based solely on the 
CBSA-based labor market area definitions and the corresponding wage 
index (rather than on a blended wage index). We will use the most 
recent final pre-reclassified and pre-floor hospital wage data 
available (FY 2002 hospital wage data) based on the CBSA labor market 
area definitions consistent with the rationale outlined in the FY 2006 
IRF PPS final rule.

D. Description of the Standard Payment Conversion Factor and the 
Payment Rates for FY 2007

    In the FY 2006 final rule (70 FR 47880, 47937 through 47398), we 
revised the IRF regulations text by adding Sec.  412.624(d)(4) to 
indicate that we apply a factor when revisions are made to the tier 
comorbidities and the IRF classification system, the rural adjustment, 
the LIP adjustment, the teaching status adjustment, the hold harmless 
adjustment, or other budget-neutral policies. To clarify, we did not 
propose changes to the rural adjustment of 21.3 percent, the LIP 
exponential factor of 0.6229, or the teaching status adjustment 
exponential factor of 0.9012. They remain as described in the FY 2006 
IRF PPS final rule. As discussed in greater detail in the FY 2007 
proposed rule, because we are not changing these policies, we do not 
need to calculate budget neutrality factors for these policies because 
they are assumed in the FY 2006 standard payment conversion factor.
    As described in the FY 2007 proposed rule, we will apply factors to 
the standard payment amount for the changes that we proposed for FY 
2007, to ensure that estimated aggregate payments in FY 2007 are not 
greater or less than those that would have been made in the year 
without the updates to the wage index and labor-related share, the 
second year of the hold harmless policy, and the revisions to the tier 
comorbidities and relative weights. A description of the methodology 
used to derive the budget neutrality factors for these changes is 
included in our FY 2007 proposed rule. These same steps are used to 
determine the budget neutrality factors that reflect the final policies 
for FY 2007, as discussed in this section below.
    Final Decision: We did not receive any comments regarding the 
methodology used to derive the budget neutrality factors. Therefore, we 
will apply the wage index and labor-related share budget neutrality 
factor of 1.0016 and the budget neutrality factor for the combined hold 
harmless, tier comorbidity, and relative weight changes of 1.0093. 
Please see Table 9 in this final rule to see how these changes are 
estimated to affect payments among different types of facilities. These 
budget neutrality factors are slightly different from the FY 2007 
proposed rule because the market basket and labor-related share are 
based on updated data as described in section V.B of this final rule.
    The standard payment conversion factor of $12,981 and the payment 
rates in Table 6 and Table 7 (respectively) will be used for FY 2007. 
The standard payment conversion factor in this final rule is greater 
than the standard payment conversion factor in the proposed rule 
because we used updated data for the market basket and labor-related 
share and will implement a 2.6 percent reduction instead of a 2.9 
percent reduction to the standard payment amount (as discussed in 
sections V.A and B of this final rule).
    Thus, consistent with Sec.  412.624(d)(4), we apply these factors 
to the standard payment amount in order to make the changes described 
in this final rule in a budget neutral manner for FY 2007. We used the 
methodology described in sections V.A and B of this final rule. We use 
the FY 2006 standard payment conversion factor ($12,762) and apply the 
market basket (3.3 percent), which equals $13,183. Then, we apply a 
reduction to the standard payment amount of 2.6 percent as discussed in 
section V.A of this final rule, which equals $12,840. We then apply the 
budget-neutral wage adjustment of 1.0016 to $12,840, which results in a 
standard payment amount of $12,861.
    Next, we combine the factors for the tier comorbidity and CMG 
relative weight changes (1.0080) and for the second year of the hold 
harmless policy (1.0013) by multiplying the two factors to establish a 
single budget neutrality factor for the two changes (1.0013 * 1.0080 = 
1.0093). We apply this overall budget neutrality factor to the standard 
payment amount of $12,861, resulting in the standard payment conversion 
factor of $12,981 for FY 2007 (Table 6).

    Table 6.--Calculations To Determine the FY 2007 Standard Payment
                            Conversion Factor
------------------------------------------------------------------------
               Explanation for adjustment                  Calculations
------------------------------------------------------------------------
FY 2006 Standard Payment Conversion Factor..............         $12,762
FY 2007 Market Basket Increase Factor...................         x 1.033
                                                         ---------------

[[Page 48378]]

 
    Subtotal............................................       = $13,183
                                                         ---------------
One-Time 2.6% Reduction for Coding Changes..............         x 0.974
    Subtotal............................................       = $12,840
                                                         ---------------
Budget Neutrality Factor for the Wage Index and Labor-          x 1.0016
 Related Share..........................................
    Subtotal............................................       = $12,861
                                                         ---------------
Budget Neutrality Factor for the Hold Harmless Provision        x 1.0093
 and Revisions to the Tier Comorbidities and the CMG
 Relative Weights.......................................
FY 2007 Standard Payment Conversion Factor..............       = $12,981
------------------------------------------------------------------------

    The FY 2007 standard payment conversion factor is applied to each 
of the CMG relative weights shown in Table 4, ``FY 2007 IRF PPS 
Relative Weights and Average Lengths of Stay for Case-Mix Groups,'' to 
compute the unadjusted IRF prospective payment rates for FY 2007 shown 
in Table 7. To clarify further, the budget neutrality factors described 
above would be applied only for FY 2007. However, if necessary, we will 
apply budget neutrality factors in applicable years hereafter to the 
extent that further adjustments are made to the IRF PPS consistent with 
Sec.  412.624(d)(4). Otherwise, the general methodology to determine 
the Federal prospective payment rate is described in Sec.  
412.624(c)(3)(ii).
    The resulting unadjusted IRF prospective payment rates for FY 2007 
are shown below in Table 7, ``FY 2007 Payment Rates.''
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[[Page 48379]]

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[[Page 48380]]


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[[Page 48381]]


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E. Example of the Methodology for Adjusting the Federal Prospective 
Payment Rates

    As described in the FY 2007 proposed rule and in this final rule, 
Table 8 illustrates the methodology for adjusting the Federal 
prospective payments. The examples below are based on two hypothetical 
Medicare beneficiaries, both classified into CMG 0110 (without 
comorbidities). The unadjusted Federal prospective payment rate for CMG 
0110 (without comorbidities) can be found in Table 7 above.
    One beneficiary is in Facility A, a hypothetical IRF located in 
rural Spencer County, Indiana, and another beneficiary is in Facility 
B, a hypothetical IRF located in urban Harrison County, Indiana. 
Facility A, a non-teaching hospital, has a disproportionate share 
hospital (DSH) percentage of 5 percent (which results in a LIP 
adjustment of 1.0309), a wage index of 0.8624, and an applicable rural 
adjustment of 21.3 percent. Facility B, a teaching hospital, has a DSH 
percentage of 15 percent (which results in a LIP adjustment of 1.0910), 
a wage index of 0.9251, and an applicable teaching status adjustment of 
0.109.
    To calculate each IRF's labor and non-labor portion of the Federal 
prospective payment, we begin by taking the unadjusted Federal 
prospective payment rate for CMG 0110 (without comorbidities) from 
Table 7 above. Then, we multiply the estimated labor-related share 
(75.612) described in section V.B by the unadjusted Federal prospective 
payment rate. To determine the non-labor portion of the Federal 
prospective payment rate, we subtract the labor portion of the Federal 
payment from the unadjusted Federal prospective payment.
    To compute the wage-adjusted Federal prospective payment, we 
multiply the result of the labor portion of the Federal payment by the 
appropriate wage index found in the Addendum in Tables 1 and 2, which 
will result in the wage-adjusted amount. Next, we compute the wage-
adjusted Federal payment by adding the wage-adjusted amount to the non-
labor portion.
    To adjust the Federal prospective payment by the facility-level 
adjustments, there are several steps. First, we take the wage-adjusted 
Federal prospective payment and multiply it by the appropriate rural 
and LIP adjustments (if applicable). Then, to determine the appropriate 
amount of additional payment for the teaching status adjustment (if 
applicable), we multiply the teaching status adjustment (0.109, in this 
example) by the wage-adjusted and rural-adjusted amount (if 
applicable). Finally, we add the additional teaching status payments 
(if applicable) to the wage, rural, and LIP-adjusted Federal 
prospective payment rate. Table 8 illustrates the components of the 
adjusted payment calculation.
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[[Page 48382]]

[GRAPHIC] [TIFF OMITTED] TR18AU06.092

BILLING CODE 4120-01-C
    Thus, the adjusted payment for Facility A would be $31,485.53, and 
the adjusted payment for Facility B would be $31,813.23.

VI. Update to Payments for High-Cost Outliers Under the IRF PPS

A. Update to the Outlier Threshold Amount for FY 2007

    A case qualifies for an outlier payment if the estimated cost of 
the case exceeds the adjusted outlier threshold, in which case we make 
an outlier payment equal to 80 percent of the difference between the 
estimated cost of the case and the outlier threshold. In the August 7, 
2001 final rule, we discussed our decision to set the outlier threshold 
amount so that estimated outlier payments would equal 3 percent of 
total estimated payments. In the FY 2007 proposed rule (71 FR 28106), 
we proposed to update the outlier threshold amount to $5,609 in 
accordance with this policy. However, the appropriate outlier threshold 
amount for FY 2007 depends on the other policies, especially the coding 
adjustment, contained in this final rule.
    We received several comments on the proposed update to the outlier 
threshold amount for FY 2007, which are summarized below.
    Comment: Two commenters expressed concerns about the accuracy of 
the FY 2007 estimated outlier payments that we reported in the IRF rate 
setting file posted in conjunction with the FY 2007 proposed rule. They 
stated that in some cases, the information was not consistent with the 
actual outlier payments that they received in FYs 2004 and 2005. The 
commenters asked CMS to re-examine and verify our outlier payment 
calculations and to delay implementing an adjustment to the outlier 
threshold amount for FY 2007 until we can be sure the information is 
correct.

[[Page 48383]]

    Response: We have re-examined our estimated outlier payment 
calculations, and we cannot find any inconsistencies in these 
calculations or with the IRF rate setting data file that we posted on 
the IRF PPS Web site. We did obtain some specific examples from the 
industry, but we did not find that the differences between their 
calculations and ours indicated any inaccuracies in our database. We 
believe two factors might contribute to a particular facility's 
receiving different outlier payments for FYs 2004 and 2005 than the 
outlier payments that we estimate for FY 2007. First, the actual 
outlier payments that providers received in FYs 2004 and 2005 were 
calculated based on the outlier threshold amount at that time, which 
was $11,211. The estimated outlier payments for FY 2007 in the proposed 
rule rate setting file are based on the proposed FY 2007 outlier 
threshold amount of $5,609. Second, we used the most current available 
data on IRFs' cost-to-charge ratios (CCRs) to calculate the estimated 
FY 2007 outlier payments. The CCRs for a particular provider can vary 
widely over time, in part because of the ceiling that we impose on 
them. Thus, a provider's current CCR used in the analysis for the FY 
2007 proposed and final rules could have changed substantially from the 
CCR used to compute the actual outlier payments for FYs 2004 and 2005.
    We note that the information in the IRF rate setting file posted on 
the IRF PPS Web siteis not used to determine payments to providers. The 
fiscal intermediaries determine IRF payments using their own data 
files, including the appropriate CCRs.
    We welcome any specific provider concerns regarding the information 
contained in the IRF rate setting files, and we will work with 
providers to investigate any potential discrepancies in the information 
that we use in our analysis. However, we have not been able to find any 
discrepancies, and we believe that our analysis continues to 
demonstrate the need to update the outlier threshold amount for FY 2007 
to ensure that estimated outlier payments continue to equal 3 percent 
of total estimated payments.
    Comment: A few commenters expressed concerns about the methodology 
that CMS uses to estimate cost and charge growth for the purposes of 
calculating the outlier threshold amount. Two commenters referred to 
alternative methodologies developed by MedPAC and others that had been 
recommended for the IPPS to estimate declining CCRs. The commenters 
encouraged CMS to review our calculations of the outlier threshold 
amount carefully, use more recent data, and consider applying the 
suggested methodological changes to the IRF PPS to ensure that the full 
3 percent of outlier funds is used.
    Response: We have reviewed the comments submitted for consideration 
in the IPPS, and we appreciate the alternative methodologies suggested 
and have considered them carefully. The CCR applied to charges provides 
Medicare with the most accurate measure of a provider's per-case cost 
for the purpose of paying for high-cost outlier cases at the point that 
we process the initial claim. The CCR is based on the providers' own 
cost and charge information as reported by the providers. For the 
purposes of this final rule, we have used the same methodology for 
projecting cost and charge growth that is used in the IPPS and in other 
Medicare payment systems, and we believe that this methodology is 
appropriate for IRFs for the same reasons that it is appropriate for 
IPPS hospitals. This methodology ensures that we pay the appropriate 
amounts over and above the standard PPS payment amount for unusually 
high-cost cases. We intend to consult with IPPS and MedPAC staff on a 
regular basis regarding outlier issues, and will investigate options 
for using more current data to update the outlier threshold amount in 
future years.
    Final Decision: Based on a careful review of the comments that we 
received on the proposed update to the outlier threshold amount for FY 
2007, we are finalizing our decision to update the outlier threshold 
amount for FY 2007 to $5,534. This outlier threshold amount is slightly 
lower than the $5,609 that we proposed, due to the reduction of the 
coding adjustment from the 2.9 percent adjustment that we had proposed 
to the 2.6 percent coding adjustment that we are finalizing in this 
final rule. Because the coding adjustment affects the estimated amount 
of aggregate payments for FY 2007, it also affects our estimate of the 
outlier threshold amount that we estimate will maintain estimated 
outlier payments at 3 percent of total estimated payments.

B. Update to the IRF Cost-to-Charge Ratio Ceilings and Clarification to 
the Regulation Text for FY 2007

    As specified in Sec.  412.624(e)(5), we apply a ceiling to IRFs' 
cost-to-charge ratios (CCRs). In the FY 2007 IRF PPS proposed rule, we 
proposed to update the national average urban and rural CCRs and to 
revise Sec.  412.624(e)(5) to emphasize that we calculate a single 
overall cost-to-charge ratio (combined operating and capital) for IRFs 
because IRF PPS payments are based on a prospective payment per 
discharge for both inpatient operating and capital-related costs. We 
proposed to update the national urban and rural CCRs for IRFs to 0.488 
and 0.613, respectively. However, we noted that these estimates were 
subject to change in this final rule based on updated analysis and 
data.
    We did not receive any comments on the proposed update to the IRF 
cost-to-charge ratio ceilings or clarification to the regulation text 
for FY 2007. However, we updated our analysis using the most recent 
available data. For the proposed rule, we used the FY 2004 cost report 
data compiled by CMS as of December 2005, at which point the FY 2004 
cost reports were about 85 percent complete. For this final rule, we 
have used the FY 2004 cost report data compiled as of March 2006, at 
which point we had about 97 percent of the FY 2004 cost report 
information. Thus, based on the more recent cost report data, we are 
finalizing the national average urban CCR at 0.484 and the national 
average rural CCR at 0.600, as well as our estimate of 3 standard 
deviations above the corresponding national geometric mean, which we 
are finalizing at 1.56 for FY 2007.

VII. Revisions to the Classification Criteria Percentage for IRFs

    In order to be excluded from the acute care inpatient hospital PPS 
specified in Sec.  412.1(a)(1) and instead be paid under the IRF PPS, a 
hospital or rehabilitation unit of an acute care hospital must meet the 
requirements for classification as an IRF contained in subpart B of 
part 412. Section 412.23(b)(2) specifies that an IRF's cost reporting 
period will determine the percentage of the IRF's total inpatient 
population that required intensive rehabilitation services for 
treatment of at least one of the 13 medical conditions listed in the 
regulation. The compliance percentage requirement is commonly known as 
the ``75 percent rule,'' and is one of the criteria that Medicare uses 
for classifying a hospital or a rehabilitation unit of an acute care 
hospital as an IRF.
    On May 7, 2004, we published a final rule (69 FR 25752) that 
specified the compliance percentage requirements that a hospital or 
rehabilitation unit of an acute care hospital must meet during a 
particular cost reporting period in order to be classified as an IRF. 
However, section 5005 of the DRA of 2005 revised the compliance 
percentage requirements in Sec.  412.23(b)(2) that must be met for 
certain cost reporting periods in order for a hospital or 
rehabilitation unit of an acute care hospital to be classified as an 
IRF. Therefore, in order

[[Page 48384]]

to conform the regulations to the DRA, we proposed modifying the 
compliance percentages in Sec.  412.23(b)(2)(i) and (ii) as follows:
     Reducing the compliance threshold that must be met from 65 
to 60 percent for cost reporting periods beginning on or after July 1, 
2006, and before July 1, 2007.
     Reducing the compliance threshold that must be met from 75 
to 65 percent for cost reporting periods beginning on or after July 1, 
2007, and before July 1, 2008.
     Stipulating that an IRF with a cost reporting period 
beginning on or after July 1, 2008, must meet a compliance threshold of 
75 percent.
    In addition to specifying a compliance threshold, Sec.  
412.23(b)(2)(i) currently permits a patient's comorbidity that meets 
certain qualifying criteria as outlined in the regulations to count 
toward satisfying the classification criteria percentage. However, 
Sec.  412.23(b)(2)(ii) currently provides that a patient's 
comorbidities will not be used to determine compliance once the 
transition to the 75 percent compliance level has been completed. Since 
the transition to the 75 percent compliance threshold has been extended 
one year, we also proposed a 1-year extension of the current policy of 
using a patient's comorbidities to the extent they met the conditions 
outlined in our regulations to determine compliance with the 
classification criteria in Sec.  412.23(b)(2)(i). Thus, under our 
proposal, an IRF with a cost reporting period beginning before July 1, 
2008 would be able to use comorbidities to count toward the required 
applicable percentage requirements outlined in the regulations. This 
proposed approach maintains consistency with our current approach with 
respect to the counting of comorbidities before the 75 percent 
threshold applies. We received many comments as summarized below on the 
proposed revisions to the classification criteria.
    Comment: Commenters supported the proposed revisions to the 
compliance thresholds that IRFs must meet for certain cost reporting 
periods. However, most of the commenters requested that we not 
terminate the use of comorbidities to determine the compliance 
percentage once the extended transition period has expired.
    Response: In the May 7, 2004 final rule (69 FR 25752, 25762), we 
stated that we planned to use the phase-in period to the 75 percent 
compliance threshold to evaluate the use of comorbidities for 
determining compliance with the classification percentage criteria. We 
believed that many IRFs probably would have to make adjustments not 
only to their case-mix but to their operating procedures in order to 
respond to changes in the regulations, the methodology for determining 
compliance, and the local coverage policies FIs had or were planning to 
implement. We believed that such adjustments might take some IRFs a 
considerable amount of time. Therefore, we wanted to use the phase-in 
period to the 75 percent compliance threshold to provide administrative 
flexibility so that a case with a comorbidity that met the qualifying 
conditions specified above would be included as part of the IRF 
population used to calculate the compliance percentage.
    As we stated in the May 7, 2004 final rule (69 FR 25752, 25762), we 
will use the phase-in period to the 75 percent compliance threshold to 
evaluate whether the regulations should be revised. As part of that 
evaluation process, we will consider if we should propose to extend the 
time period that comorbidities meeting the qualifying conditions 
outlined in the regulations are included as part of the process that 
determines the compliance percentage. We have not completed our 
analysis on this issue and, thus, because our review is incomplete we 
believe that it is premature to extend beyond the transition period the 
use of a patient's comorbidities in determining if an IRF met the 
compliance threshold.
    Final Decision: Consistent with the proposed rule and the rationale 
discussed above, we are finalizing our proposed policy as set forth in 
this paragraph. In accordance with section 5005 of the DRA, we are 
extending the transition period to the 75 percent compliance threshold, 
as follows: For cost reporting periods starting on or after July 1, 
2006, and before July 1, 2007, the compliance threshold is 60 percent. 
For cost reporting periods starting on or after July 1, 2007, and 
before July 1, 2008, the compliance threshold is 65 percent. For cost 
reporting periods starting on or after July 1, 2008, the compliance 
threshold is 75 percent. Under the authority of section 1886(d)(1)(B) 
of the Act, we are continuing until the end of the extended transition 
period to permit the use of comorbidities that meet the qualifying 
criteria in Sec.  412.23(b)(2)(i)(A) through Sec.  412.23(b)(2)(i)(C) 
to count toward satisfying the required applicable percentages in Sec.  
412.23(b)(2)(i). However, for cost reporting periods starting on or 
after July 1, 2008, comorbidities may not be used when calculating the 
compliance percentage attained by an IRF.

VIII. IRF PPS: Other Issues

A. Integrated Post Acute Care Payment

    In the FY 2007 IRF proposed rule, we described our plans to explore 
refinements to the existing provider-oriented ``silos'' to create a 
more seamless system for payment and delivery of post-acute care (PAC) 
under Medicare. This new model will be characterized by more consistent 
payments for the same type of care across different sites of service, 
quality driven pay-for-performance incentives, and collection of 
uniform clinical assessment information to support quality and 
discharge planning functions. We also noted that section 5008 of the 
DRA provides for a demonstration on uniform assessment and data 
collection across different sites of service. We are in the early 
stages of developing a standard, comprehensive assessment instrument to 
be completed at hospital discharge and ultimately integrated with PAC 
assessments, and the demonstration will enable us to test the 
usefulness of this instrument, and to analyze cost and outcomes across 
different PAC sites.
    Comment: We received several comments from providers and their 
representatives or associations on the post-acute care reform 
demonstration discussion of the May 15, 2006 proposed rule. Most of the 
commenters expressed support for the objective of aligning Medicare 
payment more closely with the clinical characteristics of post-acute 
patients. A number of commenters recommended that developing a common 
patient assessment instrument should be developed collaboratively with 
post acute care providers. Many offered to provide insight on the 
demonstration design and the development of the instrument. The 
commenters noted that the instrument must be capable of taking into 
account the medical and resource needs of individual patients, such as 
functional ability and medical status. One commenter recommended use of 
the IRF-PAI.
    Response: Currently, we are in the early stages of designing the 
instrument and the demonstration. Although it is too early in the 
process to communicate specific details about either the instrument or 
the demonstration design, CMS is committed to including industry 
representatives in various stages of both efforts. We intend to convene 
technical advisory panels with industry representatives at several 
points in the project, including a panel to review the proposed 
assessment instrument once developed, and a panel to assist in 
recruiting providers for the

[[Page 48385]]

demonstration. We will provide status information on the progress of 
the instrument design as well as demonstration progress via CMS public 
Web sites, open door forums, and stakeholder meetings. Further, in 
accordance with section 5008(c) of the DRA, We plan to publish a Report 
to the Congress upon completion of the demonstration and the associated 
analysis.
    Comment: One commenter requested that CMS provide the 
rehabilitation industry with access to the University of Colorado study 
on uniform patient assessment.
    Response: We have made this report publicly available via our 
quality initiatives general information Web site, at http://www.cms.hhs.gov/QualityInitiativesGenInfo/.

B. Transparency and Health Information Technology Initiatives

    The FY 2007 Inpatient Prospective Payment Systems (IPPS) proposed 
rule (71 FR 23996, April 25, 2006) discussed in detail the Health Care 
Information Transparency Initiative and our efforts to promote 
effective use of health information technology (HIT) as a means of 
promoting health care quality and greater efficiency. The IPPS proposed 
rule also discussed several potential options for making pricing and 
quality information more readily available to the public (71 FR 24120 
through 24121). It solicited comments on ways to encourage transparency 
in health care quality and pricing, whether through voluntary 
incentives or through regulatory requirements, and sought comments on 
the Department's statutory authority to impose these requirements. In 
addition, it discussed the potential for HIT to facilitate improvements 
in the quality and efficiency of health care services (71 FR 24100 
through 24101), and the appropriate role of HIT in potential value-
based purchasing programs. The IPPS proposed rule also invited comments 
on the promotion of the use of HIT through Medicare conditions of 
participation.
    Subsequently, in the FY 2007 IRF PPS proposed rule (71 FR 28134 
through 28135, May 15, 2006), we invited comments on the specific 
implications of these initiatives for the IRF PPS. We received a small 
number of comments in response to the FY 2007 IRF PPS proposed rule's 
transparency and HIT discussions. However, as they are all generalized 
comments that are not specific to the IRF setting, we are inviting the 
commenters to refer to the FY 2007 IPPS final rule for full responses 
to comments received on the FY 2007 IPPS proposed rule's comprehensive 
discussions of transparency and HIT.

IX. Miscellaneous IRF PPS Public Comments

    Comment: We received numerous comments requesting that CMS make 
additional IRF data files and software available to the public. The 
commenters specifically requested wage index data, cost report data, 
IRF-PAI data, MEDPAR data, data on facility adjustments, data files 
such as those produced for IPPS hospitals, other data files that CMS 
uses in the analyses that support the proposed and final rules, and the 
software program or software algorithm used by the fiscal 
intermediaries to determine the 75 percent rule presumptive compliance 
percentage.
    Response: The data files mentioned by the commenters are generally 
available (and were generally available during the comment period for 
this final rule) to the public through CMS' standard data distribution 
systems. More information on CMS's data distribution policies is 
available on CMS's Web site at http://www.cms.hhs.gov/researchers/statsdata.asp.
    Regarding the specific files that the commenters mentioned, we post 
the wage index files for the proposed and final rules each year on the 
IRF PPS Web site, along with the rate setting file. The cost report 
data are publicly available on the CMS Web site. The IRF-PAI and the 
MEDPAR data are generally available through CMS' standard data 
distribution systems for patient-level data. We include the data that 
we use in our analysis regarding other facility-level adjustments in 
the IRF rate setting file that is posted on the IRF PPS Web sitein 
conjunction with each proposed and final rule. Data on IRF facility-
level adjustments are also available for download from the CMS Web 
sitein a file called the provider-specific file. We also encourage IRFs 
to contact their fiscal intermediaries regarding the data used to 
compute payments for their particular facilities.
    We are in the process of developing user-friendly specifications 
for the software program used to determine presumptive compliance with 
the 75 percent rule. In the near future, we will post the data 
specifications for the software program on the IRF PPS Web site.
    In addition, we will consult with the IPPS staff and examine the 
data files that are publicly distributed in conjunction with the IPPS 
proposed and final rules. Where feasible, we will make every effort to 
provide additional IRF data files that would be helpful to industry 
representatives and researchers.
    Comment: A few commenters requested that we provide clarification 
on the teaching status and full-time equivalent (FTE) resident cap of a 
facility that converts from a long-term care hospital (LTCH), or 
another type of inpatient facility, to an IRF.
    Response: We did not propose any changes to the IRF teaching status 
adjustment in the FY 2007 proposed rule. Thus, this comment is outside 
the scope of this final rule. However, we intend to issue future 
guidance on the teaching status of facilities that convert to IRFs in 
our standard contractor communication documents. We also intend to 
publish a provider education article on the CMS Medicare Learning 
Network (MLN), and post a clarification of this issue on the IRF PPS 
Web site.
    Comment: We also received other comments that are outside the scope 
of this final rule, such as support for the revisions to the rural and 
LIP adjustments that we implemented in the FY 2006 IRF PPS final rule. 
We also received a comment reiterating a number of concerns with the 
IRF classification revisions that were implemented in the FY 2006 IRF 
PPS final rule, particularly the weighted motor score methodology and 
the revised CMG definitions.
    Response: Although we did not propose any changes to the rural and 
LIP adjustments for FY 2007, we appreciate the commenters' support for 
the changes that we implemented for FY 2006. Regarding the commenter's 
concerns about the weighted motor score methodology and the revisions 
to the CMG definitions implemented for FY 2006, we will carefully 
consider the issues raised by the commenter in our future analyses of 
the IRF classification system.
    Comment: We received a number of general comments on the 75 percent 
rule that are outside the scope of this final rule. For example, 
commenters urged CMS to conduct research to revise the conditions 
contained in the 75 percent rule that are currently considered 
appropriate for treatment in an IRF, saying that these conditions are 
out of date and do not reflect current treatment practices. Commenters 
also urged CMS to conduct research to develop a new method for 
classifying a facility as an IRF. Until such research is completed and 
the 75 percent rule is updated, they requested that CMS stop 
enforcement of the current compliance criteria. The commenters 
generally stated that patients are denied access to care because of the 
75 percent rule, and that patients receive better rehabilitation

[[Page 48386]]

care in an IRF due to better medical management. The commenters urged 
CMS to develop or fund research studies in conjunction with NIH, 
independent researcher, or industry consortiums. In addition to direct 
funding assistance, they recommended ways in which we could support 
these research efforts by either waiving enforcement of the 75 percent 
rule or of local coverage determinations (LCDs) for facilities 
participating in research projects.
    Response: Because the 75 percent rule provisions in the proposed 
rule were limited to the compliance thresholds that IRFs must meet for 
certain cost reporting periods and the extension of the use of 
comorbidities in determining compliance for an additional cost 
reporting period (until the full 75 percent compliance percentage 
becomes effective), these general comments on the 75 percent rule are 
outside of the scope of this final rule. We note that we responded to 
these and other similar comments in the May 7, 2004 (69 FR 25752) final 
rule. However, we continue to be concerned with ensuring that patients 
have access to treatment in the most appropriate settings. Therefore, 
we will continue to monitor patients' access to care carefully and 
will, as warranted, propose additional refinements to our policies in 
the future to ensure that patients continue to have appropriate access 
to care.
    In addition, we are committed to supporting the research effort 
through the development of a series of collaborative relationships. For 
example, we have collaborated with the National Center for Medical 
Rehabilitation Research (NCMRR) of the National Institute of Child 
Health and Human Development at the National Institutes of Health (NIH) 
in convening a panel of rehabilitation experts that reviewed the 
medical literature in order to provide guidance regarding the optimal 
approaches to research. This review found a paucity of relevant studies 
and confirmed the need for additional work to identify the benefits of 
IRF care for different types of patients and to collect comparative 
outcome data across care settings. Since that time, both CMS and NIH 
staff have worked with researchers in an informal advisory capacity to 
support industry efforts to design and run clinical studies. In fact, 
we recently met with the director of the NCMRR to discuss how NCMRR and 
CMS could collaborate in encouraging and sponsoring research, and are 
in the process of developing a set of appropriate research questions 
that can be used to establish a common focus for discussion and design 
of new studies. We were also pleased to learn that industry 
representatives are themselves providing financial support to new 
research efforts. We believe that by working together, we can foster 
clinical studies that meet NIH criteria, and that the results of these 
studies can be used to support a comprehensive review of CMS's methods 
for classifying facilities as IRFs.
    Further, as discussed in section VIII of this final rule, CMS is 
exploring refinements to the existing provider-oriented ``silos'' to 
create a more seamless delivery system for payment and delivery of 
post-acute care (PAC) under Medicare. The new model will be 
characterized by more consistent payments for the same type of care 
across different sites of service. We expect that the knowledge gained 
through this initiative will also help us to understand the 
similarities and differences among post-acute care settings.

