Federal Register, Volume 72 Issue 21 (Thursday, February 1, 2007)

[Federal Register Volume 72, Number 21 (Thursday, February 1, 2007)]
[Proposed Rules]
[Pages 4776-4886]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-392]

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Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 412 and 413

Medicare Program; Prospective Payment System for Long-Term Care
Hospitals RY 2008: Proposed Annual Payment Rate Updates, and Policy
Changes; and Proposed Hospital Direct and Indirect Graduate Medical
Education Policy Changes; Proposed Rule

Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 /
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412 and 413

[CMS-1529-P]
RIN 0938-AO30

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would update the annual payment rates for
the Medicare prospective payment system (PPS) for inpatient hospital
services provided by long-term care hospitals (LTCHs). The proposed
payment amounts and factors used to determine the updated Federal rates
that are described in this proposed rule were determined based on the
LTCH PPS rate year July 1, 2007 through June 30, 2008. The annual
update of the long-term care diagnosis-related group (LTC-DRG)
classifications and relative weights remains linked to the annual
adjustments of the acute care hospital inpatient diagnosis-related
group system, and would continue to be effective each October 1. The
proposed outlier threshold for July 1, 2007, through June 30, 2008,
would also be derived from the LTCH PPS rate year calculations. We are
also proposing to make policy changes which include proposed revisions
to the GME and IME policies. In addition, we are adding a technical
amendment correcting the regulations text at Sec. 412.22.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on April 2, 2007.

ADDRESSES: In commenting, please refer to file code CMS-1529-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (no duplicates,
please):
1. Electronically. You may submit electronic comments on specific
issues in this regulation to http://www.cms.hhs.gov/eRulemaking/.
(Attachments should be in Microsoft Word, WordPerfect, or Excel;
however, we prefer Microsoft Word.)
2. By regular mail. You may mail written comments (one original and
two copies) to the following address ONLY: Centers for Medicare &
Medicaid Services, Department of Health and Human Services, Attention:
CMS-1529-P, P.O. Box 8015, Baltimore, MD 21244-8015.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address ONLY: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-1529-P, Mail Stop C4-26-5, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to one of the following addresses. If you
intend to deliver your comments to the Baltimore address, please call
telephone number (410) 786-7197 in advance to schedule your arrival
with one of our staff members. Room 445-G, Hubert H. Humphrey Building,
200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security
Boulevard, Baltimore, MD 21244-1850.
(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed.)
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by mailing your
comments to the addresses provided at the end of the ``Collection of
Information Requirements'' section in this document.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Tzvi Hefter, (410) 786-4487 (General
information).
Judy Richter, (410) 786-2590 (General information, payment
adjustments for special cases, and onsite discharges and readmissions,
interrupted stays, co-located providers, and short-stay outliers).
Michele Hudson, (410) 786-5490 (Calculation of the payment rates,
LTC-DRGs, relative weights and case-mix index, market basket, wage
index, budget neutrality, and other payment adjustments).
Ann Fagan, (410) 786-5662 (Patient classification system).
Miechal Lefkowitz, (410) 786-5316 (Graduate Medical Education
payments).
Linda McKenna, (410) 786-4537 (Payment adjustments, interrupted
stay, and transition period).
Renate Rockwell, (410) 786-4645 (Graduate Medical Education
payments).
Elizabeth Truong, (410) 786-6005 (Federal rate update, budget
neutrality, other adjustments, and calculation of the payment rates).
Michael Treitel, (410) 786-4552 (High cost outliers and cost-to-
charge ratios).

SUPPLEMENTARY INFORMATION:
Submission of Public Comments: We welcome comments from the public
on all issues set forth in this rule to assist us in fully considering
issues and developing policies. You can assist us by referencing the
file code [CMS-1529-P] and the specific ``issue identifier'' that
precedes the section on which you choose to comment.
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://www.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on
CMS Regulations'' on that Web site to view public comments.
Comments received timely will also be available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
phone 1-800-743-3951.

Table of Contents

I. Background
A. Legislative and Regulatory Authority
B. Criteria for Classification as a LTCH
1. Classification as a LTCH
2. Hospitals Excluded From the LTCH PPS

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C. Transition Period for Implementation of the LTCH PPS
D. Limitation on Charges to Beneficiaries
E. Administrative Simplification Compliance Act (ASCA) and
Health Insurance Portability and Accountability Act (HIPAA)
Compliance
II. Summary of Major Contents of This Proposed Rule
III. Long-Term Care Diagnosis-Related Group (LTC-DRG)
Classifications and Relative Weights
A. Background
B. Patient Classifications Into DRGs
C. Organization of DRGs
D. Proposed Update of LTC-DRGs
1. Background
2. Proposed Budget Neutrality (BN) Requirement for the Annual
LTC-DRG Update
E. ICD-9-CM Coding System
1. Uniform Hospital Discharge Data Set (UHDDS) Definitions
2. Maintenance of the ICD-9-CM Coding System
3. Coding Rules and Use of ICD-9-CM Codes in LTCHs
F. Method for Updating the LTC-DRG Relative Weights
IV. Proposed Changes to the LTCH PPS Payment Rates for the 2008 LTCH
PPS Rate Year
A. Overview of the Development of the Payment Rates
B. LTCH PPS Market Basket
1. Overview of the RPL Market Basket
2. Proposed Market Basket Estimate for the 2008 LTCH PPS Rate
Year
C. Proposed Standard Federal Rate for the 2008 LTCH PPS Rate
Year
1. Background
2. Proposed Update to the Standard Federal Rate for the 2008
LTCH PPS Rate Year
3. Proposed Standard Federal Rate for the 2008 LTCH PPS Rate
Year
D. Calculation of Proposed LTCH Prospective Payments for the
2008 LTCH PPS Rate Year
1. Proposed Adjustment for Area Wage Levels
a. Background
b. Geographic Classifications/Labor Market Area Definitions
c. Proposed Labor-Related Share
d. Proposed Wage Index Data
2. Proposed Adjustment for Cost-of-Living in Alaska and Hawaii
3. Proposed Adjustment for High-Cost Outliers (HCOs)
a. Background
b. Cost-to-Charge Ratios (CCRs)
c. Establishment of the Proposed Fixed-Loss Amount
d. Reconciliation of Outlier Payments Upon Cost Report
Settlement
e. Application of Outlier Policy to Short-Stay Outlier (SSO)
Cases
4. Other Payment Adjustments
5. Proposed Budget Neutrality (BN) Offset To Account for the
Transition Methodology
6. One-Time Prospective Adjustment to the Standard Federal Rate
V. Other Proposed Policy Changes for the 2008 LTCH PPS Rate Year
A. Short-Stay Outlier (SSO) Cases
1. Background
2. Additional Discussion of SSO Payment Formula (includes
Technical Correction)
3. Determination of Cost-to-Charge Ratios (CCRs)
4. Reconciliation of SSO Cases
B. Proposed expansion of special payment provisions for LTCH
hospitals within hospitals (HwHs) and LTCH satellites: Proposed
expansion of the 25 percent rule to certain situations not currently
covered under existing Sec. 412.534
VI. Computing the Proposed Adjusted Federal Prospective Payments for
the 2008 LTCH PPS Rate Year
VII. Transition Period
VIII. Payments to New LTCHs
IX. Method of Payment
X. Monitoring
XI. MedPAC Recommendations: The RTI Contract
XII. Graduate Medical Education (GME)
A. GME Background
B. Resident Training in Nonhospital Settings
1. Background
2. Moratorium on Disallowances of Allopathic or Osteopathic
Family Practice Residents Training Time in Nonhospital Settings, and
Questions and Answers (Qs&As) on CMS Web Site (Section 713 of the
MMA and Sec. 413.78)
3. Requirements for Written Agreements for Residency Training in
Nonhospital Settings (Sec. 413.78(e))
4. Modification of the Definition of ``All or Substantially All
of the Costs for the Training Program in the Nonhospital Setting''
5. Implementation of a 90 Percent Cost Threshold
C. Other Issues To Be Considered
XIII. Technical Amendment
XIV. Waiver of Proposed Rulemaking and Delay in the Effective Date
XV. Collection of Information Requirements
XVI. Regulatory Impact Analysis
Addendum A: Tables
Addendum B: Executive Summary of RTI's Report

Acronyms

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

AAMC Association of American Medical Colleges
AFMAA Academic Family Medicine Advocacy Alliance
AHA American Hospital Association
AHIMA American Health Information Management Association
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
AMGA American Medical Group Association
AMPRA American Medical Peer Review Association
AOA American Osteopathic Association
APR All patient refined
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)
BN Budget neutrality
CBSA Core-based statistical area
CCR Cost-to-charge ratio
C&M Coordination and maintenance
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
COLA Cost of living adjustment
CS Consolidated severity-adjusted
CY Calendar year
DSH Disproportionate share of low-income patients
DRGs Diagnosis-related groups
FI Fiscal intermediary
FMC Family Medicine Center
FTE Full-time equivalent
FY Federal fiscal year
GME Graduate medical education
HCO High-cost outlier
HCRIS Hospital cost report information system
HHA Home health agency
HHS (Department of) Health and Human Services
HIPAA Health Insurance Portability and Accountability Act (Pub. L.
104-191)
HIPC Health Information Policy Council
HwHs Hospitals within hospitals
ICD-9-CM International Classification of Diseases, Ninth Revision,
Clinical Modification (codes)
IME Indirect medical education
I-O Input-Output
IPF Inpatient psychiatric facility
IPPS [Acute Care Hospital] Inpatient Prospective Payment System
IRF Inpatient rehabilitation facility
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MCE Medicare code editor
MDC Major diagnostic categories
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare provider analysis and review
MMA Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (Pub. L. 108-173)
MSA Metropolitan statistical area
NAICS North American Industrial Classification System
NALTH National Association of Long Term Hospitals
NCHS National Center for Health Statistics
OACT [CMS'] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation Act of 1986 (Pub. L. 99-509)
OMB Office of Management and Budget
OPM U.S. Office of Personnel Management
O.R. Operating room
OSCAR Online Survey Certification and Reporting (System)
OTN One-Time Notification
PIP Periodic interim payment

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PLI Professional liability insurance
PMSA Primary metropolitan statistical area
PPI Producer Price Indexes
PPS Prospective payment system
PRA Per resident amount
PSF Provider specific file
QIO Quality Improvement Organization (formerly Peer Review
organization (PRO))
RIA Regulatory impact analysis
RPL Rehabilitation psychiatric long-term care (hospital)
RTI Research Triangle Institute, International
RY Rate year (begins July 1 and ends June 30)
SIC Standard industrial code
SNF Skilled nursing facility
SSO Short-stay outlier
TEFRA Tax Equity and Fiscal Responsibility Act of 1982 (Pub. L. 97-
248)
TEP Technical expert panel
UHDDS Uniform hospital discharge data set

I. Background

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

A. Legislative and Regulatory Authority

Section 123 of the Medicare, Medicaid, and SCHIP [State Children's
Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA)
(Pub. L. 106-113) as amended by section 307(b) of the Medicare,
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000
(BIPA) (Pub. L. 106-554) provides for payment for both the operating
and capital-related costs of hospital inpatient stays in long-term care
hospitals (LTCHs) under Medicare Part A based on prospectively set
rates. The Medicare prospective payment system (PPS) for LTCHs applies
to hospitals described in section 1886(d)(1)(B)(iv) of the Social
Security Act (the Act), effective for cost reporting periods beginning
on or after October 1, 2002.
Section 1886(d)(1)(B)(iv)(I) of the Act defines a LTCH as ``a
hospital which has an average inpatient length of stay (as determined
by the Secretary) of greater than 25 days.'' Section
1886(d)(1)(B)(iv)(II) of the Act also provides an alternative
definition of LTCHs: specifically, a hospital that first received
payment under section 1886(d) of the Act in 1986 and has an average
inpatient length of stay (LOS) (as determined by the Secretary of
Health and Human Services (the Secretary)) of greater than 20 days and
has 80 percent or more of its annual Medicare inpatient discharges with
a principal diagnosis that reflects a finding of neoplastic disease in
the 12-month cost reporting period ending in fiscal year (FY) 1997.
Section 123 of the BBRA requires the PPS for LTCHs to be a ``per
discharge'' system with a diagnosis-related group (DRG) based patient
classification system that reflects the differences in patient
resources and costs in LTCHs. It also requires that the ``per
discharge'' system maintain budget neutrality (BN). We believe the
statutory mandate for BN applies only to the first year of the
implementation of the LTCH PPS such that estimated payments in the
first year of the PPS were projected to equal payments that would have
been paid for operating and capital-related costs of LTCHs had this new
payment system not been enacted.
Section 307(b)(1) of the BIPA, among other things, mandates that
the Secretary shall examine, and may provide for, adjustments to
payments under the LTCH PPS, including adjustments to DRG weights, area
wage adjustments, geographic reclassification, outliers, updates, and a
disproportionate share adjustment.
In the August 30, 2002 Federal Register, we issued a final rule
that implemented the LTCH PPS authorized under BBRA and BIPA (67 FR
55954). This system uses information from LTCH patient records to
classify patients into distinct long-term care diagnosis-related groups
(LTC-DRGs) based on clinical characteristics and expected resource
needs. Payments are calculated for each LTC-DRG and provisions are made
for appropriate payment adjustments. Payment rates under the LTCH PPS
are updated annually and published in the Federal Register.
The LTCH PPS replaced the reasonable cost-based payment system
under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)
(Pub. L. 97-248) for payments for inpatient services provided by a LTCH
with a cost reporting period beginning on or after October 1, 2002.
(The regulations implementing the TEFRA reasonable cost-based payment
provisions are located at 42 CFR part 413.) With the implementation of
the PPS for acute care hospitals authorized by the Social Security
Amendments of 1983 (Pub. L. 98-21), which added section 1886(d) to the
Act, certain hospitals, including LTCHs, were excluded from the PPS for
acute care hospitals and were paid their reasonable costs for inpatient
services subject to a per discharge limitation or target amount under
the TEFRA system. For each cost reporting period, a hospital-specific
ceiling on payments was determined by multiplying the hospital's
updated target amount by the number of total current year Medicare
discharges. (Generally, in this document when we refer to discharges,
the intent is to describe Medicare discharges.) The August 30, 2002
final rule further details the payment policy under the TEFRA system
(67 FR 55954).
In the August 30, 2002 final rule, we also presented an in-depth
discussion of the LTCH PPS, including the patient classification
system, relative weights, payment rates, additional payments, and the
BN requirements mandated by section 123 of the BBRA. The same final
rule that established regulations for the LTCH PPS under 42 CFR part
412, subpart O, also contained LTCH provisions related to covered
inpatient services, limitation on charges to beneficiaries, medical
review requirements, furnishing of inpatient hospital services directly
or under arrangement, and reporting and recordkeeping requirements. We
refer readers to the August 30, 2002 final rule for a comprehensive
discussion of the research and data that supported the establishment of
the LTCH PPS (67 FR 55954).
In the June 6, 2003 Federal Register, we published a final rule
that set forth the FY 2004 annual update of the payment rates for the
Medicare PPS for inpatient hospital services furnished by LTCHs (68 FR
34122). It also changed the annual period for which the payment rates
are effective. The annual updated rates are now effective from July 1
through June 30 instead of from October 1 through September 30. We
refer to the July through June time period as a ``long-term care
hospital rate year'' (LTCH PPS RY). In addition, we changed the
publication schedule for the annual update to allow for an effective
date of July 1. The payment amounts and factors used to determine the
annual update of the LTCH PPS Federal rate is based on a LTCH PPS rate
year. While the LTCH payment rate update is effective July 1, the
annual update of the LTC-DRG classifications and relative weights are
linked to the annual adjustments of the acute care hospital inpatient
DRGs and are effective each October 1.
In the Prospective Payment System for Long-Term Care Hospitals RY
2007: Annual Payment Rate Updates, Policy Changes, and Clarifications
final rule (71 FR 27798) (hereinafter referred to as the RY 2007 LTCH
PPS final rule), we set forth the 2007 LTCH PPS rate year annual update
of the payment rates for the Medicare PPS for inpatient hospital
services provided by LTCHs. We also adopted the ``Rehabilitation,
Psychiatric, Long-Term Care (RPL)'' market basket under the LTCH PPS in
place of the excluded hospital with capital market basket. In addition,
we implemented a zero percent update to

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the LTCH PPS Federal rate for RY 2007. We also revised the existing
payment adjustment for short stay outlier (SSO) cases by reducing part
of the current payment formula and adding a fourth component to that
payment formula. Also, we sunsetted the surgical DRG exception to the
payment policy established under the 3-day or less interruption of stay
policy. Finally, we clarified the policy at Sec. 412.534(c) for
adjusting the LTCH PPS payment so that the LTCH PPS payment is
equivalent to what would otherwise be payable under Sec. 412.1(a).