X. DMEPOS Competitive Bidding Implementation Provisions and 
Accreditation for DMEPOS Suppliers

A. Implementation Contractor

1. Legislative Provisions
    Section 1847(b)(9) of the Act provides that the Secretary may 
contract with appropriate entities to implement the Medicare DMEPOS 
Competitive Bidding Program. Section 1847(a)(1)(C) of the Act also 
authorizes the Secretary to waive such provisions of the Federal 
Acquisition Regulation (FAR) as are necessary for the efficient 
implementation of this section, other than provisions relating to 
confidentiality of information and such other provisions as the 
Secretary determines appropriate.
2. Provisions of the May 1, 2006 Proposed Rule
    In the May 1, 2006 proposed rule (71 FR 25661), we proposed to 
designate one or more competitive bidding implementation contractors 
(CBICs) for the purpose of implementing the Medicare DMEPOS Competitive 
Bidding Program (proposed Sec.  414.406(a)). In addition, we specified 
that the Secretary is exercising his authority under section 
1847(a)(1)(C) of the Act to waive all requirements of the FAR, other 
than provisions dealing with confidentiality, because of the need for 
expeditious implementation of a program of this significance and 
magnitude. However, we stated that the Secretary's exercise of 
discretion on this issue would not preclude us from voluntarily using 
or adapting certain provisions of the FAR for purposes of the Medicare 
DMEPOS Competitive Bidding Program.
    We stated in the proposed rule that we envision that the Medicare 
DMEPOS Competitive Bidding Program will have six primary functions, 
including overall oversight, operation design functions (including the 
design of both bidding and outreach material templates, as well as 
program processes), bidding and evaluation, access and quality 
monitoring, outreach and education, and claims processing. We also 
stated that we considered the organizational structure and requirements 
necessary to conduct these functions, and chose to exercise our 
contracting authority under section 1847(b)(9) of the Act and contract 
with one or more CBICs to assist us with many of these functions.
    In the proposed rule, we described several options that we 
considered in designing the most appropriate framework for implementing 
the Medicare DMEPOS Competitive Bidding Program. As the implementation 
of competitive bidding involves many functions that are time limited 
and require specialized skills (for example, setting up bidding areas, 
reviewing bids, and setting single payment amounts), we believe that it 
would be prudent initially to implement most aspects of the Medicare 
DMEPOS Competitive Bidding Program through one or more CBICs. 
Processing of Medicare claims for most DMEPOS is currently done by two 
DME regional carriers (DMERCS) and two DME Medicare Administrative 
Contractors (DME MACs). We note that we are currently in the process of 
transitioning from DMERCs to DME MACs. For purposes of consistency, 
from this point forward, we will be referencing the DME regional 
carriers as DME MACs. Under our proposal, the DME MACs would process 
claims for DMEPOS items subject to competitive bidding. We also stated 
that we had evaluated the anticipated feasibility and cost of using one 
or more implementation contractors to assist us with implementing the 
Medicare DMEPOS Competitive Bidding Program, concentrating on the 
potential for capturing economies of scale and scope, program 
consistency, existing resources and infrastructure, and the viability 
of implementation under the timeframe mandated by section 1847(a)(1)(B) 
of the Act.
    We proposed to contract with one or more CBICs to conduct some 
program functions at a national level and interact with the DME MAC 
contractors. Specifically, we envisioned that the CBIC(s) would conduct 
certain functions related to competitive bidding, such as preparing the 
request for bids (RFB), performing bid evaluations, selecting qualified

[[Page 48387]]

suppliers, and setting single payment amounts for all competitive 
bidding areas. In addition, the CBIC(s) would be charged with educating 
the DME MACs on the bidding process and procedures. The CBIC(s) would 
also assist CMS and the DME MACs in monitoring program effectiveness, 
access, and quality. The DME MACs would continue to provide outreach 
and education to beneficiaries and suppliers in their regions, process 
claims, apply the single payment amounts set by the CBIC(s) for each 
competitive bidding area, and continue to be responsible for complaints 
related to claims processing. We would continue to be responsible for 
overall oversight as well as policy-related outreach and education to 
the CBIC(s), DME MACs, suppliers, and beneficiaries.
    We stated that in our view, this approach would achieve economies 
of scale, since the responsibility for producing program materials and 
evaluating bids would rest with the CBIC(s). As a result, we believed 
that this approach would both lower costs and ensure regional 
consistency in that the responsibility would not be divided between 
various entities.
    We also discussed two other alternatives that we had considered for 
implementation of the Medicare DMEPOS Competitive Bidding Program. The 
first was to have each DME MAC conduct competitive bidding in its 
respective area and be responsible for all activities related to 
competitive bidding. The second alternative was to have the CMS 
Consortium Contractor Management Officer (CCMO)/Regional Offices (RO) 
and DME MACs implement the program. However, we stated that we believed 
that by using one or more specialized CBICs, we could successfully 
implement and effectively manage this program.
3. Public Comments Received and Our Responses
    Comment: Two commenters support our decision to use competitive 
bidding implementation contractor(s) to implement the program. Another 
commenter stated that selecting and announcing implementation 
contractors are essential tasks for starting the Medicare DMEPOS 
Competitive Bidding Program.
    Response: We agree. We expect to award one or more contracts to 
appropriate entities in order to assist us in implementing this 
program.
    Comment: Several commenters expressed concern that we proposed to 
use our authority under section 1847(a)(1)(C) of the Act to waive all 
of the provisions of the Federal Acquisition Act (FAR), except those 
dealing with confidentiality of information. The commenters suggested 
that this waiver would lead to bidders using dishonest tactics and 
would result in inferior DMEPOS items and services being furnished to 
beneficiaries.
    Response: After considering these comments and the best interest of 
the program, we have decided to apply the FAR to the CBIC for this 
instance. In this final rule, we are only responding to comments as 
they relate to the procurement of CBIC services. Section 1847(a)(1)(C) 
of the Act allows the Secretary to waive such provisions of the FAR as 
are necessary for the efficient implementation of the Medicare DMEPOS 
Competitive Bidding Program. We have determined that it is currently 
unnecessary for the efficient implementation of this program to waive 
the FAR to procure the CBIC(s) services.
    Comment: One commenter asserted that we should strictly limit the 
use of CBICs to ensure responsiveness to small businesses. The 
commenter expressed concern that there could be situations in which 
neither we nor the CBICs would be clearly responsible for making 
important decisions. Such situations could be particularly problematic 
for small businesses with limited resources. This commenter further 
stated that there must be appropriate oversight and accountability if 
we choose to proceed with the use of one or more CBICs.
    Response: We continue to believe that it is necessary and 
appropriate for us to use one or more CBIC(s) to assist in implementing 
the Medicare DMEPOS Competitive Bidding Program. We agree that it is 
important to establish clear lines of responsibility and accountability 
for the CBIC(s). As we indicated in the proposed rule, we will be 
responsible for overall oversight of the CBIC(s). We expect that the 
CBIC(s) will conduct certain functions, such as developing and 
implementing an ombudsman program to provide education and assistance 
to stakeholders involved in the program, and developing and 
implementing a monitoring process to ensure that complaints will be 
addressed and resolved in a timely manner. The CBIC duties will be 
fully detailed in the final CBIC contract(s).
    Comment: One commenter was unclear as to how the CBIC(s) and DMERCs 
will interact in terms of development of policy. The commenter noted 
that the contractors must work together, and with us, to ensure that 
beneficiaries have access to all of the recertification/retesting 
requirements that may be implemented as a result of competitive 
bidding.
    Response: We will require the CBIC(s) to develop and maintain 
strong relationships with all appropriate Medicare contractors to 
ensure that all interested parties have the necessary education and 
access to the requirements and guidelines set forth for the Medicare 
DMEPOS Competitive Bidding Program. We also intend to work closely with 
the CBIC(s) and to engage in our own efforts to educate suppliers on 
the specifics of this program. In terms of the interaction between the 
CBIC(s) and the DME MACS, we have previously stated that the CBIC(s) 
will be responsible for certain functions related to competitive 
bidding, such as preparing the request for bids, performing bid 
evaluations, and setting single payment amounts for items furnished 
under the program, and the DME MACs will be responsible for claims 
processing. Although the CBIC(s) and the DME MACs will be interacting 
on a number of functions, such as educating the public about the 
program and conducting monitoring activities, we would be responsible 
for overall oversight and policy development under the program. To the 
extent that the commenter referenced recertification/retesting 
requirements, we believe that the commenter is referring to the need 
for physicians and treating practitioners to, on some occasions, 
provide new documentation and certification to a supplier that a DMEPOS 
item furnished to a beneficiary remains medically necessary. We would 
like to clarify that we are not developing recertification or retesting 
requirements for the Medicare DMEPOS Competitive Bidding Program, and 
that the implementation of the program would not change or alter any 
existing certification requirements.
    Comment: One commenter noted that the CBIC is a vital part of the 
entire process and that suppliers need to know more about the 
credentialing process for the CBIC and what type of authoritative power 
it will possess.
    Response: As noted above, we will follow FAR requirements and 
engage in a full and open competition to procure the CBIC services in 
this instance. We will also provide the CBIC(s) with guidelines and 
roles for implementing the competitive bidding program. Also, as we 
noted above, we will monitor and review all CBIC functions on a 
consistent basis to ensure that the CBIC(s) is performing its intended 
functions. In addition, we will be providing an intensive education 
program for suppliers to inform them about the Medicare DMEPOS 
Competitive Bidding Program. This

[[Page 48388]]

educational program will inform suppliers in the competitive bidding 
areas about the Medicare DMEPOS Competitive Bidding Program as well as 
functions of the CBIC(s).
    Comment: One commenter noted that we should utilize multiple CBICs 
to ensure that correct and effective implementation of the competitive 
bidding program is guaranteed and that cost savings to the Medicare 
program is a priority.
    Response: We appreciate the comment and will take it into 
consideration as we evaluate the most cost-efficient and productive way 
to procure CBIC services.
    Comment: One commenter requested that we define the quantitative, 
objective measures and evaluation tools that the CBIC(s) will use in 
evaluating the bids submitted by suppliers.
    Response: Bid evaluation methodology will be addressed in a future 
rulemaking. We will ensure that the CBIC uses appropriate methodologies 
and tools to evaluate bids.
    Comment: One commenter recommended that we eliminate regional 
inconsistencies and that the CBIC should be established, structured, 
and managed to ensure national consistency.
    Response: We agree. When we implement the competitive bidding 
program, it is our goal to implement it consistently in each 
competitive bidding area. We will accomplish this by requiring the 
CBIC(s) to apply the same methodologies and policies that are adopted 
for the Medicare DMEPOS Competitive Bidding Program in each competitive 
bidding area.
    Comment: Several commenters recommended that we ensure that any 
CBIC entity avoids any potential conflict of interest. Several 
commenters gave the same example of a conflict of interest as the CBIC 
also being a private payor that negotiates directly with DME suppliers 
in a managed care context.
    Response: We agree that we should take steps in procuring CBIC 
services to ensure that the CBIC(s) do not have any potential conflicts 
of interest that could interfere with their ability to fulfill their 
contract obligations. For example, we plan to specify in the CBIC 
contract that the CBIC contractor shall not, throughout the duration of 
the contract, use information received as a result of the Medicare 
DMEPOS Competitive Bidding Program for any purpose other than for 
purposes of fulfilling its contract obligations, unless that 
information is otherwise publicly available. We believe it is in the 
best interest of the public as well as the Federal government that 
there are no conflicts of interest between the CBIC(s) and other 
entities.
    Additionally, we note that the FAR, in Subpart 9.5, Organizational 
and Consultant Conflicts of Interest (OCI) requires the contracting 
officer to identify, evaluate, neutralize, or mitigate any potential 
OCIs prior to award. The FAR Subpart seeks to avoid any conflict of 
interest that, among other considerations, will bias a contractor's 
judgment.
    Comment: Several commenters asked a variety of questions related to 
the CBIC selection process and performance evaluation. Specifically, 
one commenter asked what criteria will be used to select the CBIC. 
Another commenter asked how CMS would audit the CBIC's performance. 
Another commenter asked what the service expectations were of the CBIC 
relative to educating the DMERCs and suppliers.
    Response: As noted in our response to a previous comment, we are 
currently following the requirements of the FAR in procuring and 
monitoring the CBIC(s). Some examples of the CBIC functions and service 
expectations were discussed above and will be addressed in the final 
CBIC contract(s). We will evaluate the CBIC performance in accordance 
with the FAR and agency procedures annually and at the time the work 
under the contract(s) is completed.
    Final Decision: After consideration of the public comments 
received, we are finalizing at this time two paragraphs of proposed 
Sec.  414.406. First, we are finalizing proposed Sec.  414.406(a), 
which allows us to designate one or more CBICs for the purpose of 
implementing the Medicare DMEPOS Competitive Bidding Program. Second, 
we are finalizing proposed Sec.  414.406(e), which codifies our 
proposal to have the regional carrier (now referred to as a DME MAC) 
that would otherwise be processing claims for a particular geographic 
region also process claims for items furnished under a competitive 
bidding program in the same geographic region. We will respond to any 
comments that we receive on our proposals related to proposed 
Sec. Sec.  414.406(b)-(d), as well as comments that relate to other 
issues related to implementing the Medicare DMEPOS Competitive Bidding 
Program in a future rulemaking.

B. Education and Outreach

1. Supplier Education
    In the May 1, 2006 proposed rule (71 FR 25683 through 25684), we 
provided a discussion of our plans to undertake a proactive education 
campaign to provide all suppliers with information about the Medicare 
DMEPOS Competitive Bidding Program, bidding timelines, and bidding and 
program requirements. We stated that the goal of this campaign is to 
make it as easy as possible for suppliers to submit bids.
    To ensure that suppliers have timely access to accurate information 
on competitive bidding, we stated that we planned to instruct the CBIC 
and the DME MACs to provide early education and resources to suppliers, 
referral agents, beneficiaries, and other providers who service a 
competitive bidding area. Customer service support, ombudsman networks, 
and the claims processing system would all be used to notify and 
educate all parties regarding competitive bidding. The CBIC(s) would be 
instructed to utilize data analysis in tailoring outreach to those that 
will be directly affected by competitive bidding.
    We also indicated that, after the release of bidding instructions, 
we would hold bidders conferences that would provide an open forum to 
educate suppliers and allow us to disseminate additional information. 
We stated that more information on the bidders conferences and other 
competitive bidding activities would be available on our Web site at 
http://www.cms.hhs.gov/center/dme.asp. We note that this is an updated 
Web site address that is different from the one that was listed in the 
proposed rule.
    We additionally indicated that each DME MAC would include 
discussions and updates on competitive bidding as part of its existing 
outreach mechanisms. We stated that the fundamental goal of our 
supplier educational outreach is to ensure that those who supply DMEPOS 
products to Medicare beneficiaries receive the information they need in 
a timely manner so that they have an understanding of the program and 
our expectations.
    Comment: One commenter agreed with our overall plan to use the 
CBIC, regional carriers, customer service support, and the claims 
processing system to notify and educate all parties regarding 
competitive bidding.
    Response: We appreciate this comment. We continue to expect to use 
these resources as part of our education and outreach efforts.
    Comment: One commenter suggested that we conduct extensive outreach 
to the supplier community so that suppliers can understand what is 
required of them in submitting bids. Other commenters expressed concern 
about our ability to communicate with suppliers within the initial ten 
MSAs and with suppliers that may have small

[[Page 48389]]

operations within an MSA but may be part of a larger organization 
located outside of that MSA.
    Response: We plan to conduct an extensive education and outreach 
campaign to educate suppliers about the Medicare DMEPOS Competitive 
Bidding Program and to facilitate understanding of competitive bidding 
implementation efforts. We are committed to educating suppliers about 
this program as part of our ongoing educational efforts. Bidders 
conferences will be part of the educational process for those suppliers 
that are interested in bidding. At these conferences, we expect to 
provide information about the Medicare DMEPOS Competitive Bidding 
Program, such as technical details about the bidding forms and the 
process for submitting bids. These conferences will be open to all 
suppliers interested in learning the bid submission process, regardless 
of whether they are located in one of the ten initial areas that we 
designate as competitive bidding areas. In addition, we plan to utilize 
other educational tools, which may include a Medicare Learning Network 
Webpage dedicated to DMEPOS competitive bidding, contractor bulletins, 
etc., to disseminate information about the program as widely as 
possible. Further, we plan to work closely with the CIBC(s) that we 
designate, as well as the DME MACs, so that they are properly equipped 
to both educate suppliers about the program and to respond to 
questions.
    Comment: One commenter urged us to include specific educational 
requirements that address each of the components that will be included 
in the composite bid that will create the single payment amount for 
each item. The commenter noted that such components would include, for 
example, the cost of equipment, training, supplies, transportation of 
the device, and beneficiary education on safe use of the equipment, 
etc. The commenter was concerned that if suppliers are not educated 
regarding what to include in their bids, then they might not submit 
bids that actually reflect all of the components that make up the safe 
operation of a piece of durable medical equipment in a beneficiary's 
home.
    Response: We agree that all suppliers must be educated on what is 
to be included in their bid prices for competitively bid products. As 
part of our education and outreach campaign, we will inform suppliers 
of the items and services that they should include in their bids, such 
as training, supplies, transportation of the device, beneficiary 
education on safe use of the equipment, etc.
    Comment: One commenter agreed that bidders conferences should be 
held to provide an open forum for suppliers to exchange information 
with us. One commenter requested information on the logistics for the 
bidders conferences. A commenter suggested that it might be helpful to 
allow suppliers who will be introduced to competitive bidding in 2009 
to speak with those suppliers who were introduced in 2007.
    Response: We will provide logistical information about bidders 
conferences as soon as it becomes available. We expect to make this 
information available on the CMS Web site and elsewhere, as 
appropriate. The purpose of the bidders conferences is to provide 
information about the Medicare DMEPOS Competitive Bidding Program, such 
as technical details about the bidding forms and the process for 
submitting bids. However, we encourage suppliers that participate in 
competitive bidding in 2007 to share their experiences with suppliers 
that plan to participate in future competitive bidding rounds.
    Comment: One commenter suggested that the CMS Web sitebe revamped 
to make it more user-friendly, in order for beneficiaries to easily 
access publications.
    Response: We recognize the importance of having a high-quality, 
helpful Web site. We plan to make our Web site as user-friendly as 
possible.
    Comment: A commenter recommended that the PAOC review any 
educational materials that relate to the DMEPOS Competitive Bidding 
Program to ensure that appropriate communications are sent to 
suppliers.
    Response: The Program Advisory and Oversight Committee (PAOC) meets 
periodically to review policy considerations and issues that we are 
considering with respect to the Medicare DMEPOS Competitive Bidding 
Program. The PAOC will continue to be available to provide us with 
advice until the end of 2009. We are using the PAOC for advice on 
implementation of the program and intend to take PAOC advice we have 
received into consideration when developing educational materials. 
Additional information about the PAOC can be found at 71 FR 25658.
    Comment: Several commenters suggested that competitive bidding 
education must be provided to suppliers' referral sources, such as home 
health agencies, health insurance companies, HMOs, hospitals, physical 
and occupational therapists, and others. The commenters also believed 
that we should hold educational sessions for suppliers to ensure 
consistency in the way beneficiaries are educated and in the 
information they are provided. They suggested that we provide materials 
that can be used by suppliers to educate beneficiaries effectively 
about the Medicare DMEPOS Competitive Bidding Program. Additionally, 
they indicated that we should not depend solely on either suppliers or 
our Web siteto educate beneficiaries and that we should hold town hall 
meetings in each competitive bidding area (CBA) to ensure that 
beneficiaries and referral sources are knowledgeable about the 
competitive bidding program. One commenter requested that we 
collaborate with industry groups to develop appropriate communications 
to be sent to suppliers to minimize confusion in the supplier 
community. One commenter suggested that we make a concerted effort to 
educate non-contract suppliers in an MSA and suppliers in non-
competitively bid areas.
    Response: We plan to conduct an extensive education and outreach 
campaign to educate beneficiaries, suppliers, and referral agents about 
the Medicare DMEPOS Competitive Bidding Program. Our outreach strategy 
will be designed to ensure that information is consistent, readily 
available, and disseminated through a variety of information sources. 
We discuss our plans for beneficiary education in section X.B.2 of this 
final rule.
2. Beneficiary Education
    As we stated in the May 1, 2006 proposed rule (71 FR 25684), the 
Medicare DMEPOS Competitive Bidding Program will have an impact on the 
beneficiaries who receive DMEPOS items in a competitive bidding area 
(CBA). Competitive bidding represents a new way for Medicare 
beneficiaries to receive their DMEPOS products and for setting payment 
for DMEPOS items; therefore, we believe that education is important to 
the success of the program.
    We outlined our plans to educate beneficiaries utilizing numerous 
approaches. For example, we stated that our press office might consider 
creating press releases and fact sheets for each CBA. In addition, 
notices could provide summaries of competitive bidding, background 
information, and objectives of the competitive bidding program. 
Publications might also be available on the CMS Web sites, and from 
local contractors and the DME MACs.
    We stated that we believe it is important for beneficiaries to 
learn about the benefits of the Medicare DMEPOS Competitive Bidding 
Program, such as lower out-of-pocket expenses and increased quality of 
products, from

[[Page 48390]]

suppliers that have completed the detailed selection process that CMS 
will require under the program. We also expect that the implementation 
of quality standards and accreditation requirements for DMEPOS 
suppliers will result in higher quality items and services being 
furnished to beneficiaries.
    Comment: A few commenters stated that they appreciate our 
commitment in providing a proactive education approach. One commenter 
indicated that beneficiary education will be critical to the success of 
the program.
    Response: We agree with the commenters and recognize the importance 
of an extensive education and outreach campaign to educate 
beneficiaries, suppliers, and referral agents about the DMEPOS Medicare 
Competitive Bidding Program.
    Comment: One commenter encouraged us to provide beneficiary 
education and outreach for beneficiaries with diabetes. The commenter 
noted that ensuring that beneficiaries have access to their diabetic 
supplies and remain compliant with their diabetes self-management 
programs, as well as ensuring that beneficiaries understand the proper 
procedures for obtaining supplies while away from home, are two areas 
where aggressive education and outreach efforts are needed.
    Response: We agree that a comprehensive education program is 
necessary to ensure the success of the Medicare DMEPOS Competitive 
Bidding Program. We plan to conduct an aggressive education and 
outreach campaign for all beneficiaries, including those who have 
diabetes, to ensure that they understand competitive bidding and have 
sufficient access to contract suppliers that can furnish the items they 
need.
    Comment: A commenter indicated that many Medicare beneficiaries 
temporarily change their residences during the course of a year, and 
thus may find themselves outside of a specified competitive bidding 
area for several months at a time. The commenter urged us to establish 
a system to ensure that all beneficiaries will continue to have access 
to their suppliers even while residing outside of their permanent 
domiciles.
    The commenter suggested that this plan should require that 
suppliers aggressively educate beneficiaries on the proper procedures 
for obtaining their supplies while away from home, and should allow 
beneficiaries to purchase extra supplies for extended vacations or 
temporary changes of residence. Further, the commenter noted that this 
plan should allow beneficiaries to purchase their supplies from non-
contract suppliers in the event of an emergency.
    Response: We expect that our educational program will address the 
issue of beneficiaries who temporarily change their residence during 
the course of the year. We will address in a future final rule the 
portions of this comment pertaining to emergency situations and the 
proposed policy for ensuring that beneficiaries who maintain a 
permanent residence in a competitive bidding area but travel outside 
the area have sufficient access to items while traveling.
    Comment: One commenter stated that CMS should clearly specify in 
the final rule, or require CBICs to identify, the necessary telephone 
and internet resources that beneficiaries may use to raise questions 
and concerns related to the competitive bidding program.
    Response: We agree that beneficiaries need to have access to 
appropriate resources on the Medicare DMEPOS Competitive Bidding 
Program. We note that we are in the process of developing our education 
and outreach campaign. We expect to identify appropriate telephone and 
internet resources for beneficiaries to use, which may include 1-800-
MEDICARE and www.medicare.gov. Future guidance on this will be 
forthcoming as we move into the education and outreach phase of 
competitive bidding.
    Comment: Some commenters recommended that a comprehensive education 
process be organized and put in place before implementation of the 
Medicare DMEPOS Competitive Bidding Program. A commenter stated that 
competitive bidding will drastically alter the way beneficiaries 
receive needed medical products and supplies.
    Response: We plan to conduct an educational campaign for suppliers, 
beneficiaries, and referral agents before we begin the Medicare DMEPOS 
Competitive Bidding Program. We agree that this program may change the 
way beneficiaries receive needed DMEPOS items and the payment amount 
for these items, but note that beneficiaries will continue to have 
sufficient access to needed DMEPOS items and services under the 
program.
    Comment: A few commenters stated concerns about the enormity of 
communicating to all referral sources and our ability to communicate 
effectively with beneficiaries, particularly when they are traveling. A 
commenter believed that beneficiaries will not understand the DMEPOS 
Competitive Bidding Program. The commenter requested that we define and 
publish plans for communicating information about implementing the 
program.
    Response: Our outreach strategy will have a consistent message that 
is readily available and disseminated using a variety of tools, 
techniques, and informational sources. We also expect to use 
appropriate educational resources to educate beneficiaries on the 
specifics of the program. These resources might include 1-800-MEDICARE 
and www.medicare.gov. In addition, we are exploring the possibility of 
working with beneficiary organizations and local groups to conduct 
beneficiary outreach and develop beneficiary-focused communications. We 
also plan on coordinating a proactive outreach campaign at the 
national, regional and state levels in which we expect to provide 
accurate, reliable, relevant, and understandable information about the 
Medicare DMEPOS Competitive Bidding Program. Through these activities, 
we anticipate being able to sufficiently educate beneficiaries on what 
they need to know in order to obtain DMEPOS items and services under 
the program.
    Comment: One commenter indicated that special attention should be 
given to inner city, minority, and low income populations who may be 
more difficult to contact than the population at large.
    Response: We understand that Medicare beneficiaries are an 
extremely diverse population with different educational needs. We will 
consider this diversity in developing and implementing our education 
and outreach program.
    Comment: One commenter recommended that we publish supplier 
customer satisfaction survey results and/or statistics on quality 
measures to assist beneficiaries in making informed decisions regarding 
contract supplier selection. The commenter also stated that we should 
not mislead beneficiaries by stating that one focus of our education 
efforts toward beneficiaries will be the increased quality of products 
that beneficiaries will be receiving as a result of competitive 
bidding.
    Response: We will be monitoring beneficiary satisfaction under the 
Medicare DMEPOS Competitive Bidding Program and are in the process of 
determining how best to measure it. We expect that implementing DMEPOS 
quality standards and accreditation will lead to increased quality of 
items and services throughout the DMEPOS industry. Therefore, we 
believe it is accurate to indicate in our education campaign that 
beneficiaries will receive improved quality DMEPOS items and services 
under the Medicare DMEPOS Competitive Bidding Program. We also note 
that we expect to see this improved

[[Page 48391]]

quality not just in the DMEPOS items and services that are furnished by 
contract suppliers under the Medicare DMEPOS Competitive Bidding 
Program, but in the items and services furnished by all accredited 
DMEPOS suppliers.
    Comment: A commenter suggested that we should target direct mail or 
disseminate information through high-Medicare-volume physician offices 
rather than through expensive direct-to-consumer television or media 
advertising. A commenter suggested that we rely on the homecare 
supplier community to educate beneficiaries.
    Response: We are in the process of finalizing our education and 
outreach plan. We will consider the suggestion to engage physicians and 
the homecare supplier community in our efforts to disseminate 
information through physicians as we move forward with this plan. 
However, we note that the education and outreach strategy will have a 
consistent message that is readily available and disseminated through a 
variety of tools, techniques, and information sources.
    Comment: One commenter suggested that we use webinars (interactive 
Web-based seminars) and teleconferences to provide education on the 
competitive bidding program. The commenter suggested that the education 
and outreach program start sooner rather than later.
    Response: We are in the process of finalizing our education and 
outreach campaign and will consider using webinars and teleconferences 
as part of our overall approach to disseminate information as widely as 
possible. We expect to disseminate our message timely through a variety 
of tools, techniques, and informational sources.
    Comment: A commenter expressed concern that beneficiaries would not 
know about the implications of the DMEPOS Competitive Bidding Program 
until such time as they attempt to obtain a particular item. Since many 
beneficiaries are not able to go to a pharmacy, the commenter observed 
that we have a significant challenge in educating beneficiaries and 
their caregivers about the program. The commenter also asserted that 
beneficiaries should know that the type and quality of DMEPOS items and 
services they receive under the program might be different from the 
ones they are currently using. The commenter added that beneficiary 
education materials should provide information on these important 
facts, and not just on the benefits of competitive bidding.
    Response: Our objective will be to inform beneficiaries timely 
about all of the changes that will affect them as a result of the 
Medicare DMEPOS Competitive Bidding Program. We are aware of the 
challenges we face in ensuring that beneficiaries understand the 
program prior to attempting to obtain items. As we have noted above, 
our outreach strategy is to create a consistent message that is 
disseminated through a variety of tools, techniques and information 
sources. We also expect that as a result of implementing quality 
standards and accreditation requirements for all DMEPOS suppliers, 
including suppliers that participate in competitive bidding, 
beneficiaries will be able to obtain high quality DMEPOS items and 
services under the program.