B. Criteria for Classification as a LTCH

1. Classification as a LTCH
Under the existing regulations at Sec. 412.23(e)(1) and (e)(2)(i),
which implement section 1886(d)(1)(B)(iv)(I) of the Act, to qualify to
be paid under the LTCH PPS, a hospital must have a provider agreement
with Medicare and must have an average Medicare inpatient LOS of
greater than 25 days. Alternatively, Sec. 412.23(e)(2)(ii) states that
for cost reporting periods beginning on or after August 5, 1997, a
hospital that was first excluded from the PPS in 1986 and can
demonstrate that at least 80 percent of its annual Medicare inpatient
discharges in the 12-month cost reporting period ending in FY 1997 have
a principal diagnosis that reflects a finding of neoplastic disease
must have an average inpatient LOS for all patients, including both
Medicare and non-Medicare inpatients, of greater than 20 days.
Section 412.23(e)(3) provides that, subject to the provisions of
paragraphs (e)(3)(ii) through (e)(3)(iv) of this section, the average
Medicare inpatient LOS, specified under Sec. 412.23(e)(2)(i) is
calculated by dividing the total number of covered and noncovered days
of stay for Medicare inpatients (less leave or pass days) by the number
of total Medicare discharges for the hospital's most recent complete
cost reporting period. Section 412.23 also provides that subject to the
provisions of paragraphs (e)(3)(ii) through (e)(3)(iv) of this section,
the average inpatient LOS specified under Sec. 412.23(e)(2)(ii) is
calculated by dividing the total number of days for all patients,
including both Medicare and non-Medicare inpatients (less leave or pass
days) by the number of total discharges for the hospital's most recent
complete cost reporting period.
In the RY 2005 LTCH PPS final rule (69 FR 25674), we specified the
procedure for calculating a hospital's inpatient average length of stay
(ALOS) for purposes of classification as a LTCH. That is, if a
patient's stay includes days of care furnished during two or more
separate consecutive cost reporting periods, the total days of a
patient's stay would be reported in the cost reporting period during
which the patient is discharged (69 FR 25705). Therefore, we revised
Sec. 412.23(e)(3)(ii) to specify that, effective for cost reporting
periods beginning on or after July 1, 2004, in calculating a hospital's
ALOS, if the days of an inpatient stay involve days of care furnished
during two or more separate consecutive cost reporting periods, the
total number of days of the stay are considered to have occurred in the
cost reporting period during which the inpatient was discharged.
Fiscal intermediaries (FIs) verify that LTCHs meet the ALOS
requirements. We note that the inpatient days of a patient who is
admitted to a LTCH without any remaining Medicare days of coverage,
regardless of the fact that the patient is a Medicare beneficiary, will
not be included in the above calculation. Because Medicare would not be
paying for any of the patient's treatment, data on the patient's stay
would not be included in the Medicare claims processing systems. As
described in Sec. 409.61, in order for both covered and noncovered
days of a LTCH hospitalization to be included, a patient admitted to
the LTCH must have at least one remaining benefit day (68 FR 34123).
The FI's determination of whether or not a hospital qualifies as an
LTCH is based on the hospital's discharge data from the hospital's most
recent complete cost reporting period as specified in Sec.
412.23(e)(3) and is effective at the start of the hospital's next cost
reporting period as specified in Sec. 412.22(d). However, if the
hospital does not meet the ALOS requirement as specified in Sec.
412.23(e)(2)(i) and (ii), the hospital may provide the FI with data
indicating a change in the ALOS by the same method for the period of at
least 5 months of the immediately preceding 6-month period (69 FR
25676). Our interpretation of Sec. 412.23(e)(3) was to allow hospitals
to submit data using a period of at least 5 months of the most recent
data from the immediately preceding 6-month period.
As we stated in the FY 2004 Inpatient Prospective Payment System
(IPPS) final rule, published in the August 1, 2003 Federal Register,
prior to the implementation of the LTCH PPS, we did rely on data from
the most recently submitted cost report for purposes of calculating the
ALOS (68 FR 45464). The calculation to determine whether an acute care
hospital qualifies for LTCH status was based on total days and
discharges for LTCH inpatients. However, with the implementation of the
LTCH PPS, for the ALOS specified under Sec. 412.23(e)(2)(i), we
revised Sec. 412.23(e)(3)(i) to only count total days and discharges
for Medicare inpatients (67 FR 55970 through 55974). In addition, the
ALOS specified under Sec. 412.23(e)(2)(ii) is calculated by dividing
the total number of days for all patients, including both Medicare and
non-Medicare inpatients (less leave or pass days) by the number of
total discharges for the hospital's most recent complete cost reporting
period. As we discussed in the FY 2004 IPPS final rule, we are unable
to capture the necessary data from our present cost reporting forms (68
FR 45464). Therefore, we have notified FIs and LTCHs that until the
cost reporting forms are revised, for purposes of calculating the ALOS,
we will be relying upon census data extracted from Medicare Provider
Analysis and Review (MedPAR) files that reflect each LTCH's cost
reporting period (68 FR 45464). Requirements for hospitals seeking
classification as LTCHs that have undergone a change in ownership, as
described in Sec. 489.18, are set forth in Sec. 412.23(e)(3)(iv).
2. Hospitals Excluded From the LTCH PPS
The following hospitals are paid under special payment provisions,
as described in Sec. 412.22(c) and, therefore, are not subject to the
LTCH PPS rules:
Veterans Administration hospitals.
Hospitals that are reimbursed under State cost control
systems approved under 42 CFR part 403.
Hospitals that are reimbursed in accordance with
demonstration projects authorized under section 402(a) of the Social
Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1) or
section 222(a) of the Social Security Amendments of 1972 (Pub. L. 92-
603) (42 U.S.C. 1395b-1 (note)) (Statewide all-payer systems, subject
to the rate-of-increase test at section 1814(b) of the Act).
Nonparticipating hospitals furnishing emergency services
to Medicare beneficiaries.

C. Transition Period for Implementation of the LTCH PPS

In the August 30, 2002 final rule (67 FR 55954), we provided for a
5-year transition period. During this 5-year transition period, a
LTCH's total payment under the PPS was based on an increasing
percentage of the Federal rate with a corresponding decrease in the
percentage of the LTCH PPS payment that is based on reasonable cost

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concepts. However, effective for cost reporting periods beginning on or
after October 1, 2006, total LTCH PPS payments are based on 100 percent
of the Federal rate.

D. Limitation on Charges to Beneficiaries

In the August 30, 2002 final rule, we presented an in-depth
discussion of beneficiary liability under the LTCH PPS (67 FR 55974
through 55975). In the RY 2005 LTCH PPS final rule (69 FR 25676), we
clarified that the discussion of beneficiary liability in the August
30, 2002 final rule was not meant to establish rates or payments for,
or define Medicare-eligible expenses. Under Sec. 412.507, if the
Medicare payment to the LTCH is the full LTC-DRG payment amount, as
consistent with other established hospital prospective payment systems,
a LTCH may not bill a Medicare beneficiary for more than the deductible
and coinsurance amounts as specified under Sec. 409.82, Sec. 409.83,
and Sec. 409.87 and for items and services as specified under Sec.
489.30(a). However, under the LTCH PPS, Medicare will only pay for days
for which the beneficiary has coverage until the SSO threshold is
exceeded. (See section V.A.1.a. of this preamble.) Therefore, if the
Medicare payment was for a SSO case (Sec. 412.529) that was less than
the full LTC-DRG payment amount because the beneficiary had
insufficient remaining Medicare days, the LTCH could also charge the
beneficiary for services delivered on those uncovered days (Sec.
412.507).

E. Administrative Simplification Compliance Act (ASCA) and Health
Insurance Portability and Accountability Act (HIPAA) Compliance

Claims submitted to Medicare must comply with both the
Administrative Simplification Compliance Act (ASCA) (Pub. L. 107-105),
and Health Insurance Portability and Accountability Act (HIPAA) (Pub.
L. 104-191). Section 3 of the ASCA requires that the Medicare Program
deny payment under Part A or Part B for any expenses incurred for items
or services ``for which a claim is submitted other than in an
electronic form specified by the Secretary.'' Section 1862(h) of the
Act (as added by section 3(a) of the ASCA) provides that the Secretary
shall waive such denial in two specific types of cases and may also
waive such denial ``in such unusual cases as the Secretary finds
appropriate'' (68 FR 48805). Section 3 of the ASCA operates in the
context of the ASCA provisions of HIPAA, which include, among other
provisions, the transactions and code sets standards requirements
codified as 45 CFR parts 160 and 162, subparts A and I through R
(generally known as the Transactions Rule). The Transactions Rule
requires covered entities, including covered health care providers, to
conduct the covered electronic transactions according to the applicable
transactions and code sets standards.

II. Summary of the Major Contents of This Proposed Rule

In this proposed rule, we are setting forth the proposed annual
update to the payment rates for the Medicare LTCH PPS, as well as,
proposing other policy changes. The following is a summary of the major
areas that we are addressing in this proposed rule.
In section III. of this preamble, we discuss the LTCH PPS patient
classification and the relative weights which remain linked to the
annual adjustments of the acute care hospital inpatient DRG system, and
are based on the annual revisions to the International Classification
of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM) codes
effective each October 1.
Also, in section III. of this preamble, we are proposing to
establish a BN requirement for when the LTC-DRG classifications and
relative weights are updated annually to reflect changes in relative
LTCH resource use. This requirement would ensure that estimated
aggregate LTCH PPS payments would not decrease or increase as a result
of the annual update to the LTC-DRG classifications and relative
weights.
As discussed in section IV.C. of this preamble, we are proposing a
0.71 percent update to the LTCH PPS Federal rate for the 2008 LTCH PPS
rate year based on an adjustment to the most recent estimate of the
LTCH PPS market basket to account for changes in coding practices. Also
in section IV. of this preamble, we discuss the proposed prospective
payment rate for RY 2008, and in section VI. we discuss the applicable
adjustments to the proposed payment rates, including the proposed
revisions to the wage index, proposed labor-related share, the proposed
cost-of-living adjustment (COLA) factors, and the proposed outlier
threshold, for the 2008 LTCH PPS rate year.
In section V.A.1.b. of this preamble, we discuss an approach being
considered to make a change to our present payment methodology for
certain SSO cases. Under this approach, payment for SSO cases would be
subject to a further adjustment where the patient's LOS at the LTCH is
less than or equal to an IPPS LOS threshold for the DRG.
In section V.B. of this preamble, we discuss the proposed expansion
of the present 25 percent admission policy at existing Sec. 412.534(c)
to those certain situations not already affected by that existing
policy. We are proposing to specify that for cost reporting periods
beginning on or after July 1, 2007, that ``grandfathered'' LTCH HwHs
and LTCH satellites, at Sec. 412.22(f) and Sec. 412.22(h)(3)(i)
respectively, would also be included in the policy set forth at
existing Sec. 412.534. We are also proposing that if the percentage of
LTCH's or LTCH satellite facility's discharges that were admitted from
any non-co-located referring hospital exceeds 25 percent (or the
applicable percentage) for a particular cost reporting period, an
adjusted amount would be made for those Medicare discharges that were
admitted from that referring hospital beyond the 25 percent (or the
applicable percentage) threshold.
In section X. of this preamble, we will discuss our on-going
monitoring protocols under the LTCH PPS.
In section XI. of this preamble, we will discuss the
recommendations made by the Research Triangle Institute,
International's (RTI) evaluation of the feasibility of adopting
recommendations made in the June 2004 Medicare Payment Advisory
Commission (MedPAC) Report. (Addendum B will include the executive
summary of the RTI report.)
In section XII. of this preamble, we discuss our proposal to
redefine the statutory term ``all or substantially all of the costs for
the training program in the nonhospital setting.'' The statute requires
that hospitals must pay all of substantially all of the costs for
training in a nonhospital site in order to count FTE residents training
in the nonhospital setting for Medicare graduate medical education
(GME) payment purposes. We are proposing to revise Sec. 413.75(b) to
introduce a new definition of ``all or substantially all of the costs
for the training program in the nonhospital setting'' to mean, at least
90 percent of the residents' salaries and fringe benefits (including
travel and lodging where applicable) and the portion of the cost of
teaching physicians' salaries attributable to direct GME. In addition,
we are proposing to revise Sec. 412.105(f)(1)(ii)(C) for IME and Sec.
413.78 to reflect this new definition of ``all or substantially all''
of the GME costs in a nonhospital setting, effective for cost reporting
periods beginning on or after July 1, 2007.
In section XVI. of this preamble, we analyze the impact of the
proposed changes presented in this proposed rule on Medicare
expenditures, Medicare-

[[Page 4781]]

participating LTCHs, and Medicare beneficiaries.

III. Long-Term Care Diagnosis-Related Group (LTC-DRG) Classifications
and Relative Weights

[If you choose to comment on issues in this section, please include
the caption ``LTC-DRG CLASSIFICATIONS AND RELATIVE WEIGHTS'' at the
beginning of your comments.]

A. Background

Section 123 of the BBRA requires that the Secretary implement a PPS
for LTCHs (that is, a per discharge system with a DRG-based patient
classification system reflecting the differences in patient resources
and costs. Section 307(b)(1) of the BIPA modified the requirements of
section 123 of the BBRA by requiring that the Secretary examine ``the
feasibility and the impact of basing payment under such a system [the
LTCH PPS] on the use of existing (or refined) hospital DRGs that have
been modified to account for different resource use of LTCH patients,
as well as the use of the most recently available hospital discharge
data.''
In accordance with section 123 of the BBRA as amended by section
307(b)(1) of the BIPA and Sec. 412.515, we use information derived
from LTCH PPS patient records to classify these cases into distinct
LTC-DRGs based on clinical characteristics and estimated resource
needs. The LTC-DRGs used as the patient classification component of the
LTCH PPS correspond to the hospital inpatient DRGs in the IPPS. We
assign an appropriate weight to the LTC-DRGs to account for the
difference in resource use by patients exhibiting the case complexity
and multiple medical problems characteristic of LTCHs.
In a departure from the IPPS, we use low volume LTC-DRGs (less than
25 LTCH cases) in determining the LTC-DRG weights, since LTCHs do not
typically treat the full range of diagnoses as do acute care hospitals.
To manage the large number of low volume DRGs (all DRGs with fewer than
25 cases), we group low volume DRGs into 5 quintiles based on average
charge per discharge. (A listing of the current composition of low
volume quintiles used in determining the FY 2007 LTC-DRG relative
weights appears in the FY 2007 IPPS final rule (71 FR 47974 through
47978).) We also account for adjustments to payments for cases in which
the stay at the LTCH is less than or equal to five-sixths of the
geometric ALOS and classify these cases as SSO cases. (A detailed
discussion of the application of the Lewin Group model that was used to
develop the LTC-DRGs appears in the August 30, 2002 LTCH PPS final rule
(67 FR 55978).)

B. Patient Classifications Into DRGs

Generally, under the LTCH PPS, a Medicare payment is made at a
predetermined specific rate for each discharge; that payment varies by
the LTC-DRG to which a beneficiary's stay is assigned. Cases are
classified into LTC-DRGs for payment based on the following six data
elements:
(1) Principal diagnosis.
(2) Up to eight additional diagnoses.
(3) Up to six procedures performed.
(4) Age.
(5) Sex.
(6) Discharge status of the patient.
As indicated in the August 30, 2002 LTCH PPS final rule, upon the
discharge of the patient from a LTCH, the LTCH must assign appropriate
diagnosis and procedure codes from the most current version of the
International Classification of Diseases, Ninth Revision, Clinical
Modification (codes) (ICD-9-CM). HIPAA Transactions and Code Sets
Standards regulations at 45 CFR parts 160 and 162 require that no later
than October 16, 2003, all covered entities must comply with the
applicable requirements of subparts A and I through R of part 162.
Among other requirements, those provisions direct covered entities to
use the ASC X12N 837 Health Care Claim: Institutional, Volumes 1 and 2,
version 4010, and the applicable standard medical data code sets for
the institutional health care claim or equivalent encounter information
transaction (see 45 CFR 162.1002 and 45 CFR 162.1102).
Medicare FIs enter the clinical and demographic information into
their claims processing systems and subject this information to a
series of automated screening processes called the Medicare Code Editor
(MCE). These screens are designed to identify cases that require
further review before assignment into a DRG can be made. During this
process, the following types of cases are selected for further
development:
Cases that are improperly coded. (For example, diagnoses
are shown that are inappropriate, given the sex of the patient. Code
68.6, Radical abdominal hysterectomy, would be an inappropriate code
for a male.)
Cases including surgical procedures not covered under
Medicare. (For example, organ transplant in a non-approved transplant
center.)
Cases requiring more information. (For example, ICD-9-CM
codes are required to be entered at their highest level of specificity.
There are valid 3-digit, 4-digit, and 5-digit codes. That is, code 262,
Other severe protein-calorie malnutrition, contains all appropriate
digits, but if it is reported with either fewer or more than 3 digits,
the claim will be rejected by the MCE as invalid.)
Cases with principal diagnoses that do not usually justify
admission to the hospital. (For example, code 437.9, unspecified
cerebrovascular disease. While this code is valid according to the ICD-
9-CM coding scheme, a more precise code should be used for the
principal diagnosis.)
After screening through the MCE, each claim will be classified into
the appropriate LTC-DRG by the Medicare LTCH GROUPER software. As
indicated in the August 30, 2002 LTCH PPS final rule, the Medicare
GROUPER software, which is used under the LTCH PPS, is specialized
computer software, and is the same GROUPER software program used under
the IPPS. The GROUPER software was developed as a means of classifying
each case into a DRG on the basis of diagnosis and procedure codes and
other demographic information (age, sex, and discharge status).
Following the LTC-DRG assignment, the Medicare FI determines the
prospective payment by using the Medicare PRICER program, which
accounts for hospital-specific adjustments. Under the LTCH PPS, we
provide an opportunity for the LTCH to review the LTC-DRG assignments
made by the FI and to submit additional information within a specified
timeframe as specified in Sec. 412.513(c).
The GROUPER software is used both to classify past cases to measure
relative hospital resource consumption to establish the DRG weights and
to classify current cases for purposes of determining payment. The
records for all Medicare hospital inpatient discharges are maintained
in the MedPAR file. The data in this file are used to evaluate possible
DRG classification changes and to recalibrate the DRG weights during
our annual update under both the IPPS (Sec. 412.60(e)) and the LTCH
PPS (Sec. 412.517). As discussed in greater detail in sections III.D.
and E. of this preamble, with the implementation of section 503(a) of
the Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (MMA) (Pub. L. 108-173), there is the possibility that one feature
of the GROUPER software program may be updated twice during a Federal
FY (October 1 and April 1) as required by the statute for the IPPS (69
FR 48954 through 48957). Specifically, as we discussed in the FY 2007
IPPS final rule, diagnosis and procedure codes for new medical
technology may be created

[[Page 4782]]

and added to existing DRGs in the middle of the Federal FY on April 1
(71 FR 47959 and 47971). However, this policy change will have no
effect on the LTC-DRG relative weights (during the FY), which will
continue to be updated only once a year (October 1), nor will there be
any impact on Medicare payments under the LTCH PPS during the FY as
result of this policy. The use of the ICD-9-CM code set is also
compliant with the current requirements of the Transactions and Code
Sets Standards regulations at 45 CFR parts 160 and 162, published in
accordance with HIPAA.

C. Organization of DRGs

The DRGs are organized into 25 major diagnostic categories (MDCs),
most of which are based on a particular organ system of the body; the
remainder involve multiple organ systems (such as MDC 22, Burns).
Accordingly, the principal diagnosis determines MDC assignment. Within
most MDCs, cases are then divided into surgical DRGs and medical DRGs.
Surgical DRGs are assigned based on a surgical hierarchy that orders
operating room (O.R.) procedures or groups of O.R. procedures by
resource intensity. The GROUPER software program does not recognize all
ICD-9-CM procedure codes as procedures that affect DRG assignment, that
is, procedures which are not surgical (for example, EKG), or minor
surgical procedures (for example, 86.11, Biopsy of skin and
subcutaneous tissue).
The medical DRGs are generally differentiated on the basis of
diagnosis. Both medical and surgical DRGs may be further differentiated
based on age, sex, discharge status, and presence or absence of
complications or comorbidities (CC). We note that CCs are defined by
certain secondary diagnoses not related to, or not inherently a part
of, the disease process identified by the principal diagnosis. (For
example, the GROUPER software would not recognize a code from the
800.0x series, Skull fracture, as a CC when combined with principal
diagnosis 850.4, Concussion with prolonged loss of consciousness,
without return to preexisting conscious level.) In addition, we note
that the presence of additional diagnoses does not automatically
generate a CC, as not all DRGs recognize a comorbid or complicating
condition in their definition. (For example, DRG 466, Aftercare without
History of Malignancy as Secondary Diagnosis, is based solely on the
principal diagnosis, without consideration of additional diagnoses for
DRG determination.)
As discussed in greater detail in the FY 2007 IPPS final rule (71
FR 47898 through 47912 and 47973), in its March 2005 Report to
Congress, ``Physician-Owned Specialty Hospitals,'' MedPAC recommended
that the Secretary improve payment accuracy in the hospital IPPS by,
among other things, ``refining the current DRGs to more fully capture
differences in severity of illness among patients.'' (Recommendation 1,
p. 93.) As we discussed in that same final rule (71 FR 47973), although
we did not adopt a new severity-adjusted patient classification system
under the IPPS, for FY 2007, we refined the current CMS-DRG patient
classification system by creating 20 new CMS-DRGs and modifying 32
others across 13 different clinical areas for Version 24.0 of the
GROUPER software that we expect will improve the CMS-DRG system's
recognition of severity of illness for FY 2007. As noted previously in
this section, the LTCH PPS patient classification system (that is, LTC-
DRGs) is the same patient classification system used under the IPPS
(that is, CMS DRGs). As such, the updates to the CMS DRG patient
classification system used under the IPPS for FY 2007 (GROUPER Version
24.0), are the updates that apply to the LTC-DRGs used under the LTCH
PPS for FY 2007.
In the FY 2007 IPPS final rule, we present the changes to the DRG
patient classification system for FY 2007 (71 FR 47939 through 47962).
In that rule, we adopted the IPPS GROUPER Version 24.0 for FY 2007 to
process LTCH PPS claims for LTCH discharges occurring from October 1,
2006 through September 30, 2007 (71 FR 47973). As noted above in this
section and as we also discussed in the FY 2007 IPPS final rule, in its
March 1, 2005 Report to Congress on Medicare Payment Policy (page 64)
and Recommendation 1 in the 2005 Report to Congress on Physician-Owned
Specialty Hospitals, MedPAC recommended that CMS, among other things,
refine the current DRGs under the IPPS to more fully capture
differences in severity of illness among patients. In evaluating this
MedPAC recommendation for the IPPS, we evaluated the APR-DRG Grouper
used by MedPAC in its analysis. Based on that analysis, we concur with
MedPAC that the modified version of the APR DRGs would account more
completely for differences in severity of illness and associated costs
among hospitals. However, as we clarified in the FY 2007 IPPS proposed
rule and reiterated in section II.C.6. of the FY 2007 IPPS final rule,
there are still further changes that are important to make to the
consolidated severity-adjusted (CS) DRG system before it is ready for
adoption. Therefore, in the FY 2007 IPPS final rule, we did not adopt a
new CS DRG system, such as the APR DRGs or a modified version of the
APR DRGs, under the IPPS. However, we refined the current CMS-DRG
patient classification system by creating 20 new CMS-DRGs and modifying
32 others across 13 different clinical areas for Version 24.0 of the
GROUPER software that we expect will improve the CMS DRG system's
recognition of severity of illness for FY 2007. As noted previously in
this section, the LTCH PPS patient classification system (that is, LTC-
DRGs) is the same patient classification system used under the IPPS
(that is, CMS DRGs). As such, the updates to the CMS DRG patient
classification system used under the IPPS for FY 2007 (GROUPER Version
24.0), are the updates that apply under the LTCH PPS for FY 2007.
As discussed in the FY 2007 IPPS final rule (71 FR 47906), we have
engaged a contractor to assist us with completing an evaluation of
alternative DRG systems for use under the IPPS that may better
recognize severity than the current CMS DRGs and meet other criteria
that would make them suitable to adopt for purposes of payment under
the IPPS. We expect to complete this evaluation of alternative DRG
systems quickly as part of moving forward on adopting a revised DRG
system that better recognizes severity in the IPPS rulemaking for FY
2008.
As we also stated in that same FY 2007 IPPS final rule (71 FR
47990), if and when a severity adjusted patient classification system
is adopted under the IPPS, we would need to consider whether to propose
revisions to the current patient classification system under the LTCH
PPS. Any proposed changes to the patient classification system would be
done through notice and comment rulemaking. We believe that it is
advantageous to the LTCH community to wait for CMS to first finalize
its policies regarding any refinements to the DRG patient
classification system used under the IPPS so that we can fully analyze
what the effects of such changes would be on LTCH PPS payments. To the
extent any changes to the patient classification system used under the
IPPS are proposed and subsequently finalized, an analysis could then be
performed to determine whether it is appropriate to propose the same
patient classification for LTCHs. As noted above in this section, at
that time, we would need to consider whether to propose revisions to
the patient classification system