C. Quality Standards for Suppliers of DMEPOS

    Section 302(a)(1) of the MMA added section 1834(a)(20) to the Act, 
which requires the Secretary to establish and implement DMEPOS quality 
standards for suppliers of certain items, including consumer service 
standards, to be applied by recognized independent accreditation 
organizations. Suppliers of DMEPOS must comply with the quality 
standards in order to furnish any item, for which payment is made under 
Part B, and to receive and retain a supplier billing number used to 
submit claims for reimbursement for any such item for which payment may 
be made under Medicare. Section 1834(a)(20)(D) of the Act requires us 
to apply these DMEPOS quality standards to suppliers of the following 
items for which we deem the DMEPOS quality standards to be appropriate:
     Covered items, as defined in section 1834(a)(13) of the 
Act, for which payment may be made under section 1834(a);
     Prosthetic devices and orthotics and prosthetics described 
in section 1834(h)(4)of the Act; and
     Items described in section 1842(s)(2) of the Act, which 
include medical supplies; home dialysis supplies and equipment; 
therapeutic shoes; parenteral and enteral nutrients, equipment, and 
supplies; electromyogram devices; salivation devices; blood products; 
and transfusion medicine.
    Section 1834(a)(20)(E) of the Act explicitly authorizes the 
Secretary to establish the DMEPOS quality standards by program 
instruction or otherwise after consultation with representatives of 
relevant parties. After consulting with a wide range of stakeholders, 
we determined that it was in the best interest of the industry and 
beneficiaries to publish the DMEPOS quality standards through program 
instructions and select the accreditation organizations in order to 
ensure that suppliers that want to participate in competitive bidding 
will know what DMEPOS quality standards they must meet in order to be 
awarded a contract.
    After consultation with a wide range of stakeholders, we published 
the draft DMEPOS quality standards on the CMS Web site at http://
www.cms.hhs.gov/CompetitiveAcqforDMEPOS/ and provided for a 60-day 
public comment period. We received more than 5,600 public comments on 
the draft quality standards. After careful consideration of all 
comments, these quality standards will be published shortly on the CMS 
Web site. They will be available at http://www.cms.hhs.gov/competitiveAcqforDMEPOS/. The DMEPOS quality standards will become 
effective for use as part of the accreditation selection process when 
posted on the Web site. The quality standards will be applied by the 
accreditation organizations, and all suppliers of DMEPOS and other 
items to which section 1834(a)(20) of the Act applies will be required 
to meet them as part of the accreditation process.
    As is authorized under section 1834(a)(20)(E)of the Act, we will be 
establishing the DMEPOS quality standards through program instruction 
and will publish them on our Web site. Although we previously stated 
that we would propose to address DMEPOS supplier requirements for 
enrollment and enforcement procedures in a future rule, we do not plan 
on issuing another rule concerning these issues at this time.
    Comment: Several commenters expressed concern that the quality 
standards had not yet been issued in final form. One commenter stated 
that issuing final quality standards and selecting accreditation 
organizations are essential tasks for starting the competitive bidding 
program. A commenter requested that we extend the comment period on the 
May 1, 2006 proposed rule for 120 days so that the commenter could 
develop detailed responses to a number of issues raised in the proposed 
rule, including the finalization of quality standards and the impact of 
the proposed rule on coordination of care. Other commenters suggested 
that we should provide additional time for suppliers to analyze the 
quality standards in conjunction with our proposed rule on competitive 
bidding and to identify criteria we will use to identify accrediting 
bodies.
    Response: We agree that the quality standards are a key factor in 
ensuring the success of the Medicare DMEPOS Competitive Bidding 
Program. We have provided for extensive opportunity for public input on 
the quality standards. In

[[Page 48392]]

addition to seeking the advice of the Program Advisory and Oversight 
Committee (PAOC), discussed in more detail in the May 1, 2006 proposed 
rule at 71 FR 25658, we posted the draft quality standards on our Web 
site on September 26, 2005 for a public comment period that ended 
November 28, 2005. After careful consideration of all comments, these 
quality standards will be published on the CMS Web site at http://www.cms.hhs.gov/competitiveAcqforDMEPOS/. The DMEPOS quality standards 
will become effective for use as part of the accreditation selection 
process when posted on the Web site. We believe that this public 
process provided sufficient opportunity for stakeholders to comment on 
the draft quality standards and do not believe that granting an 
extension of the comment period on the May 1, 2006 proposed rule or 
additional time to comment on the draft quality standards themselves is 
necessary.
    Comment: Several commenters suggested that we not implement 
competitive bidding until we issue quality standards and select 
accreditation organizations. Commenters also specifically suggested 
that we should not select the 10 MSAs for the first phase of 
competitive bidding until we issue quality standards and select 
accreditation organizations.
    Response: As noted earlier, we expect to issue the quality 
standards in the near future. We expect to identify the 10 competitive 
bidding areas in which competitive bidding will take place after we 
publish a future final rule on the Medicare DMEPOS Competitive Bidding 
Program. Our proposals for selecting accreditation organizations are 
discussed in section X.D of this final rule.
    Comment: A commenter recommended that we base our quality standards 
on the existing standards used by the Accreditation Commission for 
Health Care (ACHC), Community Health Accreditation Program (CHAPS), and 
Joint Commission on Accreditation of Healthcare Organizations (JCAHO). 
One commenter encouraged us to include diabetes management experts in 
the development of the DMEPOS quality standards.
    Response: These comments appear to concern the substantive nature 
of the draft quality standards that were developed and published on our 
Web site on September 26, 2005. We expect to respond to all the 
comments that we received on the draft DMEPOS quality standards in an 
accompanying document that will be published shortly on the CMS Web 
site at http://www.cms.hhs.gov/competitiveAcqforDMEPOS/. The DMEPOS 
quality standards will become effective for use as part of the 
accreditation selection process when posted on the Web site.
    Comment: Seven commenters supported the implementation of quality 
standards, while others opposed the implementation of additional 
quality standards and accreditation requirements. Another commenter 
suggested that quality standards should be appropriate, realistic, and 
clearly defined.
    Response: We appreciate the comments that expressed support for the 
establishment and implementation of DMEPOS quality standards, which is 
mandated by section 1834(a)(20) of the Act. We have worked 
collaboratively with a wide range of stakeholders to ensure that the 
quality standards are reflective of best industry practices for 
business and beneficiary services.
    Comment: One commenter recommended that CMS provide its proposed 
revisions to the draft quality standards to the Program Advisory and 
Oversight Committee (PAOC) for review and comment before adopting these 
standards in final form. The commenter also recommended that CMS use 
these final standards to identify appropriate accreditation 
organizations for DMEPOS suppliers.
    Response: These comments appear to concern the substantive nature 
of the draft quality standards that were developed and published on our 
Web site on September 26, 2005. We expect to respond to all the 
comments that we received on the draft DMEPOS quality standards in an 
accompanying document that will be published shortly on the CMS Web 
site at http://www.cms.hhs.gov/competitiveAcqforDMEPOS/.

D. Accreditation for Suppliers of DMEPOS and Other Items

    Section 1834(a)(20)(B) of the Act requires the Secretary, 
notwithstanding section 1865(b) of the Act, to designate and approve 
one or more independent accreditation organizations to apply the DMEPOS 
quality standards to suppliers of DMEPOS and other items. Section 
1865(b) of the Act sets forth the general procedures for CMS to 
designate national accreditation organizations that can deem suppliers 
to meet Medicare conditions of participation or coverage if they are 
accredited by a national accreditation organization approved by CMS. 
Certain limited types of suppliers have a choice between having the 
State agency or the CMS-approved accreditation organization survey them 
pursuant to our regulation at Sec.  488.6. If such suppliers select the 
CMS-approved accreditation organization and meet the accreditation 
organization's standards, we deem them to have met the Medicare 
conditions of participation or coverage. We are responsible for the 
oversight and monitoring of the State agencies and the approved 
accreditation organizations. The procedures, implemented by the 
Secretary, for designating non-DMEPOS accreditation organizations and 
the Federal review process for accreditation organizations are located 
at parts 422 (for Medicare Advantage organizations) and 488 (for most 
providers and certain suppliers).
    To accommodate DMEPOS suppliers that wish to participate in the 
Medicare DMEPOS Competitive Bidding Program, we will phase-in the 
accreditation process and give preference to accreditation 
organizations to prioritize their surveys to accredit suppliers in the 
selected competitive bidding areas. We will specify the approval 
submission procedures for accreditation organizations to accredit 
DMEPOS suppliers after this rule is finalized.
    Section 1847(b)(2)(A)(i) of the Act specifies that a contract may 
not be awarded to any entity unless the entity meets applicable DMEPOS 
quality standards specified by the Secretary under section 1834(a)(20) 
of the Act. Any DMEPOS supplier seeking to participate in the Medicare 
DMEPOS Competitive Bidding Program will need to satisfy the DMEPOS 
quality standards issued under section 1834(a)(20) of the Act. In 
addition, section 1834(a)(20) of the Act gives us the authority to 
establish through program instructions or otherwise DMEPOS quality 
standards for all suppliers of DMEPOS and other items, including those 
who do not participate in competitive bidding, and to designate one or 
more independent accreditation organizations to implement the DMEPOS 
quality standards.
    In the May 1, 2006 proposed rule (71 FR 25684), to ensure the 
integrity of suppliers' businesses and products, we proposed to revise 
Sec.  424.57 of our existing regulations and add a new Sec.  424.58.

E. Special Payment Rules for Items Furnished by DMEPOS Suppliers and 
Issuance of DMEPOS Supplier Billing Privileges (Sec.  424.57)

    In accordance with sections 1834(a)(20) and 1834(j)(1)(B)(ii)(IV) 
of the Act, in the May 1, 2006 proposed rule (71 FR 25685), we proposed 
to revise Sec.  424.57 to specify in a proposed new paragraph (c)(22) 
that all suppliers of DMEPOS and other items be accredited by a CMS-
approved

[[Page 48393]]

accreditation organization to receive and retain a supplier billing 
number. We proposed the following definitions under Sec.  424.57(a): 
``CMS-approved accreditation organization'' would mean a recognized 
independent accreditation organization approved by CMS under Sec.  
424.58; an ``Accredited DMEPOS supplier'' would mean a supplier that 
has been accredited by a recognized independent accreditation 
organization meeting the requirements of and approved by CMS in 
accordance with Sec.  424.58; and an ``Independent accreditation 
organization'' would mean an accreditation organization that accredits 
a supplier of DMEPOS and other items and services for a specific DMEPOS 
product category or a full line of DMEPOS product categories.
    Comment: Four commenters supported our proposed requirement at 
Sec.  424.57(c)(22) that all DMEPOS suppliers be accredited by a CMS-
approved accreditation organization in order to receive a supplier 
number. One commenter expressed concern that some accreditation 
organizations might be unsuitable to accredit DMEPOS suppliers because 
these organizations have a hospital and home health nursing orientation 
and lack an understanding of how suppliers function, while another 
commenter noted that currently, the standards of accreditation 
organizations vary greatly. Another commenter stated that they were 
uncertain as to how CMS planned to proceed with its accreditation 
process for the retail pharmacy industry and to conform to standards 
not yet developed for a retail pharmacy or mail order pharmacy. Another 
commenter asked whether we had selected accreditation organizations.
    Response: We will take into consideration the uniqueness of the 
DMEPOS environment by considering proposals from those accreditation 
organizations that can demonstrate their skills, knowledge, and 
ability, to survey the DMEPOS supplier industry. We hope to receive 
proposals from those accreditation organizations that have experience 
with specialized supplies (such as orthotics and prosthetics) or 
supplier types (such as pharmacies and physicians' offices).
    Comment: Several commenters noted that the costs of meeting quality 
standards and accreditation requirements will cause suppliers to 
furnish inexpensive equipment and that some suppliers of purchased 
equipment will not provide service that beneficiaries are not trained 
to perform.
    Response: We believe that the DMEPOS quality standards represent 
basic good business practices and that meeting the DMEPOS quality 
standards will result in improved quality of items and services 
furnished to Medicare beneficiaries. Approving accreditation 
organizations that only accredit one supplier type gives a small 
business owner the opportunity to reduce its accreditation cost. In the 
impact analysis, we have assumed costs to be on the average of $3,000 
over a 3-year period.
    Comment: One commenter recommended that we require all suppliers to 
receive accreditation. Another commenter stated that currently an 
accrediting body would consider a new location of an accredited 
supplier to be accredited without conducting an on-site visit. The 
commenter recommended that CMS make an allowance for this situation and 
consider any new location associated with an already-accredited 
supplier to qualify for the immediate issuance of a Medicare supplier 
number, followed up by a subsequent accreditation survey.
    Response: We agree and will require enrolled, accredited DMEPOS 
suppliers to notify their accreditation organizations when a new 
location is opened. The accrediting organization of the enrolled DMEPOS 
supplier may accredit the new supplier location for three months after 
it is operational without a site visit.
    Comment: Commenters suggested that a supplier should not be 
required to be reaccredited each time that it elects to add a new 
product line.
    Response: We disagree and are requiring that a DMEPOS supplier 
disclose upon enrollment all products and services for which they are 
seeking accreditation. Thus, if a new product line is added after 
enrollment, the supplier must notify the accrediting body of the new 
product or service so that the supplier can be re-surveyed and 
accredited for these new products or services.
    After consideration of the public comments received, we are 
finalizing our proposal with modifications. We have modified Sec.  
424.57(c)(22), to clarify that all suppliers of DMEPOS and other items 
and services must be accredited by a CMS-approved accreditation 
organization in order to receive and retain a supplier billing number. 
The accreditation must indicate the specific products and services for 
which the supplier is accredited in order for the supplier to receive 
payment for those specific products and services.
    We added a new provision at Sec.  424.57(c)(23), requiring that 
DMEPOS suppliers must notify their accreditation organizations when a 
new DMEPOS location is opened. The accreditation organization may 
accredit the new supplier location for three months after it is 
operational without visiting the new site visit.
    We added a new provision at Sec.  424.57(c)(24), which requires 
that all DMEPOS supplier locations, whether owned or subcontracted, 
must meet the DMEPOS quality standards and be separately accredited in 
order to bill Medicare. An accredited supplier can be denied enrollment 
or their enrollment could be revoked, if we determined that they were 
not in compliance with the DMEPOS quality standards.
    We have added a new provision at Sec.  424.57(c)(25), requiring 
that all DMEPOS suppliers must disclose upon enrollment all products 
and services, for which they are seeking accreditation. If a new 
product line or service is added after enrollment, the supplier will be 
responsible for notifying the accrediting body of the new product so 
that the supplier can be re-surveyed and accredited for these new 
products.

F. Accreditation (Sec.  424.58)

    In accordance with section 1834(a)(20) of the Act, in the May 1, 
2006 proposed rule (71 FR 25685 and 25702), we proposed to add a new 
Sec.  424.58(a) and (b) to set requirements for CMS-approved 
accreditation organizations in the application of the quality standards 
to suppliers of DMEPOS and other items.
    To promote consistency in accrediting suppliers throughout the 
Medicare program, we proposed to use existing criteria (with 
modifications) for the application, reapplication, selection, and 
oversight of accreditation organizations detailed at 42 CFR Part 488 
and apply them to organizations accrediting suppliers of DMEPOS and 
other items. We proposed to require an independent accreditation 
organization applying for approval or reapproval of deeming authority 
to--
     Identify the types of DMEPOS supplies and services for 
which the organization is requesting approval.
     Provide CMS with a detailed comparison of the 
organization's accreditation requirements and standards with the 
applicable Medicare DMEPOS quality standards (for example, a 
crosswalk);
     Provide a detailed description of the organization's 
survey processes, including procedures for performing unannounced 
surveys, frequency of the surveys performed, copies of the 
organization's survey forms, guidelines and instructions to surveyors, 
and quality review processes for deficiencies identified with 
accreditation requirements;

[[Page 48394]]

     Describe the decision-making processes and describe 
procedures used to notify suppliers of compliance or noncompliance with 
the accreditation requirements;
     Describe procedures used to monitor the correction of 
deficiencies found during the survey; and
     Describe procedures for coordinating surveys with another 
accrediting organization if the organization does not accredit all 
products that the supplier provides.
    In the proposed rule, we indicated that we would request detailed 
information about the professional background of the individuals who 
perform surveys for the accreditation organization, including: The size 
and composition of accreditation survey teams for each type of supplier 
accredited; the education and experience requirements that surveyors 
must meet; the content and frequency of the continuing education 
training provided to survey personnel; the evaluation systems used to 
monitor the performance of individual surveyors and survey teams; and 
policies and procedures for a surveyor or institutional affiliate of an 
accrediting organization that participates in a survey or accreditation 
decision regarding a DMEPOS supplier with which this individual or 
institution is professionally or financially affiliated.
    We also indicated that we would request a description of the 
organization's data management, analysis, and reporting system for its 
surveys and accreditation decisions, including the kinds of reports, 
tables, and other displays generated by that system. We would require a 
description of the organization's procedures for responding to and 
investigating complaints against accredited facilities including 
policies and procedures regarding coordination of these activities with 
appropriate licensing bodies, ombudsman programs, National Supplier 
Clearinghouse, and with CMS; a description of the organization's 
policies and procedures for notifying CMS of facilities that fail to 
meet the requirements of the accrediting organization; a description of 
all types, categories, and duration of accreditation decisions offered 
by the organization; a list of all currently accredited suppliers; a 
list of the types and categories of accreditation currently held by 
each supplier; a list of the expiration date of each supplier's current 
accreditation; and a list of the next survey cycles for all DMEPOS 
suppliers' accreditation surveys scheduled to be performed by the 
organization.
    We proposed that we would require the accreditation organization to 
submit the following supporting documentation:
     A written presentation that would demonstrate the 
organization's ability to furnish CMS with electronic data in ASCII-
comparable code.
     A resource analysis that would demonstrate that the 
organization's staffing, funding, and other resources are sufficient to 
perform the required surveys and related activities.
     An acknowledgement that the organization would permit its 
surveyors to serve as witnesses if CMS took an adverse action against 
the DMEPOS supplier based on the accreditation organization's findings.
    We proposed to survey accredited suppliers from time to time to 
validate the survey process of a DMEPOS accreditation organization 
(validation survey). These surveys would be conducted on a 
representative sample basis or in response to allegations of supplier 
noncompliance with DMEPOS quality standards. When conducted on a 
representative sample basis, we proposed that the survey would be 
comprehensive and address all Medicare DMEPOS quality standards or 
would focus on a specific standard. When conducted in response to an 
allegation, we proposed that the CMS survey team would survey for any 
standard that we determined was related to the allegations. If the CMS 
survey team substantiated a deficiency and determined that the supplier 
was out of compliance with the DMEPOS quality standards, we proposed to 
revoke the supplier billing number and reevaluate the accreditation 
organization's approved status. We proposed to require a supplier 
selected for a validation survey to authorize the validation survey to 
occur and to authorize the CMS survey team to monitor the correction of 
any deficiencies found through the validation survey. We proposed that 
if a supplier selected for a validation survey failed to comply with 
the requirements at Sec.  424.58(b)(4), it would no longer be deemed to 
meet the DMEPOS quality standards and its supplier billing number would 
be revoked.
    Comment: Commenters stated that it would be difficult for 
accreditation organizations to survey timely the large number of 
suppliers, with commenters noting that the accreditation process can 
take six to 12 months. A commenter noted that it was unclear whether 
any of the accrediting bodies would be willing or able to meet our 
requirements to be a CMS-approved accreditation organization. A 
commenter stated that it would be difficult for suppliers to become 
accredited before the bidding process began. Commenters requested that 
CMS provide sufficient time after it identifies accreditation 
organizations for suppliers to become accredited.
    Response: Our DMEPOS quality standards for use by accreditation 
organizations are streamlined and require less resources to implement 
than are currently used by some accreditation organizations. We believe 
that the quality standards that have been developed are appropriate, 
realistic, and clearly defined.
    Comment: Several commenters suggested that we ``grandfather'' 
suppliers already accredited by organizations that we select as 
accreditation organizations, while another commenter opposed such 
``grandfathering,'' stating that only suppliers that receive 
accreditations which address our revised quality standards should be 
allowed to contract under the bidding program. Some commenters 
suggested that CMS should grandfather any organization that meets 
minimal accreditation standards, even if that organization is not 
ultimately selected as an accrediting organization or if the standards 
used are not totally consistent with the standards required by CMS.
    Response: We recognize the need to provide an alternative mechanism 
to accommodate currently accredited suppliers. As stated in the 
proposed rule we will provide further guidance on a process to accredit 
DMEPOS suppliers that currently maintain an accreditation with an 
accreditation organization.
    Comment: One commenter argued that the role of the Medicare 
National Supplier Clearinghouse (NSC) should be limited to reviewing 
complaints regarding non-compliance, conducting spot checks for 
compliance with the accreditation standards, and issuing supplier 
numbers based on accreditation verification.
    Response: We appreciate this comment; however, this rule does not 
address the role of the NSC.
    Comment: One commenter observed that most enteral patients are in 
long-term care facilities. Most of these patients receive enteral 
nutrition from suppliers that focus only on the long-term care market. 
The commenter believed that the proposed rule would require enteral 
nutrition suppliers to be accredited for compliance with the Part B 
standards, even though those standards do not apply to the patients 
they serve. The commenter stated that the provision of enteral 
nutrition to patients who qualify for the home

[[Page 48395]]

health benefit would not be subject to the new Part B standards. 
Another commenter stated that manufacturers of customized ocular 
prosthetics are excluded from the accreditation requirements that we 
proposed at Sec.  424.58 because these items are not included in 
proposed Sec.  414.402. Several commenters stated that CMS should deem 
pharmacies, occupational therapists, physical therapists and 
ophthalmologists as accredited because of the licensure and education 
requirements that they already fulfill and because their role as a 
supplier is inextricably linked to their professional service. Another 
commenter stated that skilled nursing homes should be excluded from the 
implementation of this rule.
    Response: The Secretary may implement standards for such items and 
services listed at 1834(a)(20)(D) as he deems appropriate. The 
Secretary has decided to implement quality standards for all such items 
and services.
    Comment: Several commenters noted that the accreditation process is 
costly, with estimates ranging from two thousand to 20 thousand 
dollars. They noted that accreditation was expensive and burdensome to 
many DMEPOS suppliers, including small suppliers, rural suppliers, 
pharmacies, non-mail order suppliers with small numbers of employees, 
suppliers that furnish supplies to a high percentage of beneficiaries 
that live nearby, suppliers with a small volume of Medicare business, 
or a limited line of supplies (such as diabetic supplies). Several of 
these commenters suggested exempting suppliers with these 
characteristics from the accreditation requirement or creating a two-
tier system with less expensive and burdensome alternatives to current 
accreditation fees. One commenter suggested that hospitals and other 
health care suppliers with certified DME programs should not be 
required to acquire new certification until the current certification 
expires. One commenter suggested making accreditation mandatory to keep 
the quality standards consistent.
    Response: We do not have the statutory authority to exempt any 
categories of suppliers under section 1834(a)(20) of the Act except 
insofar as the Secretary exempts specific DMEPOS items and services 
under (20)(D). Suppliers must meet our DMEPOS quality standards as 
applied by approved accreditation organizations pursuant to section 
1834(a)(20)(B) of the Act. We hope that approving many DMEPOS 
accreditation organizations will induce competition and decrease cost.
    Comment: One commenter questioned why CMS could not deem between 
one and three already-existing accrediting organizations to meet its 
expectations and then require any supplier that wishes to participate 
in competitive acquisition to become accredited by one of those three 
organizations. One commenter suggested modifying Sec.  424.58(b) by 
adding special categories for orthotics and prosthetics and pedorthics 
accrediting organizations.
    Response: We do want to receive applications from existing 
organizations. However, in order to accommodate the large number of 
DMEPOS suppliers that need to be accredited in order to bid, we must 
allow a variety of organizations to become accreditation organizations. 
We believe Sec.  424.58(b) does include categories such as orthotics 
and prosthetics and pedorthics. Therefore in order to accommodate small 
and specialty suppliers, we hope to receive applications from small or 
specialty accrediting firms that will be able to accredit these 
specialty suppliers at a reduced cost.
    Comment: One commenter indicated that CMS should require 
accrediting bodies to submit their conflict of interest disclosure 
policies, since some surveyors also have consulting businesses that may 
conflict with certain clients.
    Response: We agree and have added this requirement.
    Comment: Two commenters stated that the process for the validation 
survey of suppliers should be outlined in greater detail in the 
regulation's preamble to include the survey frequency, who will perform 
the surveys, and the methodology used to determine the validation 
sample.
    Response: We plan to issue further guidance regarding the 
validation survey process through program instructions.
    Comment: One commenter stated that proposed 42 CFR 424.58(b)(3) is 
redundant and confusing to specify ``If CMS discovers a deficiency and 
determines that the DMEPOS supplier is out of compliance with Medicare 
quality standards, * * *.''.
    Response: We agree and we have revised the language appropriately.
    Comment: One commenter stated that it is unclear what is meant by 
the use of the term ``subsequent full accreditation survey'' and that 
there is no statutory authority that would permit CMS to specify that 
the accreditation organization perform a survey at its own expense.
    Response: ``Subsequent full accreditation survey'' is a type of 
survey that may be performed by the accreditation organization if CMS 
determines that the DMEPOS supplier is out of compliance with the 
Medicare DMEPOS quality standards. The statutory authority for this 
requirement is found in Section 1834(a)(20)(B), which permits the 
Secretary to utilize his discretion in deciding the terms under which 
accreditation organizations will be approved to accredit DMEPOS 
suppliers.
    Comment: One commenter suggested that the CMS oversight provision 
should be clarified to describe: Who is eligible to be ``a designated 
survey team;'' the methodology for selecting suppliers for the CMS 
survey; and detailed information on how the disparity rate will be 
calculated. The commenter also suggested that we clarify what is meant 
by ``disparity between findings that constitute immediate jeopardy to 
patient health and safety'' and ``widespread or systemic problems in an 
organization's process.''
    Response: In order to accommodate the dynamics of the survey 
process and the ever-changing needs of the DMEPOS suppliers, we plan to 
issue the specifics of our oversight strategies in program 
instructions.
    Comment: Two commenters stated that accrediting bodies do not 
currently notify ombudsman programs or NSC of unfavorable accreditation 
decisions. The commenter stated that any such notice process should be 
preceded by or include an appropriate appeal and cure process for 
suppliers to access prior to any punitive action being taken (Although 
the commenter didn't specify the exact organization that he believed 
would take such punitive action). A mediation process must be included 
in the overall plan so that an accreditation organization would have a 
channel for appealing CMS's validation survey findings.
    Response: We agree and we have added the requirement that the 
accreditation organizations provide a copy of their dispute resolution 
policies and or appeals policies/procedures to CMS. Additionally, we 
plan to provide a venue for accreditation organizations and suppliers 
to resolve conflicts about deficiency findings. We will issue further 
guidance on this process through program instructions.
    Comment: One commenter submitted detailed information on the nature 
of the commenter's organization and the specific accreditation costs 
that it incurs, and argued that unless a supplier has already undergone 
an accreditation process, it cannot properly estimate its costs 
associated with seeking and maintaining accreditation