[[Page 4783]]

under the LTCH PPS, which, if proposed would be done through notice and
comment rulemaking.

D. Proposed Update of LTC-DRGs

1. Background
As discussed in greater detail in the FY 2007 IPPS final rule (71
FR 47974), under the LTCH PPS, relative weights for each LTC-DRG are a
primary element used to account for the variations in cost per
discharge and resource utilization among the payment groups (that is,
LTC-DRGs). To ensure that Medicare patients classified to each LTC-DRG
have access to an appropriate level of services and to encourage
efficiency, each year based on the best available data, we calculate a
relative weight for each LTC-DRG that represents the resources needed
by an average inpatient LTCH case in that LTC-DRG. For example, cases
in a LTC-DRG with a relative weight of 2 will, on average, cost twice
as much as cases in a LTC-DRG with a relative weight of 1. Under Sec.
412.517, the LTC-DRG classifications and weighting factors (that is,
relative weights) are adjusted annually to reflect changes in factors
affecting the relative use of LTCH resources, including treatment
patterns, technology and number of discharges. For FY 2007, the LTC-DRG
classifications and relative weights were updated based on LTCH data
from the FY 2005 MedPAR file, which contained hospital bills data from
the March 2006 update. The LTC-DRG patient classification system
consists of 538 DRGs that formed the basis of the FY 2007 LTCH PPS
GROUPER program. The 538 LTC-DRGs included two ``error DRGs.'' As in
the IPPS, we included two error DRGs in which cases that cannot be
assigned to valid DRGs will be grouped. These two error DRGs are DRG
469 (Principal Diagnosis Invalid as a Discharge Diagnosis) and DRG 470
(Ungroupable). The other 536 LTC-DRGs are the same DRGs used in the
IPPS GROUPER program for FY 2007 (Version 24.0).
In the past, the annual update to the CMS-DRGs was based on the
annual revisions to the ICD-9-CM codes and was effective each October
1. The ICD-9-CM coding update process was revised as discussed in
greater detail in the FY 2005 IPPS final rule (69 FR 48953 through
48957). Specifically, section 503(a) of the MMA includes a requirement
for updating diagnosis and procedure codes for twice a year instead of
the current process of annual updates on October 1 of each year. This
requirement is included as part of the amendments to the Act relating
to recognition of new medical technology under the IPPS. (For
additional information on this provision, including its implementation
and its impact on the LTCH PPS, refer to the FY 2005 IPPS final rule
(69 FR 48953 through 48957) and the RY 2006 LTCH PPS final rule (70 FR
24172 through 24177).)
As noted above in this section, with the implementation of section
503(a) of the MMA, there is the possibility that one feature of the
GROUPER software program may be updated twice during a Federal FY
(October 1 and April 1) as required by the statute for the IPPS.
Specifically, diagnosis and procedure codes for new medical technology
may be created and added to existing DRGs in the middle of the Federal
FY on April 1. No new LTC-DRGs will be created or deleted. Consistent
with our current practice, any changes to the DRGs or relative weights
will be made at the beginning of the next Federal FY (October 1).
Therefore, there will not be any impact on LTC-DRG payments under the
LTCH PPS until the following October 1 (although the new ICD-9-CM
diagnosis and procedure codes would be recognized April 1). The use of
the ICD-9-CM code set is also compliant with the current requirements
of the Transactions and Code Sets Standards regulations at 45 CFR parts
160 and 162, issued under HIPAA.
As we explained in the FY 2007 IPPS final rule, annual changes to
the ICD-9-CM codes historically were effective for discharges occurring
on or after October 1 each year (71 FR 47971). Thus, the manual and
electronic versions of the GROUPER software, which are based on the
ICD-9-CM codes, were also revised annually and effective for discharges
occurring on or after October 1 each year. The patient classification
system used under the LTCH PPS (LTC-DRGs) is the same DRG patient
classification system used under the IPPS, which historically had been
updated annually and was effective for discharges occurring on or after
October 1 through September 30 each year. As we mentioned previously in
this section, the ICD-9-CM coding update process was revised as a
result of the implementation of section 503(a) of the MMA, which
includes a requirement for updating diagnosis and procedure codes as
often as twice a year instead of the current process of annual updates
on October 1 of each year (as discussed in greater detail in section
II.D.10. of the FY 2007 IPPS final rule (71 FR 47957 through 47960)).
We currently use the ICD-9-CM codes as the code set for diagnoses and
procedures. Therefore, the ICD-9-CM codes currently used under both the
IPPS and LTCH PPS may be updated as often as twice a year. As described
above in this section, this requirement is included as part of the
amendments to the Act relating to recognition of new medical technology
under the IPPS.
Despite the fact that aspects of the GROUPER software may be
updated to recognize any new technology ICD-9-CM codes, there will be
no impact on either LTC-DRG assignments or payments under the LTCH PPS
at that time. That is, changes to the LTC-DRGs (such as the creation or
deletion of LTC-DRGs) and the relative weights will continue to be
updated in the manner and timing (October 1) as they are now. Updates
to the GROUPER software for both the IPPS and the LTCH PPS (for
relative weights and the creation or deletion of DRGs) are made in the
annual IPPS proposed and final rules and are effective each October 1.
We have also explained that since we do not publish a mid-year IPPS
rule, we will assign any new diagnosis or procedure codes implemented
on April 1 to the same DRG in which its predecessor code was assigned,
so that there will be no impact on the DRG assignments until the
following October 1. Any coding updates will be available through the
Web sites provided in section III.E. of this preamble and through the
Coding Clinic for ICD-9-CM. Publishers and software vendors currently
obtain code changes through these sources to update their code books
and software system. If new codes are implemented on April 1, revised
code books and software systems, including the GROUPER software
program, will be necessary because we must use current ICD-9-CM codes.
Therefore, for purposes of the LTCH PPS, because each ICD-9-CM code
must be included in the GROUPER algorithm to classify each case into a
LTC-DRG, the GROUPER software program used under the LTCH PPS would
need to be revised to accommodate any new codes.
In implementing section 503(a) of the MMA, there will only be an
April 1 update if diagnosis and procedure codes are requested and
approved. We note that any new codes created for April 1 implementation
will be limited to those diagnosis and procedure code revisions
primarily needed to describe new technologies and medical services.
However, we reiterate that the process of discussing updates to the
ICD-9-CM has been an open process through the ICD-9-CM Coordination and
Maintenance (C&M) Committee since 1995. Requestors will be given the
opportunity to present the merits for a new code and make a clear and
convincing case for the need to update

[[Page 4784]]

ICD-9-CM codes through an April 1 update.
At the September 2006 ICD-9-CM C&M Committee meeting, there were no
requests for an April 1, 2007 implementation of ICD-9-CM codes, and
therefore, the next update to the ICD-9-CM coding system will not occur
until October 1, 2007 (FY 2008). Presently, as there were no coding
changes suggested for an April 1, 2007 update, the ICD-9-CM coding set
implemented on October 1, 2006, will continue through September 30,
2007 (FY 2007). The next update to the LTC-DRGs and relative weights
for FY 2008 will be presented in the FY 2008 IPPS proposed and final
rules. Furthermore, we would notify LTCHs of any revisions to the
GROUPER software used under the IPPS and LTCH PPS that would be
implemented April 1, 2008. As noted previously in this section, in the
FY 2007 IPPS final rule (71 FR 47973), we used Version 24.0 of the CMS
GROUPER, which was used under the IPPS for FY 2007, to classify cases
for LTCH PPS discharges that would occur on or after October 1, 2006
and on or before September 30, 2007.
2. Proposed Budget Neutrality (BN) Requirement for the Annual LTC-DRG
Update
As noted above in this section, currently under Sec. 412.517, the
LTC-DRG classifications and relative weights are adjusted annually to
reflect changes in factors affecting the relative use of LTCH
resources, such as treatment patterns, technology and number of
discharges. Currently, there are no statutory or regulatory
requirements that the annual update to the LTC-DRG classifications and
relative weights be done in a budget neutral manner. Historically,
since the initial implementation of the LTCH PPS in FY 2003, we have
updated the LTC-DRG relative weights each year without a BN adjustment
based on the most recent available LTCH claims data, which reflect
current LTCH patient mix and coding practices, and appropriately
reflected more or less resource use than the previous year's LTC-DRG
relative weights (71 FR 47991). When we proposed changes to the LTC-
DRGs for FY 2007 in the FY 2007 IPPS proposed rule, we estimated that
those proposed changes to the LTC-DRG classifications and relative
weights would result in about an estimated 1.4 percent decrease in
estimated aggregate LTCH PPS payments (71 FR 24413). As we discussed in
the FY 2007 IPPS final rule (71 FR 47991), several commenters,
including MedPAC, urged us to establish a BN requirement for the annual
reclassification and recalibration of the LTC-DRGs so that, in future
years, the LTCH PPS could avoid an estimated decrease in estimated
aggregate payments, such as the estimated 1.4 percent decrease that
resulted from the proposed update to the LTC-DRGs and relative weights
for FY 2007. In response to previous proposed annual updates to the
LTC-DRG relative weights, we also received comments recommending that a
BN adjustment be applied in determining the LTC-DRG relative weights to
mitigate LTCH PPS payment fluctuations. (See the FY 2005 IPPS final
rule (69 FR 48999 through 49000), and the FY 2006 IPPS final rule (70
FR 47333 through 47334).)
In response to those comments, we explained that we understood the
commenters' concern with the estimated decrease in payments under LTCH
PPS based upon the changes in the LTC-DRGs and relative weights
proposed for FY 2007. However, as we discussed in the FY 2007 IPPS
final rule, we did not postpone the proposed FY 2007 reclassification
and recalibration of the LTC-DRGs, nor did we implement those changes
in a budget neutral manner. We noted several reasons for the annual
fluctuations in LTC-DRG relative weights that have resulted in both
estimated increases and decreases in estimated aggregate LTCH PPS
payments in the 4 years since the implementation of the LTCH PPS in FY
2003. Specifically, we reiterated our belief that several factors have
affected the changes to the LTC-DRG relative weights over the past 4
years, including actual improvements in coding so that cases are
appropriately assigned to LTC-DRGs. We also explained that, as noted
above in this section, historically we recalibrated the LTC-DRG
relative weights each year based on the most recent available LTCH
claims data, which reflect current LTCH patient mix and coding
practices, and appropriately reflects more or less resource use than
the previous year's LTC-DRG relative weights. The intended purpose of
the annual recalibration of the LTC-DRG relative weights is to reflect
any variation in coding practices and charges from the previous year
and to help ensure that the LTC-DRG relative weights in the upcoming
fiscal year will result in appropriate and accurate payments to LTCHs
for the resources they expend to treat their Medicare patients. (71 FR
47984 through 47989)
We also reminded the commenters that under the IPPS, there is a
statutory requirement that the annual DRG reclassification and
recalibration changes be made in a manner that assures that the
estimated aggregate payments are neither greater than nor less than the
estimated aggregate payments that would have been made without the
changes, but there is no corresponding statutory requirement under the
LTCH PPS. However, we noted that, given the considerable discretion
granted to the Secretary under section 123 of the BBRA and section
307(b) of the BIPA of 2000 to develop the LTCH PPS, it is possible
that, at some point, the Secretary would consider using this broad
authority to establish a BN policy for the annual update of the LTC-DRG
classifications and relative weights. We further stated that if we find
that it would be appropriate to propose making the updates to the LTC-
DRGs and relative weights in a budget neutral manner, the public would
have the opportunity to submit comments on any proposed change during
the rulemaking process.
As we explained in the FY 2007 IPPS final rule (71 FR 47985 through
47986), a LTCH's case-mix index (CMI) is defined as its case weighted
average LTC-DRG relative weight for all its discharges in a given
period. Changes in CMI consist of two components: ``real'' CMI changes
and ``apparent'' CMI changes. Real CMI increase is defined as the
increase in the average LTC-DRG relative weights resulting from the
hospital's treatment of more resource intensive patients. Apparent CMI
increase is defined as the increase in CMI due to changes in coding
practices. The computed (or observed) CMI increase is defined as real
CMI increase (due to an increase in patient severity) plus the increase
due to changes in coding practices (including better documentation of
the medical record by physicians and more complete coding of the
medical record by coders). If LTCH patients have more costly
impairments, lower functional status, or increased comorbidities, and
thus require more resources in the LTCH, we consider this a real change
in case-mix. Conversely, if LTCH patients have the same impairments,
functional status, and comorbidities but are coded differently
resulting in higher payment, we consider this an apparent change in
case-mix. We believe that changes in payment rates, including the LTC-
DRG relative weights, should accurately reflect changes in LTCHs' true
cost of treating patients (real CMI increase), and should not be
influenced by changes in coding practices (apparent CMI increase).
As stated above in this section, apparent CMI increase results from
cases being grouped to a LTC-DRG with a higher weight than it would be

[[Page 4785]]

without such changes in coding practices. As we discussed in the FY
2007 IPPS final rule (71 FR 48343 through 48344), in discussing the
impact of the changes to the LTC-DRG classifications and relative
weights established for FY 2007 that were estimated to result in an
aggregate decrease in LTCH PPS payments of approximately 1.3 percent,
we explained that changes in coding practices (rather than patient
severity) primarily resulted in fluctuations in the LTC-DRG relative
weights in the past. Specifically, based on an analysis of FY 2005 LTCH
claims data, we continued to observe that the average LTC-DRG relative
weight decreases due to an increase of relatively lower charge cases
being assigned to LTC-DRGs with higher relative weights in the prior
year. Contributing to this increase in these relatively lower charge
cases being assigned to LTC-DRGs with higher relative weights in the
prior year are improvements in coding practices, which are typical when
moving from a reasonable cost-based payment system to a PPS. The impact
of including cases with relatively lower charges into LTC-DRGs that had
a relatively higher relative weight in the previous version of the
GROUPER software is a decrease in the average relative weight for those
LTC-DRGs in the updated version of the GROUPER software.
We note that this same phenomenon of relatively lower charge cases
being assigned to LTC-DRGs with higher relative weights in the prior
year was also observed when we analyzed the LTCH claims data from FY
2003 and FY 2004 to update the LTC-DRG relative weights for FY 2005 and
FY 2006, respectively (see the FY 2005 IPPS final rule (69 FR 48999)
and the FY 2006 IPPS final rule (70 FR 47701 through 47702).) However,
this phenomenon was more notable based on the FY 2004 LTCH claims data
that were used to update the LTC-DRG relative weights for FY 2006,
where the changes to the LTC-DRG weights established were estimated to
result in a decrease in aggregate LTCH PPS payments of 4.2 percent (as
compared to the estimated 1.3 percent decrease in aggregate LTCH PPS
payments based on the FY 2005 LTCH claims data used to determine the FY
2007 LTC-DRG relative weights). Because the estimated decrease in
aggregate LTCH PPS payments due to the update to the LTC-DRG relative
weights based on more recent (FY 2005) LTCH claims data was
significantly lower (1.3 percent estimated based on the LTC-DRG changes
for FY 2007) than it was based on FY 2004 LTCH claims data (4.2 percent
estimated based on the LTC-DRG changes for FY 2006), we believe that,
as LTCHs have become more familiar with the ICD-9-CM coding principles
and guidelines used under a DRG-based system, annual changes in LTCH
CMI are approaching the point where the observed CMI increase is
primarily due to changes in real CMI (that is, increased patient
severity) rather than apparent CMI (that is, changes in coding
practices). In other words, because we have observed that, over time as
LTCHs have gained more experience with ICD-9-CM coding, estimated
changes in LTCH PPS payments due to recalibration of the LTC-DRG
relative weights based on more recent claims data (for example, the FY
2007 LTC-DRG relative weights calculated from FY 2005 LTCH claims data
as compared to the FY 2006 LTC-DRG relative weights calculated from FY
2004 LTCH claims data) have diminished over time. That is, we have
estimated smaller fluctuations in aggregate LTCH PPS payments as a
result of the annual recalibration of the LTC-DRG relative weights
based on more recent LTCH claims data generated after the
implementation of the LTCH PPS (for example, the 1.3 percent estimated
decrease in aggregate LTCH PPS payments for FY 2007 based on FY 2004
LTCH claims data as compared to the 4.2 percent estimated decrease in
aggregate LTCH PPS payments for FY 2007 based on FY 2005 LTCH claims
data). For these reasons, we believe that LTCH coding practices have
stabilized such that the most recent available LTCH claims data now
primarily reflect changes in the resources used by the average LTCH
patient in a particular LTC-DRG (and not changes in coding practices).
Thus, we believe that the most recent available data (as described
below in this section) mainly reflect the true costs of treating LTCH
patients, and as discussed above, we believe changes in payment rates,
including the LTC-DRGs, should reflect such costs.
Furthermore, a LTCH CMI analysis based on the most recent available
LTCH claims data, which is discussed in section IV.C. of this preamble,
also supports our belief that observed CMI increase is primarily due to
changes in real CMI (that is, increased patient severity) rather than
apparent CMI (that is, changes in coding practices). Specifically, this
CMI analysis indicates that changes in LTCH coding practices, which
resulted in fluctuations in the LTC-DRG relative weights in the past,
appear to be stabilizing as LTCHs have become more familiar with a DRG-
based system. As discussed in section IV.C.2. of this preamble, the
overall observed change in LTCH CMI from FY 2003 compared to FY 2004
was an increase of approximately 6.75 percent while the overall
observed change in LTCH CMI from FY 2004 compared to FY 2005 was an
increase of approximately 3.49 percent, which is only about half of the
LTCH CMI growth measured from the prior period (that is, the 6.75
percent from FY 2003 to FY 2004). Furthermore, preliminary analysis of
FY 2006 LTCH claims data, which reflects over 3 full years of
experience under the LTCH PPS for most LTCHs, shows an even smaller
overall observed CMI increase of about 1.9 percent from FY 2005
compared to FY 2006. Again, the observed CMI increase from FY 2005 to
FY 2006 is only about half of the LTCH CMI growth measured from the
prior period (that is, the 3.49 percent from FY 2004 to FY 2005).
Because this LTCH CMI analysis shows that observed CMI is declining, we
believe that LTCH coding practices have stabilized such that changes in
LTCH CMI are now primarily due to changes in real CMI (that is,
increased patient severity) rather than apparent CMI (that is, changes
in coding practices). In other words, because we believe that the
observed annual CMI increase is primarily ``real'' and not
``apparent,'' it is no longer necessary to update the LTC-DRGs in a
non-budget neutral manner (as discussed in greater detail below in this
section). As stated above in this section, we believe that changes in
payment rates, including the LTC-DRG relative weights, should
accurately reflect changes in LTCHs' true cost of treating patients
(real CMI increase) and should not be influenced by changes in coding
practices (apparent CMI increase).
In light of these facts, in order to mitigate estimated
fluctuations in estimated aggregate LTCH PPS payments, as urged by past
commenters, we have given further consideration to the issue of
establishing a BN requirement for annual LTC-DRG reclassification and
recalibration. Therefore, in this proposed rule, under the broad
authority conferred upon the Secretary under section 123 of the BBRA as
amended by section 307(b) of the BIPA to develop the LTCH PPS, we are
proposing that, beginning with the LTC-DRG update for FY 2008, the
annual update to the LTC-DRG classifications and relative weights would
be done in a budget neutral manner such that estimated aggregate LTCH
PPS payments would be unaffected, that is, would be neither greater
than nor less than the estimated aggregate LTCH PPS payments that

[[Page 4786]]

would have been made without the proposed LTC-DRG classification and
relative weight changes. Accordingly, we are proposing to revise Sec.
412.517 to specify that annual changes to the LTC-DRG classifications
and the recalibration of the LTC-DRG relative weights are made in a
budget neutral manner such that estimated aggregate LTCH PPS payments
are not affected. We believe that it would be appropriate to update the
LTC-DRG classifications and relative weights in a budget neutral manner
at this time for the reasons discussed below.
As noted above in this section, the relative weight for each LTC-
DRG represents the resources needed by an average inpatient LTCH case
in that LTC-DRG, such that LTCH cases in a LTC-DRG with a relative
weight of 2 will, on average, cost twice as much as cases in a LTC-DRG
with a relative weight of 1. As also noted above in this section, in
the past when we recalibrated the LTC-DRG relative weights each year
without a BN adjustment based on the most recent available LTCH claims
data, we believe that the resulting LTC-DRG relative weights
appropriately reflected more or less resource use than the previous
year's LTC-DRG relative weights, and that the estimated aggregate
payment changes were appropriate given that the LTCH claims data used
to determine those LTC-DRG relative weights reflected changes in coding
practices, as well as changes in actual resource use. Historically, we
have not updated the LTC-DRGs in a budget neutral manner because, as
discussed above in this section, we believed that past fluctuations in
the LTC-DRG relative weights were primarily due to changes in LTCH
coding practices, which included both ``real'' and ``apparent'' changes
in LTCHs'' case-mix. We believe that changes in the LTCH PPS payment
rates, including the LTC-DRG relative weights, should accurately
reflect changes in LTCHs' true cost of treating patients (real CMI
increase), and should not be influenced by changes in coding practices
(apparent CMI increase). Therefore, in the past we did not update the
LTC-DRGs in a budget neutral manner so that ``apparent'' CMI changes
were not permanently built into the LTCH PPS payment rates. Because
LTCH 2006 claims data does not appear to significantly reflect changes
in LTCH coding practices in response to the implementation of the LTCH
PPS (as explained above in this section), we believe that it may be
appropriate to update the LTC-DRGs so that estimated aggregate LTCH PPS
payments would neither increase or decrease since we believe that
changes in the LTC-DRG classifications and relative weights should
accurately reflect changes in LTCHs' resource use (that is, true cost
of treating patients) and should not be influenced by changes in coding
practices, and that the most recent such LTCH claims data primarily
reflects changes in the resources needed by an average LTCH case in a
particular LTC-DRG (and not changes in coding practices). Thus, we now
believe it would be reasonable and appropriate to update the LTC-DRGs
in a budget neutral manner, beginning in FY 2008, so that estimated
aggregate payments under the LTCH PPS would be unaffected (that is,
estimated aggregate LTCH PPS payments would not be greater than or less
than they would have been without the proposed LTC-DRG classification
and relative weight changes) by any changes resulting from the annual
reclassification and recalibration of the LTC-DRGs. Updating the LTC-
DRGs in a budget neutral manner would result in an annual update to the
individual LTC-DRG classifications and relative weights based on the
most recent available data to reflect changes in relative LTCH resource
use; however, the LTC-DRG relative weights would be uniformly adjusted
to ensure that estimated aggregate payments under the LTCH PPS would
not be affected (that is, decreased or increased).
Under this proposal, we intend to update the LTC-DRG
classifications and relative weights for FY 2008 based on the best
available data at the time to allow for changes in factors affecting
hospital resource use, including but not limited to, practice patterns
and new technology. This would be done in a budget neutral manner, such
that estimated aggregate payments under the LTCH PPS would neither
decrease or increase as a result of the changes due to the annual
reclassification and recalibration of the LTC-DRGs. Because, under this
proposal, we would continue to use the most recent available LTCH data,
the updated LTC-DRG relative weights would continue to reflect changes
in LTCH resource use (as is the case under the current (non-budget
neutral) LTC-DRG update methodology). Thus, for example, if the most
recent LTCH claims data showed that the resource use for hypothetical
LTC-DRG ``ABC'' is double the resource use for hypothetical LTC-DRG
``XYZ,'' then the value of the relative weight for LTC-DRG ``ABC''
would be about twice the value of relative weight for LTC-DRG ``XYZ.''
In addition to accounting for changes in relative resource use, to
include a BN requirement for the annual update to the LTC-DRGs under
this proposal, the updated LTC-DRG relative weights would need to be
uniformly adjusted to ensure that estimated aggregate LTCH PPS payments
would not be affected. That is, a BN factor would need to be computed
to ensure that the LTC-DRG reclassification and recalibration process,
by itself, neither increases nor decreases estimated aggregate LTCH PPS
payments. To accomplish BN when annually updating the LTC-DRG
classifications and relative weights under the proposed change to Sec.
412.517, we are proposing to use a method that is similar to the
methodology used under the IPPS. Specifically, we are proposing that
after recalibrating the LTC-DRG relative weights, as we do under our
existing methodology (as described in detail in the FY 2007 IPPS final
rule (71 FR 47978 through 47981)), we would apply a single BN
adjustment factor (which would be published annually in the IPPS
proposed and final rules when we update the LTC-DRGs and relative
weights) to each of those relative weights. The LTC-DRG BN adjustment
factor would ensure that estimated aggregate LTCH PPS payments (based
on the most recent available LTCH claims data) after recalibration (the
``new'' relative weights) would be equal to estimated aggregate LTCH
PPS payments (for the same most recent available LTCH claims data)
before recalibration (the current or ``old'' relative weights).
(Information on the IPPS DRG BN adjustment can be found in the FY 2007
IPPS final rule (71 FR 47970).) As noted above in this section, the
annual update to the LTC-DRG classifications and relative weights
provided for under the current Sec. 412.517 is presented in the IPPS
proposed and final rules, and under the proposed changes to Sec.
412.517 presented in this proposed rule, the proposed BN update to the
LTC-DRGs for FY 2008 would be presented in the FY 2008 IPPS proposed
rule in the spring of 2007.

E. ICD-9-CM Coding System

1. Uniform Hospital Discharge Data Set (UHDDS) Definitions
Because the assignment of a case to a particular LTC-DRG will help
determine the amount that will be paid for the case, it is important
that the coding is accurate. Classifications and terminology used in
the LTCH PPS are consistent with the ICD-9-CM and the UHDDS, as
recommended to the Secretary by the National Committee on Vital and
Health Statistics (``Uniform

[[Page 4787]]

Hospital Discharge Data: Minimum Data Set, National Center for Health
Statistics (NCHS), April 1980'') and as revised in 1984 by the Health
Information Policy Council (HIPC) of the Department of Health and Human
Services (HHS).
We note that the ICD-9-CM coding terminology and the definitions of
principal and other diagnoses of the UHDDS are consistent with the
requirements of the HIPAA Administrative Simplification Act of 1996 (45
CFR part 162). Furthermore, the UHDDS was used as a standard for the
development of policies and programs related to hospital discharge
statistics by both governmental and nongovernmental sectors for over 30
years. In addition, the following definitions (as described in the 1984
Revision of the UHDDS, approved by the Secretary for use starting
January 1986) are requirements of the ICD-9-CM coding system, and have
been used as a standard for the development of the CMS-DRGs:
Diagnoses are defined to include all diagnoses that affect
the current hospital stay.
Principal diagnosis is defined as the condition
established after study to be chiefly responsible for occasioning the
admission of the patient to the hospital for care.
Other diagnoses (also called secondary diagnoses or
additional diagnoses) are defined as all conditions that coexist at the
time of admission, that develop subsequently, or that affect the
treatment received or the LOS or both. Diagnoses that relate to an
earlier episode of care that have no bearing on the current hospital
stay are excluded.
All procedures performed will be reported. This includes
those that are surgical in nature, carry a procedural risk, carry an
anesthetic risk, or require specialized training.
We provide LTCHs with a 60-day window after the date of the notice
of the initial LTC-DRG assignment to request review of that assignment
of the discharge to a LTC-DRG. Additional information may be provided
by the LTCH to the FI as part of that review.
2. Maintenance of the ICD-9-CM Coding System
The ICD-9-CM C&M Committee is a Federal interdepartmental
committee, co-chaired by the National Center for Health Statistics
(NCHS) and CMS, that is charged with maintaining and updating the ICD-
9-CM system. The C&M Committee is jointly responsible for approving
coding changes, and developing errata, addenda, and other modifications
to the ICD-9-CM to reflect newly developed procedures and technologies
and newly identified diseases. The C&M Committee is also responsible
for promoting the use of Federal and non-Federal educational programs
and other communication techniques with a view toward standardizing
coding applications and upgrading the quality of the classification
system.
The NCHS has lead responsibility for the ICD-9-CM diagnosis codes
included in the Tabular List and Alphabetic Index for Diseases, while
we have the lead responsibility for the ICD-9-CM procedure codes
included in the Tabular List and Alphabetic Index for Procedures. The
C&M Committee encourages participation by health-related organizations
in this process and holds public meetings for discussion of educational
issues and proposed coding changes twice a year at the CMS Central
Office located in Baltimore, Maryland. The agenda and dates of the
meetings can be accessed on our Web site at http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes.
As discussed previously in this section, for the IPPS, section
503(a) of the MMA includes a requirement for updating diagnosis and
procedure codes twice a year instead of annual updates on October 1 of
each year. This requirement will improve the recognition of new
technologies under the IPPS by accounting for them in the GROUPER
software at an earlier date. Because this statutory requirement could
have a significant impact on health care providers, coding staff,
publishers, system maintainers, and software systems, among others, we
solicited comments on our proposed provisions to implement this
requirement as part of the FY 2005 IPPS proposed rule (69 FR 28220
through 28221). We responded to comments and published our new policy
regarding the updating of diagnosis and procedure codes (currently the
ICD-9-CM) in the FY 2005 IPPS final rule (69 FR 48953 through 48957).
In addition, we established a policy for the possibility of an April 1
ICD-9-CM diagnosis and procedure code update in the RY 2006 LTCH PPS
final rule (70 FR 24176) since LTCH systems would be expected to
recognize and report those new codes through the channels described in
this section even though no DRG additions or deletions or changes to
relative weights will occur prior to the usual October 1 update. (For
more detailed information on the affect of the statutory mandates
directed at the IPPS as amended by section 503(a) of the MMA, refer to
the FY 2005 IPPS final rule (69 FR 48954 through 48957) and the RY 2007
LTCH PPS final rule (71 FR 27806 through 27808)).
Current addendum and code title information is published on the CMS
Web site at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/04_addendum.asp. Summary tables showing new, revised, and deleted code
titles are also posted on the CMS Web site at http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/07_summarytables.asp. Information on ICD-
9-CM diagnosis codes can be found at http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/. Information on new, revised, and deleted
ICD-9-CM codes is also available in the American Hospital Association
(AHA) publication, the Coding Clinic for ICD-9-CM. AHA also distributes
information to publishers and software vendors. We also send copies of
all ICD-9-CM coding changes to our contractors for use in updating
their systems and providing education to providers. In addition, of
particular note to LTCHs are the invalid diagnosis codes (Table 6C) and
the invalid procedure codes (Table 6D) located in the annual proposed
and final rules for the IPPS. Claims with invalid codes are not
processed by the Medicare claims processing system.
3. Coding Rules and Use of ICD-9-CM Codes in LTCHs
We continue to urge LTCHs to focus on improved coding practices.
Inappropriate coding of cases can adversely affect the uniformity of
cases in each LTC-DRG and produce inappropriate weighting factors at
recalibration. Because of concerns raised by LTCHs concerning correct
coding, we have asked the AHA to provide additional clarification and
instruction on proper coding in the LTCH setting. The AHA will provide
this instruction via their established process of addressing questions
through their publication, the Coding Clinic for ICD-9-CM. Written
questions or requests for clarification may be addressed to the Central
Office on ICD-9-CM, American Hospital Association, One North Franklin,
Chicago, IL 60606. A form for question(s) is available for download and
can be mailed on AHA's Web site at: www.ahacentraloffice.org. In
addition, current coding guidelines are available at the NCHS Web site:
http://www.cdc.gov/nchs/datawh/ftpserv/ftpicd9/ftpicd9.htm#conv.
In conjunction with the cooperating parties (AHA, the American
Health Information Management Association (AHIMA), and NCHS), we
reviewed actual medical records and continue to emphasize the
importance of the quality

[[Page 4788]]

of the documentation under the LTCH PPS. Based on the LTCH claims data
analysis described above in section III.D.2. of this preamble, we fully
believe that with some experience under a PPS, the quality of the
documentation and coding of LTCHs has improved, as it did for the IPPS.
However, because of the need for proper coding by LTCHs, the
cooperating parties have plans to assist their members with continued
improvement in documentation and coding issues for the LTCHs through
specific questions and coding guidelines. The importance of consistent
and complete documentation is emphasized in the revised ICD-9-CM
Official Guidelines for Coding and Reporting: ``A joint effort between
the attending physician and coder is essential to achieve complete and
accurate documentation, code assignment, and reporting of diagnoses and
procedures. The importance of consistent, complete documentation in the
medical record cannot be overemphasized. Without this documentation,
the application of all coding guidelines is a difficult, if not
impossible task'' (Coding Clinic for ICD-9-CM, Fourth Quarter 2002,
page 115).
To improve medical record documentation, LTCHs should be aware that
if the patient is being admitted for continuation of treatment of an
acute or chronic condition, guidelines at Section I.B.10 of the Coding
Clinic for ICD-9-CM, Fourth Quarter 2002 (page 129) are applicable for
the selection of principal diagnosis. To clarify coding advice issued
in the August 30, 2002 LTCH PPS final rule (67 FR 55979), at Guideline
I.B.12, Late Effects, we state that a late effect is considered to be
the residual effect (condition produced) after the acute phase of an
illness or injury has terminated (Coding Clinic for ICD-9-CM, Fourth
Quarter 2002, page 129). Regarding whether a LTCH should report the
ICD-9-CM code(s) for an unresolved acute condition instead of the
code(s) for late effects of rehabilitation, we emphasize that each case
must be evaluated on its unique circumstances and coded appropriately.
Depending on the documentation in the medical record, either a code
reflecting the acute condition or rehabilitation could be appropriate
in a LTCH.
Since implementation of the LTCH PPS, our Medicare FIs have
conducted training and provided assistance to LTCHs in correct coding.
We have also issued manuals containing procedures, as well as coding
instructions to LTCHs and FIs. We will continue to conduct training and
provide guidance on an ``as needed'' basis. We also refer readers to
the detailed discussion on correct coding practices in the August 30,
2002 LTCH PPS final rule (67 FR 55981 through 55983). Additional coding
instructions and examples will be published in the Coding Clinic for
ICD-9-CM.