[[Page 48396]]

and, therefore, it cannot submit an accurate bid to CMS.
    Response: We appreciate this information. We have utilized this 
information in our analysis of the rule's financial impact on DMEPOS 
suppliers.
    Comment: One commenter suggested that CMS should have a supplier's 
accrediting organizations conduct follow-up visits with the supplier on 
any allegation of supplier noncompliance with quality standards. The 
commenter asserted that the Program Integrity Unit's (PIU's) current 
plan of auditing only high-volume, claims-generating DMEPOS suppliers 
creates a situation where those suppliers are audited over and over 
again, with largely successful outcomes, while smaller suppliers that 
may not be following Medicare guidelines go unaudited for many years. 
They noted that audits represent a large administrative burden for 
suppliers, and those that pass successfully should be moved on to some 
kind of representative sampling methodology to ensure ongoing 
compliance. The commenter suggested that if the PIU continues its 
current sampling methodology, it will continue to overlook those 
suppliers that are more likely to be violating rules and regulations 
than the ones that have high volume and pass audits successfully time 
after time.
    Response: We appreciate the comment regarding activities of the 
Program Integrity Units (PIUs). (Although the commenter didn't specify 
the exact organization to which he was referring, we assume the 
commenter means CMS's Program Integrity Unit, which is a branch of 
CMS's Office of Financial Management). However, the PIU's role is to 
ensure that claims submitted for Medicare reimbursement are covered, 
correctly coded and are reasonable and necessary based on the clinical 
condition of the patient. PIUs are not responsible for ensuring 
compliance with DMEPOS quality standards.
    Comment: One commenter asked whether CMS would set ethical conduct 
standards for an accreditation organization's dispute-resolution 
process when suppliers challenged such organization's adverse findings. 
This commenter suggested that the hearing process for the accreditation 
organizations needs to be formal and involve a more independent, 
objective mediator than one that is appointed by the CMS Administrator. 
The commenter indicated that the hearing process should allow for 
testimony and other evidence to be accepted and admissible under the 
usual rules of court procedures.
    Response: We understand the commenter's concerns about the fair and 
objective process when there is a dispute over the accreditation 
findings. We will be asking accreditation organizations to address 
their practices for dispute resolution in their CMS approval 
application.
    Comment: A commenter indicated that the accreditation process 
should include reasonable mechanisms that the accrediting organization 
must use to identify those suppliers which are not in compliance with 
minimum competency requirements. The commenter recommended adding a 
description of the organization's method for determining the process 
that surveyors would utilize to assess compliance with each 
accreditation standard, including a description of how the organization 
would translate surveyor observations into a score for each 
accreditation standard; how that score would aggregate into an overall 
score; and how that score would identify competent suppliers.
    Response: We agree with the commenter's suggestion but believe it 
is best implemented through guidance. We plan to utilize many of these 
processes as well as those that are consistent with existing 
accreditation procedures identified in Part 488.
    Comment: Commenters recommended that each accrediting organization 
should be compelled to demonstrate that it has the knowledge and 
experience necessary to properly classify suppliers and measure their 
organizational performance in the specific product and service types.
    Response: We agree and we will address eligibility criteria through 
future program instructions.
    Comment: Commenters argued that the two-calendar day requirement 
for reporting non-compliance to CMS under Sec.  424.58(c)(4) is an 
unreasonable standard because it failed to recognize holidays and 
weekends as periods when complying with this requirement would be 
problematic. They suggested that it is more reasonable for CMS to 
require this critical notification via any format within five business 
days. They further requested CMS to identify those specific standards 
with which noncompliance would rise to the level of posing immediate 
jeopardy to a beneficiary or to the general public.
    Response: We disagree with the first part of the comment as we 
believe that two calendar days is a reasonable standard and is 
consistent with our current survey requirements. ``Immediate jeopardy 
to a beneficiary or to the public'' is determined by criteria set by 
the accreditation organization. We will review these criteria at the 
time of the application process.
    Comment: Some commenters noted that it takes 6 months to prepare 
for an initial survey and 4 months for an ongoing survey. They added 
that a supplier going through accreditation for the first time will 
need 10 to 12 months to complete that process. The commenters observed 
that CMS should expect it to take a minimum of one year for some 
suppliers to complete the accreditation process and become officially 
accredited.
    Response: Our DMEPOS quality standards for use by accreditation 
organizations are streamlined and require less resources to implement 
than are currently used by some accreditation organizations. We believe 
that the quality standards that have been developed are appropriate, 
realistic, and clearly defined. We are requiring that accreditation 
organizations perform unannounced surveys. This will assist in reducing 
the survey process timeframe and cost.
    Comment: Commenters requested us to clarify the relationship 
between accreditation organizations and CMS complaint investigation 
more broadly. In particular, when a supplier organization is deemed to 
be in full compliance with the quality standards and the 21 supplier 
standards by an approved accreditation organization, the commenters 
asked whether CMS will be permitted to separately revoke or suspend a 
supplier's participation status if CMS determines that the supplier was 
not in compliance with these requirements.
    Response: We will be providing further guidance on the relationship 
between accreditation organizations and CMS complaint investigations in 
program instructions. However, if a complaint or validation survey 
discovered serious deficiencies CMS could revoke the supplier's billing 
number in accordance with Sec.  424.58(b)(3).
    Comment: Commenters observed that the regulation requiring 
applicants to submit a lengthy history of companies that it has 
accredited would not allow new companies to enter the market in a 
timely manner.
    Response: We understand the commenter's concern. This history will 
not give an existing organization an advantage over a new organization. 
We will be considering all new and established accrediting 
organizations equally during the review process.
    Comment: Some commenters asserted that requiring full disclosure of 
an

[[Page 48397]]

accreditation report for each accredited supplier constitutes an 
invasion of privacy regarding the supplier and would be a breach of 
proprietary information. They asked under what authority CMS could 
require full disclosure about customers of a private business.
    Response: We disagree with this comment. We are not requiring 
accreditation organizations to provide information about suppliers not 
participating in Medicare, and enrollment for a supplier number is 
strictly voluntary. However, in order to ensure that accreditation 
organizations are correctly implementing CMS quality standards, we 
believe that having access to supplier-specific information will be 
necessary.
    After consideration of the public comments received, we are 
adopting as final with modifications the provisions under the proposed 
new Sec.  424.58(a) and (b), containing the application and 
reapplication procedures for CMS-approved accreditation organizations 
in the application of the DMEPOS quality standards to suppliers of 
DMEPOS and other items.
    As part of their application process, accreditation organizations 
must provide CMS with a detailed description of their dispute 
resolution process to allow DMEPOS suppliers the opportunity to appeal 
negative survey findings or decisions. We have added a new provision at 
Sec.  424.58(b)(1)(iii) to require accreditation organizations to have 
a policy and procedure in place to allow DMEPOS suppliers to dispute a 
negative accreditation survey or survey findings. This process is 
consistent with existing processes under part 422.
    In response to public comments, we have revised the provision at 
Sec.  424.58(b)(3) to state that if CMS discovers a supplier was not in 
compliance with the DMEPOS supplier quality standards, CMS may revoke 
the supplier's billing number or require the accreditation organization 
to perform a subsequent full accreditation survey at the accreditation 
organization's expense.
    We have also revised Sec.  424.58(b)(6) to indicate that if a 
validation survey results in a finding that the supplier was not in 
compliance with one or more DMEPOS quality standards, the supplier no 
longer meets the DMEPOS quality standards and may have its supplier 
billing number revoked.

G. Ongoing Responsibilities of CMS-Approved Accreditation Organizations

    In this final rule, we require that DMEPOS independent 
accreditation organizations approved by CMS undertake the following 
activities on an ongoing basis:
     Provide to CMS in written form and on a monthly basis all 
of the following:
    ++ Copies of all accreditation surveys along with any survey-
related information that CMS may require (including corrective action 
plans and summaries of CMS requirements that are not met).
    ++ Notice of all accreditation decisions.
    ++ Notice of all complaints related to suppliers of DMEPOS and 
other items.
    ++ Information about any supplier of DMEPOS and other items for 
which the accreditation organization has denied the supplier's 
accreditation request.
    ++ Notice of any proposed changes in its accreditation standard, 
requirements, or survey processes. If the accreditation organization 
implemented the changes before or without CMS approval, CMS has the 
authority to withdraw its approval of the accreditation organization.
     Submit to CMS (within 30 days of a change in CMS quality 
standard requirements):
    ++ An acknowledgment of CMS's notification of the change;
    ++ A revised crosswalk reflecting the new DMEPOS quality standard 
requirements; and
    ++ An explanation of how the accreditation organization would alter 
its standards to conform to CMS's new requirements, within the 
timeframes specified by CMS in the notification.
     Permit its surveyors to serve as witnesses if CMS takes an 
adverse action against a supplier based on accreditation findings.
     Provide CMS with written notice of any deficiencies and 
adverse actions implemented by the independent accreditation 
organization against an accredited DMEPOS supplier within 2 calendar 
days of identifying these deficiencies, if these deficiencies pose 
immediate jeopardy to a beneficiary and/or the general public.
     Provide CMS with written policies and procedures to ensure 
that DMEPOS suppliers are accredited every 3 years.
     Provide written notice of CMS's withdrawal of the 
accreditation organization's approval to all accredited suppliers 
within 10 calendar days of receipt of CMS's withdrawal notice.
     Provide, on an annual basis, summary data specified by CMS 
that related to the past year's accreditation activities and trends.
    Comment: One commenter suggested that the guidelines proposed in 
Sec.  424.58(c) were unreasonable.
    Response: We disagree. Section 424.58(c) addresses the ongoing 
responsibilities of a CMS-approved accreditation organization. This 
section provides requirements with which the accreditation organization 
must comply on an ongoing basis in the application of the DMEPOS 
quality standards to suppliers of DMEPOS and other items.
    Comment: Three commenters indicated that requiring notice of all 
complaints related to suppliers of DMEPOS and other items and services 
is overly broad and burdensome, and that section 424.58(c)(1)(iii) is 
redundant with Sec.  424.58(c)(1)(iv) and should be eliminated.
    Response: These provisions are not redundant. Section 
424.58(c)(1)(iii) requires that accreditation organizations provide a 
notice or listing of all complaints received. Section 424.58(c)(1)(iv) 
requires that an accreditation organization provides information on the 
outcomes of the remedial and adverse actions that it takes against the 
suppliers that it accredits.
    Comment: One commenter indicated that requiring approved 
accreditation organizations to provide copies of all written surveys, 
corrective action plans, and summaries represent a significant 
paperwork burden to the accrediting organization and CMS.
    Response: We disagree, and note that in order for us to ensure the 
integrity of the DMEPOS accreditation program these requirements are 
necessary and are consistent with existing accreditation requirements 
for providers and suppliers under part 488.
    Comment: One commenter indicated that scoring methodologies differ 
amongst the three accrediting organizations and slightly different 
standards and requirements may be assessed. Without an executive 
summary written by either the accrediting organization or the supplier 
itself, CMS might find itself unable to interpret the results of the 
survey accurately.
    Response: We agree and we are requiring the accreditation 
organizations to describe their decisionmaking process to reduce 
misinterpretation of survey findings. We also note that the 
accreditation organizations must submit a crosswalk to their own 
standards as part of the application process.
    Comment: One commenter requested that CMS provide a reasonable 
timeframe for itself in which to review an accreditation organization's 
request for change under Sec.  424.58(c)(1)(v). The commenter 
recommended that CMS commit to respond to any proposed change within 60 
days of submission by the approved accrediting organization.

[[Page 48398]]

    Response: We plan to provide a reasonable timeframe in which we 
will review an accrediting organization's request for change and will 
outline this timeframe through program instructions.
    Comment: Two commenters indicated that though they thought it was 
reasonable for CMS to expect the accrediting organizations to inform 
the agency of changes in standards, it was unreasonable to penalize the 
organization by withdrawing its approval if it implemented the changes 
before or without CMS' approval.
    Response: We disagree and believe that this requirement is 
essential to ensure that appropriate DMEPOS standards are being 
utilized by accreditation organizations.
    Comment: A commenter requested clarification on what constitutes 
``written format'' in Sec.  424.58(c)(1).
    Response: We will clarify in the regulation text that written 
format means either hard copy or electronic format.
    Comment: One commenter suggested amending Sec.  424.58(c)(5) by 
inserting the word ``business'' between ``10'' and ``days'' and that 
notice should be required only after CMS has issued a final 
determination that approval is to be withdrawn.
    Response: We agree that this requirement should be clarified but 
that notice should be more prompt than 10 business days. Therefore, we 
will revise the regulation to add the word ``calendar'' between the 
words ``10'' and ``days''.
    After consideration of the public comments received, we are 
adopting as final with modifications the following:
    We have modified Sec.  424.58(c)(1) to clarify that written format 
means either hard copy or electronic format.
    We have revised Sec.  424.58(c)(2) and (5) to add the word 
``calendar'' before the word ``days''.

H. Continuing Federal Oversight of Approved Accreditation Organizations

    Section 424.58(d) establishes specific criteria and procedures for 
continuing oversight and for withdrawing approval of an accreditation 
organization.
1. Equivalency Review
    We will compare the accreditation organization's standards and its 
application and enforcement of those standards to the comparable CMS 
quality standard requirements and processes when: CMS imposes new 
requirements or changes its survey process; an accreditation 
organization proposes to adopt new quality standards or changes in its 
survey process; or the term of an accreditation organization's approval 
expires.
2. Validation Survey
    A CMS survey team will conduct a survey of the accreditation 
organization, examine the results of the accreditation organization's 
own survey procedure onsite, or observe the accreditation 
organization's survey, in order to validate the organization's 
accreditation process. At the conclusion of the review, we will 
identify any accreditation programs for which validation survey results 
indicate:
     A 10 percent rate of disparity between findings by the 
accreditation organization and findings by CMS on standards that do not 
constitute immediate jeopardy to patient health and safety if not met;
     Any disparity between findings by the accreditation 
organization and findings by CMS on standards that constitute immediate 
jeopardy to patient health and safety if not met; or
     Widespread or systemic problems in the organization's 
accreditation processes such that the accreditation of the DMEPOS 
supplier no longer provides assurance that the supplier meets or 
exceeds the Medicare requirements, irrespective of the rate of 
disparity.
3. Notice of Intent To Withdraw Approval for Deeming Authority
    If an equivalency review, validation review, onsite observation, or 
our concerns with the ethical conduct of the accreditation organization 
suggest that the accreditation organization is not meeting the 
requirements of Sec.  424.58, we will provide the accreditation 
organization with written notice of our intent to withdraw approval of 
the accreditation organization's deeming authority. We will collaborate 
with the DMEPOS accreditation organization in order to transition those 
DMEPOS suppliers to a new accreditation organization.
4. Withdrawal of Approval for Deeming Authority
    We will withdraw approval of an accreditation organization at any 
time if we determine that: accreditation by the organization no longer 
guarantees that the suppliers of DMEPOS and other items met the DMEPOS 
quality standards and that the failure to meet those standards poses or 
may potentially pose an immediate jeopardy to the health or safety of 
Medicare beneficiaries or constitutes a significant hazard to public 
health; or the accreditation organization fails to meet its obligations 
for application and reapplication procedures.
    Comment: One commenter suggested that the term ``guarantees'' 
should be replaced by ``adequate assurance'' since the latter term more 
appropriately represents the process of accreditation in that 
accreditation can provide such assurance that the quality standards are 
met but cannot ``guarantee'' such an assertion.
    Response: We will clarify this in the regulation text. After 
consideration of public comments received, we are adopting as final 
with modifications the following:
    We have modified Sec.  424.58(d)(4)(i) to utilize the term 
``adequately assures'' that, rather than ``guarantees''. The modified 
provision now states ``Accreditation by the organization no longer 
adequately assures that the suppliers of DMEPOS and other items and 
services are meeting the DMEPOS quality standards, and that failure to 
meet those standards could jeopardize the health or safety of Medicare 
beneficiaries and could constitute a significant hazard to the public 
health.''

I. Reconsideration

    If an accreditation organization is dissatisfied with a CMS 
determination that its accreditation requirements do not provide or no 
longer provide reasonable assurance that the entities accredited by 
such organization meet the applicable DMEPOS supplier quality 
standards, such organization would be entitled to reconsideration of 
that determination. We will reconsider any determination to deny, 
remove, or not renew the approval of deeming authority to accreditation 
organizations if the accreditation organization files a written request 
for reconsideration through its authorized officials or through its 
legal representative.
    The request must be filed within 30 days of the receipt of CMS 
notice of an adverse determination or non-renewal. The request for 
reconsideration must specify the findings or issues with which the 
accreditation organization disagrees and the reasons for the 
disagreement. A requestor may withdraw its request for reconsideration 
at any time before the issuance of a reconsideration determination. In 
response to a request for reconsideration, we will provide the 
accreditation organization the opportunity for an informal hearing that 
will be conducted by a hearing officer appointed by the Administrator 
of CMS. The hearing will provide the accreditation organization the 
opportunity to present, in writing and in person, evidence or 
documentation to

[[Page 48399]]

refute the determination to deny approval, or to withdraw (or not 
renew) deeming authority.
    We will provide written notice of the time and place of the 
informal hearing at least 10 calendar days before the scheduled date. 
The informal reconsideration hearing will be open to CMS and the 
organization requesting the reconsideration, including authorized 
representatives, technical advisors (individuals with knowledge of the 
facts of the case or presenting interpretation of the facts), and legal 
counsel. The hearing will be conducted by the hearing officer, who will 
receive testimony and documents related to the proposed action. The 
hearing officer may accept testimony and other evidence that would be 
inadmissible under the usual rules of court procedures. The hearing 
officer will not have the authority to compel by subpoena the 
production of witnesses, papers, or other evidence. Within 45 calendar 
days of the close of the hearing, the hearing officer will present the 
findings and recommendations to the accrediting organization that 
requested the reconsideration. The written report of the hearing 
officer will include separate numbered findings of fact and the legal 
conclusions of the hearing officer. The hearing officer's decision will 
be final.
    After consideration of the public comments received, we are 
adopting as final without substantive modification the provisions of 
the new proposed Sec.  424.58(d) governing continuing Federal oversight 
of approved accreditation organizations relating to equivalency 
reviews, validation reviews, notice of intent to withdraw approval for 
deeming authority, withdrawal of approval for deeming authority, and 
reconsiderations. We have revised Sec.  424.58(e)(6) and (8) to add the 
word ``calendar'' before the word ``days''.

XI. Provisions of the Final Regulations

A. IRF PPS

    The provisions of this final rule restate the provisions of the FY 
2007 IRF PPS proposed rule (71 FR 28106) except as noted elsewhere in 
the preamble. Following is a highlight of the policies that we are 
finalizing in this final rule:
     We are revising the relative weight and average length of 
stay tables based on re-analysis of the data by CMS and our contractor, 
the RAND Corporation, as discussed in section IV of this final rule.
     We are reducing the standard payment amount by 2.6 percent 
to account for coding changes that do not reflect real changes in case 
mix, as discussed in section V.A of this final rule.
     We are updating the FY 2007 IRF PPS payment rates by the 
market basket (3.3 percent), as discussed in section V.B of this final 
rule.
     We are updating the FY 2007 IRF PPS payment rates by the 
labor related share (75.612 percent), the wage indexes, and the second 
year of the hold harmless policy in a budget neutral manner, as 
discussed in sections V.C and D of this final rule.
     We are updating the outlier threshold amount for FY 2007 
to $5,534, as discussed in section VI.A of this final rule.
     We are updating the urban and rural national cost-to-
charge ratio ceilings for purposes of determining outlier payments 
under the IRF PPS and are clarifying the methodology described in the 
regulation text, as discussed in section VI.B of this final rule.
     We are revising the regulation text at Sec.  
412.23(b)(2)(i) and Sec.  412.23(b)(2)(ii) to reflect the compliance 
percentages specified in section 5005 of the DRA, as discussed in 
section VII of this final rule. In addition, we are revising Sec.  
412.23(b)(2)(i) to permit comorbidities meeting the qualifying criteria 
outlined in Sec.  412.23(b)(2)(i)(A) and (B) and (C) to count toward 
satisfying the compliance percentages specified in Sec.  
412.23(b)(2)(i).
     We are making a technical correction to amend the cross-
reference to several portions of Sec.  412.624(e) that currently appear 
in the regulation text in Sec.  412.624(f)(2)(v), by re-inserting a 
cross-reference to paragraph (e)(1). We inadvertently deleted this 
reference in the FY 2006 final rule.

B. Quality Standards and Accreditation for DMEPOS Suppliers

    The provisions of this final rule restate the provisions of the May 
1, 2006 proposed rule, except as follows:
     We have modified Sec.  404.406(e) to make a technical 
change to clarify that the Durable Medical Equipment Medicare 
Administrative Contractors will be taking over for the DMERCs/regional 
carriers for processing DMEPOS claims.
     We have modified Sec.  424.57(c)(22), to clarify that all 
suppliers of DMEPOS and other items and services must be accredited by 
a CMS-approved accreditation organization in order to receive and 
retain a supplier billing number. The accreditation must indicate the 
specific products and services for which the supplier is accredited in 
order for the supplier to receive payment for those specific products 
and services.
     We have added a new provision at Sec.  424.57(c)(23), 
requiring that all DMEPOS suppliers must notify their accreditation 
organizations when a new location is opened. The accrediting 
organization of the enrolled DMEPOS supplier may accredit the new 
supplier location for three months after it is operational without a 
new site visit.
     We have added a new provision at Sec.  424.57(c)(24), 
which requires that each supplier location, whether owned or 
subcontracted, must meet the DMEPOS quality standards and be separately 
accredited in order to bill Medicare. An accredited supplier may be 
denied enrollment or its enrollment may be revoked, if CMS determines 
that it was not in compliance with the DMEPOS quality standards.
     We have added a new provision at Sec.  424.57(c)(25), 
which requires that all DMEPOS suppliers must disclose upon enrollment 
all products and services for which they are seeking accreditation. If 
a new product line is added after enrollment, the supplier will be 
responsible for notifying the accrediting body of the new product or 
service so that the supplier can be re-surveyed and accredited for 
these new products or services.
     We are adding a provision at Sec.  424.58(b)(l)(iii) that 
accreditation organizations must provide CMS with a detailed 
description of their dispute resolution process and policies which 
would allow DMEPOS suppliers the opportunity to appeal negative survey 
findings or decisions.
     We are revising the provision at Sec.  424.58(b)(3) to 
state that if CMS discovers a supplier was not in compliance with the 
DMEPOS supplier quality standards, CMS may revoke the supplier's 
billing number or require the accreditation organization to perform a 
subsequent full accreditation survey at the accreditation 
organization's expense.
     We are revising the provision at Sec.  424.58(b)(6) to 
indicate that if a validation survey results in a finding that the 
supplier was not in compliance with one or more DMEPOS supplier quality 
standards, the supplier no longer meets the DMEPOS quality standards 
and may have its supplier billing number revoked.
     We have modified Sec.  424.58(c)(1) to clarify that 
written format means either hard copy or electronic format.
     We have revised Sec.  424.58(c)(2) and (5) and Sec.  
424.58(e)(6) and (8) to add the word ``calendar'' before the word 
``days.''

[[Page 48400]]

     We have modified Sec.  424.58(d)(4)(i) to utilize the term 
``adequately assures'' that rather than ``guarantees.'' The modified 
provision now states ``Accreditation by the organization no longer 
adequately assures that the suppliers of DMEPOS and other items and 
services are meeting the supplier quality standards, and that failure 
to meet those requirements could jeopardize the health or safety of 
Medicare beneficiaries and could constitute a significant hazard to the 
public health.''

XII. Waiver of Delayed Effective Date

    We ordinarily provide a 60-day delay in the effective date of the 
provisions of a rule in accordance with the Administrative Procedure 
Act (APA) (5 U.S.C. 553(d), which requires a 30-day delayed effective 
date, and the Congressional Review Act (5 U.S.C. 801(a)(3)), which 
requires a 60-day delayed effective date for major rules. However, we 
can waive the delay in effective date if the Secretary finds, for good 
cause, that such delay is impracticable, unnecessary, or contrary to 
the public interest, and incorporates a statement of the finding and 
the reasons in the rule issued. 5 U.S.C. 553(d)(3); 5 U.S.C. 808(2).
    The Secretary finds that good cause exists to implement the 
regulatory changes to part 414 of 42 CFR, other than Sec.  414.406(e), 
related to Competitive Bidding Implementation Contractors (CBICs) for 
the Medicare DMEPOS Competitive Bidding Program on August 31, 2006. We 
note that we are not waiving the APA requirements since we are giving 
30 days notice. We are, however, waiving the 60-day delayed effective 
date for major rules. Section 1847(b)(9) of the Act explicitly allows 
the Secretary to contract with appropriate entities to implement the 
Medicare DMEPOS Competitive Bidding Program. The Secretary has 
determined that it is administratively necessary to use one or more 
CBICs to assist in implementing the Medicare DMEPOS Competitive Bidding 
Program. This final rule codifies this statutory provision in 
regulations.
    Under section 1847(a)(1)(B) of the Act, the Medicare DMEPOS 
Competitive Bidding Program must be phased in so that the competition 
under the programs occurs in 10 of the largest metropolitan statistical 
areas (MSAs) in 2007. To comply with that statutory mandate, it will be 
necessary for us to designate one or more CBICs, as well as finalize 
contracts with those entities, prior to October 1, 2006 (the beginning 
of Federal Fiscal Year (FY) 2007)) so that the CBIC(s) have sufficient 
time to prepare for the bidding process and to educate thousands of 
DMEPOS suppliers and referral agents, as well as millions of Medicare 
beneficiaries prior to the beginning of the bidding process. If one or 
more CBIC(s) are not designated before October 1, 2006, there will be 
insufficient time for those entities to conduct the large-scale 
preparations necessary to ensure the success of the program consistent 
with our statutory mandate. Additionally, if we are unable to designate 
one or more CBIC(s) prior to the end of FY 2006 then our ability to 
meet the implementation timetable set forth in section 1847(a)(1)(B) of 
the Act would be further jeopardized. Therefore, the Secretary has 
determined that it would be impracticable and contrary to the public 
interest to delay the effective date of the regulatory changes to part 
414 of 42 CFR, other than Sec.  414.406(e). An effective date of August 
31, 2006, for the regulatory changes to part 414 of 42 CFR, other than 
Sec.  414.406(e), will ensure that the procurement of CBIC services can 
proceed and will afford the selected CBIC(s) needed time to prepare for 
the bidding process and education of beneficiaries, suppliers, and 
referral agents on the Medicare DMEPOS Competitive Bidding Program.
    For all these reasons, we believe that a 60-day delay in the 
effective date of the provisions that apply to the CBIC(s) would be 
impracticable and contrary to the public interest. We therefore find 
good cause for waiving the 60-day delay in the effective date for the 
regulatory changes to part 414 of 42 CFR, other than Sec.  414.406(e).

XIII. Collection of Information Requirements

    The sections of this document pertaining to the IRF PPS and to the 
DMEPOS do 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.