F. Method for Updating the LTC-DRG Relative Weights

As discussed in the August 30, 2002 LTCH PPS final rule that
implemented the LTCH PPS, under the LTCH PPS, each LTCH will receive a
payment that represents an appropriate amount for the efficient
delivery of care to Medicare patients (67 FR 55984). The system must be
able to account adequately for each LTCH's case-mix to ensure both a
fair distribution of Medicare payments and access to care for those
Medicare patients whose care is more costly. Therefore, in Sec.
412.523(c), we adjust the standard Federal PPS rate by the LTC-DRG
relative weights in determining payment to LTCHs for each case.
Under this payment system, relative weights for each LTC-DRG are a
primary element used to account for the variations in cost per
discharge and resource utilization among the payment groups as
described in Sec. 412.515. To ensure that Medicare patients who are
classified to each LTC-DRG have access to services and to encourage
efficiency, we calculate a relative weight for each LTC-DRG that
represents the resources needed by an average inpatient LTCH case in
that LTC-DRG. For example, cases in a LTC-DRG with a relative weight of
2 will, on average, cost twice as much as cases in a LTC-DRG with a
weight of 1.
As we discussed in the FY 2007 IPPS final rule, the LTC-DRG
relative weights effective under the LTCH PPS for Federal FY 2007 were
calculated using the March 2006 update of FY 2005 MedPAR data and
Version 24.0 of the GROUPER software (71 FR 47973). We use total days
and total charges in the calculation of the LTC-DRG relative weights.
LTCHs often specialize in certain areas, such as ventilator-
dependent patients and rehabilitation or wound care. Some case types
(DRGs) may be treated, to a large extent, in hospitals that have (from
a perspective of charges) relatively high (or low) charges.
Distribution of cases with relatively high (or low) charges in specific
LTC-DRGs has the potential to inappropriately distort the measure of
average charges. To account for the fact that cases may not be randomly
distributed across LTCHs, we use a hospital-specific relative value
method to calculate relative weights. We believe this method removes
this hospital-specific source of bias in measuring average charges.
Specifically, we reduce the impact of the variation in charges across
providers on any particular LTC-DRG relative weight by converting each
LTCH's charge for a case to a relative value based on that LTCH's
average charge. (See the FY 2007 IPPS final rule for further
information on the application of the hospital-specific relative value
methodology under the LTCH PPS (71 FR 47974 through 47975).)
To account for LTC-DRGs with low volume (that is, with fewer than
25 LTCH cases), we grouped those low volume LTC-DRGs into 1 of 5
categories (quintiles) based on average charges, for the purposes of
determining relative weights. For FY 2007 based on the FY 2005 MedPAR
data, we identified 180 LTC-DRGs that contained between 1 and 24 cases.
This list of low volume LTC-DRGs was then divided into 1 of the 5 low
volume quintiles, each containing 36 LTC-DRGs (180 / 5 = 36). Each of
the low volume LTC-DRGs grouped to a specific quintile received the
same relative weight and ALOS using the formula applied to the regular
LTC-DRGs (25 or more cases). (See the FY 2007 IPPS final rule for
further explanation of the development and composition of each of the 5
low volume quintiles for FY 2007 (71 FR 47975 through 47978).)
After grouping the cases in the appropriate LTC-DRG, we calculated
the relative weights by first removing statistical outliers and cases
with a LOS of 7 days or less. Next, we adjusted the number of cases
remaining in each LTC-DRG for the effect of SSO cases under Sec.
412.529. The short-stay adjusted discharges and corresponding charges
were used to calculate ``relative adjusted weights'' in each LTC-DRG
using the hospital-specific relative value method. We also adjusted the
LTC-DRG relative weights to account for nonmonotonically increasing
relative weights. That is, we made an adjustment if cases classified to
the LTC-DRG ``with CCs'' of a ``with CC''/``without CC'' pair had a
lower average charge than the corresponding LTC-DRG ``without CCs'' by
assigning the same weight to both LTC-DRGs in the ``with CC''/``without
CC'' pair. (See the FY 2007 IPPS final rule for further details on the
steps for calculating the LTC-DRG relative weights (71 FR 47978 through
47984).)
In addition, of the 538 LTC-DRGs in the LTCH PPS for FY 2007, based
on LTCH cases in the FY 2005 MedPAR files, we identified 183 LTC-DRGs
for which there were no LTCH cases in the

[[Page 4789]]

database. That is, no patients who would have been classified to those
DRGs were treated in LTCHs during FY 2005 and, therefore, no charge
data were reported for those DRGs. Thus, in the process of determining
the relative weights of LTC-DRGs, we were unable to determine weights
for these 183 LTC-DRGs using the method described in this section of
the preamble. However, since patients with a number of the diagnoses
under these LTC-DRGs may be treated at LTCHs beginning in FY 2007, we
assigned relative weights to each of the 183 ``no volume'' LTC-DRGs
based on clinical similarity and relative costliness to one of the
remaining 355 (538-183 = 355) LTC-DRGs for which we were able to
determine relative weights, based on the FY 2005 claims data. (A list
of the current no-volume LTC-DRGs and further explanation of their FY
2007 relative weight assignment can be found in the FY 2007 IPPS final
rule (71 FR 47980 through 47984).)
Furthermore, for FY 2007, we established LTC-DRG relative weights
of 0.0000 for heart, kidney, liver/intestinal, lung, simultaneous
pancreas/kidney, and pancreas transplants (LTC-DRGs 103, 302, 480, 495,
512 and 513, respectively) because presently no LTCH meets the
applicable requirements to perform Medicare covered transplant
procedures. However, if in the future, a LTCH seeks to meet such
requirements as a Medicare-approved transplant center to perform
Medicare-covered transplant procedures, we believe that the application
and approval procedure would allow sufficient time for us to propose
appropriate weights for the LTC-DRGs affected. At the present time, we
included these 6 transplant LTC-DRGs in the GROUPER software program
for administrative purposes. As the LTCH PPS uses the same GROUPER
software program for LTCHs as is used under the IPPS, removing these
DRGs would be administratively burdensome.
As we noted previously in this proposed rule, there were no new
ICD-9-CM code requests for an April 1, 2007 update. Therefore, Version
24.0 of the DRG GROUPER software established in the FY 2007 IPPS final
rule will continue to be effective until October 1, 2007. Moreover, the
LTC-DRGs and relative weights for FY 2007 established in Table 11 of
that same IPPS final rule (71 FR 48321 through 48331) will continue to
be effective until October 1, 2007, (just as they would have been even
if there had been any new ICD-9-CM code requests for an April 1, 2007
update). Accordingly, Table 3 in Addendum A to this proposed rule lists
the LTC-DRGs and their respective relative weights, geometric ALOS, and
five-sixths of the geometric ALOS that we will continue to use for the
period of July 1, 2007 through September 30, 2007. (This table is the
same as Table 11 of the Addendum to the FY 2007 IPPS final rule.) The
next update to the ICD-9-CM coding system will be presented in the FY
2008 IPPS proposed rule (since there will be no April 1, 2007 updates
to the ICD-9-CM coding system). In addition, the proposed DRGs and
GROUPER for FY 2008 that would be used for the IPPS and the LTCH PPS,
effective October 1, 2007, will be presented in the IPPS FY 2008
proposed rule that will be published in the Federal Register.

IV. Proposed Changes to the LTCH PPS Payment Rates for the 2008 LTCH
PPS Rate Year

[If you choose to comment on issues in this section, please include
the caption ``PROPOSED CHANGES TO LTCH PPS PAYMENT RATES FOR THE 2007
LTCH PPS RATE YEAR'' at the beginning of your comments.]

A. Overview of the Development of the Payment Rates

The LTCH PPS was effective for a LTCH's first cost reporting period
beginning on or after October 1, 2002. Effective with that cost
reporting period, LTCHs are paid, during a 5-year transition period, a
total LTCH prospective payment that is comprised of an increasing
proportion of the LTCH PPS Federal rate and a decreasing proportion
based on reasonable cost-based principles, unless the hospital makes a
one-time election to receive payment based on 100 percent of the
Federal rate as specified in Sec. 412.533. New LTCHs (as defined at
Sec. 412.23(e)(4)) are paid based on 100 percent of the Federal rate,
with no phase-in transition payments.
The basic methodology for determining LTCH PPS Federal prospective
payment rates is set forth at Sec. 412.515 through Sec. 412.532. In
this section, we discuss the proposed factors that would be used to
update the LTCH PPS standard Federal rate for the 2008 LTCH PPS rate
year that would be effective for LTCH discharges occurring on or after
July 1, 2007 through June 30, 2008. When we implemented the LTCH PPS in
the August 30, 2002 LTCH PPS final rule (67 FR 56029 through 56031), we
computed the LTCH PPS standard Federal payment rate for FY 2003 by
updating the best latest available (FY 1998 or FY 1999) Medicare
inpatient operating and capital cost data, using the excluded hospital
market basket.
Section 123(a)(1) of the BBRA requires that the PPS developed for
LTCHs be budget neutral for the initial year of implementation.
Therefore, in calculating the standard Federal rate under Sec.
412.523(d)(2), we set total estimated LTCH PPS payments equal to
estimated payments that would have been made under the reasonable cost-
based payment methodology had the PPS for LTCHs not been implemented.
Section 307(a) of the BIPA specified that the increases to the
hospital-specific target amounts and the cap on the target amounts for
LTCHs for FY 2002 provided for by section 307(a)(1) of the BIPA shall
not be considered in the development and implementation of the LTCH
PPS.
Furthermore, as specified at Sec. 412.523(d)(1), the standard
Federal rate is reduced by an adjustment factor to account for the
estimated proportion of outlier payments under the LTCH PPS to total
estimated LTCH PPS payments (8 percent). For further details on the
development of the FY 2003 standard Federal rate, see the August 30,
2002 LTCH PPS final rule (67 FR 56027 through 56037), and for
subsequent updates to the LTCH PPS Federal rate, refer to the following
final rules: RY 2004 LTCH PPS final rule (68 FR 34134 through 34140),
RY 2005 LTCH PPS final rule (69 FR 25682 through 25684), RY 2006 LTCH
PPS final rule (70 FR 24179 through 24180), and RY 2007 LTCH PPS final
rule (71 FR 27819 through 27827).

B. LTCH PPS Market Basket

1. Overview of the RPL Market Basket
Historically, the Medicare program has used a market basket to
account for price increases of the services furnished by providers. The
market basket used for the LTCH PPS includes both operating and
capital-related costs of LTCHs because the LTCH PPS uses a single
payment rate for both operating and capital-related costs. The
development of the LTCH PPS standard Federal rate, using the excluded
hospital with capital market basket, is discussed in further detail in
the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56033).
In the August 30, 2002 final rule (67 FR 56016 through 56017 and
56030), which implemented the LTCH PPS, we established the use of the
excluded hospital with capital market basket as the LTCH PPS market
basket. The excluded hospital with capital market basket was also used
to update the limits on LTCHs' operating costs for inflation under the
TEFRA reasonable cost-based payment system. We

[[Page 4790]]

explained that we believe the use of the excluded hospital with capital
market basket to update LTCHs' costs for inflation was appropriate
because the excluded hospital market basket (with a capital component)
measures price increases of the services furnished by excluded
hospitals, including LTCHs. For further details on the development of
the excluded hospital with capital market basket, see the RY 2004 LTCH
PPS final rule (68 FR 34134 through 34137).
In the RY 2007 LTCH PPS final rule (71 FR 27810), we noted that
based on our research, we did not develop a market basket specific to
LTCH services. We are still unable to create a separate market basket
specifically for LTCHs due to the small number of facilities and the
limited amount of data that is reported (for instance, only
approximately 15 percent of LTCHs reported contract labor cost data for
2002). In that same final rule, under the broad authority conferred
upon the Secretary by section 123 of the BBRA as amended by section
307(b) of the BIPA, we adopted the ``Rehabilitation, Psychiatric and
Long-Term Care (RPL) market basket'' as the appropriate market basket
of goods and services under the LTCH PPS for discharges occurring on or
after July 1, 2006. Specifically, beginning with the 2007 LTCH PPS rate
year, for the LTCH PPS, we adopted the use of the RPL market basket
based on FY 2002 cost report data as it was the best available data. We
choose to use the FY 2002 Medicare cost reports because these are the
most recent, relatively complete cost data for inpatient rehabilitation
facilities (IRFs), inpatient psychiatric facilities (IPF), and LTCHs.
The RPL market basket is determined based on the operating and
capital costs of IRFs, IPFs and LTCHs. Since all IRFs are now paid
under the IRF PPS Federal payment rate, nearly all LTCHs are paid 100
percent of the Federal rate under the LTCH PPS, and most IPFs are
transitioning to payment based on 100 percent of the Federal per diem
payment amount under the IPF PPS (payments to IPFs will be based
exclusively on 100 percent of the Federal rate for cost reporting
periods beginning on or after January 1, 2008), the RPL market basket
reflects changes in the operating and capital costs for these
hospitals. As we explained in that same final rule, we believe a market
basket based on the data of IRFs, IPFs and LTCHs is appropriate to use
under the LTCH PPS since it is the best available data that reflects
the cost structures of LTCHs.
For further details on the development of the RPL market basket,
including the methodology for determining the operating and capital
portions of the RPL market basket, see the RY 2007 LTCH PPS final rule
(71 FR 27810 through 27817).
2. Proposed Market Basket Estimate for the 2008 LTCH PPS Rate Year
Consistent with our historical practice, we estimate market basket
increase based on Global Insight's forecast using the most recent
available data. The most recent estimate of the RPL market basket for
July 1, 2007 through June 30, 2008 (the 2008 LTCH PPS rate year), based
on Global Insight's 3rd quarter 2006 forecast with history through the
2nd quarter of 2006, is 3.2 percent. Global Insight, Inc. is a
nationally recognized economic and financial forecasting firm that
contracts with CMS to forecast changes in the components of the market
baskets. Consistent with our historical practice of using market basket
estimates based on the most recent available data, we propose that if
more recent data is available when we develop the final rule, we would
use such data, if appropriate.
As discussed in greater detail in this section, for the 2008 LTCH
PPS rate year, we are proposing to update the standard Federal rate by
0.71 percent. The proposed update reflects an adjustment based on the
most recent market basket estimate (currently 3.2 percent) and an
adjustment to account for the increase in case-mix in the prior period
(FY 2005) that resulted from changes in coding practices rather than an
increase in patient severity. We are also proposing that if more recent
data are available (for example, a more recent estimate of the market
basket), we would use such data, if appropriate, to determine the RY
2008 update in the final rule and thus, the rate update noted in
regulation text could change.

C. Proposed Standard Federal Rate for the 2008 LTCH PPS Rate Year

1. Background
At Sec. 412.523(c)(3)(ii), for LTCH PPS rate years beginning RY
2004 through RY 2006, we updated the standard Federal rate to adjust
for the most recent estimate of the projected increases in prices for
LTCH inpatient hospital services. We established the policy of annually
updating the standard Federal rate by the increase factor described in
the RY 2004 LTCH PPS final rule (68 FR 34138) because at that time we
believed that was the most appropriate method for updating the LTCH PPS
standard Federal rate annually for years after FY 2003. When we moved
the date of the annual update of the LTCH PPS from October 1 to July 1
in the RY 2004 LTCH PPS final rule (68 FR 34138), we revised Sec.
412.523(c)(3) to specify that for LTCH PPS rate years beginning on or
after July 1, 2003, the annual update to the standard Federal rate for
the LTCH PPS would be equal to the previous rate year's Federal rate
updated by the most recent estimate of increases in the appropriate
market basket of goods and services included in covered inpatient LTCH
services. We believed that was the most appropriate method for updating
the LTCH PPS standard Federal rate annually for years after RY 2004. In
the RY 2007 LTCH PPS final rule (71 FR 27818), we established at Sec.
412.523(c)(3)(iii) that the update to the standard Federal rate for the
2007 LTCH PPS rate year is zero percent. As discussed in that same
final rule, we explained that rather than solely using the most recent
estimate of the LTCH PPS market basket as the basis of the update
factor for the Federal rate for RY 2007, we believed it was appropriate
to adjust the rate to account for the changes in coding practices
(rather than patient severity) as indicated by our ongoing monitoring
activities.
Accordingly, we established the LTCH PPS standard Federal rate,
effective from July 1, 2006 through June 30, 2007 (the 2007 LTCH PPS
rate year), at $38,086.04 (71 FR 27818). Additionally, in the RY 2007
LTCH PPS proposed rule (71 FR 4742 through 4747), we provided a
description of a preliminary model of an update framework under the
LTCH PPS. We received few comments on that update framework preliminary
model. As discussed in the RY 2007 LTCH PPS final rule (71 FR 27818
through 27819 and 27902 through 27906), although we did not propose to
adopt an analytical update framework, we continued to solicit comments
on the framework based on the preliminary model, using the best
available data and concepts, and we may propose to adopt a framework at
some time in the future. We continue to be interested in comments and
suggestions on the preliminary model of an update framework under the
LTCH PPS that was present in Appendix A of the RY 2007 LTCH PPS final
rule (71 FR 27902 through 27906).
In the discussion that follows, we explain how we developed the
proposed standard Federal rate for the 2008 LTCH PPS rate year.
Specifically, we explain our rationale, which is based on our ongoing
monitoring activities, for proposing an annual update to the

[[Page 4791]]

standard Federal rate for RY 2008 that reflects an adjustment for the
most recent market basket estimate and an adjustment to account for the
increase in case-mix in a prior period (FY 2005) that resulted from
changes in coding practices rather than an increase in patient
severity.
2. Proposed Update to the Standard Federal Rate for the 2008 LTCH PPS
Rate Year
Under Sec. 412.523(c)(3)(ii), for RY 2004 through RY 2006, the
annual update to the LTCH PPS standard Federal rate was equal to the
most recent estimate of increases in the prices of an appropriate
market basket of goods and services included in covered inpatient LTCH
services. As noted above in this section, in the RY 2007 LTCH PPS final
rule, under the broad authority conferred upon the Secretary by section
123 of the BBRA as amended by section 307(b) of BIPA to include
appropriate adjustments in the establishment of the LTCH PPS, for
discharges occurring on or after July 1, 2006 and on or before June 30,
2007 (RY 2007), we specified at Sec. 412.523(c)(3)(iii) that the
standard Federal rate from the previous year would be updated by a
factor of zero percent. That is, the standard Federal rate for the 2007
LTCH PPS rate year remained the same as the standard Federal rate in
effect during the 2006 LTCH PPS rate year (July 1, 2005 through June
30, 2006) (that is, $38,086.04).
As discussed in greater detail in the RY 2007 LTCH PPS final rule
(71 FR 27819 through 27827), the update to the standard Federal rate
for RY 2007 was determined based on the estimate of the LTCH PPS market
basket and an analysis of LTCH case-mix, in conjunction with a review
of LTCHs' margins and our ongoing LTCH monitoring activities.
Specifically, from our CMI analysis, we calculated the observed CMI
increase between FY 2003 and FY 2004 (6.75 percent) and determined that
a significant portion of the 6.75 percent increase in CMI between FY
2003 and FY 2004 is due to changes in coding practices, which we define
as ``apparent'' increase in case-mix, rather than the treatment of more
resource intensive patients. We also noted that the large observed
increase in LTCH case-mix was not accompanied by a corresponding
increase in Medicare costs. Finally, we noted in the RY 2007 LTCH PPS
final rule (71 FR 27826 through 27827) that although the most recent
update of the market basket discussed in that final rule is 0.2 percent
lower than the estimate of the market basket discussed in the RY 2007
LTCH PPS proposed rule, we believed that finalizing a zero percent
update to the Federal rate for RY 2007 was appropriate for several
reasons. First, we did not believe that there was a significant
difference between the most recent estimates of the market basket for
RY 2007 (3.4 percent) and the estimate used in the RY 2007 LTCH PPS
proposed rule (3.6 percent). Furthermore, there could be some minimal
variation in how much of the observed case-mix increase represents real
case-mix changes. Finally, because the proposed update for RY 2007 at
Sec. 412.523(c)(3)(iii) explicitly specified that the RY 2007 standard
Federal rate would be the previous LTCH PPS rate year updated by an
update factor of zero percent, we believe some commenters may not have
been aware that the final update for RY 2007 could have been different
than (that is, greater than or less than) zero percent. Thus, we
believed that the best approach was to adopt an update factor of zero
percent in the final rule for RY 2007, which reflected both the market
basket estimate and an adjustment to account for the increase in case-
mix in a prior period (FY 2004) that resulted from changes in coding
practices rather than an increase in patient severity. In that same
final rule (71 FR 27821), we stated that the revision to Sec.
412.523(c)(3) only addressed an update to the LTCH PPS Federal rate for
the 2007 LTCH PPS rate year (Sec. 412.523(c)(3)(iii)), and that we
would propose future revisions to Sec. 412.523(c)(3) to address future
proposed updates to the LTCH PPS Federal rates in future rate years
based on an analysis of the most recent available LTCH data.
In determining the proposed update to the standard Federal rate for
the 2008 LTCH PPS rate year, we again performed a CMI analysis using
the most recent available LTCH claims data and found the observed CMI
increase between FY 2004 and FY 2005 to be 3.49 percent. We believe
that there is still some component of apparent CMI increase within the
observed CMI increase of 3.49 percent that is due to coding practices
rather than the treatment of more resource intensive patients (real CMI
increase). Therefore, we believe it is appropriate to propose an
adjustment to the market basket update for RY 2008 to account for the
apparent CMI increase for a subsequent prior period (that is, CMI
increase due to changes in coding practices during FY 2005). As
discussed in detail in the RY 2007 LTCH PPS final rule (71 FR 27819
through 27827), in determining the update to the LTCH PPS Federal rate
for RY 2007, we used 2.75 percent as the proxy for ``real'' CMI change
during RY 2004. We noted in that same final rule (71 FR 27822) that we
were aware of a well-established RAND Corporation (RAND) study [``Has
DRG Creep Crept Up? Decomposing the Case-Mix Index Change Between 1987
and 1988'' by G. M. Carter, J. P. Newhouse, and D. A. Relles, R-4098-
HCFA/ProPAC (1991)]. Based upon such study, we determined that real
case-mix change for IPPS hospitals was a fairly steady 1.0 and 1.4
percent per year. We also noted that in updating IPPS rates, we have
consistently assumed that real case-mix change was between 1.0 to 1.4
percent per year, which is a more conservative estimate of real case-
mix increase than the 2.75 percent used in determining the update to
the Federal rate for RY 2007 (71 FR 27822). However, we explained that
we believed at the time it was appropriate to utilize the estimate of
2.75 percent as a proxy for real CMI increase in determining the update
for RY 2007 rather than the estimates based on the RAND study (71 FR
27819 through 27827). We believe it is appropriate to factor the impact
of moving from a reasonable cost-based (TEFRA) payment system to a PPS
into our CMI analysis for RY 2007. In determining the update for RY
2007, we measured the observed CMI increase from FY 2003 (the year
LTCHs began transitioning to PPS payments from reasonable cost-based
payments) to FY 2004 (the first full year after implementation of the
LTCH PPS). Under the reasonable cost-based payment system, there was
little incentive for LTCHs to attempt to influence payments through
changes in coding practices. Under the former reasonable cost-based
payment system, a LTCH's payments were limited on the costs per
discharge of its patients in a base year updated. Since payment was
based on the resource use of a particular mix of patients in the base
year, there may have been reluctance on the part of LTCHs, in
subsequent years, to accept more resource-intensive patients than those
patients they treat in their base year. In contrast, under the LTCH
PPS, payment is DRG-based. Payments are dependent on the DRG to which a
patient is assigned as determined by the patient's diagnosis.
Therefore, a LTCH could treat higher severity patients with the
expectation that payment will be determined based on the hospital case
mix in the current year and without the concern, under the former
payment system, that its costs for those more resource intensive
patients would be limited by the cost per discharge limits