XIV. Regulatory Impact Analysis for the IRF PPS

A. Overall IRF PPS Impact

    We have examined the impacts of this final rule as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review), 
the Regulatory Flexibility Act (RFA, September 16, 1980, Pub. L. 96-
354), section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
    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 final rule is a major rule, as defined in Title 5, United States 
Code, section 804(2), because we estimate the impact to the Medicare 
program, and the annual effects to the overall economy, will be more 
than $100 million. We estimate that the total impact of these changes 
for estimated FY 2007 payments compared to estimated FY 2006 payments 
will be an increase of approximately $50 million (this reflects a $220 
million increase from the update to the payment rates and a $10 million 
increase due to updating the outlier threshold amount to increase 
estimated outlier payments from 2.9 percent in FY 2006 to 3.0 percent 
in FY 2007, offset by a $180 million estimated decrease from the 
reduction to the standard payment amount to account for changes in 
coding that do not reflect real changes in case mix).
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and government agencies. 
Most IRFs and most other providers and suppliers are considered 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 final rule that set forth size standards for 
health care industries, at 65 FR 69432, November 17, 2000.) Because we 
lack data on individual hospital receipts, we cannot determine the 
number of small proprietary IRFs. Therefore, we assume that all IRFs 
(an approximate total of 1,200 IRFs, of which approximately 60 percent 
are nonprofit facilities) are considered small entities. The Department 
of Health and Human Services generally uses a revenue impact of 3 to 5 
percent as a significance threshold under the RFA. Because the net 
effect of this final rule on almost all facilities will only be about 1 
percent or less of revenues, and will be positive, we have concluded 
that this final rule will not have a significant effect on a

[[Page 48401]]

substantial number of small entities. Medicare fiscal intermediaries 
and carriers are not considered to be small entities. Individuals and 
States are not included in the definition of a small entity.
    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 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. As discussed in detail 
below, the rates and policies set forth in this final rule will not 
have an adverse impact on rural hospitals based on the data of the 181 
rural units and 20 rural hospitals in our database of 1,202 IRFs for 
which data were available.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4) also requires that agencies assess anticipated costs and 
benefits before issuing any 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. The IRF 
PPS portions of this final rule will not mandate any requirements for 
State, local, or tribal governments, nor will they affect private 
sector costs.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a final rule that imposes 
substantial direct requirement costs on State and local governments, 
preempts State law, or otherwise has Federalism implications. As stated 
above, this final rule will not have a substantial effect on State and 
local governments.

B. Anticipated Effects of the IRF PPS Final Rule

    We discuss below the impacts of this final rule on the budget and 
on IRFs.
1. Basis and Methodology of Estimates
    This final rule sets forth updates of the IRF PPS rates contained 
in the FY 2006 final rule and establishes a 2.6 percent decrease to the 
standard payment amount to account for the increase in estimated 
aggregate payments as a result of changes in coding that do not reflect 
real changes in case mix. In addition, we are updating the comorbidity 
tiers and the CMG relative weights, and the outlier threshold amount.
    Based on the above, we estimate that the FY 2007 impact will be a 
net increase of $50 million in payments to IRF providers (this reflects 
a $220 million estimated increase from the update to the payment rates 
and a $10 million estimated increase due to updating the outlier 
threshold amount to increase estimated outlier payments from 2.9 
percent in FY 2006 to 3.0 percent in FY 2007, offset by a $180 million 
estimated decrease from the reduction to the standard payment amount to 
account for the increase in estimated aggregate payments as a result of 
changes in coding that do not reflect real changes in case mix). The 
impact analysis in Table 9 of this final rule represents the projected 
effects of the policy changes in the IRF PPS for FY 2007 compared with 
estimated IRF PPS payments in FY 2006 without the policy changes. We 
estimate the effects by estimating payments while holding all other 
payment variables constant. We use the best data available, but we do 
not attempt to predict behavioral responses to these changes, and we do 
not make adjustments for future changes in such variables as number of 
discharges or case-mix.
    We note that certain events may combine to limit the scope or 
accuracy of our impact analysis, because such an analysis is future-
oriented and, thus, susceptible to forecasting errors because of other 
changes in the forecasted impact time period. Some examples could be 
legislative changes made by the Congress to the Medicare program that 
would impact program funding, or changes specifically related to IRFs. 
In addition, changes to the Medicare program may continue to be made as 
a result of the BBA, the BBRA, the BIPA, the MMA, the DRA, or new 
statutory provisions. Although these changes may not be specific to the 
IRF PPS, the nature of the Medicare program is such that the changes 
may interact, and the complexity of the interaction of these changes 
could make it difficult to predict accurately the full scope of the 
impact upon IRFs.
    In updating the rates for FY 2007, we made a number of standard 
annual revisions and clarifications mentioned elsewhere in this final 
rule (for example, the update to the wage and market basket indexes 
used to adjust the Federal rates). These revisions will increase 
payments to IRFs by approximately $220 million.
    The aggregate change in payments associated with this final rule is 
estimated to be an increase in payments to IRFs of $50 million for FY 
2007. The market basket increase of $220 million and the $10 million 
increase due to updating the outlier threshold amount to increase 
estimated outlier payments from 2.9 percent in FY 2006 to 3.0 percent 
in FY 2007, combined with the estimated decrease of $180 million due to 
the reduction to the standard payment amount to account for coding 
changes (not related to real changes in case mix), results in a net 
change in estimated payments from FY 2006 to FY 2007 of $50 million.
    The impacts are shown in Table 9. The following changes are 
discussed separately below:
     The effects of applying the budget-neutral labor-related 
share and wage index adjustment, as required under section 1886(j)(6) 
of the Act.
     The effects of the expiration of the one-year budget-
neutral transition policy for adopting the new CBSA-based geographic 
area definitions announced by OMB in June 2003.
     The effects of the update to the outlier threshold amount 
to increase total estimated outlier payments from 2.9 to 3 percent of 
total estimated payments for FY 2007, consistent with section 
1886(j)(4) of the Act.
     The effects of the annual market basket update (using the 
RPL market basket) to IRF PPS payment rates, as required by sections 
1886(j)(3)(A)(i) and 1886(j)(3)(C) of the Act.
     The effects of the decrease to the standard payment amount 
to account for the increase in estimated aggregate payments as a result 
of changes in coding that do not reflect real changes in case mix, as 
required under section 1886(j)(2)(C)(ii) of the Act.
     The effects of the second year of the 3-year budget-
neutral hold-harmless policy for IRFs that were rural under Sec.  
412.602 during FY 2005, but are urban under Sec.  412.602 during FY 
2006 and FY 2007 and lose the rural adjustment, resulting in a loss of 
estimated IRF PPS payments if not for the hold harmless policy.
     The effect of the budget-neutral revisions to the 
comorbidity tiers and the CMG relative weights, under the authority of 
section 1886(j)(2)(C)(i) of the Act.
     The total change in estimated payments based on the FY 
2007 policies relative to estimated FY 2006 payments without the 
policies.
2. Description of Table 9
    The table below categorizes IRFs by geographic location, including 
urban or rural location and location with respect to CMS's nine census 
divisions (as defined on the cost report) of the country. In addition, 
the table divides IRFs into those that are separate rehabilitation 
hospitals (otherwise

[[Page 48402]]

called freestanding hospitals in this section), those that are 
rehabilitation units of a hospital (otherwise called hospital units in 
this section), rural or urban facilities by ownership (otherwise called 
for-profit, non-profit, and government), and by teaching status. The 
top row of the table shows the overall impact on the 1,202 IRFs 
included in the analysis.
    The next 12 rows of Table 9 contain IRFs categorized according to 
their geographic location, designation as either a freestanding 
hospital or a unit of a hospital, and by type of ownership: all urban, 
which is further divided into urban units of a hospital, urban 
freestanding hospitals, and by type of ownership; and rural, which is 
further divided into rural units of a hospital, rural freestanding 
hospitals, and by type of ownership. There are 1,001 IRFs located in 
urban areas included in our analysis. Among these, there are 807 IRF 
units of hospitals located in urban areas and 194 freestanding IRF 
hospitals located in urban areas. There are 201 IRFs located in rural 
areas included in our analysis. Among these, there are 181 IRF units of 
hospitals located in rural areas and 20 freestanding IRF hospitals 
located in rural areas. There are 398 for-profit IRFs. Among these, 
there are 326 IRFs in urban areas and 72 IRFs in rural areas. There are 
743 non-profit IRFs. Among these, there are 630 urban IRFs and 113 
rural IRFs. There are 61 government-owned IRFs. Among these, there are 
45 urban IRFs and 16 rural IRFs.
    The remaining three parts of Table 9 show IRFs grouped by their 
geographic location within a region, and the last part groups IRFs by 
teaching status. First, IRFs located in urban areas are categorized 
with respect to their location within a particular one of the nine CMS 
geographic regions. Second, IRFs located in rural areas are categorized 
with respect to their location within a particular one of the nine CMS 
geographic regions. In some cases, especially for rural IRFs located in 
the New England, Mountain, and Pacific regions, the number of IRFs 
represented is small. Finally, IRFs are grouped by teaching status, 
including non-teaching IRFs, IRFs with an intern and resident to 
average daily census (ADC) ratio less than 10 percent, IRFs with an 
intern and resident to ADC ratio greater than or equal to 10 percent 
and less than or equal to 19 percent, and IRFs with an intern and 
resident to ADC ratio greater than 19 percent.
    The estimated impact of each change to the facility categories 
listed above is shown in the columns of Table 9. The description of 
each column is as follows:
    Column (1) shows the facility classification categories described 
above.
    Column (2) shows the number of IRFs in each category.
    Column (3) shows the number of cases in each category.
    Column (4) shows the estimated effect of adjusting the outlier 
threshold amount so that estimated outlier payments increase from 2.9 
percent in FY 2006 to 3 percent of total estimated payments for FY 
2007.
    Column (5) shows the estimated effect of the market basket update 
to the IRF PPS payment rates.
    Column (6) shows the estimated effect of the update to the IRF 
labor-related share, wage index, and hold harmless policy.
    Column (7) shows the estimated effects of the budget-neutral 
revisions to the comorbidity tiers and the CMG relative weights.
    Column (8) shows the estimated effects of the decrease in the 
standard payment amount to account for the increase in aggregate 
payments as a result of changes in coding that do not reflect real 
changes in case mix, as discussed in section V.A of this final rule. 
Section 1886(j)(2)(C)(ii) of the Act requires us to adjust the per 
discharge PPS payment rate to eliminate the effect of coding or 
classification changes that do not reflect real changes in case mix if 
we determine that these changes result in a change in aggregate 
payments under the classification system.
    Column (9) compares our estimates of the payments per discharge, 
incorporating all changes reflected in this final rule for FY 2007, to 
our estimates of payments per discharge in FY 2006 (without these 
changes). The average estimated increase for all IRFs is approximately 
0.8 percent. This estimated increase includes the effects of the 3.3 
percent market basket update. It also includes the 0.1 percent overall 
estimated increase to IRF payments from the update to the outlier 
threshold amount, and the estimated impact of the 2.6 percent reduction 
to the standard payment amount to account for changes in coding that 
increased payments to IRFs. Because we will make the remainder of the 
changes outlined in this final rule in a budget-neutral manner, they 
will not affect total estimated IRF payments in the aggregate. However, 
as described in more detail in each section, they will affect the 
estimated distribution of payments among providers.

BILLING CODE 4120-01-P

[[Page 48403]]

[GRAPHIC] [TIFF OMITTED] TR18AU06.093

BILLING CODE 4120-01-C
3. Impact of the Update to the Outlier Threshold Amount (Column 4, 
Table 9)
    In the FY 2006 IRF PPS final rule (70 FR 30188), we used FY 2003 
patient-level claims data (the best, most complete data available at 
that time) to set the outlier threshold amount for FY 2006 so that 
estimated outlier payments will equal 3 percent of total estimated 
payments for FY 2006. For this final rule, we have updated our analysis 
using FY 2004 data. Between FYs 2003 and 2004, we observed that IRFs' 
cost-to-charge ratios continued to fall, a trend that has occurred each 
year since we first implemented the IRF PPS. We are still investigating 
the reasons for this. However, this decrease in cost-to-charge ratios 
affected our estimate of outlier payments as a percentage of total 
estimated payments for FY 2006, which declined from 3 percent using the 
FY 2003 data to 2.9 percent using the updated FY 2004 data. Thus, we 
will adjust the outlier threshold amount for FY 2007 to $5,534 in order 
to set total estimated outlier payments equal to 3 percent of total 
estimated payments in

[[Page 48404]]

FY 2007 (see section VI.A of this final rule for a detailed discussion 
of the factors that influence how we arrive at the outlier threshold 
amount). The estimated change in total payments between FY 2006 and FY 
2007, therefore, includes a 0.1 percent overall estimated increase in 
payments because the outlier portion of total payments is estimated to 
increase from 2.9 percent to 3 percent.
    The impact of this update (as shown in column 4 of Table 9) is to 
increase estimated overall payments to IRFs by 0.1 percent. We estimate 
the largest increase in payments to be a 0.3 percent increase in 
payments to rural IRFs in the Mountain region. We do not estimate that 
any group of IRFs will experience a decrease in payments from this 
update.
4. Impact of the Market Basket Update to the IRF PPS Payment Rates 
(Column 5, Table 9)
    In column 5 of Table 9, we present the estimated effects of the 
market basket update to the IRF PPS payment rates. In the aggregate, 
and across all hospital groups, the update will result in a 3.3 percent 
increase in overall payments to IRFs.
5. Impact of the Full CBSA Wage Index, Labor-Related Share, and the 
Hold Harmless Policy for FY 2007 (Column 6, Table 9)
    In column 6 of Table 9, we present the effects of the budget 
neutral wage index, labor-related share, and the hold harmless policy. 
In FY 2006, we provided a 1-year blended wage index and a 3-year phase 
out of the rural adjustment for IRFs that changed designation because 
of the change from MSAs to CBSAs (referenced as the hold harmless 
policy). We applied the blended wage index to all IRFs and the hold 
harmless policy to those IRFs that qualify, as described in Sec.  
412.624(e)(7), in order to mitigate the impact of the change from the 
MSA-based labor area definitions to the CBSA-based labor area 
definitions for IRFs.
    As discussed in this final rule, the blended wage index expires in 
FY 2007 and will not be applied for discharges occurring on or after 
October 1, 2006. Because we are in the second year of the hold harmless 
policy, we are not changing this policy and will continue to apply it 
as described in the FY 2006 final rule in a budget neutral manner.
    As discussed in this final rule, we are updating the wage index 
based on the CBSA-based labor market area definitions in a budget 
neutral manner. We will also apply the second year of the hold harmless 
policy in a budget neutral manner. Thus, in the aggregate, the 
estimated impact of the wage index and the labor-related share is zero 
percent.
    In the aggregate for all urban and all rural IRFs, we do not 
estimate that these changes will affect overall estimated payments to 
IRFs. However, we estimate these changes to have small distributional 
effects. We estimate the largest increase in payments to be a 2.8 
percent increase for rural IRFs in the Pacific region and the largest 
decrease in payments to be a 1.9 percent decrease among rural IRFs in 
the Mountain region.
6. Impact of the Changes to the Comorbidity Tiers and the CMG Relative 
Weights (Column 7, Table 9)
    In column 7 of Table 9, we present the effects of the changes to 
the comorbidity tiers and the CMG relative weights. Since we are 
implementing these changes in a budget neutral manner, we estimate that 
they will have no overall effect on payments to IRFs. Similarly, we 
estimate no overall effect of these changes on payments to urban IRFs. 
However, we estimate a 0.1 percent increase in payments to rural IRFs. 
We estimate the largest increase in payments to be a 0.3 percent 
increase among rural IRFs located in the Middle Atlantic region. We 
estimate the largest decrease to be a 0.4 percent decrease among 
teaching IRFs with intern and resident to average daily census ratios 
in the 10 percent to 19 percent category.
7. Impact of the 2.6 Percent Decrease to the Standard Payment Amount to 
Account for Coding Changes (Column 8, Table 9)
    In column 8 of Table 9, we present the effects of the decrease in 
the standard payment amount to account for the increase in estimated 
aggregate payments as a result of changes in coding that do not reflect 
real changes in case mix.
    In the aggregate, and across all hospital groups, we estimate that 
the policy will result in a 2.6 percent decrease in overall payments to 
IRFs. Thus, we estimate that the 2.6 percent reduction in the standard 
payment amount will result in a cost savings to the Medicare program of 
approximately $180 million.

C. IRF PPS Accounting Statement

    As required by OMB Circular A-4 (available at ) http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf, in Table 10 below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this final rule. This 
table provides our best estimate of the increase in Medicare payments 
under the IRF PPS as a result of the changes presented in this final 
rule based on the data for 1,202 IRFs in our database. All estimated 
expenditures are classified as transfers to Medicare providers (that 
is, IRFs).

      Table 10.-- Accounting Statement: Classification of Estimated
 Expenditures, From the 2006 IRF PPS Rate Year to the 2007 IRF PPS Rate
                           Year (in Millions)
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  $50 million.
From Whom To Whom?                       Federal Government to IRF
                                          Medicare Providers.
------------------------------------------------------------------------

D. IRF PPS Alternatives Considered

    Because we have determined that this final rule will have a 
significant economic impact on IRFs, we will discuss the alternative 
changes to the IRF PPS that we considered.
    We considered a reduction to the standard payment amount by an 
amount of up to 3.9 percent (5.8 percent minus the 1.9 percent 
adjustment to the standard payment amount for FY 2006), because one of 
RAND's methodologies for determining the amount of real change in case 
mix and the amount of coding change that occurred between 1999 and 2002 
suggested that coding change could have been responsible for up to 5.8 
percent of the observed increase in IRFs' case mix. This suggests that 
we could have implemented a reduction greater than 2.6 percent and as 
high as 3.9 percent. We also considered the possibility of making a 
somewhat lower adjustment of 2.3 percent, which would fall at 
approximately the middle of RAND's range of estimates. However, for the

[[Page 48405]]

reasons discussed in section V.A of this final rule, we have instead 
decided to implement a 2.6 percent reduction to the standard payment 
amount. Further, in light of recent changes to the IRF PPS that affect 
IRF utilization trends, including the revised phase-in schedule of the 
IRF 75 percent rule compliance percentage, we believe it is appropriate 
to take an incremental approach in adjusting for coding changes. In 
this way, we maintain the flexibility to assess the impact of these 
changes and propose additional changes, if appropriate, in the future.
    We considered not updating the comorbidity tiers and the CMG 
relative weights for FY 2007. However, as described in section IV of 
this final rule, re-analysis of the data indicates that some minor 
technical revisions are appropriate to align the distribution of 
payments as closely as possible with the costs of IRF care.
    We also considered not updating the outlier threshold amount for FY 
2007. However, analysis of updated FY 2004 data indicates that 
estimated outlier payments would not equal 3 percent of estimated total 
payment for FY 2007 unless we update the outlier threshold amount.

E. IRF PPS Conclusion (Column 9, Table 9)

    Overall, estimated payments per discharge for IRFs in FY 2007 are 
projected to increase by 0.8 percent, compared with those in FY 2006, 
as reflected in column 9 of Table 9. We estimate that IRFs in rural 
areas will experience a 0.9 percent increase in estimated payments per 
discharge compared with FY 2006. We estimate that IRFs in urban areas 
will experience a 0.8 percent increase in estimated payments per 
discharge compared with FY 2006. We estimate that rehabilitation units 
in urban areas will experience a 0.7 percent increase in estimated 
payments per discharge, while freestanding rehabilitation hospitals in 
urban areas will experience a 0.9 percent increase in estimated 
payments per discharge. We estimate that rehabilitation units in rural 
areas will experience a 0.8 percent increase in estimated payments per 
discharge, while freestanding rehabilitation hospitals in rural areas 
will experience a 1.0 percent increase in estimated payments per 
discharge.
    Overall, we estimate that the largest payment increase will be 3.7 
percent among rural IRFs in the Pacific region. We estimate that the 
only overall decrease in estimated payments will be a 1.0 percent 
decrease for rural IRFs in the Mountain region.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

XV. Regulatory Impact Analysis for DMEPOS Suppliers

A. Overall Impact

    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). 
We estimate that accreditation expenses for DMEPOS suppliers may exceed 
this threshold.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, section 604, small 
entities include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Approximately 90 percent of DMEPOS 
suppliers are considered small businesses according to the Small 
Business Administration's size standards, with total revenues of $6 
million or less in any 1 year. Individuals and States are not included 
in the definition of a small entity. This final rule will have a 
significant impact on small businesses.
    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. 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. We have determined that 
this rule will not have a significant effect on small rural hospitals. 
We expect that small rural hospitals primarily furnish inpatient and 
outpatient hospital services, rather than services that would require 
compliance with the DMEPOS quality standards and accreditation.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
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. We estimate the total 
undiscounted annualized accreditation costs for DMEPOS suppliers 
between CY 2007 and CY 2011 to be approximately $93.1 million.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. We have determined that this final rule will not have 
substantial direct effects on the rights, roles, and responsibilities 
of States.

B. Anticipated Effects for DMEPOS Suppliers

    Under the proposed rule, DMEPOS suppliers will have to be 
accredited by an approved accreditation organization in order to obtain 
a supplier number and to receive Medicare reimbursement for DMEPOS 
items and services furnished to beneficiaries. This section of the rule 
will have an impact on DMEPOS suppliers and organizations that accredit 
DMEPOS suppliers. DMEPOS suppliers will incur costs for becoming 
accredited. Accreditation organizations will incur costs to accredit 
suppliers; we assume that these costs are approximately equal to the 
accreditation fees paid by suppliers.
    To estimate the impact on suppliers, we calculate the total cost of 
accreditation as the sum of accreditation fees and other accreditation 
costs, and we multiply this cost by the number of suppliers requiring 
accreditation. Our calculation incorporates other relevant factors, 
including the number of suppliers that are already accredited, the 
number of suppliers that probably will not seek accreditation because 
they currently are not receiving Medicare reimbursement, and the 
possible phase-in timing for accreditation. These factors are described 
in more detail below. Costs are calculated over a period of 5 years, 
beginning in 2007.

Factors Affecting the Cost Impact

    The National Supplier Clearinghouse (NSC) issues 10-digit NSC 
supplier numbers to suppliers that bill Medicare

[[Page 48406]]

for DMEPOS items and services. Some DMEPOS suppliers operate multiple 
locations while others operate at a single location. Suppliers that are 
part of a single firm share the first 6 digits of the 10-digit NSC 
supplier number, with the last 4 digits set equal to 0001, 0002, and so 
on to denote individual locations. In the following discussion, we will 
refer to the first 6 digits as the ``6-digit NSC supplier number'' to 
represent individual suppliers, while the 10-digit number represents 
individual supplier locations.
    The distinction is important for the impact analysis because 
accreditation organizations generally charge one fee for a supplier's 
first location, and a lower fee for subsequent locations. Some of the 
accreditation organizations also offer lower accreditation fees to 
small suppliers, which typically have few locations.
    There are currently 118,406 unique 10-digit NSC numbers and 65,549 
unique 6-digit NSC numbers. This total includes suppliers as well as 
providers and physicians that furnish items under Medicare Part B as 
suppliers. The distribution of locations by supplier is very uneven 
across the industry. Over 90 percent of suppliers operate a single 
location, while some drug chains, grocery stores, optometry companies, 
and a few medical equipment companies have over a hundred locations.
    Suppliers with NSC numbers are diverse. Physicians and other 
professionals who bill Medicare Part B carriers account for 14 percent 
of 10-digit NSC numbers; durable medical equipment companies account 
for 17 percent; drug stores, grocery stores, and optician/optometry 
companies account for 53 percent; and orthotic/prosthetic makers 
account for 11 percent.

Number of Suppliers Currently Accredited

    Currently, there is no single registry that tracks the number of 
DMEPOS suppliers and locations that are accredited. Media reports and 
data from DMEPOS accreditation organizations suggest that about 2,500 
suppliers and 7,500 locations are currently accredited.

Suppliers That Probably Will Not Seek Accreditation

    Many suppliers that currently have NSC supplier numbers are small, 
receive relatively little in Medicare payments, and/or do not 
specialize in DMEPOS. In 2004, about 7,154 suppliers received $0 in 
allowed charges, and 29,155 received between $1 and $10,000; the 
corresponding numbers in 2005 were 6,679 and 30,121 suppliers. These 
suppliers will have to make a business decision on whether to seek 
accreditation. In our base impact analysis, we assume that the 
approximately 6,900 suppliers that currently receive $0 in allowed 
charges will not seek accreditation. This accounts for about 11.7 
percent of single-location suppliers that are not currently accredited.

Accreditation Fees

    Fees vary between accreditation organizations and, in general, 
currently cover all or some of the following items: application fee, 
manuals, initial accreditation fee (which can cover 1 to 3 years), 
annual renewal fees (when the accreditation fee only covers the first 
year), onsite surveys (generally once every 3 years), and travel for 
survey personnel. At least one accreditation organization includes 
consultations within its base fee. Accreditation costs also vary by the 
size of the supplier seeking accreditation, its number of locations, 
and the number of services that it provides. Because of these factors, 
it is sometimes difficult to compare fees across accreditation 
organizations. We obtained information on total accreditation fees from 
four accreditation organizations that currently accredit DME suppliers 
and a fifth organization that recently formed to perform 
accreditations. In addition, we obtained information on total 
accreditation fees for two organizations that accredit orthotic and 
prosthetic suppliers; these costs were generally lower than 
accreditation fees for other DME suppliers. Although the information 
obtained from the accrediting organizations is helpful in determining 
the overall impact, we believe that the fees under the DMEPOS 
accreditation process will be close to or below the lower fee estimates 
because we will be requiring a more streamlined accreditation process. 
Because the details of the accreditation process are not currently 
known to potential DMEPOS accrediting organizations, it is difficult to 
make definitive projections for fees under the DMEPOS accreditation 
program with certainty.
    In addition to information that we received from accrediting 
organizations on fees under the current process, we received public 
comments on accreditation fees. We also have data, which were presented 
to the PAOC, which estimate lower fees. Based on all information that 
we obtained, we estimate accreditation fees will be approximately 
$3,000 for a DME supplier. Because accreditation is for a 3-year 
period, the estimated average cost per year would be approximately 
$1,000. We expect that accreditation fees for an orthotics and 
prosthetics supplier would be approximately $2,000; the average cost 
per year would then be approximately $670.
    We recognize that becoming accredited imposes a burden on DMEPOS 
suppliers, especially small suppliers. We have attempted to minimize 
that burden. In compliance with section 604 of the RFA, we have 
responded to public comments in section X.D of this final rule, and we 
have implemented the following options to minimize the burden of 
accreditation on suppliers, including small businesses:
     Multiple accreditation organizations: We expect that many 
accrediting organizations will apply to become and be selected as 
DMEPOS accrediting organizations. We believe that selection of more 
than one accreditation organization and specialty organizations will 
introduce competition resulting in reductions in accreditation costs.
     Required plan for small businesses. During the application 
process, we will ask accreditation organizations to include a plan that 
details their methodology to reduce accreditation fees and burden for 
small or specialty DMEPOS suppliers and DMEPOS suppliers that have 
multiple locations.
     Strict application of quality standards: Currently, 
accreditation organizations use a survey process in which they expand 
on published conditions of participation or other standards, which 
often requires a lengthy onsite evaluation. This results in greater 
travel expenditures incurred by the accreditation organization and 
results in higher accreditation survey fees. We believe that the DMEPOS 
quality standards (developed in collaboration with accreditation, DME, 
and small business industry experts) will be sufficiently streamlined 
in order to ensure an effective and efficient survey process. We 
strongly believe that accreditation organizations will not need to 
expand on these standards in order to deter fraudulent practices and 
ensure quality DMEPOS services.
     Streamlined process: Currently, accreditation 
organizations require activities such as consultation services and 
purchasing manuals. We have clarified in this final rule that the role 
of the accreditation organization is to ensure compliance with the 
quality standards and that accreditation should not be contingent on 
using consultation services or purchasing manuals. Therefore, we 
believe that the cost of performing DMEPOS surveys that do not include 
these additional

[[Page 48407]]

accreditation organization activities will be significantly less. Some 
accrediting organizations may require a 6-month survey preparation 
process that includes self-assessment. Under accreditation for DMEPOS 
suppliers, all surveys will be unscheduled; therefore, there may not be 
a 6-month survey preparation time and additional costs associated with 
preparation time.
     Reasonable quality standards: We plan to issue quality 
standards that represent basic good business practices. Many DMEPOS 
suppliers should already be complying with the standards and have 
incorporated these practices into their daily operations. Therefore, 
there would be no ``ramp up costs'' and DMEPOS suppliers would not need 
to devote significant time to be compliant with many of these 
standards. Additionally, it is our belief that compliance with the 
quality standards will result in more efficient and effective business 
practices and will assist DMEPOS suppliers in reducing overall costs.
     All Part B suppliers will need to meet these accreditation 
requirements. We hope to minimize burden and duplication of effort for 
suppliers that have already been accredited, Medicare-certified, and/or 
licensed under state law, by taking into consideration any previous 
accreditation, certification, and/or licensure findings that indicate 
that DMEPOS quality standards are being met at the time the 
accreditation organization surveys the supplier.

Other Accreditation Costs

    It is difficult to estimate precisely the costs of preparing for 
accreditation. However, we note that we will be instituting a 
streamlined process under which the accrediting organization will be 
using unannounced surveys. Nevertheless, we recognize that there is a 
cost to the supplier to come into compliance initially, and thus 
prepare for the accreditation survey, this process should result in 
minimal preparation and cost.