[[Page 4792]]

that were established by its patient mix in its base year. Immediately
following the transition to the LTCH PPS, a LTCH could receive payment
for treating patients with higher severity that require more intensive
resources, which would have caused the LTCH to exceed its set limit
under the TEFRA system. Therefore, we expected that in the first full
year following implementation of the LTCH PPS, LTCHs would take
advantage of this change and treat more severe patients. Accordingly,
we believe that it is reasonable to assume that the real CMI increase
in that first full year after implementation of the LTCH PPS would be
somewhat higher than the 1.0 to 1.4 percent annual increase.
Thus, in the CMI analysis conducted for RY 2007 based on case mix
data from FY 2003 to FY 2004, we used 2.75 percent as the proxy for the
real CMI increase component of the total 6.75 percent observed CMI
increase. (For a more detailed discussion on the 2.75 percent proxy for
real CMI increase, refer to the RY 2007 LTCH PPS final rule (71 FR
27819 through 27827).)
Consequently for RY 2007, by removing the real CMI increase
component (2.75 percent) from the observed CMI increase (6.75 percent),
the apparent CMI increase from FY 2003 to FY 2004 was estimated to be
4.0 percent (6.75-2.75 = 4.0). The rate for RY 2007 was offset by 3.4
percent to account for the changes in coding practices that do not
reflect increased severity of LTCH patients (which accounts for the
fact that we have already included a 0.34 percent behavioral offset in
establishing the initial LTCH PPS Federal rate). For further
information on the update to the Federal rate for RY 2007, see the RY
2007 final rule (71 FR 27819 through 27827).
For this proposed rule, the CMI analysis performed in determining
the proposed Federal rate update for RY 2008 is based on the observed
CMI increase from FY 2004 to FY 2005 (the first and second full years
of the LTCH PPS, respectively). We believe that as the LTCH PPS matured
and LTCHs have become more familiar with the DRG-based payment system,
it is more appropriate to utilize the estimate of real case-mix
increase (1.0 percent to 1.4 percent) based on the RAND study that is
typically found in acute care hospitals under the IPPS. Furthermore, an
analysis of the most recent available LTCH claims data shows a steady
decrease in the observed CMI from year to year since FY 2003 (the
observed CMI change between FY 2003 and FY 2004 is 6.75 percent,
between FY 2004 and FY 2005 is 3.49 percent, and between FY 2005 and FY
2006 is estimated to be 1.9 percent), which suggests that both apparent
and real components of CMI are decreasing as the LTCH PPS matures.
Given the estimated 1.9 percent observed CMI increase for FY 2006, it
appears that it is inappropriate to assume a constant annual real case
mix of 2.75 percent.
Therefore, for periods beyond the first full year of the LTCH PPS,
we believe it is no longer appropriate to use such a generous estimate
of real CMI. (Many LTCHs have cost reporting periods beginning in
August and thus were not paid under the LTCH PPS until August 2003. For
those hospitals, the first full year of the LTCH PPS was during FY
2004.) While the well-established ``real'' case-mix parameters based on
the RAND study are based on IPPS data, we believe they are appropriate
to apply under the LTCH PPS for the reasons explained below in this
section. However, we are soliciting comments on other data sources that
could be used to determine a proxy for real LTCH PPS case-mix change
other than the 1.0 to 1.4 percent per year case-mix parameters based on
the RAND study. As we have discussed numerous times in previous LTCH
PPS proposed and final rules, acute care hospitals paid under the IPPS
and LTCHs paid under the LTCH PPS have much in common. Hospitals paid
under both systems are required to meet the same certification criteria
set forth in section 1861(e) of the Act to participate as a hospital in
the Medicare program. LTCHs are certified as acute care hospitals but
are classified as LTCHs for payment purposes solely because such
hospitals generally have an inpatient ALOS of greater than 25 days (as
set forth in section 1886(d)(1)(B)(iv)(I) of the Act). Furthermore, the
LTCH PPS uses the same patient classification system that is used under
the IPPS, and several LTCH PPS payment policies, such as the area wage
adjustment (Sec. 412.525(c)), COLA for Alaska and Hawaii (Sec.
412.525(b)), and high cost outlier (HCO) policy (Sec. 412.525(a)) are
modeled after the similar IPPS policies.
Therefore, we believe it is appropriate to propose utilizing the
estimate of real CMI increase based on the RAND study of 1.0 percent as
the proxy for the portion of the observed 3.49 percent CMI increase
from FY 2004 to FY 2005 that represents real CMI changes for use in
determining the proposed RY 2008 Federal rate update. We propose to use
the more conservative 1.0 percent (rather than the 1.4 percent) as a
proxy for real CMI increase because it is consistent with what is used
under the IPPS and we believe the similarities between LTCHs and acute
care hospitals are significant as we explained previously. (For a more
detailed discussion on the 1.0 percent for real CMI increase utilized
in the IPPS, see the FY 2007 IPPS final rule (71 FR 48156 through
48158), and the FY 1994 IPPS proposed rule (58 FR 30444).) Accordingly,
since the observed CMI change for FY 2005 is estimated at 3.49 percent
(based on the most recent available LTCH case-mix data from FY 2004
compared to FY 2005), accounting for the real CMI change of 1.0
percent, we believe that 2.49 percent (3.49 - 1.0 = 2.49) of that
increase reflects CMI increase that is due to changes in coding
practices (rather than patient severity).
As we discussed in greater detail in the RY 2007 LTCH PPS final
rule (71 FR 27819 through 27827), while we continue to believe that an
update to the LTCH PPS Federal rate year should be based on the most
recent estimate of the LTCH PPS market basket, we believe it
appropriate that the rate be offset by an adjustment to account for
changes in coding practices that do not reflect increased patient
severity. Such an adjustment protects the integrity of the Medicare
Trust Funds by ensuring that the LTCH PPS payment rates better reflect
the true costs of treating LTCH patients (71 FR 27798 through 27820).
Therefore, in determining the proposed RY 2008 update to the LTCH PPS
Federal rate, we believe it is appropriate to apply an adjustment to
eliminate the effect of coding or classification changes in a prior
period (FY 2005) that do not reflect real changes in LTCHs' case-mix.
Specifically, the proposed case-mix adjustment in determining the
proposed RY 2008 Federal rate is meant to reduce current payments to
account for the increase in payments in FY 2005 that resulted from the
CMI increase that was attributable to the apparent case-mix increase in
that year. As was the case when we determined the RY 2007 update
factor, this adjustment would be necessary to account for payments that
were made based on improved coding (rather than increased patient
severity) in prior years. Therefore, in this proposed rule, under the
broad authority conferred upon the Secretary by section 123 of the BBRA
as amended by section 307(b) of the BIPA to include appropriate
adjustments, including updates, in the establishment of the LTCH PPS,
we are proposing to revise Sec. 412.523(c)(3), to specify that, for
discharges occurring on or after July 1, 2007 and on or before June 30,
2008, the standard Federal rate from the previous year would be updated
by 0.71 percent, which is based on the most recent market basket
estimate (3.2 percent)

[[Page 4793]]

adjusted by the apparent CMI (2.49 percent) due to changes in coding
practice rather than an increase in patient severity. As explained
above in this section, the proposed update factor for RY 2008 is based
on the most recent estimate of the LTCH PPS market basket offset by an
adjustment to account for changes in case-mix in prior periods due to
changes in coding practices rather than increased patient severity. We
note that the proposed update factor of 0.71 percent is higher than the
zero percent update recommended by the MedPAC for RY 2008 (MedPAC
Public Meeting, January 9, 2007, Meeting Transcript pp. 225-226). We
are soliciting comments on a possible zero percent update to the
standard Federal rate for RY 2008.
Furthermore, since we are proposing to use the most recent
estimates of the market basket and CMI increase in the prior period (FY
2005) for calculating the update factor to the LTCH PPS Federal rate,
we note that at the time the analysis must be performed for the final
rule, we will consider comments received on this proposed rule and
would also use the most recent estimates available at that time, if
appropriate, which may be different from the data we are using in this
proposed rule. Therefore, the proposed update factor applied to the
standard Federal rate may change in the final rule. Consequently, the
update factor in the regulation text would change accordingly.
At this time, the most recent estimate of the LTCH PPS market
basket is 3.2 percent, and the most recent estimate of apparent CMI
increase in the prior period (FY 2005), that is, case-mix increase due
to changes in coding practices, is 2.49 percent. Therefore, we are
proposing that the RY 2008 update factor to the LTCH PPS Federal rate
would be an estimated 0.71 percent (3.2 - 2.49 = 0.71), which reflects
the proposed adjustment to the most recent market basket estimate and
accounts for the increase in case-mix in the prior period that resulted
from changes in coding practices rather than an increase in patient
severity. Accordingly, under the same broad authority conferred upon
the Secretary under the BBRA and the BIPA referenced above in this
section, we are proposing to specify under Sec. 412.523(c)(3)(iv),
that, for discharges occurring on or after July 1, 2007 and on or
before June 30, 2008, the standard Federal rate from the previous year
would be updated by 0.71 percent, determined based on an adjustment to
the most recent estimate of the market basket to account for case-mix
increase in the prior period (FY 2005) that is due to changes in coding
practices rather than patient severity.
3. Proposed Standard Federal Rate for the 2008 LTCH PPS Rate Year
In the RY 2007 LTCH PPS final rule (71 FR 27827), we established a
standard Federal rate of $38,086.04 for the 2007 LTCH PPS rate year
that was based on the best available data and policies established in
that final rule. In this proposed rule, under the broad authority
conferred upon the Secretary by section 123 of the BBRA as amended by
section 307(b) of the BIPA, we are proposing an annual update to the
standard Federal rate for RY 2008 that reflects an adjustment for the
most recent market basket estimate and an adjustment to account for the
increase in case-mix in a prior period (FY 2005) that resulted from
changes in coding practices rather than an increase in patient
severity. Therefore, based on the proposed update factor for RY 2008 of
0.71 percent, the proposed standard Federal rate for RY 2008 would be
$38,356.45. Since the proposed standard Federal rate for the 2008 LTCH
PPS rate year has already been adjusted for differences in case-mix,
wages, COLAs, and HCO payments, we are not proposing to make any
additional adjustments in the proposed standard Federal rate for these
factors. Finally, we propose that if more recent data becomes
available, we would use that data, if appropriate, to determine the
update to the standard Federal rate for the RY 2008 final rule.

D. Calculation of Proposed LTCH Prospective Payments for the 2008 LTCH
PPS Rate Year

The basic methodology for determining prospective payment rates for
LTCH inpatient operating and capital-related costs is set forth in
Sec. 412.515 through Sec. 412.532. In accordance with Sec. 412.515,
we assign appropriate weighting factors to each LTC-DRG to reflect the
estimated relative cost of hospital resources used for discharges
within that group as compared to discharges classified within other
groups. The amount of the prospective payment is based on the standard
Federal rate, established under Sec. 412.523, and adjusted for the
LTC-DRG relative weights, differences in area wage levels, COLA in
Alaska and Hawaii, HCOs, and other special payment provisions (SSOs
under Sec. 412.529 and interrupted stays under Sec. 412.531).
In accordance with Sec. 412.533, during the 5-year transition
period, which is currently in its final year for LTCH cost reporting
periods beginning on or after October 1, 2006 (FY 2007), a total LTCH
PPS payment was based on the applicable transition blend percentage of
the adjusted Federal rate and a percentage based on reasonable cost
principles unless the LTCH made a one-time election to receive payment
based on 100 percent of the Federal rate. In the final year of the 5-
year transition period, which begins with LTCH cost reporting periods
beginning on or after October 1, 2006, as specified at Sec. 412.533, a
total LTCH PPS payment is based on 100 percent of the Federal rate. A
LTCH defined as ``new'' under Sec. 412.23(e)(4) is paid based on 100
percent of the Federal rate with no blended transition payments as
specified in Sec. 412.533(d). As discussed in the August 30, 2002 LTCH
PPS final rule (67 FR 56038), the applicable transition blends are set
forth in Sec. 412.533(a).
Accordingly, for cost reporting periods that began during FY 2006
(that is, on or after October 1, 2005 and on or before September 30,
2006), blended payments under the transition methodology are based on
20 percent of the LTCH's rate based on reasonable cost principles and
80 percent of the adjusted LTCH PPS Federal rate. For cost reporting
periods beginning on or after October 1, 2006 (FY 2007), Medicare
payment to LTCHs are determined entirely (100 percent) under the LTCH
PPS Federal rate.
1. Proposed Adjustment for Area Wage Levels
a. Background
Under the authority of section 123 of the BBRA as amended by
section 307(b) of the BIPA, we established an adjustment to the LTCH
PPS Federal rate to account for differences in LTCH area wage levels at
Sec. 412.525(c). The labor-related share of the LTCH PPS Federal rate,
currently estimated by the FY 2002-based RPL market basket (as
discussed in greater detail in section IV.D.1.c. of this preamble), is
adjusted to account for geographic differences in area wage levels by
applying the applicable LTCH PPS wage index. The applicable LTCH PPS
wage index is computed using wage data from inpatient acute care
hospitals without regard to reclassification under sections 1886(d)(8)
or 1886(d)(10) of the Act. Furthermore, as we discussed in the August
30, 2002 LTCH PPS final rule (67 FR 56015), we established a 5-year
transition to the full wage adjustment. The applicable wage index
phase-in percentages are based on the start of a LTCH's cost reporting
period as shown in Table 1.

[[Page 4794]]

Table 1
------------------------------------------------------------------------
Cost reporting periods beginning on or Phase-in percentage of the
after full wage index
------------------------------------------------------------------------
October 1, 2002........................... \1/5\ (20 percent).
October 1, 2003........................... \2/5\ (40 percent).
October 1, 2004........................... \3/5\ (60 percent).
October 1, 2005........................... \4/5\ (80 percent).
October 1, 2006........................... \5/5\ (100 percent).
------------------------------------------------------------------------

For example, for cost reporting periods beginning on or after
October 1, 2005 and on or before September 30, 2006 (FY 2006), the
applicable LTCH wage index value is four-fifths of the applicable full
LTCH PPS wage index value. The wage index adjustment will be completely
phased-in beginning with cost reporting periods beginning in FY 2007,
that is, for cost reporting periods beginning on or after October 1,
2006, the applicable LTCH wage index value will be the full (five-
fifths) LTCH PPS wage index value. Therefore, the majority of LTCHs are
currently receiving either the four-fifths or full (five-fifths) LTCH
PPS wage index value. As we established in the August 30, 2002 LTCH PPS
final rule (67 FR 56018), the applicable full LTCH PPS wage index value
is calculated from acute-care hospital inpatient wage index data
without taking into account geographic reclassification under sections
1886(d)(8) and (d)(10) of the Act.
b. Geographic Classifications/Labor Market Area Definitions
As discussed in the August 30, 2002 LTCH PPS final rule, which
implemented the LTCH PPS (67 FR 56015 through 56019), in establishing
an adjustment for area wage levels under Sec. 412.525(c), the labor-
related portion of a LTCH's Federal prospective payment is adjusted by
using an appropriate wage index based on the labor market area in which
the LTCH is located. In the 2006 LTCH PPS rate year final rule (70 FR
24184 through 24185), in Sec. 412.525(c), we revised the labor market
area definitions used under the LTCH PPS effective for discharges
occurring on or after July 1, 2005 based on the Office of Management
and Budget's (OMB's) Core Based Statistical Area (CBSA) designations
based on 2000 Census data because we believe that those new labor
market area definitions will ensure that the LTCH PPS wage index
adjustment most appropriately accounts for and reflects the relative
hospital wage levels in the geographic area of the hospital as compared
to the national average hospital wage level. As set forth in Sec.
412.525(c)(2), a LTCH's wage index is determined based on the location
of the LTCH in an urban or rural area as defined in Sec.
412.64(b)(1)(ii)(A) through (C). An urban area under the LTCH PPS is
defined at Sec. 412.64(b)(1)(ii)(A) and (B). In general, an urban area
is defined as a Metropolitan Statistical Area (MSA) as defined by the
OMB. (In addition, a few counties located outside of MSAs are
considered urban as specified at Sec. 412.64(b)(1)(ii)(B).) Under
Sec. 412.64(b)(1)(ii)(C), a rural area is defined as any area outside
of an urban area.
We note that these are the same CBSA-based designations implemented
for acute care inpatient hospitals under the IPPS at Sec. 412.64(b)
effective October 1, 2004 (69 FR 49026 through 49034). For further
discussion of the labor market area (geographic classification)
definitions used under the LTCH PPS, see the 2006 LTCH PPS rate year
final rule (70 FR 24182 through 24191).
c. Proposed Labor-Related Share
In the August 30, 2002 LTCH PPS final rule (67 FR 56016), we
established a labor-related share of 72.885 percent based on the
relative importance of the labor-related share of operating costs
(wages and salaries, employee benefits, professional fees, postal
services, and all other labor-intensive services) and capital costs of
the excluded hospital with capital market basket based on FY 1992 data.
As we discussed in LTCH PPS final rules subsequent to the FY 2003
LTCH PPS final rule in which we established the original LTCH PPS
labor-related share (68 FR 34142, 69 FR 25685 through 25686, and 70 FR
24182), once our research into the labor-related share methodology was
complete, we would update the IPPS and excluded hospital labor-related
shares based on that research and the best available data if necessary.
Accordingly, we conducted analysis of our labor share methodology,
which was completed prior to the development of the RY 2007 LTCH PPS
proposed and final rules. In the RY 2007 LTCH PPS final rule (71 FR
27829), we updated the LTCH PPS labor-related share based on the FY
2002-based RPL market basket (discussed in section IV.B. of this
preamble) because we believe that this market basket was developed
based on the best available data that reflect the cost structures of
LTCHs.
Consistent with our historical practice, the labor-related share
currently used under the LTCH PPS is determined by identifying the
national average proportion of operating costs and capital costs that
are related to, influenced by, or vary with the local labor market.
Specifically, in the RY 2007 LTCH PPS final rule (71 FR 27829 through
27832), we revised the LTCH PPS labor-related share from 72.885 percent
(as established in the August 30, 2002 final rule (67 FR 56016) based
on the FY 1997-based excluded hospital with capital market basket) to
75.665 percent based on the relative importance of the labor-related
share of operating costs (wages and salaries, employee benefits,
professional fees, and all other labor-intensive services) and capital
costs of the proposed RPL market basket based on FY 2002 data from the
first quarter of 2006.
As discussed in section IV.B.2. of this preamble, we now have data
from the 3rd quarter of 2006 (with history through the 2nd quarter of
2006) available for determining the labor-related share of the FY 2002-
based RPL market basket. Based on this more recent data, in this
proposed rule, under the broad authority conferred upon the Secretary
by section 123 of the BBRA as amended by section 307(b) of the BIPA,
consistent with our historical practice of determining the labor-
related share by identifying the national average proportion of
operating costs and capital costs that are related to, influenced by,
or varies with the local labor market, we are proposing to revise the
LTCH PPS labor-related share from 75.665 percent to 75.511 percent
based on the relative importance of the labor-related share of
operating costs (wages and salaries, employee benefits, professional
fees, and all other labor-intensive services) and capital costs of the
FY 2002-based RPL market basket from the third quarter of 2006, as
shown in Table 2. The labor-related share is the sum of the relative
importance of wages and salaries, fringe benefits, professional fees,
labor-intensive services, and a portion of the capital share from an
appropriate market basket. In this proposed rule, for RY 2008, we are
proposing to use the FY 2002-based RPL market basket costs based on
data from the 3rd quarter of 2006 to determine the labor-related share
for the LTCH PPS effective for discharges occurring on or after July 1,
2007, as this is the most recent available data. The labor-related
share for the 2008 LTCH PPS rate year would continue to be the sum of
the relative importance of each labor-related cost category, and would
reflect the different rates of price change for these cost categories
between the base year (FY 2002) and the 2008 LTCH PPS rate year.
Consistent with our historical practice of using the best data
available, if more recent data are available to determine the labor-
related share of the RPL market basket (used under the