                                                    Table 11. Total Accreditation Costs ($ Millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                   5-year       5-year
                                                                                                                 5-year Total   Total Costs  Total Costs
                                                   2007         2008         2009         2010         2011          Costs      (Discounted  (Discounted
                                                                                                                (Undiscounted)     @ 3%)         @7%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Accreditation Fees.....................       $37.99       $58.58       $79.17       $67.37       $67.37        $310.48       $290.99      $268.28
Total Other Accreditation Costs..............        18.99        29.29        39.59        33.68        33.68         155.24        145.50       134.14
                                              ----------------------------------------------------------------------------------------------------------
    Total Costs..............................        56.98        87.87       118.76       101.05       101.05         465.72        436.50       402.41
--------------------------------------------------------------------------------------------------------------------------------------------------------

Uncertainty

    There are at least three important sources of uncertainty in 
estimating the impact of accreditation on DMEPOS suppliers. First, our 
estimates assume that all current DMEPOS suppliers with positive 
Medicare payments will seek accreditation. As noted previously, many 
suppliers that currently have NSC supplier numbers are small, receive 
relatively little in Medicare payments, and/or do not specialize in 
DMEPOS. We assume that suppliers that currently receive no Medicare 
allowed charges will choose not to seek accreditation, and that many of 
the suppliers with allowed charges between $1 and $10,000 may decide 
not to incur the costs of accreditation. It is also possible that these 
suppliers may choose to expand their businesses in anticipation of the 
DMEPOS Competitive Bidding Program being implemented.
    Second, it is unclear how high or low accreditation fees will be in 
the future. With required accreditation causing more suppliers to seek 
accreditation, fees may fall if the accreditation organizations can 
enjoy economies of scale as they expand. This would lessen the impact 
on DMEPOS suppliers.
    Third, the timing of accreditation could differ from our assumption 
that one-third of suppliers will be accredited during each of the next 
3 years. We cannot precisely predict the timing of accreditation 
surveys and how this might affect costs.

C. Alternatives Considered for DMEPOS Suppliers

    Section 302 (a)(1) of the Medicare Prescription Drug, Improvement 
and Modernization Act of 2003 (MMA) added section 1834(a)(20) of the 
Social Security Act (the Act) and requires the Secretary to establish 
and implement quality standards for suppliers of certain items, 
including consumer service standards, to be applied by recognized 
independent accreditation organizations.
    In compliance with section 604 of the RFA, we have implemented 
options to minimize the burden of accreditation on suppliers, which 
include approving multiple accreditation organizations that serve 
smaller suppliers, and accreditation organizations that will be 
responsible for only surveying the streamlined quality standards for 
compliance and not providing any consultative services that may 
increase the time and cost of the survey process. Also, we believe that 
unannounced surveys will reduce the time and cost involved in 
suppliers' receiving and reviewing documents prior to the survey.

D. Accounting Statement for DMEPOS Suppliers

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in the table below we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this final rule. This 
table provides our best estimate of the costs under section 1834(a)(20) 
of the Act. All expenditures are classified as costs to the suppliers 
from the DMEPOS accreditation organizations.

[[Page 48408]]



             Accounting Statement: Classification of Estimated Expenditures, from CY 2007 to CY 2011
                                               (in millions/year)
----------------------------------------------------------------------------------------------------------------
                                                            Discount
                  Category                      Costs         rate                 From whom to whom
----------------------------------------------------------------------------------------------------------------
Costs-Annualized Monetized.................       $80.48           7%  DMEPOS to Accreditation Organizations
Costs-Annualized Monetized.................       $87.30           3%  DMEPOS to Accreditation Organizations
----------------------------------------------------------------------------------------------------------------

E. Conclusion for DMEPOS Suppliers

    We estimate that DMEPOS suppliers will incur total accreditation 
costs from this regulation of $465.7 million over 5 years. Discounted 
at 7 percent and at 3 percent, the 5-year accreditation costs to DMEPOS 
suppliers are approximately $402.4 million and $436.5 million, 
respectively. In CY 2007, we estimate the total accreditation costs to 
be approximately $56.98 million. In CY 2008 and CY 2009, we estimate 
the total accreditation costs to be approximately $87.87 million and 
$118.76 million, respectively. In CY 2010 and CY 2011, we estimate the 
total accreditation costs to be approximately $101.1 million annually. 
The DME supplier accreditation requirement has no anticipated fiscal 
impact on the benefit payments from the Medicare trust funds.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 412

    Administrative practice and procedure, Health facilities, Medicare, 
Puerto Rico, Reporting and recordkeeping requirements.

42 CFR Part 414

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 424

    Emergency medical services, Health facilities, Health professions, 
Medicare, Reporting and recordkeeping requirements.


0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR chapter IV as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

0
1. The authority citation for part 412 continues to read as follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

Subpart P--Prospective Payment for Inpatient Rehabilitation 
Hospitals and Rehabilitation Units

0
2. Section 412.23 is amended by--
0
A. Revising paragraph (b)(2)(i) introductory text.
0
B. Revising paragraph (b)(2)(ii).
    The revisions read as follows:


Sec.  412.23  Excluded hospitals: Classifications.

* * * * *
    (b) * * *
    (2) * * *
    (i) For cost reporting periods beginning on or after July 1, 2004 
and before July 1, 2005, the hospital has served an inpatient 
population of whom at least 50 percent, and for cost reporting periods 
beginning on or after July 1, 2005 and before July 1, 2007, the 
hospital has served an inpatient population of whom at least 60 
percent, and for cost reporting periods beginning on or after July 1, 
2007 and before July 1, 2008, the hospital has served an inpatient 
population of whom at least 65 percent required intensive 
rehabilitative services for treatment of one or more of the conditions 
specified at paragraph (b)(2)(iii) of this section. A patient with a 
comorbidity, as defined at Sec.  412.602, may be included in the 
inpatient population that counts toward the required applicable 
percentage if--
* * * * *
    (ii) For cost reporting periods beginning on or after July 1, 2008, 
the hospital has served an inpatient population of whom at least 75 
percent required intensive rehabilitative services for treatment of one 
or more of the conditions specified in paragraph (b)(2)(iii) of this 
section. A patient with a comorbidity as described in paragraph 
(b)(2)(i) of this section is not included in the inpatient population 
that counts toward the required 75 percent.
* * * * *

0
3. In Sec.  412.624, paragraphs (e)(5) and (f)(2)(v) are revised to 
read as follows:


Sec.  412.624  Methodology for calculating the Federal prospective 
payment rates.

* * * * *
    (e) * * *
    (5) Adjustment for high-cost outliers. CMS provides for an 
additional payment to an inpatient rehabilitation facility if its 
estimated costs for a patient exceed a fixed dollar amount (adjusted 
for area wage levels and factors to account for treating low-income 
patients, for rural location, and for teaching programs) as specified 
by CMS. The additional payment equals 80 percent of the difference 
between the estimated cost of the patient and the sum of the adjusted 
Federal prospective payment computed under this section and the 
adjusted fixed dollar amount. Effective for discharges occurring on or 
after October 1, 2003, additional payments made under this section will 
be subject to the adjustments at Sec.  412.84(i), except that CMS 
calculates a single overall (combined operating and capital) cost-to-
charge ratio and national averages that will be used instead of 
statewide averages. Effective for discharges occurring on or after 
October 1, 2003, additional payments made under this section will also 
be subject to adjustments at Sec.  412.84(m), except that CMS 
calculates a single overall (combined operating and capital) cost-to-
charge ratio.
* * * * *
    (f) * * *
    (2) * * *
    (v) By applying the adjustments described in paragraphs (e)(1), 
(e)(2), (e)(3), (e)(4), and (e)(7) of this section to the unadjusted 
payment amount determined in paragraph (f)(2)(iv) of this section to 
equal the adjusted transfer payment amount.
* * * * *

PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES

0
4. The authority citation for part 414 continues to read as follows:

    Authority: Secs. 1102, 1871, and 1881(b)(1) of the Social 
Security Act (42 U.S.C. 1302, 1395hh, and 1395rr(b)(1)).

[[Page 48409]]

Subpart A--General Provisions

0
5. Section 414.1 is amended by adding in numerical order the statutory 
sections to read as follows:


Sec.  414.1  Basis and scope.

* * * * *
    1847(a) and (b)--Competitive bidding for certain durable medical 
equipment, prosthetics, orthotics, and supplies (DMEPOS).
* * * * *

0
6. A new subpart F is added to read as follows:
Subpart F--Competitive Bidding for Certain Durable Medical Equipment, 
Prosthetics, Orthotics, and Supplies (DMEPOS)
Secs.
414.400-414.404 [Reserved]
414.406 Implementation of programs.
414.408-414.426 [Reserved]

Subpart F--Competitive Bidding for Certain Durable Medical 
Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS)


Sec.  414.400-Sec.  414.404  [Reserved]


Sec.  414.406  Implementation of programs.

    (a) Implementation contractor. CMS designates one or more 
implementation contractors for the purpose of implementing this 
subpart.
    (b)-(d) [Reserved]
    (e) Claims processing. The Durable Medical Equipment Medicare 
Administrative Contractor designated to process DMEPOS claims for a 
particular geographic region also processes claims for items furnished 
under a competitive bidding program in the same geographic region.


Sec.  414.408-Sec.  414.426  [Reserved]

PART 424--CONDITIONS FOR MEDICARE PAYMENT

0
7. The authority citation for part 424 continues to read as follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

Subpart A--General Provisions

0
8. Section 424.1 is amended by adding in numerical order the statutory 
sections to read as follows:


Sec.  424.1  Basis and scope.

* * * * *
    1834(a)--Payment for durable medical equipment.
    1834(j)--Requirements for suppliers of medical equipment and 
supplies.
* * * * *

Subpart D--To Whom Payment is Ordinarily Made

0
9. Section 424.57 is amended by--
0
A. Adding the definitions ``Accredited DMEPOS suppliers,'' ``CMS 
approved accreditation organization'' and ``Independent accreditation 
organization'' in alphabetical order in paragraph (a).
0
B. Adding new paragraphs (c)(22)-(c)(25). The additions and revision 
read as follows:


Sec.  424.57  Special payment rules for items furnished by DMEPOS 
Suppliers and issuance of DMEPOS Supplier billing privileges.

    (a) Definitions. * * *
    Accredited DMEPOS suppliers means suppliers that have been 
accredited by a recognized independent accreditation organization 
approved by CMS in accordance with the requirements at Sec.  424.58.
    CMS approved accreditation organization means a recognized 
independent accreditation organization approved by CMS under Sec.  
424.58.
* * * * *
    Independent accreditation organization means an accreditation 
organization that accredits a supplier of DMEPOS and other items and 
services for a specific DMEPOS product category or a full line of 
DMEPOS product categories.
* * * * *
    (c) Application certification standards. * * *
    (22) All suppliers of DMEPOS and other items and services must be 
accredited by a CMS-approved accreditation organization in order to 
receive and retain a supplier billing number. The accreditation must 
indicate the specific products and services, for which the supplier is 
accredited in order for the supplier to receive payment for those 
specific products and services.
    (23) All DMEPOS suppliers must notify their accreditation 
organization when a new DMEPOS location is opened. The accreditation 
organization may accredit the new supplier location for three months 
after it is operational without requiring a new site visit.
    (24) All DMEPOS supplier locations, whether owned or subcontracted, 
must meet the DMEPOS quality standards and be separately accredited in 
order to bill Medicare. An accredited supplier may be denied enrollment 
or their enrollment may be revoked, if CMS determines that they are not 
in compliance with the DMEPOS quality standards.
    (25) All DMEPOS suppliers must disclose upon enrollment all 
products and services, including the addition of new product lines for 
which they are seeking accreditation. If a new product line is added 
after enrollment, the DMEPOS supplier will be responsible for notifying 
the accrediting body of the new product so that the DMEPOS supplier can 
be re-surveyed and accredited for these new products.
* * * * *

0
10. A new Sec.  424.58 is added to read as follows:


Sec.  424.58  Accreditation.

    (a) Scope and purpose. This part implements section 1834(a)(20)(B) 
of the Act, which requires the Secretary to designate and approve one 
or more independent accreditation organizations for purposes of 
enforcing the DMEPOS quality standards for suppliers of DMEPOS and 
other items or services. Section 1847(b)(2)(A)(i) of the Act requires a 
DMEPOS supplier to meet the DMEPOS quality standards under section 
1834(a)(20) of the Act before being awarded a contract.
    (b) Application and reapplication procedures for accreditation 
organizations. (1) An independent accreditation organization applying 
for approval or re-approval of authority to survey suppliers for 
compliance with the DMEPOS quality standards is required to furnish the 
following to CMS:
    (i) A list of the types of DMEPOS supplies, and a list of products 
and services for which the organization is requesting approval.
    (ii) A detailed comparison of the organization's accreditation 
requirements and standards with the applicable DMEPOS quality 
standards, such as a crosswalk.
    (iii) A detailed description of the organization's operational 
processes, including procedures for performing unannounced surveys, 
frequency of the surveys performed, copies of the organization's survey 
forms, guidelines and instructions to surveyors, quality review 
processes for deficiencies identified with accreditation requirements, 
and dispute resolution processes and policies when there is a negative 
survey finding or decision.
    (iv) Procedures used to notify DMEPOS suppliers of compliance or 
noncompliance with the accreditation requirements.
    (v) Procedures used to monitor the correction of deficiencies found 
during an accreditation survey.
    (vi) Procedures for coordinating surveys with another accrediting 
organization if the organization does not accredit all products the 
supplier provides.

[[Page 48410]]

    (vii) Detailed professional information about the individuals who 
perform surveys for the accreditation organization, including the size 
and composition of accreditation survey teams for each type of DMEPOS 
supplier accredited, and the education and experience requirements 
surveyors must meet. The information must include the following:
    (A) The content and frequency of the continuing education training 
provided to survey personnel.
    (B) The evaluation systems used to monitor the performance of 
individual surveyors and survey teams.
    (C) Policies and procedures for a surveyor or institutional 
affiliate of the independent accrediting organization that participates 
in a survey or accreditation decision regarding a DMEPOS supplier with 
which that individual or institution is professionally or financially 
affiliated.
    (viii) A description of the organization's data management, 
analysis and reporting system for its surveys and accreditation 
decisions, including the kinds of reports, tables, and other displays 
generated by that system.
    (ix) Procedures for responding to, and investigating complaints 
against, accredited facilities, including policies and procedures 
regarding coordination of these activities with appropriate licensing 
bodies, ombudsman programs, the National Supplier Clearinghouse, and 
CMS.
    (x) The organization's policies and procedures for notifying CMS of 
facilities that fail to meet the accreditation organization's 
requirements.
    (xi) A description of all types, categories, and durations of 
accreditations offered by the organization.
    (xii) A list of the following:
    (A) All currently accredited DMEPOS suppliers.
    (B) The types and categories of accreditation currently held by 
each supplier.
    (C) The expiration date of each supplier's current accreditation.
    (D) The upcoming survey cycles for all DMEPOS suppliers' 
accreditation surveys scheduled to be performed by the organization.
    (xiii) A written presentation that demonstrates the organization's 
ability to furnish CMS with electronic data in ASCII comparable code.
    (xiv) A resource analysis that demonstrates that the organization's 
staffing, funding, and other resources are adequate to perform fully 
the required surveys and related activities.
    (xv) An agreement that the accreditation organization will permit 
its surveyors to serve as witnesses if CMS takes an adverse action 
based on accreditation findings.
    (2) Validation survey. CMS surveys suppliers of DMEPOS and other 
items and services accredited under this section on a representative 
sample basis, or in response to substantial allegations of 
noncompliance, in order to validate the accreditation organization's 
survey process. When conducted--
    (i) On a representative sample basis, the CMS survey may be 
comprehensive or focus on a specific standard;
    (ii) In response to a substantial allegation, CMS surveys for any 
standard that CMS determines is related to the allegations.
    (3) Discovery of a deficiency. If CMS discovers that a DMEPOS 
supplier was not in compliance with the DMEPOS supplier quality 
standards, CMS may revoke the supplier's billing number or require the 
accreditation organization to perform a subsequent full accreditation 
survey at the accreditation organization's expense.
    (4) Authorization. A supplier selected for a validation survey must 
authorize the--
    (i) Validation survey to take place; and
    (ii) CMS survey team to monitor the correction of any deficiencies 
found through the validation survey.
    (5) Refusal to cooperate with survey. If a supplier selected for a 
validation survey fails to comply with the requirements specified at 
paragraph (b)(4) of this section, it is deemed to no longer meet the 
DMEPOS supplier quality standards and may have its supplier billing 
number revoked.
    (6) Validation survey findings. If a validation survey results in a 
finding that the supplier was not in compliance with one or more DMEPOS 
supplier quality standards, the supplier no longer meets the DMEPOS 
quality standards and may have its supplier billing number revoked.
    (c) Ongoing responsibilities of a CMS-approved accreditation 
organization. An accreditation organization approved by CMS must 
undertake the following activities on an ongoing basis:
    (1) Provide to CMS all of the following in written format (either 
electronic or hard copy) and on a monthly basis all of the following:
    (i) Copies of all accreditation surveys, together with any survey-
related information that CMS may require (including corrective action 
plans and summaries of findings with respect to unmet CMS 
requirements).
    (ii) Notice of all accreditation decisions.
    (iii) Notice of all complaints related to suppliers of DMEPOS and 
other items and services.
    (iv) Information about any supplier of DMEPOS and other items and 
services against which the CMS-approved accreditation organization has 
taken remedial or adverse action, including revocation, withdrawal, or 
revision of the supplier's accreditation.
    (v) Notice of any proposed changes in its accreditation standards 
or requirements or survey process. If the organization implements the 
changes before or without CMS' approval, CMS may withdraw its approval 
of the accreditation organization.
    (2) Within 30 calendar days of a change in CMS requirements, submit 
to CMS:
    (i) An acknowledgment of CMS's notification of the change.
    (ii) A revised cross walk reflecting the new requirements.
    (iii) An explanation of how the accreditation organization plans to 
alter its standards to conform to CMS's new requirements, within the 
timeframes specified in the notification of change it receives from 
CMS.
    (3) Permit its surveyors to serve as witnesses if CMS takes an 
adverse action based on accreditation findings.
    (4) Within 2 calendar days of identifying a deficiency of an 
accredited DMEPOS supplier that poses immediate jeopardy to a 
beneficiary or to the general public, provide CMS with written notice 
of the deficiency and any adverse action implemented by the 
accreditation organization.
    (5) Within 10 calendar days after CMS's notice to a CMS-approved 
accreditation organization that CMS intends to withdraw approval of the 
accreditation organization, provide written notice of the withdrawal to 
all of the CMS-approved accreditation organization's accredited 
suppliers.
    (6) Provide, on an annual basis, summary data specified by CMS that 
relate to the past year's accreditation activities and trends.
    (d) Continuing Federal oversight of approved accreditation 
organizations. This paragraph establishes specific criteria and 
procedures for continuing oversight and for withdrawing approval of a 
CMS-approved accreditation organization.
    (1) Equivalency review. CMS compares the accreditation 
organization's standards and its application and enforcement of those 
standards to the comparable CMS requirements and processes when--

[[Page 48411]]

    (i) CMS imposes new requirements or changes its survey process;
    (ii) An accreditation organization proposes to adopt new standards 
or changes in its survey process; or
    (iii) The term of an accreditation organization's approval expires.
    (2) Validation survey. CMS or its designated survey team may 
conduct a survey of an accredited DMEPOS supplier, examine the results 
of a CMS-approved accreditation organization's survey of a supplier, or 
observe a CMS-approved accreditation organization's onsite survey of a 
DMEPOS supplier, in order to validate the CMS-approved accreditation 
organization's accreditation process. At the conclusion of the review, 
CMS identifies any accreditation programs for which validation survey 
results indicate--
    (i) A 10 percent rate of disparity between findings by the 
accreditation organization and findings by CMS or its designated survey 
team on standards that do not constitute immediate jeopardy to patient 
health and safety if unmet;
    (ii) Any disparity between findings by the accreditation 
organization and findings by CMS on standards that constitute immediate 
jeopardy to patient health and safety if unmet; or
    (iii) That, irrespective of the rate of disparity, there are 
widespread or systemic problems in an organization's accreditation 
process such that accreditation by that accreditation organization no 
longer provides CMS with adequate assurance that suppliers meet or 
exceed the Medicare requirements.
    (3) Notice of intent to withdraw approval. CMS provides the 
organization written notice of its intent to withdraw approval if an 
equivalency review, validation review, onsite observation, or CMS's 
daily experience with the accreditation organization suggests that the 
accreditation organization is not meeting the requirements of this 
section.
    (4) Withdrawal of approval. CMS may withdraw its approval of an 
accreditation organization at any time if CMS determines that--
    (i) Accreditation by the organization no longer adequately assures 
that the suppliers of DMEPOS and other items and services are meeting 
the DMEPOS quality standards, and that failure to meet those 
requirements could jeopardize the health or safety of Medicare 
beneficiaries and could constitute a significant hazard to the public 
health; or
    (ii) The accreditation organization has failed to meet its 
obligations with respect to application or reapplication procedures.
    (e) Reconsideration. (1) An accreditation organization dissatisfied 
with a determination that its accreditation requirements do not provide 
or do not continue to provide reasonable assurance that the entities 
accredited by the accreditation organization meet the applicable 
supplier quality standards is entitled to a reconsideration. CMS 
reconsiders any determination to deny, remove, or not renew the 
approval of deeming authority to accreditation organizations if the 
accreditation organization files a written request for reconsideration 
by its authorized officials or through its legal representative.
    (2) The request must be filed within 30 calendar days of the 
receipt of CMS notice of an adverse determination or non-renewal.
    (3) The request for reconsideration must specify the findings or 
issues with which the accreditation organization disagrees and the 
reasons for the disagreement.
    (4) A requestor may withdraw its request for reconsideration at any 
time before the issuance of a reconsideration determination.
    (5) In response to a request for reconsideration, CMS provides the 
accreditation organization the opportunity for an informal hearing to 
be conducted by a hearing officer appointed by the Administrator of CMS 
and provide the accreditation organization the opportunity to present, 
in writing and in person, evidence or documentation to refute the 
determination to deny approval, or to withdraw or not renew deeming 
authority.
    (6) CMS provides written notice of the time and place of the 
informal hearing at least 10 calendar days before the scheduled date.
    (7) The informal reconsideration hearing is open to CMS and the 
organization requesting the reconsideration, including authorized 
representatives; technical advisors (individuals with knowledge of the 
facts of the case or presenting interpretation of the facts); and legal 
counsel.
    (i) The hearing is conducted by the hearing officer who receives 
testimony and documents related to the proposed action.
    (ii) Testimony and other evidence may be accepted by the hearing 
officer even though it is inadmissible under the rules of court 
procedures.
    (iii) The hearing officer does not have the authority to compel by 
subpoena the production of witnesses, papers, or other evidence.
    (8) Within 45 calendar days of the close of the hearing, the 
hearing officer presents the findings and recommendations to the 
accreditation organization that requested the reconsideration.
    (9) The written report of the hearing officer includes separate 
numbered findings of fact and the legal conclusions of the hearing 
officer. The hearing officer's decision is final.

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

    Dated: July 20, 2006.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.

    Approved: July 28, 2006.
Michael O. Leavitt,
Secretary.

[[Page 48412]]

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

Addendum

    This addendum contains the tables referred to throughout the 
preamble of this final rule. The tables presented below are as follows:

    Table 1.--Core-Based Statistical Area Urban Wage Index effective 
for discharges occurring on or after October 1, 2006 and on or before 
September 30, 2007
    Table 2.--Core-Based Statistical Area Rural Wage Index effective 
for discharges occurring on or after October 1, 2006 and on or before 
September 30, 2007
    The following addendum will not appear in the Code of Federal 
Regulations.

Addendum

    This addendum contains the tables referred to throughout the 
preamble of this final rule. The tables presented below are as follows:

    Table 1.--Inpatient Rehabilitation Facility Wage Index for Urban 
Areas for Discharges Occurring from October 1, 2006 through September 
30, 2007
    Table 2.--Inpatient Rehabilitation Facility Wage Index for Rural 
Areas for Discharges Occurring from October 1, 2006 through September 
30, 2007

 Table 1.--Inpatient Rehabilitation Facility Wage Index for Urban Areas
for Discharges Occurring From October 1, 2006 Through September 30, 2007
------------------------------------------------------------------------
                                     Urban area (constituent      Wage
            CBSA code                       counties)            index
------------------------------------------------------------------------
10180............................  Abilene, TX...............     0.7896
                                     Callahan County, TX
                                     Jones County, TX
                                     Taylor County, TX
10380............................  Aguadilla-Isabela-San          0.4738
                                    Sebastian, PR.
                                     Aguada Municipio, PR
                                     Aguadilla Municipio, PR
                                     Anasco Municipio, PR
                                     Isabela Municipio, PR
                                     Lares Municipio, PR
                                     Moca Municipio, PR
                                     Rincon Municipio, PR
                                     San Sebastian Municipio,
                                   PR
10420............................  Akron, OH.................     0.8982
                                     Portage County, OH
                                     Summit County, OH
10500............................  Albany, GA................     0.8628
                                     Baker County, GA
                                     Dougherty County, GA
                                     Lee County, GA
                                     Terrell County, GA
                                     Worth County, GA
10580............................  Albany-Schenectady-Troy,       0.8589
                                    NY.
                                     Albany County, NY
                                     Rensselaer County, NY
                                     Saratoga County, NY
                                     Schenectady County, NY
                                     Schoharie County, NY
10740............................  Albuquerque, NM...........     0.9684
                                     Bernalillo County, NM
                                     Sandoval County, NM
                                     Torrance County, NM
                                     Valencia County, NM
10780............................  Alexandria, LA............     0.8033
                                     Grant Parish, LA
                                     Rapides Parish, LA
10900............................  Allentown-Bethlehem-           0.9818
                                    Easton, PA-NJ.
                                     Warren County, NJ
                                     Carbon County, PA
                                     Lehigh County, PA
                                     Northampton County, PA
11020............................  Altoona, PA...............     0.8944
                                     Blair County, PA
11100............................  Amarillo, TX..............     0.9156
                                     Armstrong County, TX
                                     Carson County, TX
                                     Potter County, TX
                                     Randall County, TX
11180............................  Ames, IA..................     0.9536
                                     Story County, IA
11260............................  Anchorage, AK.............     1.1895
                                     Anchorage Municipality,
                                   AK
                                     Matanuska-Susitna
                                   Borough, AK
11300............................  Anderson, IN..............     0.8586

[[Page 48413]]

 
                                     Madison County, IN
11340............................  Anderson, SC..............     0.8997
                                     Anderson County, SC
11460............................  Ann Arbor, MI.............     1.0859
                                     Washtenaw County, MI
11500............................  Anniston-Oxford, AL.......     0.7682
                                     Calhoun County, AL
11540............................  Appleton, WI..............     0.9288
                                     Calumet County, WI
                                     Outagamie County, WI
11700............................  Asheville, NC.............     0.9285
                                     Buncombe County, NC
                                     Haywood County, NC
                                     Henderson County, NC
                                     Madison County, NC
12020............................  Athens-Clarke County, GA..     0.9855
                                     Clarke County, GA
                                     Madison County, GA
                                     Oconee County, GA
                                     Oglethorpe County, GA
12060............................  Atlanta-Sandy Springs-         0.9793
                                    Marietta, GA.
                                     Barrow County, GA
                                     Bartow County, GA
                                     Butts County, GA
                                     Carroll County, GA
                                     Cherokee County, GA
                                     Clayton County, GA
                                     Cobb County, GA
                                     Coweta County, GA
                                     Dawson County, GA
                                     DeKalb County, GA
                                     Douglas County, GA
                                     Fayette County, GA
                                     Forsyth County, GA
                                     Fulton County, GA
                                     Gwinnett County, GA
                                     Haralson County, GA
                                     Heard County, GA
                                     Henry County, GA
                                     Jasper County, GA
                                     Lamar County, GA
                                     Meriwether County, GA
                                     Newton County, GA
                                     Paulding County, GA
                                     Pickens County, GA
                                     Pike County, GA
                                     Rockdale County, GA
                                     Spalding County, GA
                                     Walton County, GA
12100............................  Atlantic City, NJ.........     1.1615
                                     Atlantic County, NJ
12220............................  Auburn-Opelika, AL........     0.8100
                                     Lee County, AL
12260............................  Augusta-Richmond County,       0.9748
                                    GA-SC.
                                     Burke County, GA
                                     Columbia County, GA
                                     McDuffie County, GA
                                     Richmond County, GA
                                     Aiken County, SC
                                     Edgefield County, SC
12420............................  RAustin-Round Rock, TX....     0.9437
                                     Bastrop County, TX
                                     Caldwell County, TX
                                     Hays County, TX
                                     Travis County, TX
                                     Williamson County, TX
12540............................  Bakersfield, CA...........     1.0470
                                     Kern County, CA
12580............................  Baltimore-Towson, MD......     0.9897
                                     Anne Arundel County, MD

[[Page 48414]]