[[Page 4795]]

LTCH PPS), we propose to use it for determining the labor-related share
for the 2008 LTCH PPS rate year in the final rule.
Based on the most recent available data, we are proposing that the
sum of the relative importance for 2008 LTCH PPS rate year for
operating costs (wages and salaries, employee benefits, professional
fees, and labor-intensive services) would be 71.484, as shown in Table
2. The portion of capital that is influenced by the local labor market
is still estimated to be 46 percent, which is the same percentage used
when we established the current labor-related share in the RY 2007 LTCH
PPS final rule. Since, based on the most recent available data, the
relative importance for capital would be 8.754 percent of the FY 2002-
based RPL market basket for the 2008 LTCH PPS rate year, we are
proposing to multiply the estimated portion of capital influenced by
the local labor market (46 percent) by the relative importance for
capital (8.754 percent) to determine the proposed labor-related share
of capital for the 2008 LTCH PPS rate year. The result would be 4.027
percent (0.46 x 8.754 percent), which we would add to the proposed
71.484 percent for the operating cost amount to determine the proposed
total labor-related share for the 2008 LTCH PPS rate year. Thus, based
on the latest available data, we are proposing to use a labor-related
share of 75.511 percent (71.484 percent + 4.027 percent) under the LTCH
PPS for the 2008 LTCH PPS rate year. As noted above in this section,
this proposed labor-related share is determined using the same
methodology as employed in calculating the current LTCH labor-related
share (71 FR 27830) and the labor-related shares used under the IRF PPS
and IPF PPS, which also use the RPL market basket.
Table 2 shows the 2007 LTCH PPS rate year relative importance
labor-related share of the FY 2002-based RPL market basket (established
in the RY 2007 LTCH PPS final rule) and the proposed 2008 LTCH PPS rate
year relative importance labor-related share of the FY 2002-based RPL
market basket.

Table 2.--RY 2007 Labor-Related Share Relative Importance and Proposed
RY 2008 Labor-Related Share Relative Importance of the FY 2002-Based RPL
Market Basket
------------------------------------------------------------------------
RY 2007 Proposed RY
Cost category relative 2008 relative
importance \*\ importance
------------------------------------------------------------------------
Wages and Salaries...................... 52.506 52.359
Employee Benefits....................... 14.042 14.095
Professional fees....................... 2.886 2.899
All other labor intensive services...... 2.152 2.131
-------------------------------
Subtotal............................ 71.586 71.484
Labor share of capital costs............ 4.079 4.027
-------------------------------
Total Labor-related share........... 75.665 75.511
------------------------------------------------------------------------
\*\ As established in the RY 2007 LTCH PPS final rule (71 FR 27830).
\**\ Other labor intensive services includes landscaping services,
services to buildings, detective and protective services, repair
services, laundry services, advertising, auto parking and repairs,
physical fitness facilities, and other government enterprises.

d. Proposed Wage Index Data
In the RY 2007 LTCH PPS final rule (71 FR 27830 through 27831), we
established LTCH PPS wage index values for the 2007 LTCH PPS rate year
calculated from the same data (generated in cost reporting periods
beginning during FY 2002) used to compute the FY 2006 acute care
hospital inpatient wage index data without taking into account
geographic reclassification under sections 1886(d)(8) and (d)(10) of
the Act because that was the best available data at that time. The LTCH
wage index values applicable for discharges occurring on or after July
1, 2006 through June 30, 2007 are shown in Table 1 (for urban areas)
and Table 2 (for rural areas) in the Addendum to the RY 2007 LTCH PPS
final rule (71 FR 27906 through 27930). Acute care hospital inpatient
wage index data are also used to establish the wage index adjustment
used in the IRF PPS, HHA PPS, and SNF PPS. As we discussed in the
August 30, 2002 LTCH PPS final rule (67 FR 56019), since hospitals that
are excluded from the IPPS are not required to provide wage-related
information on the Medicare cost report and because we would need to
establish instructions for the collection of this LTCH data to
establish a geographic reclassification adjustment under the LTCH PPS,
the wage adjustment established under the LTCH PPS is based on a LTCH's
actual location without regard to the urban or rural designation of any
related or affiliated provider.
In this proposed rule, under the broad authority conferred upon the
Secretary by section 123 of the BBRA as amended by section 307(b) of
BIPA to determine appropriate adjustments under the LTCH PPS, we are
proposing that, for the 2008 LTCH PPS rate year, the same data
(generated in cost reporting periods beginning during FY 2003) used to
compute the FY 2007 acute care hospital inpatient wage index data
without taking into account geographic reclassification under sections
1886(d)(8) and (d)(10) of the Act would be used to determine the
applicable wage index values under the LTCH PPS because these data (FY
2003) are the most recent complete data. We are proposing to continue
to use IPPS wage data as a proxy to determine the proposed LTCH wage
index values for the 2008 LTCH PPS rate year because both LTCHs and
acute-care hospitals are required to meet the same certification
criteria set forth in section 1861(e) of the Act to participate as a
hospital in the Medicare program and they both compete in the same
labor markets, and, therefore, experience similar wage-related costs.
These data are the same FY 2003 acute care hospital inpatient wage data
that were used to compute the FY 2007 wage indices currently used under
the IPPS, skilled nursing facility (SNF) PPS and home health agency
(HHA) PPS. The proposed LTCH wage index values that would be applicable
for discharges occurring on or after July 1, 2007 through June 30,
2008, are shown in Table 1 (for urban areas) and Table 2 (for rural
areas) in Addendum A to this proposed rule.
As discussed in section IV.D.1.a. of this preamble, the applicable
wage index phase-in percentages are based on the start of a LTCH's cost
reporting

[[Page 4796]]

period beginning on or after October 1st of each year during the 5-year
transition period. Thus, cost reporting periods beginning on or after
October 1, 2005 and before October 1, 2006 (FY 2006), the labor-related
portion of the standard Federal rate is adjusted by four-fifths of the
applicable LTCH wage index value. The wage index adjustment will be
completely phased-in beginning with cost reporting periods beginning in
FY 2007. That is, for cost reporting periods beginning on or after
October 1, 2006, the labor-related portion of the standard Federal rate
is adjusted by the full (five-fifths) applicable LTCH wage index value.
Because the phase-in of the wage index does not coincide with the
LTCH PPS rate year (July 1st through June 30th), most LTCHs will
experience a change in the wage index phase-in percentages during the
LTCH PPS rate year. For example, during the 2008 LTCH PPS rate year,
for a LTCH with a September 1st fiscal year, the four-fifths wage index
will be applicable for the first 2 months of the 2007 LTCH PPS rate
year (July 1, 2007 through August 31, 2007) and the full (five-fifths)
wage index will be applicable for the next 10 months of the 2008 LTCH
PPS rate year (September 1, 2007 through June 30, 2008). For the
remainder of such a LTCH's FY 2006 cost reporting periods, which
coincides with the first 2 months of RY 2008, the applicable wage index
value would be four-fifths of the full FY 2007 acute-care hospital
inpatient wage index data, without taking into account geographic
reclassification under sections 1886(d)(8) and (d)(10) of the Act (as
shown in Tables 1 and 2 in Addendum A to this proposed rule). Beginning
with this LTCH's FY 2007 cost reporting period that will begin during
RY 2008, the applicable wage index value would be the full (five-
fifths) FY 2007 acute care hospital inpatient wage index data, without
taking into account geographic reclassification under sections
1886(d)(8) and (d)(10) of the Act (as shown in Tables 1 and 2 in
Addendum A to this proposed rule). We note that since there are no
longer any LTCHs in their cost reporting periods that began during FY
2003 through FY 2005 (the first three years of the 5-year wage index
phase-in), we are no longer showing the 1/5th, 2/5ths and 3/5ths wage
index values in Tables 1 and 2 in Addendum A to this proposed rule.
2. Proposed Adjustment for Cost-of-Living in Alaska and Hawaii
In the August 30, 2002 final rule (67 FR 56022), we established,
under Sec. 412.525(b), a COLA for LTCHs located in Alaska and Hawaii
to account for the higher costs incurred in those States. In the RY
2007 LTCH PPS final rule (71 FR 27832), for the 2007 LTCH PPS rate
year, we established a COLA to payments for LTCHs located in Alaska and
Hawaii by multiplying the standard Federal payment rate by the
appropriate factor listed in Table 8 of that same final rule.
Similarly, in this proposed rule, under the broad authority
conferred upon the Secretary by section 123 of the BBRA as amended by
section 307(b) of BIPA to determine appropriate adjustments under the
LTCH PPS, for the 2008 LTCH PPS rate year we are proposing a COLA to
payments to LTCHs located in Alaska and Hawaii by multiplying the
proposed standard Federal payment rate by the proposed factors listed
in Table 3 because these are currently the most recent available data.
These proposed factors are obtained from the U.S. Office of Personnel
Management (OPM) and are currently used under the IPPS. In addition, we
propose that if OPM releases revised COLA factors before March 1, 2007,
we would use them for the development of the payments for the 2008 LTCH
rate year and publish them in the LTCH PPS final rule.

Table 3.--Proposed Cost-of-Living Adjustment Factors for Alaska and
Hawaii Hospitals for the 2008 LTCH PPS Rate Year
------------------------------------------------------------------------

------------------------------------------------------------------------
Alaska:
All areas..................................................... 1.25
Hawaii:
Honolulu County............................................... 1.25
Hawaii County................................................. 1.165
Kauai County.................................................. 1.2325
Maui County................................................... 1.2375
Kalawao County................................................ 1.2375
------------------------------------------------------------------------

3. Proposed Adjustment for High-Cost Outliers (HCOs)
a. Background
Under the broad authority conferred upon the Secretary by section
123 of the BBRA as amended by section 307(b) of BIPA, in the
regulations at Sec. 412.525(a), we established an adjustment for
additional payments for outlier cases that have extraordinarily high
costs relative to the costs of most discharges. Providing additional
payments for outliers strongly improves the accuracy of the LTCH PPS in
determining resource costs at the patient and hospital level. These
additional payments reduce the financial losses that would otherwise be
incurred when treating patients who require more costly care and,
therefore, reduce the incentives to underserve these patients. We set
the outlier threshold before the beginning of the applicable rate year
so that total estimated outlier payments are projected to equal 8
percent of total estimated payments under the LTCH PPS. Outlier
payments under the LTCH PPS are determined consistent with the IPPS
outlier policy.
Under Sec. 412.525(a), we make outlier payments for any discharges
if the estimated cost of a case exceeds the adjusted LTCH PPS payment
for the LTC-DRG plus a fixed-loss amount. The fixed-loss amount is the
amount used to limit the loss that a hospital will incur under the
outlier policy for a case with unusually high costs. This results in
Medicare and the LTCH sharing financial risk in the treatment of
extraordinarily costly cases. Under the LTCH PPS HCO policy, the LTCH's
loss is limited to the fixed-loss amount and a fixed percentage of
costs above the outlier threshold (LTCH DRG payment plus the fixed loss
amount) determined by the marginal cost factor. We calculate the
estimated cost of a case by multiplying the overall hospital cost-to-
charge ratio (CCR) by the Medicare allowable covered charge. In
accordance with Sec. 412.525(a)(3), we pay outlier cases 80 percent of
the difference between the estimated cost of the patient case and the
outlier threshold (the sum of the adjusted Federal prospective payment
for the LTC-DRG and the fixed-loss amount).
Under the LTCH PPS, we determine a fixed-loss amount, that is, the
maximum loss that a LTCH can incur under the LTCH PPS for a case with
unusually high costs before the LTCH will receive any additional
payments. We calculate the fixed-loss amount by estimating aggregate
payments with and without an outlier policy. The fixed-loss amount will
result in estimated total outlier payments being projected to be equal
to 8 percent of projected total LTCH PPS payments. Currently, MedPAR
claims data and CCRs based on data from the most recent provider
specific file (PSF) (or to the applicable Statewide average CCR if a
LTCH's CCR data are faulty or unavailable) are used to establish a
fixed-loss threshold amount under the LTCH PPS.
b. Cost-to-Charge Ratios (CCRs)
In determining outlier payments, we calculate the estimated cost of
the case by multiplying the LTCH's overall CCR by the Medicare
allowable charges for the case. As we discussed in greater detail in
the June 9, 2003 IPPS HCO final rule (68 FR 34506 through 34516),
because the LTCH PPS HCO policy at Sec. 412.525 is modeled after the
IPPS

[[Page 4797]]

outlier policy, we believed that it and the SSO policy at Sec. 412.529
are susceptible to the same payment vulnerabilities that became evident
under the IPPS and, therefore, merited revision. Thus, we revised the
HCO policy at Sec. 412.525(a) and the SSO policy at Sec. 412.529 in
that same final rule for the determination of LTCHs' CCRs and the
reconciliation of outlier payments.
Under the LTCH PPS, a single prospective payment per discharge is
made for both inpatient operating and capital-related costs, and,
therefore, we compute a single ``overall'' or ``total'' CCR for LTCHs
based on the sum of their operating and capital costs (as described in
Chapter 3, section 150.24, of the Medicare Claims Processing Manual
(CMS Pub. 100-4)) as compared to total charges. Specifically, a LTCH's
CCR is calculated by dividing a LTCH's total Medicare costs (that is,
the sum of its operating and capital inpatient routine and ancillary
costs) by its total Medicare charges (that is, the sum of its operating
and capital inpatient routine and ancillary charges). (Instructions
regarding the changes established in the June 9, 2003 IPPS HCO final
rule for both LTCHs and IPPS hospitals can be found in Transmittal A-
03-058 (Change Request 2785; July 3, 2003).)
As a result of the changes established in the June 9, 2003 IPPS HCO
final rule, as we discussed in the RY 2007 LTCH PPS final rule (71 FR
27832 through 27833) and the FY 2007 IPPS final rule (71 FR 48119
through 48121), a LTCH is assigned the applicable Statewide average CCR
if, among other things, a LTCH's CCR is found to be in excess of the
applicable maximum CCR threshold (that is, the LTCH CCR ceiling). As we
explained in the FY 2007 IPPS final rule (71 FR 48117), CCRs above this
threshold are most likely due to faulty data reporting or entry, and,
therefore, these CCRs should not be used to identify and make payments
for outlier cases. Such data are clearly errors and should not be
relied upon. Thus, under our established policy, if a LTCH's CCR is
above the applicable ceiling, the applicable LTCH PPS Statewide average
CCR is assigned to the LTCH instead of the CCR computed from its most
recent (settled or tentatively settled) cost report data.
Under Sec. 412.525(a)(4)(ii), for discharges occurring on or after
August 8, 2003, and before October 1, 2006, we determined the
applicable LTCH PPS Statewide average CCRs using the ``combined'' IPPS
operating and capital Statewide average CCRs (that is, adding the
separate IPPS operating and capital CCRs together to determine the LTCH
PPS Statewide average CCRs).
Also, under Sec. 412.525(a)(4)(ii), for discharges occurring on or
after August 8, 2003, and before October 1, 2006, if a LTCH's CCR is
above the applicable ``combined'' IPPS operating and capital ceiling
(that is, adding the separate IPPS operating and capital CCR ceiling
together), the applicable Statewide average CCR may be assigned to the
LTCH.
As we explained in the FY 2007 IPPS final rule (71 FR 48117 through
48121), we revised our methodology for determining the annual CCR
ceiling and Statewide average CCRs under the LTCH PPS because we
believe that those changes are consistent with the LTCH PPS single
payment rate for inpatient operating and capital costs. Therefore,
under the broad authority of section 123 of the BBRA and section
307(b)(1) of BIPA, in that same final rule, we revised our methodology
used to determine the LTCH CCR ceiling. For discharges occurring on or
after October 1, 2006, we established that the LTCH CCR ceiling
specified under Sec. 412.525(a)(4)(iv)(C)(2) is calculated as three
standard deviations above the corresponding national geometric mean
total CCR (established and published annually by CMS). (The FI may use
a Statewide average CCR if, among other things, a LTCH's CCR is in
excess of the LTCH CCR ceiling.) The LTCH total CCR ceiling is
determined based on IPPS CCR data, by first calculating the ``total''
(that is, operating and capital) IPPS CCR for each hospital and then
determining the average ``total'' IPPS CCR for all IPPS hospitals. (Our
rationale for using IPPS hospital data is discussed in the FY 2007 IPPS
final rule (71 FR 48117) and reiterated below in this section.) The
LTCH CCR ceiling is then established at 3 standard deviations from the
corresponding national geometric mean total CCR. (For further detail on
our methodology for annually determining the LTCH CCR ceiling, refer to
the FY 2007 IPPS final rule (71 FR 48117 through 48119).) We also
established that the LTCH ``total'' CCR ceiling used under the LTCH PPS
will continue to be published annually in the IPPS proposed and final
rules, and the public should continue to consult the annual IPPS
proposed and final rules for changes to the LTCH total CCR ceiling that
would be effective for discharges occurring on or after October 1 each
year. Accordingly, in the FY 2007 IPPS final rule (71 FR 48119), we
established a FY 2007 LTCH PPS total CCR ceiling of 1.321, effective
for discharges occurring on or after October 1, 2006.
In addition, under the broad authority of section 123 of the BBRA
and section 307(b)(1) of BIPA, we revised our methodology to determine
the Statewide average CCRs under Sec. 412.525(a)(4)(iv)(C) for use
under the LTCH PPS in a manner similar to the way we compute the
``total'' CCR ceiling using IPPS CCR data (71 FR 48120). Specifically,
under this revised methodology we first calculate the total (that is,
operating and capital) CCR for each IPPS hospital. We then calculate
the weighted average ``total'' CCR for all IPPS hospitals in the rural
areas of the State and the weighted average ``total'' CCR for all IPPS
hospitals in the urban areas of the State. (For further detail on our
methodology for annually determining the LTCH urban and rural Statewide
average CCRs, refer to the FY 2007 IPPS final rule (71 FR 48119 through
48121).) We also established that the applicable Statewide average
``total'' (operating and capital) CCRs used under the LTCH PPS will
continue to be published annually in the IPPS proposed and final rules,
and the public should continue to consult the annual IPPS proposed and
final rules for changes to the applicable Statewide average total CCRs
that would be effective for discharges occurring on or after October 1
each year. Accordingly, in the FY 2007 IPPS final rule (71 FR 48122),
the FY 2007 LTCH PPS Statewide average total CCRs for urban and rural
hospitals, effective for discharges occurring on or after October 1,
2006, were presented in Table 8C of the Addendum of that final rule (71
FR 48303).
As we explained in the FY 2007 IPPS final rule (71 FR 48117), we
continue to believe it is appropriate to use IPPS operating and capital
CCRs to compute the LTCH total CCR ceiling and the Statewide average
CCRs because LTCHs' cost and charge structures are similar to that of
IPPS acute-care hospitals. For instance, LTCHs are certified as acute
care hospitals, as set forth in section 1861(e) of the Act to
participate as a hospital in the Medicare program, and these hospitals,
in general, are paid as LTCHs only because their Medicare ALOS is
greater than 25 days as specified in Sec. 412.23(e). Furthermore,
prior to qualifying as a LTCH under Sec. 412.23(e)(2)(i), a hospital
generally is paid as an acute-care hospital under the IPPS during the
period in which it demonstrates that it has an ALOS of greater than 25
days. In addition, since there are less than 400 LTCHs, which are
unevenly geographically distributed throughout the United States, there
may not be sufficient LTCH CCR data to