 
                                     Baltimore County, MD
                                     Carroll County, MD
                                     Harford County, MD
                                     Howard County, MD
                                     Queen Anne's County, MD
                                     Baltimore City, MD
12620............................  Bangor, ME................     0.9993
                                     Penobscot County, ME
12700............................  Barnstable Town, MA.......     1.2600
                                     Barnstable County, MA
12940............................  Baton Rouge, LA...........     0.8593
                                     Ascension Parish, LA
                                     East Baton Rouge Parish,
                                   LA
                                     East Feliciana Parish,
                                   LA
                                     Iberville Parish, LA
                                     Livingston Parish, LA
                                     Pointe Coupee Parish, LA
                                     St. Helena Parish, LA
                                     West Baton Rouge Parish,
                                   LA
                                     West Feliciana Parish,
                                   LA
12980............................  Battle Creek, MI..........     0.9508
                                     Calhoun County, MI
13020............................  Bay City, MI..............     0.9343
                                     Bay County, MI
13140............................  Beaumont-Port Arthur, TX..     0.8412
                                     Hardin County, TX
                                     Jefferson County, TX
                                     Orange County, TX
13380............................  Bellingham, WA............     1.1731
                                     Whatcom County, WA
13460............................  Bend, OR..................     1.0786
                                     Deschutes County, OR
13644............................  Bethesda-Gaithersburg-         1.1483
                                    Frederick, MD.
                                     Frederick County, MD
                                     Montgomery County, MD
13740............................  Billings, MT..............     0.8834
                                     Carbon County, MT
                                     Yellowstone County, M
13780............................  Binghamton, NY............     0.8562
                                     Broome County, NY
                                     Tioga County, NYT
13820............................  Birmingham-Hoover, AL.....     0.8959
                                     Bibb County, AL
                                     Blount County, AL
                                     Chilton County, AL
                                     Jefferson County, AL
                                     St. Clair County, AL
                                     Shelby County, AL
                                     Walker County, AL
13900............................  Bismarck, ND..............     0.7574
                                     Burleigh County, ND
                                     Morton County, ND
13980............................  Blacksburg-Christiansburg-     0.7954
                                    Radford, VA.
                                     Giles County, VA
                                     Montgomery County, VA
                                     Pulaski County, VA
                                     Radford City, VA
14020............................  Bloomington, IN...........     0.8447
                                     Greene County, IN
                                     Monroe County, IN
                                     Owen County, IN
14060............................  Bloomington-Normal, IL....     0.9075
                                     McLean County, IL
14260............................  Boise City-Nampa, ID......     0.9052
                                     Ada County, ID
                                     Boise County, ID
                                     Canyon County, ID
                                     Gem County, ID
                                     Owyhee County, ID
14484............................  Boston-Quincy, MA.........     1.1558

[[Page 48415]]

 
                                     Norfolk County, MA
                                     Plymouth County, MA
                                     Suffolk County, MA
14500............................  Boulder, CO...............     0.9734
                                     Boulder County, CO
14540............................  Bowling Green, KY.........     0.8211
                                     Edmonson County, KY
                                     Warren County, KY
14740............................  Bremerton-Silverdale, WA..     1.0675
                                     Kitsap County, WA
14860............................  Bridgeport-Stamford-           1.2592
                                    Norwalk, CT.
                                     Fairfield County, CT
15180............................  Brownsville-Harlingen, TX.     0.9804
                                     Cameron County, TX
15260............................  Brunswick, GA.............     0.9311
                                     Brantley County, GA
                                     Glynn County, GA
                                     McIntosh County, GA
15380............................  Buffalo-Niagara Falls, NY.     0.9511
                                     Erie County, NY
                                     Niagara County, NY
15500............................  Burlington, NC............     0.8905
                                     Alamance County, NC
15540............................  Burlington-South               0.9410
                                    Burlington, VT.
                                     Chittenden County, VT
                                     Franklin County, VT
                                     Grand Isle County, VT
15764............................  Cambridge-Newton-              1.1172
                                    Framingham, MA.
                                     Middlesex County, MA
15804............................  Camden, NJ................     1.0517
                                     Burlington County, NJ
                                     Camden County, NJ
                                     Gloucester County, NJ
15940............................  Canton-Massillon, OH......     0.8735
                                     Carroll County, OH
                                     Stark County, OH
15980............................  Cape Coral-Fort Myers, FL.     0.9356
                                     Lee County, FL
16180............................  Carson City, NV...........     1.0234
                                     Carson City, NV
16220............................  Casper, WY................     0.9026
                                     Natrona County, WY
16300............................  Cedar Rapids, IA..........     0.8825
                                     Benton County, IA
                                     Jones County, IA
                                     Linn County, IA
16580............................  Champaign-Urbana, IL......     0.9594
                                     Champaign County, IL
                                     Ford County, IL
                                     Piatt County, IL
16620............................  Charleston, WV............     0.8445
                                     Boone County, WV
                                     Clay County, WV
                                     Kanawha County, WV
                                     Lincoln County, WV
                                     Putnam County, WV
16700............................  Charleston-North               0.9245
                                    Charleston, SC.
                                     Berkeley County, SC
                                     Charleston County, SC
                                     Dorchester County, SC
16740............................  Charlotte-Gastonia-            0.9750
                                    Concord, NC-SC.
                                     Anson County, NC
                                     Cabarrus County, NC
                                     Gaston County, NC
                                     Mecklenburg County, NC
                                     Union County, NC
                                     York County, SC
16820............................  Charlottesville, VA.......     1.0187
                                     Albemarle County, VA
                                     Fluvanna County, VA

[[Page 48416]]

 
                                     Greene County, VA
                                     Nelson County, VA
                                     Charlottesville City, VA
16860............................  Chattanooga, TN-GA........     0.9088
                                     Catoosa County, GA
                                     Dade County, GA
                                     Walker County, GA
                                     Hamilton County, TN
                                     Marion County, TN
                                     Sequatchie County, TN
16940............................  Cheyenne, WY..............     0.8775
                                     Laramie County, WY
16974............................  Chicago-Naperville-Joliet,     1.0790
                                    IL.
                                     Cook County, IL
                                     DeKalb County, IL
                                     DuPage County, IL
                                     Grundy County, IL
                                     Kane County, IL
                                     Kendall County, IL
                                     McHenry County, IL
                                     Will County, IL
17020............................  Chico, CA.................     1.0511
                                     Butte County, CA
17140............................  Cincinnati-Middletown, OH-     0.9615
                                    KY-IN.
                                     Dearborn County, IN
                                     Franklin County, IN
                                     Ohio County, IN
                                     Boone County, KY
                                     Bracken County, KY
                                     Campbell County, KY
                                     Gallatin County, KY
                                     Grant County, KY
                                     Kenton County, KY
                                     Pendleton County, KY
                                     Brown County, OH
                                     Butler County, OH
                                     Clermont County, OH
                                     Hamilton County, OH
                                     Warren County, OH
17300............................  Clarksville, TN-KY........     0.8284
                                     Christian County, KY
                                     Trigg County, KY
                                     Montgomery County, TN
                                     Stewart County, TN
17420............................  Cleveland, TN.............     0.8139
                                     Bradley County, TN
                                     Polk County, TN
17460............................  Cleveland-Elyria-Mentor,       0.9213
                                    OH.
                                     Cuyahoga County, OH
                                     Geauga County, OH
                                     Lake County, OH
                                     Lorain County, OH
                                     Medina County, OH
17660............................  Coeur d'Alene, ID.........     0.9647
                                     Kootenai County, ID
17780............................  College Station-Bryan, TX.     0.8900
                                     Brazos County, TX
                                     Burleson County, TX
                                     Robertson County, TX
17820............................  Colorado Springs, CO......     0.9468
                                     El Paso County, CO
                                     Teller County, CO
17860............................  Columbia, MO..............     0.8345
                                     Boone County, MO
                                     Howard County, MO
17900............................  Columbia, SC..............     0.9057
                                     Calhoun County, SC
                                     Fairfield County, SC
                                     Kershaw County, SC
                                     Lexington County, SC

[[Page 48417]]

 
                                     Richland County, SC
                                     Saluda County, SC
17980............................  Columbus, GA-AL...........     0.8560
                                     Russell County, AL
                                     Chattahoochee County, GA
                                     Harris County, GA
                                     Marion County, GA
                                     Muscogee County, GA
18020............................  Columbus, IN..............     0.9588
                                     Bartholomew County, IN
18140............................  Columbus, OH..............     0.9860
                                     Delaware County, OH
                                     Fairfield County, OH
                                     Franklin County, OH
                                     Licking County, OH
                                     Madison County, OH
                                     Morrow County, OH
                                     Pickaway County, OH
                                     Union County, OH
18580............................  Corpus Christi, TX........     0.8550
                                     Aransas County, TX
                                     Nueces County, TX
                                     San Patricio County, TX
18700............................  Corvallis, OR.............     1.0729
                                     Benton County, OR
19060............................  Cumberland, MD-WV.........     0.9317
                                     Allegany County, MD
                                     Mineral County, WV
19124............................  Dallas-Plano-Irving, TX...     1.0228
                                     Collin County, TX
                                     Dallas County, TX
                                     Delta County, TX
                                     Denton County, TX
                                     Ellis County, TX
                                     Hunt County, TX
                                     Kaufman County, TX
                                     Rockwall County, TX
19140............................  Dalton, GA................     0.9079
                                     Murray County, GA
                                     Whitfield County, GA
19180............................  Danville, IL..............     0.9028
                                     Vermilion County, IL
19260............................  Danville, VA..............     0.8489
                                     Pittsylvania County, VA
                                     Danville City, VA
19340............................  Davenport-Moline-Rock          0.8724
                                    Island, IA-IL.
                                     Henry County, IL
                                     Mercer County, IL
                                     Rock Island County, IL
                                     Scott County, IA
19380............................  Dayton, OH................     0.9064
                                     Greene County, OH
                                     Miami County, OH
                                     Montgomery County, OH
                                     Preble County, OH
19460............................  Decatur, AL...............     0.8469
                                     Lawrence County,
                                   ALVMorgan County, AL
19500............................  Decatur, IL...............     0.8067
                                     Macon County, IL
19660............................  Deltona-Daytona Beach-         0.9299
                                    Ormond Beach, FL.
                                     Volusia County, FL
19740............................  Denver-Aurora, CO.........     1.0723
                                     Adams County, CO
                                     Arapahoe County, CO
                                     Broomfield County, CO
                                     Clear Creek County, CO
                                     Denver County, CO
                                     Douglas County, CO
                                     Elbert County, CO
                                     Gilpin County, CO

[[Page 48418]]

 
                                     Jefferson County, CO
                                     Park County, CO
19780............................  Des Moines, IA............     0.9669
                                     Dallas County, IA
                                     Guthrie County, IA
                                     Madison County, IA
                                     Polk County, IA
                                     Warren County, IA
19804............................  Detroit-Livonia-Dearborn,      1.0424
                                    MI.
                                     Wayne County, MI
20020............................  Dothan, AL................     0.7721
                                     Geneva County, AL
                                     Henry County, AL
                                     Houston County, AL
20100............................  Dover, DE.................     0.9776
                                     Kent County, DE
20220............................  Dubuque, IA...............     0.9024
                                     Dubuque County, IA
20260............................  Duluth, MN-WI.............     1.0213
                                     Carlton County, MN
                                     St. Louis County, MN
                                     Douglas County, WI
20500............................  Durham, NC................     1.0244
                                     Chatham County, NC
                                     Durham County, NC
                                     Orange County, NC
                                     Person County, NC
20740............................  Eau Claire, WI............     0.9201
                                     Chippewa County, WI
                                     Eau Claire County, WI
20764............................  Edison, NJ................     1.1249
                                     Middlesex County, NJ
                                     Monmouth County, NJ
                                     Ocean County, NJ
                                     Somerset County, NJ
20940............................  El Centro, CA.............     0.8906
                                     Imperial County, CA
21060............................  Elizabethtown, KY.........     0.8802
                                     Hardin County, KY
                                     Larue County, KY
21140............................  Elkhart-Goshen, IN........     0.9627
                                     Elkhart County, IN
21300............................  Elmira, NY................     0.8250
                                     Chemung County, NY
21340............................  El Paso, TX...............     0.8977
                                     El Paso County, TX
21500............................  Erie, PA..................     0.8737
                                     Erie County, PA
21604............................  Essex County, MA..........     1.0538
                                     Essex County, MA
21660............................  Eugene-Springfield, OR....     1.0818
                                     Lane County, OR
21780............................  Evansville, IN-KY.........     0.8713
                                     Gibson County, IN
                                     Posey County, IN
                                     Vanderburgh County, IN
                                     Warrick County, IN
                                     Henderson County, KY
                                     Webster County, KY
21820............................  Fairbanks, AK.............     1.1408
                                     Fairbanks North Star
                                   Borough, AK
21940............................  Fajardo, PR...............     0.4153
                                     Ceiba Municipio, PR
                                     Fajardo Municipio, PR
                                     Luquillo Municipio, PR
22020............................  Fargo, ND-MN..............     0.8486
                                     Cass County, ND
                                     Clay County, MN
22140............................  Farmington, NM............     0.8509
                                     San Juan County, NM

[[Page 48419]]

 
22180............................  Fayetteville, NC..........     0.9416
                                     Cumberland County, NC
                                     Hoke County, NC
22220............................  Fayetteville-Springdale-       0.8661
                                    Rogers, AR-MO.
                                     Benton County, AR
                                     Madison County, AR
                                     Washington County, AR
                                     McDonald County, MO
22380............................  Flagstaff, AZ.............     1.2092
                                     Coconino County, AZ
22420............................  Flint, MI.................     1.0655
                                     Genesee County, MI
22500............................  Florence, SC..............     0.8947
                                     Darlington County, SC
                                     Florence County, SC
22520............................  Florence-Muscle Shoals, AL     0.8272
                                     Colbert County, AL
                                     Lauderdale County, AL
22540............................  Fond du Lac, WI...........     0.9640
                                     Fond du Lac County, WI
22660............................  Fort Collins-Loveland, CO.     1.0122
                                     Larimer County, CO
22744............................  Fort Lauderdale-Pompano        1.0432
                                    Beach-Deerfield Beach, FL.
                                     Broward County, FL
22900............................  Fort Smith, AR-OK.........     0.8230
                                     Crawford County, AR
                                     Franklin County, AR
                                     Sebastian County, AR
                                     Le Flore County, OK
                                     Sequoyah County, OK
23020............................  Fort Walton Beach-             0.8872
                                    Crestview-Destin, FL.
                                     Okaloosa County, FL
23060............................  Fort Wayne, IN............     0.9793
                                     Allen County, IN
                                     Wells County, IN
                                     Whitley County, IN
23104............................  Fort Worth-Arlington, TX..     0.9486
                                     Johnson County, TX
                                     Parker County, TX
                                     Tarrant County, TX
                                     Wise County, TX
23420............................  Fresno, CA................     1.0538
                                     Fresno County, CA
23460............................  Gadsden, AL...............     0.7938
                                     Etowah County, AL
23540............................  Gainesville, FL...........     0.9388
                                     Alachua County, FL
                                     Gilchrist County, FL
23580............................  Gainesville, GA...........     0.8874
                                     Hall County, GA
23844............................  Gary, IN..................     0.9395
                                     Jasper County, IN
                                     Lake County, IN
                                     Newton County, IN
                                     Porter County, IN
24020............................  Glens Falls, NY...........     0.8559
                                     Warren County, NY
                                     Washington County, NY
24140............................  Goldsboro, NC.............     0.8775
                                     Wayne County, NC
24220............................  Grand Forks, ND-MN........     0.7901
                                     Polk County, MN
                                     Grand Forks County, ND
24300............................  Grand Junction, CO........     0.9550
                                     Mesa County, CO
24340............................  Grand Rapids-Wyoming, MI..     0.9390
                                     Barry County, MI
                                     Ionia County, MI
                                     Kent County, MI
                                     Newaygo County, MI

[[Page 48420]]

 
24500............................  Great Falls, MT...........     0.9052
                                     Cascade County, MT
24540............................  Greeley, CO...............     0.9570
                                     Weld County, CO
24580............................  Green Bay, WI.............     0.9483
                                     Brown County, WI
                                     Kewaunee County, WI
                                     Oconto County, WI
24660............................  Greensboro-High Point, NC.     0.9104
                                     Guilford County, NC
                                     Randolph County, NC
                                     Rockingham County, NC
24780............................  Greenville, NC............     0.9425
                                     Greene County, NC
                                     Pitt County, NC
24860............................  Greenville, SC............     1.0027
                                     Greenville County, SC
                                     Laurens County, SC
                                     Pickens County, SC
25020............................  Guayama, PR...............     0.3181
                                     Arroyo Municipio, PR
                                     Guayama Municipio, PR
                                     Patillas Municipio, PR
25060............................  Gulfport-Biloxi, MS.......     0.8929
                                     Hancock County, MS
                                     Harrison County, MS
                                     Stone County, MS
25180............................  Hagerstown-Martinsburg, MD-    0.9489
                                    WV.
                                     Washington County, MD
                                     Berkeley County, WV
                                     Morgan County, WV
25260............................  Hanford-Corcoran, CA......     1.0036
                                     Kings County, CA
25420............................  Harrisburg-Carlisle, PA...     0.9313
                                     Cumberland County, PA
                                     Dauphin County, PA
                                     Perry County, PA
25500............................  Harrisonburg, VA..........     0.9088
                                     Rockingham County, VA
                                     Harrisonburg City, VA
25540............................  Hartford-West Hartford-        1.1073
                                    East Hartford, CT.
                                     Hartford County, CT
                                     Litchfield County, CT
                                     Middlesex County, CT
                                     Tolland County, CT
25620............................  Hattiesburg, MS...........     0.7601
                                     Forrest County, MS
                                     Lamar County, MS
                                     Perry County, MS
25860............................  Hickory-Lenoir-Morganton,      0.8921
                                    NC.
                                     Alexander County, NC
                                     Burke County, NC
                                     Caldwell County, NC
                                     Catawba County, NC
25980............................  Hinesville-Fort Stewart,          \1\
                                    GA.                           0.9198
                                     Liberty County, GA
                                     Long County, GA
26100............................  Holland-Grand Haven, MI...     0.9055
                                     Ottawa County, MI
26180............................  Honolulu, HI..............     1.1214
                                     Honolulu County, HI
26300............................  Hot Springs, AR...........     0.9005
                                     Garland County, AR
26380............................  Houma-Bayou Cane-              0.7894
                                    Thibodaux, LA.
                                     Lafourche Parish, LA
                                     Terrebonne Parish, LA
26420............................  Houston-Sugar Land-            0.9996
                                    Baytown, TX.
                                     Austin County, TX
                                     Brazoria County, TX
                                     Chambers County, TX

[[Page 48421]]

 
                                     Fort Bend County, TX
                                     Galveston County, TX
                                     Harris County, TX
                                     Liberty County, TX
                                     Montgomery County, TX
                                     San Jacinto County, TX
                                     Waller County, TX
26580............................  Huntington-Ashland, WV-KY-     0.9477
                                    OH.
                                     Boyd County, KY
                                     Greenup County, KY
                                     Lawrence County, OH
                                     Cabell County, WV
                                     Wayne County, WV
26620............................  Huntsville, AL............     0.9146
                                     Limestone County, AL
                                     Madison County, AL
26820............................  Idaho Falls, ID...........     0.9420
                                     Bonneville County, ID
                                     Jefferson County, ID
26900............................  Indianapolis, IN..........     0.9920
                                     Boone County, IN
                                     Brown County, IN
                                     Hamilton County, IN
                                     Hancock County, IN
                                     Hendricks County, IN
                                     Johnson County, IN
                                     Marion County, IN
                                     Morgan County, IN
                                     Putnam County, IN
                                     Shelby County, IN
26980............................  Iowa City, IA.............     0.9747
                                     Johnson County, IA
                                     Washington County, IA
27060............................  Ithaca, NY................     0.9793
                                     Tompkins County, NY
27100............................  Jackson, MI...............     0.9304
                                     Jackson County, MI
27140............................  Jackson, MS...............     0.8311
                                     Copiah County, MS
                                     Hinds County, MS
                                     Madison County, MS
                                     Rankin County, MS
                                     Simpson County, MS
27180............................  Jackson, TN...............     0.8964
                                     Chester County, TN
                                     Madison County, TN
27260............................  Jacksonville, FL..........     0.9290
                                     Baker County, FL
                                     Clay County, FL
                                     Duval County, FL
                                     Nassau County, FL
                                     St. Johns County, FL
27340............................  Jacksonville, NC..........     0.8236
                                     Onslow County, NC
27500............................  Janesville, WI............     0.9538
                                     Rock County, WI
27620............................  Jefferson City, MO........     0.8387
                                     Callaway County, MO
                                     Cole County, MO
                                     Moniteau County, MO
                                     Osage County, MO
27740............................  Johnson City, TN..........     0.7937
                                     Carter County, TN
                                     Unicoi County, TN
                                     Washington County, TN
27780............................  Johnstown, PA.............     0.8354
                                     Cambria County, PA
27860............................  Jonesboro, AR.............     0.7911
                                     Craighead County, AR
                                     Poinsett County, AR

[[Page 48422]]

 
27900............................  Joplin, MO................     0.8582
                                     Jasper County, MO
                                     Newton County, MO
28020............................  Kalamazoo-Portage, MI.....     1.0381
                                     Kalamazoo County, MI
                                     Van Buren County, MI
28100............................  Kankakee-Bradley, IL......     1.0721
                                     Kankakee County, IL
28140............................  Kansas City, MO-KS........     0.9476
                                     Franklin County, KS
                                     Johnson County, KS
                                     Leavenworth County, KS
                                     Linn County, KS
                                     Miami County, KS
                                     Wyandotte County, KS
                                     Bates County, MO
                                     Caldwell County, MO
                                     Cass County, MO
                                     Clay County, MO
                                     Clinton County, MO
                                     Jackson County, MO
                                     Lafayette County, MO
                                     Platte County, MO
                                     Ray County, MO
28420............................  Kennewick-Richland-Pasco,      1.0619
                                    WA.
                                     Benton County, WA
                                     Franklin County, WA
28660............................  Killeen-Temple-Fort Hood,      0.8526
                                    TX.
                                     Bell County, TX
                                     Coryell County, TX
                                     Lampasas County, TX
28700............................  Kingsport-Bristol-Bristol,     0.8054
                                    TN-VA.
                                     Hawkins County, TN
                                     Sullivan County, TN
                                     Bristol City, VA
                                     Scott County, VA
                                     Washington County, VA
28740............................  Kingston, NY..............     0.9255
                                     Ulster County, NY
28940............................  Knoxville, TN.............     0.8441
                                     Anderson County, TN
                                     Blount County, TN
                                     Knox County, TN
                                     Loudon County, TN
                                     Union County, TN
29020............................  Kokomo, IN................     0.9508
                                     Howard County, IN
                                     Tipton County, IN
29100............................  La Crosse, WI-MN..........     0.9564
                                     Houston County, MN
                                     La Crosse County, WI
29140............................  Lafayette, IN.............     0.8736
                                     Benton County, IN
                                     Carroll County, IN
                                     Tippecanoe County, IN
29180............................  Lafayette, LA.............     0.8428
                                     Lafayette Parish, LA
                                     St. Martin Parish, LA
29340............................  Lake Charles, LA..........     0.7833
                                     Calcasieu Parish, LA
                                     Cameron Parish, LA
29404............................  Lake County-Kenosha            1.0429
                                    County, IL-WI.
                                     Lake County, IL
                                     Kenosha County, WI
29460............................  Lakeland, FL..............     0.8912
                                     Polk County, FL
29540............................  Lancaster, PA.............     0.9694
                                     Lancaster County, PA
29620............................  Lansing-East Lansing, MI..     0.9794
                                     Clinton County, MI

[[Page 48423]]

 
                                     Eaton County, MI
                                     Ingham County, MI
29700............................  Laredo, TX................     0.8068
                                     Webb County, TX
29740............................  Las Cruces, NM............
                                     Dona Ana County, NM          0.8467
29820............................  Las Vegas-Paradise, NV....     1.1437
                                     Clark County, NV
29940............................  Lawrence, KS..............     0.8537
                                     Douglas County, KS
30020............................  Lawton, OK................     0.7872
                                     Comanche County, OK
30140............................  Lebanon, PA...............     0.8459
                                     Lebanon County, PA
30300............................  Lewiston, ID-WA...........     0.9886
                                     Nez Perce County, ID
                                     Asotin County, WA
30340............................  Lewiston-Auburn, ME.......     0.9331
                                     Androscoggin County, ME
30460............................  Lexington-Fayette, KY.....     0.9075
                                     VBourbon County, KY
                                     Clark County, KY
                                     Fayette County, KY
                                     Jessamine County, KY
                                     Scott County, KY
                                     Woodford County, KY
30620............................  Lima, OH..................     0.9225
                                     Allen County, OH
30700............................  Lincoln, NE...............     1.0214
                                     Lancaster County, NE
                                     Seward County, NE
30780............................  Little Rock-North Little       0.8747
                                    Rock, AR.
                                     Faulkner County, AR
                                     Grant County, AR
                                     Lonoke County, AR
                                     Perry County, AR
                                     Pulaski County, AR
                                     Saline County, AR
30860............................  Logan, UT-ID..............     0.9164
                                     Franklin County, ID
                                     Cache County, UT
30980............................  Longview, TX..............     0.8730
                                     Gregg County, TX
                                     Rusk County, TX
                                     Upshur County, TX
31020............................  Longview, WA..............     0.9579
                                     Cowlitz County, WA
31084............................  Los Angeles-Long Beach-        1.1783
                                    Glendale, CA.
                                     Los Angeles County, CA
31140............................  Louisville, KY-IN.........     0.9251
                                     Clark County, IN
                                     Floyd County, IN
                                     Harrison County, IN
                                     Washington County, IN
                                     Bullitt County, KY
                                     Henry County, KY
                                     Jefferson County, KY
                                     Meade County, KY
                                     Nelson County, KY
                                     Oldham County, KY
                                     Shelby County, KY
                                     Spencer County, KY
                                     Trimble County, KY
31180............................  Lubbock, TX...............     0.8783
                                     Crosby County, TX
                                     Lubbock County, TX
31340............................  Lynchburg, VA.............     0.8691
                                     Amherst County, VA
                                     Appomattox County, VA
                                     Bedford County, VA

[[Page 48424]]

 
                                     Campbell County, VA
                                     Bedford City, VA
                                     Lynchburg City, VA
31420............................  Macon, GA.................     0.9443
                                     Bibb County, GA
                                     Crawford County, GA
                                     Jones County, GA
                                     Monroe County, GA
                                     Twiggs County, GA
31460............................  Madera, CA................     0.8713
                                     Madera County, CA
31540............................  Madison, WI...............     1.0659
                                     Columbia County, WI
                                     Dane County, WI
                                     Iowa County, WI
31700............................  Manchester-Nashua, NH.....     1.0354
                                     Hillsborough County, NH
                                     Merrimack County, NH
31900............................  Mansfield, OH.............     0.9891
                                     Richland County, OH
32420............................  Mayaguez, PR..............     0.4020
                                     Hormigueros Municipio,
                                   PR
                                     Mayaguez Municipio, PR
32580............................  McAllen-Edinburg-Mission,      0.8934
                                    TX.
                                     Hidalgo County, TX
32780............................  Medford, OR...............     1.0225
                                     Jackson County, OR
32820............................  Memphis, TN-MS-AR.........     0.9397
                                     Crittenden County, AR
                                     DeSoto County, MS
                                     Marshall County, MS
                                     Tate County, MS
                                     Tunica County, MS
                                     Fayette County, TN
                                     Shelby County, TN
                                     Tipton County, TN
32900............................  Merced, CA................     1.1109
                                     Merced County, CA
33124............................  Miami-Miami Beach-Kendall,     0.9750
                                    FL.
                                     Miami-Dade County, FL
33140............................  Michigan City-La Porte, IN     0.9399
                                     LaPorte County, IN
33260............................  Midland, TX...............     0.9514
                                     Midland County, TX
33340............................  Milwaukee-Waukesha-West        1.0146
                                    Allis, WI.
                                     Milwaukee County, WI
                                     Ozaukee County, WI
                                     Washington County, WI
                                     Waukesha County, WI
33460............................  Minneapolis-St. Paul-          1.1075
                                    Bloomington, MN-WI.
                                     Anoka County, MN
                                      Carver County, MN
                                     Chisago County, MN
                                     Dakota County, MN
                                     Hennepin County, MN
                                     Isanti County, MN
                                     Ramsey County, MN
                                     Scott County, MN
                                     Sherburne County, MN
                                     Washington County, MN
                                     Wright County, MN
                                     Pierce County, WI
                                     St. Croix County, WI
33540............................  Missoula, MT..............     0.9473
                                     Missoula County, MT
33660............................  Mobile, AL................     0.7891
                                     Mobile County, AL
33700............................  Modesto, CA...............     1.1885
                                     Stanislaus County, CA
33740............................  Monroe, LA................     0.8031

[[Page 48425]]

 
                                     Ouachita Parish, LA
                                     Union Parish, LA
33780............................  Monroe, MI................     0.9468
                                     Monroe County, MI
33860............................  Montgomery, AL............     0.8618
                                     Autauga County, AL
                                     Elmore County, AL
                                     Lowndes County, AL
                                     Montgomery County, AL
34060............................  Morgantown, WV............     0.8420
                                     Monongalia County, WV
                                     Preston County, WV
34100............................  Morristown, TN............     0.7961
                                     Grainger County, TN
                                     Hamblen County, TN
                                     Jefferson County, TN
34580............................  Mount Vernon-Anacortes, WA     1.0454
                                     Skagit County, WA
34620............................  Muncie, IN................     0.8930
                                     Delaware County, IN
34740............................  Muskegon-Norton Shores, MI     0.9664
                                     Muskegon County, MI
34820............................  Myrtle Beach-Conway-North      0.8934
                                    Myrtle Beach, SC.
                                     Horry County, SC
34900............................  Napa, CA..................     1.2643
                                     Napa County, CA
34940............................  Naples-Marco Island, FL...     1.0139
                                     Collier County, FL
34980............................  Nashville-Davidson---          0.9790
                                    Murfreesboro, TN.
                                     Cannon County, TN
                                     Cheatham County, TN
                                     Davidson County, TN
                                     Dickson County, TN
                                     Hickman County, TN
                                     Macon County, TN
                                     Robertson County, TN
                                     Rutherford County, TN
                                     Smith County, TN
                                     Sumner County, TN
                                     Trousdale County, TN
                                     Williamson County, TN
                                     Wilson County, TN
35004............................  Nassau-Suffolk, NY........     1.2719
                                     Nassau County, NY
                                     Suffolk County, NY
35084............................  Newark-Union, NJ-PA.......     1.1883
                                     Essex County, NJ
                                     Hunterdon County, NJ
                                     Morris County, NJ
                                     Sussex County, NJ
                                     Union County, NJ
                                     Pike County, PA
35300............................  New Haven-Milford, CT.....     1.1887
                                     New Haven County, CT
35380............................  New Orleans-Metairie-          0.8995
                                    Kenner, LA.
                                     Jefferson Parish, LA
                                     Orleans Parish, LA
                                     Plaquemines Parish, LA
                                     St. Bernard Parish, LA
                                     St. Charles Parish, LA
                                     St. John the Baptist
                                   Parish, LA
                                     St. Tammany Parish, LA
35644............................  New York-White Plains-         1.3188
                                    Wayne, NY-NJ.
                                     Bergen County, NJ
                                     Hudson County, NJ
                                     Passaic County, NJ
                                     Bronx County, NY
                                     Kings County, NY
                                     New York County, NY
                                     Putnam County, NY

[[Page 48426]]

 
                                     Queens County, NY
                                     Richmond County, NY
                                     Rockland County, NY
                                     Westchester County, NY
35660............................  Niles-Benton Harbor, MI...     0.8879
                                     Berrien County, MI
35980............................  Norwich-New London, CT....     1.1345
                                     New London County, CT
36084............................  Oakland-Fremont-Hayward,       1.5346
                                    CA.
                                     Alameda County, CA
                                     Contra Costa County, CA
36100............................  Ocala, FL.................     0.8925
                                     Marion County, FL
36140............................  Ocean City, NJ............     1.1011
                                     Cape May County, NJ
36220............................  Odessa, TX................     0.9884
                                     Ector County, TX
36260............................  Ogden-Clearfield, UT......     0.9029
                                     Davis County, UT
                                     Morgan County, UT
                                     Weber County, UT
36420............................  Oklahoma City, OK.........     0.9031
                                     Canadian County, OK
                                     Cleveland County, OK
                                     Grady County, OK
                                     Lincoln County, OK
                                     Logan County, OK
                                     McClain County, OK
                                     Oklahoma County, OK
36500............................  Olympia, WA...............     1.0927
                                     Thurston County, WA
36540............................  Omaha-Council Bluffs, NE-      0.9560
                                    IA.
                                     Harrison County, IA
                                     Mills County, IA
                                     Pottawattamie County, IA
                                     Cass County, NE
                                     Douglas County, NE
                                     Sarpy County, NE
                                     Saunders County, NE
                                     Washington County, NE
36740............................  Orlando-Kissimmee, FL.....     0.9464
                                     Lake County, FL
                                     Orange County, FL
                                     Osceola County, FL
                                     Seminole County, FL
36780............................  Oshkosh-Neenah, WI........     0.9183
                                     Winnebago County, WI
36980............................  Owensboro, KY.............     0.8780
                                     Daviess County, KY
                                     Hancock County, KY
                                     McLean County, KY
37100............................  Oxnard-Thousand Oaks-          1.1622
                                    Ventura, CA.
                                     Ventura County, CA
37340............................  Palm Bay-Melbourne-            0.9839
                                    Titusville, FL.
                                     Brevard County, FL
37460............................  Panama City-Lynn Haven, FL     0.8005
                                     Bay County, FL
37620............................  Parkersburg-Marietta-          0.8270
                                    Vienna, WV-OH.
                                     Washington County, OH
                                     Pleasants County, WV
                                     Wirt County, WV
                                     Wood County, WV
37700............................  Pascagoula, MS............     0.8156
                                     George County, MS
                                     Jackson County, MS
37860............................  Pensacola-Ferry Pass-          0.8096
                                    Brent, FL.
                                     Escambia County, FL
                                     Santa Rosa County, FL
37900............................  Peoria, IL................     0.8870
                                     Marshall County, IL

[[Page 48427]]

 
                                     Peoria County, IL
                                     Stark County, IL
                                     Tazewell County, IL
                                     Woodford County, IL
37964............................  Philadelphia, PA..........     1.1038
                                     Bucks County, PA
                                     Chester County, PA
                                     Delaware County, PA
                                     Montgomery County, PA
                                     Philadelphia County, PA
38060............................  Phoenix-Mesa-Scottsdale,       1.0127
                                    AZ.
                                     Maricopa County, AZ
                                     Pinal County, AZ
38220............................  Pine Bluff, AR............     0.8680
                                     Cleveland County, AR
                                     Jefferson County, AR
                                     Lincoln County, AR
38300............................  Pittsburgh, PA............     0.8845
                                     Allegheny County, PA
                                     Armstrong County, PA
                                     Beaver County, PA
                                     Butler County, PA
                                     Fayette County, PA
                                     Washington County, PA
                                     Westmoreland County, PA
38340............................  Pittsfield, MA............     1.0181
                                     Berkshire County, MA
38540............................  Pocatello, ID.............     0.9351
                                     Bannock County, ID
                                     Power County, ID
38660............................  Ponce, PR.................     0.4939
                                     Juana Diaz Municipio, PR
                                     Ponce Municipio, PR
                                     Villalba Municipio, PR
38860............................  Portland-South Portland-       1.0382
                                    Biddeford, ME.
                                     Cumberland County, ME
                                     Sagadahoc County, ME
                                     York County, ME
38900............................  Portland-Vancouver-            1.1266
                                    Beaverton, OR-WA.
                                     Clackamas County, OR
                                     Columbia County, OR
                                     Multnomah County, OR
                                     Washington County, OR
                                     Yamhill County, OR
                                     Clark County, WA
                                     Skamania County, WA
38940............................  Port St. Lucie-Fort            1.0123
                                    Pierce, FL.
                                     Martin County, FL
                                     St. Lucie County, FL
39100............................  Poughkeepsie-Newburgh-         1.0891
                                    Middletown, NY.
                                     Dutchess County, NY
                                     Orange County, NY
39140............................  Prescott, AZ..............     0.9869
                                     Yavapai County, AZ
39300............................  Providence-New Bedford-        1.0966
                                    Fall River, RI-MA.
                                     Bristol County, MA
                                     Bristol County, RI
                                     Kent County, RI
                                     Newport County, RI
                                     Providence County, RI
                                     Washington County, RI
39340............................  Provo-Orem, UT............     0.9500
                                     Juab County, UT
                                     Utah County, UT
39380............................  Pueblo, CO................     0.8623
                                     Pueblo County, CO
39460............................  Punta Gorda, FL...........     0.9255
                                     Charlotte County, FL
39540............................  Racine, WI................     0.8997
                                     Racine County, WI

[[Page 48428]]

 
39580............................  Raleigh-Cary, NC..........     0.9691
                                     Franklin County, NC
                                     Johnston County, NC
                                     Wake County, NC
39660............................  Rapid City, SD............     0.8987
                                     Meade County, SD
                                     Pennington County, SD
39740............................  Reading, PA...............     0.9686
                                     Berks County, PA
39820............................  Redding, CA...............     1.2203
                                     Shasta County, CA
39900............................  Reno-Sparks, NV...........
                                     Storey County, NV            1.0982
                                     Washoe County, NV
40060............................  Richmond, VA..............     0.9328
                                     Amelia County, VA
                                     Caroline County, VA
                                     Charles City County, VA
                                     Chesterfield County, VA
                                     Cumberland County, VA
                                     Dinwiddie County, VA
                                     Goochland County, VA
                                     Hanover County, VA
                                     Henrico County, VA
                                     King and Queen County,
                                   VA
                                     King William County, VA
                                     Louisa County, VA
                                     New Kent County, VA
                                     Powhatan County, VA
                                     Prince George County, VA
                                     Sussex County, VA
                                     Colonial Heights City,
                                   VA
                                     Hopewell City, VA
                                     Petersburg City, VA
                                     Richmond City, VA
40140............................  Riverside-San Bernardino-      1.1027
                                    Ontario, CA.
                                     Riverside County, CA
                                     San Bernardino County,
                                   CA
40220............................  Roanoke, VA...............     0.8374
                                     Botetourt County, VA
                                     Craig County, VA
                                     Franklin County, VA
                                     Roanoke County, VA
                                     Roanoke City, VA
                                     Salem City, VA
40340............................  Rochester, MN.............     1.1131
                                     Dodge County, MN
                                     Olmsted County, MN
                                     Wabasha County, MN
40380............................  Rochester, NY.............     0.9121
                                     Livingston County, NY
                                     Monroe County, NY
                                     Ontario County, NY
                                     Orleans County, NY
                                     Wayne County, NY
40420............................  Rockford, IL..............     0.9984
                                     Boone County, IL
                                     Winnebago County, IL
40484............................  Rockingham County-             1.0374
                                    Strafford County, NH.
                                     Rockingham County, NH
                                     Strafford County, NH
40580............................  Rocky Mount, NC...........     0.8915
                                     Edgecombe County, NC
                                     Nash County, NC
40660............................  Rome, GA..................     0.9414
                                     Floyd County, GA
40900............................  Sacramento--Arden-Arcade--     1.2969
                                    Roseville, CA.
                                     El Dorado County, CA
                                     Placer County, CA
                                     Sacramento County, CA

[[Page 48429]]

 
                                     Yolo County, CA
40980............................  Saginaw-Saginaw Township       0.9088
                                    North, MI.
                                     Saginaw County, MI
41060............................  St. Cloud, MN.............     0.9965
                                     Benton County, MN
                                     Stearns County, MN
41100............................  St. George, UT............     0.9392
                                     Washington County, UT
41140............................  St. Joseph, MO-KS.........     0.9519
                                     Doniphan County, KS
                                     Andrew County, MO
                                     Buchanan County, MO
                                     DeKalb County, MO
41180............................  St. Louis, MO-IL..........     0.8954
                                     Bond County, IL
                                     Calhoun County, IL
                                     Clinton County, IL
                                     Jersey County, IL
                                     Macoupin County, IL
                                     Madison County, IL
                                     Monroe County, IL
                                     St. Clair County, IL
                                     Crawford County, MO
                                     Franklin County, MO
                                     Jefferson County, MO
                                     Lincoln County, MO
                                     St. Charles County, MO
                                     St. Louis County, MO
                                     Warren County, MO
                                     Washington County, MO
                                     St. Louis City, MO
41420............................  Salem, OR.................     1.0442
                                     Marion County, OR
                                     Polk County, OR
41500............................  Salinas, CA...............     1.4128
                                     Monterey County, CA
41540............................  Salisbury, MD.............     0.9064
                                     Somerset County, MD
                                     Wicomico County, MD
41620............................  Salt Lake City, UT........     0.9421
                                     Salt Lake County, UT
                                     Summit County, UT
                                     Tooele County, UT
41660............................  San Angelo, TX............     0.8271
                                     Irion County, TX
                                     Tom Green County, TX
41700............................  San Antonio, TX...........     0.8980
                                     Atascosa County, TX
                                     Bandera County, TX
                                     Bexar County, TX
                                     Comal County, TX
                                     Guadalupe County, TX
                                     Kendall County, TX
                                     Medina County, TX
                                     Wilson County, TX
41740............................  San Diego-Carlsbad-San         1.1413
                                    Marcos, CA.
                                     San Diego County, CA
41780............................  Sandusky, OH..............     0.9019
                                     Erie County, OH
41884............................  San Francisco-San Mateo-       1.4994
                                    Redwood City, CA.
                                     Marin County, CA
                                     San Francisco County, CA
                                     San Mateo County, CA
41900............................  San German-Cabo Rojo, PR..     0.4650
                                     Cabo Rojo Municipio, PR
                                     Lajas Municipio, PR
                                     Sabana Grande Municipio,
                                   PR
                                     San German Municipio, PR
41940............................  San Jose-Sunnyvale-Santa       1.5099
                                    Clara, CA.
                                     San Benito County, CA

[[Page 48430]]

 
                                     Santa Clara County, CA
41980............................  San Juan-Caguas-Guaynabo,      0.4621
                                    PR.
                                     Aguas Buenas Municipio,
                                   PR
                                     Aibonito Municipio, PR
                                     Arecibo Municipio, PR
                                     Barceloneta Municipio,
                                   PR
                                     Barranquitas Municipio,
                                   PR
                                     Bayamon Municipio, PR
                                     Caguas Municipio, PR
                                     Camuy Municipio, PR
                                     Canovanas Municipio, PR
                                     Carolina Municipio, PR
                                     Catano Municipio, PR
                                     Cayey Municipio, PR
                                     Ciales Municipio, PR
                                     Cidra Municipio, PR
                                     Comerio Municipio, PR
                                     Corozal Municipio, PR
                                     Dorado Municipio, PR
                                     Florida Municipio, PR
                                     Guaynabo Municipio, PR
                                     Gurabo Municipio, PR
                                     Hatillo Municipio, PR
                                     Humacao Municipio, PR
                                     Juncos Municipio, PR
                                     Las Piedras Municipio,
                                   PR
                                     Loiza Municipio, PR
                                     Manati Municipio, PR
                                     Maunabo Municipio, PR
                                     Morovis Municipio, PR
                                     Naguabo Municipio, PR
                                     Naranjito Municipio, PR
                                     Orocovis Municipio, PR
                                     Quebradillas Municipio,
                                   PR
                                     Rio Grande Municipio, PR
                                     San Juan Municipio, PR
                                     San Lorenzo Municipio,
                                   PR
                                     Toa Alta Municipio, PR
                                     Toa Baja Municipio, PR
                                     Trujillo Alto Municipio,
                                   PR
                                     Vega Alta Municipio, PR
                                     Vega Baja Municipio, PR
                                     Yabucoa Municipio, PR
42020............................  San Luis Obispo-Paso           1.1349
                                    Robles, CA.
                                     San Luis Obispo County,
                                   CA
42044............................  Santa Ana-Anaheim-Irvine,      1.1559
                                    CA.
                                     Orange County, CA
42060............................  Santa Barbara-Santa Maria,     1.1694
                                    CA.
                                     Santa Barbara County, CA
42100............................  Santa Cruz-Watsonville, CA     1.5166
                                     Santa Cruz County, CA
42140............................  Santa Fe, NM..............     1.0920
                                     Santa Fe County, NM
42220............................  Santa Rosa-Petaluma, CA...     1.3493
                                     Sonoma County, CA
42260............................  Sarasota-Bradenton-Venice,     0.9639
                                    FL.
                                     Manatee County, FL
                                     Sarasota County, FL
42340............................  Savannah, GA..............     0.9461
                                     Bryan County, GA
                                     Chatham County, GA
                                     Effingham County, GA
42540............................  Scranton--Wilkes-Barre, PA     0.8540
                                     Lackawanna County, PA
                                     Luzerne County, PA
                                     Wyoming County, PA
42644............................  Seattle-Bellevue-Everett,      1.1577
                                    WA.
                                     King County, WA
                                     Snohomish County, WA
43100............................  Sheboygan, WI.............     0.8911

[[Page 48431]]

 
                                     Sheboygan County, WI
43300............................  Sherman-Denison, TX.......     0.9507
                                     Grayson County, TX
43340............................  Shreveport-Bossier City,       0.8760
                                    LA.
                                     Bossier Parish, LA
                                     Caddo Parish, LA
                                     De Soto Parish, LA
43580............................  Sioux City, IA-NE-SD......     0.9381
                                     Woodbury County, IA
                                     Dakota County, NE
                                     Dixon County, NE
                                     Union County, SD
43620............................  Sioux Falls, SD...........     0.9635
                                     Lincoln County, SD
                                     McCook County, SD
                                     Minnehaha County, SD
                                     Turner County, SD
43780............................  South Bend-Mishawaka, IN-      0.9788
                                    MI.
                                     St. Joseph County, IN
                                     Cass County, MI
43900............................  Spartanburg, SC...........     0.9172
                                     Spartanburg County, SC
44060............................  Spokane, WA...............     1.0905
                                     Spokane County, WA
44100............................  Springfield, IL...........     0.8792
                                     Menard County, IL
                                     Sangamon County, IL
44140............................  Springfield, MA...........     1.0248
                                     Franklin County, MA
                                     Hampden County, MA
                                     Hampshire County, MA
44180............................  Springfield, MO...........     0.8237
                                     Christian County, MO
                                     Dallas County, MO
                                     Greene County, MO
                                     Polk County, MO
                                     Webster County, MO
44220............................  Springfield, OH...........     0.8396
                                     Clark County, OH
44300............................  State College, PA.........     0.8356
                                     Centre County, PA
44700............................  Stockton, CA..............     1.1307
                                     San Joaquin County, CA
44940............................  Sumter, SC................     0.8377
                                     Sumter County, SC
45060............................  Syracuse, NY..............     0.9574
                                     Madison County, NY
                                     Onondaga County, NY
                                     Oswego County, NY
45104............................  Tacoma, WA................     1.0742
                                     Pierce County, WA
45220............................  Tallahassee, FL...........     0.8688
                                     Gadsden County, FL
                                     Jefferson County, FL
                                     Leon County, FL
                                     Wakulla County, FL
45300............................  Tampa-St. Petersburg-          0.9233
                                    Clearwater, FL.
                                     Hernando County, FL
                                     Hillsborough County, FL
                                     Pasco County, FL
                                     Pinellas County, FL
45460............................  Terre Haute, IN...........     0.8304
                                     Clay County, IN
                                     Sullivan County, IN
                                     Vermillion County, IN
                                     Vigo County, IN
45500............................  Texarkana, TX-Texarkana,       0.8283
                                    AR.
                                     Miller County, AR
                                     Bowie County, TX
45780............................  Toledo, OH................     0.9574

[[Page 48432]]

 
                                     Fulton County, OH
                                     Lucas County, OH
                                     Ottawa County, OH
                                     Wood County, OH
45820............................  Topeka, KS................     0.8920
                                     Jackson County, KS
                                     Jefferson County, KS
                                     Osage County, KS
                                     Shawnee County, KS
                                     Wabaunsee County, KS
45940............................  Trenton-Ewing, NJ.........     1.0834
                                     Mercer County, NJ
46060............................  Tucson, AZ................     0.9007
                                     Pima County, AZ
46140............................  Tulsa, OK.................     0.8543
                                     Creek County, OK
                                     Okmulgee County, OK
                                     Osage County, OK
                                     Pawnee County, OK
                                     Rogers County, OK
                                     Tulsa County, OK
                                     Wagoner County, OK
46220............................  Tuscaloosa, AL............     0.8645
                                     Greene County, AL
                                     Hale County, AL
                                     Tuscaloosa County, AL
46340............................  Tyler, TX.................     0.9168
                                     Smith County, TX
46540............................  Utica-Rome, NY............     0.8358
                                     Herkimer County, NY
                                     Oneida County, NY
46660............................  Valdosta, GA..............     0.8866
                                     Brooks County, GA
                                     Echols County, GA
                                     Lanier County, GA
                                     Lowndes County, GA
46700............................  Vallejo-Fairfield, CA.....     1.4936
                                     Solano County, CA
46940............................  Vero Beach, FL............     0.9434
                                     Indian River County, FL
47020............................  Victoria, TX..............     0.8160
                                     Calhoun County, TX
                                     Goliad County, TX
                                     Victoria County, TX
47220............................  Vineland-Millville-            0.9827
                                    Bridgeton, NJ.
                                     Cumberland County, NJ
47260............................  Virginia Beach-Norfolk-        0.8799
                                    Newport News, VA-NC.
                                     Currituck County, NC
                                     Gloucester County, VA
                                     Isle of Wight County, VA
                                     James City County, VA
                                     Mathews County, VA
                                     Surry County, VA
                                     York County, VA
                                     Chesapeake City, VA
                                     Hampton City, VA
                                     Newport News City, VA
                                     Norfolk City, VA
                                     Poquoson City, VA
                                     Portsmouth City, VA
                                     Suffolk City, VA
                                     Virginia Beach City, VA
                                     Williamsburg City, VA
47300............................  Visalia-Porterville, CA...     1.0123
                                     Tulare County, CA
47380............................  Waco, TX..................     0.8518
                                     McLennan County, TX
47580............................  Warner Robins, GA.........     0.8645
                                     Houston County, GA
47644............................  Warren-Farmington Hills-       0.9871
                                    Troy, MI.

[[Page 48433]]

 
                                     Lapeer County, MI
                                     Livingston County, MI
                                     Macomb County, MI
                                     Oakland County, MI
                                     St. Clair County, MI
47894............................  Washington-Arlington-          1.0926
                                    Alexandria, DC-VA-MD-WV.
                                     District of Columbia, DC
                                     Calvert County, MD
                                     Charles County, MD
                                     Prince George's County,
                                   MD
                                     Arlington County, VA
                                     Clarke County, VA
                                     Fairfax County, VA
                                     Fauquier County, VA
                                     Loudoun County, VA
                                     Prince William County,
                                   VA
                                     Spotsylvania County, VA
                                     Stafford County, VA
                                     Warren County, VA
                                     Alexandria City, VA
                                     Fairfax City, VA
                                     Falls Church City, VA
                                     Fredericksburg City, VA
                                     Manassas City, VA
                                     Manassas Park City, VA
                                     Jefferson County, WV
47940............................  Waterloo-Cedar Falls, IA..     0.8557
                                     Black Hawk County, IA
                                     Bremer County, IA
                                     Grundy County, IA
48140............................  Wausau, WI................     0.9590
                                     Marathon County, WI
48260............................  Weirton-Steubenville, WV-      0.7819
                                    OH.
                                     Jefferson County, OH
                                     Brooke County, WV
                                     Hancock County, WV
48300............................  Wenatchee, WA.............     1.0070
                                     Chelan County, WA
                                     Douglas County, WA
48424............................  West Palm Beach-Boca Raton-    1.0067
                                    Boynton Beach, FL.
                                     Palm Beach County, FL
48540............................  Wheeling, WV-OH...........     0.7161
                                     Belmont County, OH
                                     Marshall County, WV
                                     Ohio County, WV
48620............................  Wichita, KS...............     0.9153
                                     Butler County, KS
                                     Harvey County, KS
                                     Sedgwick County, KS
                                     Sumner County, KS
48660............................  Wichita Falls, TX.........     0.8285
                                     Archer County, TX
                                     Clay County, TX
                                     Wichita County, TX
48700............................  Williamsport, PA..........     0.8364
                                     Lycoming County, PA
48864............................  Wilmington, DE-MD-NJ......     1.0471
                                     New Castle County, DE
                                     Cecil County, MD
                                     Salem County, NJ
48900............................  Wilmington, NC............     0.9582
                                     Brunswick County, NC
                                     New Hanover County, NC
                                     Pender County, NC
49020............................  Winchester, VA-WV.........     1.0214
                                     Frederick County, VA
                                     Winchester City, VA
                                     Hampshire County, WV
49180............................  Winston-Salem, NC.........     0.8944
                                     Davie County, NC

[[Page 48434]]

 
                                     Forsyth County, NC
                                     Stokes County, NC
                                     Yadkin County, NC
49340............................  Worcester, MA.............     1.1028
                                     Worcester County, MA
49420............................  Yakima, WA................     1.0155
                                     Yakima County, WA
49500............................  Yauco, PR.................     0.4408
                                     Guanica Municipio, PR
                                     Guayanilla Municipio, PR
                                     Penuelas Municipio, PR
                                     Yauco Municipio, PR
49620............................  York-Hanover, PA..........     0.9347
                                     York County, PA
49660............................  Youngstown-Warren-             0.8603
                                    Boardman, OH--PA.
                                     Mahoning County, OH
                                     Trumbull County, OH
                                     Mercer County, PA
49700............................  Yuba City, CA.............     1.0921
                                     Sutter County, CA
                                     Yuba County, CA
49740............................  Yuma, AZ..................     0.9126
                                     Yuma County, AZ
------------------------------------------------------------------------
\1\ At this time, there are no hospitals located in this CBSA-based
  urban area on which to base a wage index. Therefore, the wage index
  value is based on the methodology described in the FY 2006 IRF PPS
  final rule (70 FR 47880). The wage index value for this area is the
  average wage index for all urban areas within the state.


 Table 2.--Inpatient Rehabilitation Facility Wage Index for Rural Areas
for Discharges Occurring From October 1, 2006 Through September 30, 2007
------------------------------------------------------------------------
                                                                  Wage
          CBSA code                     Nonurban area             index
------------------------------------------------------------------------
01..........................  Alabama.........................    0.7446
02..........................  Alaska..........................    1.1977
03..........................  Arizona.........................    0.8768
04..........................  Arkansas........................    0.7466
05..........................  California......................    1.1054
06..........................  Colorado........................    0.9380
07..........................  Connecticut.....................    1.1730
08..........................  Delaware........................    0.9579
10..........................  Florida.........................    0.8568
11..........................  Georgia.........................    0.7662
12..........................  Hawaii..........................    1.0551
13..........................  Idaho...........................    0.8037
14..........................  Illinois........................    0.8271
15..........................  Indiana.........................    0.8624
16..........................  Iowa............................    0.8509
17..........................  Kansas..........................    0.8035
18..........................  Kentucky........................    0.7766
19..........................  Louisiana.......................    0.7411
20..........................  Maine...........................    0.8843
21..........................  Maryland........................    0.9353
22..........................  Massachusetts \2\...............    1.0216
23..........................  Michigan........................    0.8895
24..........................  Minnesota.......................    0.9132
25..........................  Mississippi.....................    0.7674
26..........................  Missouri........................    0.7900
27..........................  Montana.........................    0.8762
28..........................  Nebraska........................    0.8657
29..........................  Nevada..........................    0.9065
30..........................  New Hampshire...................    1.0817
31..........................  New Jersey \1\..................  ........
32..........................  New Mexico......................    0.8635
33..........................  New York........................    0.8154
34..........................  North Carolina..................    0.8540
35..........................  North Dakota....................    0.7261
36..........................  Ohio............................    0.8826
37..........................  Oklahoma........................    0.7581
38..........................  Oregon..........................    0.9826
39..........................  Pennsylvania....................    0.8291
40..........................  Puerto Rico \2\.................    0.4047
41..........................  Rhode Island \1\................  ........
42..........................  South Carolina..................    0.8638
43..........................  South Dakota....................    0.8560
44..........................  Tennessee.......................    0.7895
45..........................  Texas...........................    0.8003
46..........................  Utah............................    0.8118
47..........................  Vermont.........................    0.9830
48..........................  Virgin Islands..................    0.7615
49..........................  Virginia........................    0.8013
50..........................  Washington......................    1.0510
51..........................  West Virginia...................    0.7717
52..........................  Wisconsin.......................    0.9509
53..........................  Wyoming.........................    0.9257
65..........................  Guam............................    0.9611
------------------------------------------------------------------------
\1\ All counties within the State are classified as urban.
\2\ Massachusetts and Puerto Rico have areas designated as rural;
  however, no shrot-term, acute care hospitals are located in the
  area(s) for FY 2007. As discussed in the FY 2006 IRF PPS final rule
  (70 FR 47880), we use the previous year's wage index value until more
  recent data is available for those areas.

[FR Doc. 06-6694 Filed 8-1-06; 4:00 pm]
BILLING CODE 4120-01-P