[[Page 4798]]

determine an appropriate LTCH PPS CCR ceiling using LTCH data.
In the FY 2007 IPPS final rule, in addition to revising our
methodology for determining the annual CCR ceiling and Statewide
average CCRs under the LTCH PPS for discharges occurring on or after
October 1, 2006, under the broad authority of section 123 of the BBRA
and section 307(b)(1) of BIPA, we revised Sec. 412.525(a)(4)(iv) for
discharges occurring on or after October 1, 2006, to codify in 42 CFR
part 412, subpart O the remaining LTCH PPS outlier policy changes that
were established in the June 9, 2003 IPPS HCO final rule (68 FR 34506
through 34513), including modifications and editorial clarifications to
those existing policies established in that final rule. We made these
revisions because we believe that they more precisely describe the
application of those policies as they relate to the determination of
LTCH CCRs because these changes are consistent with the changes to the
calculation of the LTCH CCR ceiling.
Specifically, in the FY 2007 IPPS final rule (71 FR 48119), under
the broad authority of section 123 of the BBRA and section 307(b)(1) of
BIPA, we established under the LTCH PPS HCO policy at Sec.
412.525(a)(4)(iv)(C) that the FI may use a Statewide average CCR, which
is established annually by CMS, if it is unable to determine an
accurate CCR for a LTCH in one of the following three circumstances:
(1) New LTCHs that have not yet submitted their first Medicare cost
report (for this purpose, consistent with current policy, a new LTCH
would be defined as an entity that has not accepted assignment of an
existing hospital's provider agreement in accordance with Sec.
489.18); (2) LTCHs whose CCR is in excess of the LTCH CCR ceiling; and
(3) other LTCHs for whom data with which to calculate a CCR are not
available (for example, missing or faulty data). (Other sources of data
that the FI may consider in determining a LTCH's CCR included data from
a different cost reporting period for the LTCH, data from the cost
reporting period preceding the period in which the hospital began to be
paid as a LTCH (that is, the period of at least 6 months that it was
paid as a short-term acute care hospital), or data from other
comparable LTCHs, such as LTCHs in the same chain or in the same
region.)
Additionally, in the FY 2007 IPPS final rule (71 FR 48121), we
established under Sec. 412.525(a)(4)(iv)(B) and Sec.
412.529(c)(3)(iv)(B) that, for discharges occurring on or after October
1, 2006, the CCR applied at the time a claim is processed will be based
on either the most recently settled cost report or the most recent
tentatively settled cost report, whichever is from the latest cost
reporting period. Under the broad authority of section 123 of the BBRA
and section 307(b)(1) of BIPA, in that same final rule, we also
established at Sec. 412.525(a)(4)(iv)(A) that, for discharges
occurring on or after October 1, 2006, we may specify an alternative to
the CCR computed under Sec. 412.525(a)(4)(iv)(B) (that is, computed
from the most recently settled cost report or the most recent
tentatively settled cost report, whichever is later), or a hospital may
also request that the FI use a different (higher or lower) CCR based on
substantial evidence presented by the hospital. In addition, under the
broad authority of section 123 of the BBRA and section 307(b)(1) of
BIPA, we revised Sec. 412.525(a)(3) to change the plural reference
from cost-to-charge ``ratios'' to the singular reference to a cost-to-
charge ``ratio'' in that final rule. For a complete discussion on all
these revisions to our methodology for determining a LTCH's CCR, refer
to the FY 2007 IPPS final rule (71 FR 48119 through 48121). We note
that in that same FY 2007 IPPS final rule, we made similar revisions to
the SSO policy at Sec. 412.529(c)(3), as discussed in V.A.1.b. of the
preamble of this proposed rule.
c. Establishment of the Proposed Fixed-Loss Amount
When we implemented the LTCH PPS, as discussed in the August 30,
2002 LTCH PPS final rule (67 FR 56022 through 56026), under the broad
authority of section 123 of the BBRA as amended by section 307(b) of
BIPA, we established a fixed-loss amount so that total estimated
outlier payments are projected to equal 8 percent of total estimated
payments under the LTCH PPS. To determine the fixed-loss amount, we
estimate outlier payments and total LTCH PPS payments for each case
using claims data from the MedPAR files. Specifically, to determine the
outlier payment for each case, we estimate the cost of the case by
multiplying the Medicare covered charges from the claim by the LTCH's
hospital specific CCR. Under Sec. 412.525(a)(3), if the estimated cost
of the case exceeds the outlier threshold (the sum of the adjusted
Federal prospective payment for the LTC-DRG and the fixed-loss amount),
we pay an outlier payment equal to 80 percent of the difference between
the estimated cost of the case and the outlier threshold (the sum of
the adjusted Federal prospective payment for the LTC-DRG and the fixed-
loss amount).
In the RY 2007 LTCH PPS final rule (71 FR 27838), in calculating
the fixed-loss amount that would result in estimated outlier payments
projected to be equal to 8 percent of total estimated payments for the
2007 LTCH PPS rate year, we used claims data from the December 2005
update of the FY 2005 MedPAR files and CCRs from the December 2005
update of the PSF, as that was the best available data at that time. We
believe that CCRs from the PSF are the best available CCR data for
determining estimated LTCH PPS payments for a given LTCH PPS rate year
because they are the most recently available CCRs actually used to make
LTCH PPS payments.
As we also discussed in the RY 2007 LTCH PPS rate year final rule
(71 FR 27838), we calculated a single fixed-loss amount for the 2007
LTCH PPS rate year based on the version 23.0 of the GROUPER, which was
the version in effect as of the beginning of the LTCH PPS rate year
(that is, July 1, 2006 for the 2007 LTCH PPS rate year). In addition,
we applied the outlier policy under Sec. 412.525(a) in determining the
fixed-loss amount for the 2007 LTCH PPS rate year; that is, we assigned
the applicable Statewide average CCR only to LTCHs whose CCRs exceeded
the ceiling (and not when they fell below the floor). Accordingly, we
used the FY 2006 LTCH PPS CCR ceiling of 1.423 (71 FR 27838). As noted
in that same final rule, in determining the fixed-loss amount for the
2007 LTCH PPS rate year using the CCRs from the PSF, there were no
LTCHs with missing CCRs or with CCRs in excess of the current ceiling
and, therefore, there was no need for us to independently assign the
applicable Statewide average CCR to any LTCHs in determining the fixed-
loss amount for the 2007 LTCH PPS rate year (as this may have already
been done by the FI in the PSF in accordance with the established
policy).
Accordingly, in 2007 LTCH PPS rate year final rule (71 FR 27838),
we established a fixed-loss amount of $14,887 for the 2007 LTCH PPS
rate year. Thus, we pay an outlier case 80 percent of the difference
between the estimated cost of the case and the outlier threshold (the
sum of the adjusted Federal LTCH PPS payment for the LTC-DRG and the
fixed-loss amount of $14,887).
In this proposed rule, for the 2008 LTCH PPS rate year, we used the
March 2006 update of the FY 2005 MedPAR claims data to determine a
proposed fixed-loss amount that would result in estimated outlier
payments projected to be equal to 8 percent of total estimated
payments, based on the policies described in this proposed rule,
because these data are the most recent complete

[[Page 4799]]

LTCH data available. Consistent with our historical practice of using
the best data available, if more recent LTCH claims data become
available, we propose to use it for determining the fixed-loss amount
for the 2008 LTCH PPS rate year in the final rule. Furthermore, as
noted previously, we determined the proposed fixed-loss amount based on
the version of the GROUPER that would be in effect as of the beginning
of the 2008 LTCH PPS rate year (July 1, 2007), that is, Version 24.0 of
the GROUPER (as established in the FY 2007 IPPS final rule (71 FR
47973)).
We also used CCRs from the June 2006 update of the PSF for
determining the proposed fixed-loss amount for the 2008 LTCH PPS rate
year as they are currently the most recent complete available data.
Consistent with our historical practice of using the best data
available, if more recent CCR data are available, we propose to use it
for determining the fixed-loss amount for the 2008 LTCH PPS rate year
in the final rule. As we discussed in this proposed rule, we revised
our methodology for our annual determination of the applicable LTCH CCR
ceiling and applicable Statewide average CCRs in determining a LTCH's
CCR effective for discharges occurring on or after October 1, 2006 in
the FY 2007 IPPS final rule (71 FR 48117 through 48122). Accordingly,
in determining the proposed fixed-loss amount for the 2008 LTCH PPS
rate year, we used the current FY 2007 applicable LTCH ``total'' CCR
ceiling of 1.321 and LTCH Statewide average ``total'' CCRs established
under our revised methodology in the FY 2007 IPPS final rule (71 FR
48118 and 48121) such that the current applicable Statewide average CCR
would be assigned if, among other things, a LTCH's CCR exceeded the
current ceiling (1.321). We note that in determining the proposed
fixed-loss amount for the 2008 LTCH PPS rate year using the CCRs from
the PSF, there was no need for us to independently assign the
applicable Statewide average CCR to any LTCHs (as this may have already
been done by the FI in the PSF in accordance with our established
policy). (Currently, the applicable FY 2007 LTCH Statewide average CCRs
can be found in Table 8C of the FY 2007 IPPS final rule (71 FR 48303).)
Accordingly, based on the data and policies described in this
proposed rule, we are proposing a fixed-loss amount of $18,774 for the
2008 LTCH PPS rate year. Thus, we would pay an outlier case 80 percent
of the difference between the estimated cost of the case and the
proposed outlier threshold (the sum of the adjusted proposed Federal
LTCH payment for the LTC-DRG and the proposed fixed-loss amount of
$18,774). We note that the proposed fixed-loss amount for the 2008 LTCH
PPS rate year is higher than the current fixed-loss amount of $14,887.
In addition to being based on the most recent available LTCH data to
estimate the cost of each LTCH case, this proposed change in the fixed-
loss amount is primarily due to the projected decrease in estimated
aggregate LTCH PPS payments that is expected to result from the
approach discussed for the SSO policy under Sec. 412.529 (discussed in
greater detail in section V.A.2. of this preamble), in conjunction with
the proposed changes to the area wage adjustment (discussed in greater
detail in section IV.D.1. of this preamble) and the changes to the LTC-
DRG relative weights for FY 2007 (as discussed in the FY 2007 IPPS
final rule (71 FR 47971 through 47994)). We note that if the approach
discussed for the SSO policy was not considered, then the proposed
fixed-loss amount would be $18,207.
As discussed in greater detail in the impact analysis presented in
section XVI.B.4. of this proposed rule, we are projecting that the
proposed changes, including the approach discussed for the SSO policy
presented in section V.A.2. of this proposed rule, would result in a
0.7 percent decrease in estimated payments per discharge in RY 2008 as
compared to RY 2007, on average, for all LTCHs. While we are projecting
that the proposed 0.71 percent update to the Federal rate (discussed in
section IV.C. of this preamble) would result in an increase in
estimated payments per discharge in RY 2008 as compared to RY 2007,
this increase would be offset by the projected decrease in estimated
payments per discharge from RY 2007 to RY 2008 of 0.9 percent due to
the approach being considered for the SSO policy and a projected
decrease in estimated payments per discharge from RY 2007 to RY 2008 of
0.5 percent due to the proposed changes to the area wage adjustment
(including the progression of the established phase-in of that
adjustment). Without taking the approach being considered for the SSO
policy into account, the proposed changes to the payment rate and
policies noted above would result in a 0.3 percent increase in
estimated payments per discharge in RY 2008 as compared to RY 2007.
Furthermore, as we discussed in the FY 2007 IPPS final rule (71 FR
48343 through 47994), the changes to the LTC-DRG relative weights for
FY 2007, which we used to determine the proposed RY 2008 fixed-loss
amount, were projected to result in a 1.3 percent decrease in estimated
aggregate LTCH PPS payments in FY 2007.
Because of the estimated decrease in aggregate LTCH PPS payments
proposed for the 2008 LTCH PPS rate year (as discussed above in this
section), we believe that an increase in the proposed fixed-loss amount
is appropriate and necessary to maintain the requirement that estimated
outlier payments would be projected to be equal to 8 percent of
estimated total LTCH PPS payments, as required under Sec. 412.525(a).
As we discussed in the RY 2007 final rule (71 FR 27836), maintaining
the fixed-loss amount at the current level would result in HCO payments
that significantly exceed the current regulatory requirement that
estimated outlier payments would be projected to equal 8 percent of
estimated total LTCH PPS payments. Based on the regression analysis
that was performed when we implemented the LTCH PPS (August 30, 2002
final rule (67 FR 56022 through 56027)), we established the outlier
target at 8 percent of estimated total LTCH PPS payments to allow us to
achieve a balance between the ``conflicting considerations of the need
to protect hospitals with costly cases, while maintaining incentives to
improve overall efficiency'' (67 FR 56024). That regression analysis
also showed that additional increments of outlier payments over 8
percent (that is, raising the outlier target to a larger percentage
than 8 percent) would reduce financial risk, but by successively
smaller amounts. Outlier payments are budget neutral, and therefore,
outlier payments are funded by prospectively reducing the non-outlier
PPS payment rates by projected total outlier payments. The higher the
outlier target, the greater the (prospective) reduction to the base
payment would need to be applied to the Federal rate to maintain BN.
As we discussed in the RY 2007 LTCH PPS final rule (71 FR 27834
through 27835) when we proposed to increase the fixed-loss amount for
RY 2007 (over the RY 2006 fixed-loss amount), as an alternative to the
proposal to raise the RY 2007 fixed-loss amount, we examined adjusting
the marginal cost factor (that is, the percentage that Medicare will
pay of the estimated cost of a case that exceeds the sum of the
adjusted Federal prospective payment for the LTC-DRG and the fixed-loss
amount for LTCH PPS outlier cases as specified in Sec. 412.525(a)(3)),
which is currently equal to 80 percent, as a means of ensuring that
estimated outlier payments would be projected to

[[Page 4800]]

equal 8 percent of estimated total LTCH PPS payments. When we initially
established the 80 percent marginal cost factor in the August 30, 2002
final rule (67 FR 56022 through 56027), we explained that our analysis
of payment-to-cost ratios for HCO cases showed that a marginal cost
factor of 80 percent appropriately addresses outlier cases that are
significantly more expensive than nonoutlier cases, while
simultaneously maintaining the integrity of the LTCH PPS.
In proposing an increase to the fixed-loss amount for RY 2007 (71
FR 27834), we also solicited comments on whether we should revisit the
regression analysis discussed above in this section that was used to
establish the existing 8 percent outlier target and 80 percent marginal
cost factor, using the most recent available data to evaluate whether
the current outlier target of 8 percent or the 80 percent marginal cost
factor should be adjusted, and therefore, could have resulted in less
of an increase in the fixed-loss amount for RY 2007. In response to
this solicitation (as summarized in the RY 2007 LTCH PPS final rule (71
FR 27834 through 24835)), several commenters opposed any option that
would allow us to revisit the regression analysis that was used to
establish the existing 80 percent marginal cost factor and existing
outlier target of 8 percent. The commenters stated their belief that
the LTCH PPS is still in its early stages and further changes to the 80
percent marginal cost factor or 8 percent outlier target would result
in instability to the system. The commenters cautioned against making
any premature changes to the factors affecting HCO payments to LTCHs,
particularly the marginal cost factor and outlier target established by
regulation when the LTCH PPS was implemented. Also, the commenters
agreed that keeping the marginal cost factor at 80 percent and the
outlier pool at 8 percent better identifies LTCH patients that are
truly unusually costly cases, and that this policy appropriately
addresses outlier cases that are significantly more expensive than non-
outlier cases.
In response to these comments, we agreed with the commenters that,
based on the regression analysis done for the implementation of the
LTCH PPS (August 30, 2002; 68 FR 56022 through 56026), a marginal cost
factor of 80 percent and a outlier target of 8 percent best identifies
LTCH patients that are truly unusually costly cases, and that such a
policy appropriately addresses LTCH HCO cases that are significantly
more expensive than non-outlier cases, which is consistent with our
intent of the LTCH HCO policy as stated when we implemented the LTCH
PPS in the August 30, 2002 final rule (67 FR 56025). Therefore, as
supported by many commenters, in the RY 2007 LTCH PPS final rule (71 FR
27835), we did not revisit the regression analysis that was used to
establish the existing 80 percent marginal cost factor and existing
outlier target of 8 percent, and therefore, did not make any changes to
the marginal cost factor or outlier target in that final rule.
Furthermore, we stated that after revisiting this issue and an analysis
of the most recent complete available data, due to the lag time in the
availability of data, we now believe the most appropriate time to
revisit a budget neutral policy change in the outlier policy (among
other things), which would affect future LTCH PPS payment rates, would
be after the conclusion of the 5-year transition period when we expect
to have several years of data generated after the implementation of the
LTCH PPS.
Although proposing to raise the fixed-loss amount from $14,887 to
$18,774 (based on the policies presented in this proposed rule) would
increase the amount of the ``loss'' that a LTCH must incur under the
LTCH PPS for a case with unusually high costs before the LTCH would
receive any additional Medicare payments, as we discussed above and as
we explained in greater detail in the RY 2007 LTCH PPS final rule,
based on the best available data, we continue to believe that the
existing 8 percent outlier target and 80 percent marginal cost factor
continue to adequately maintain the LTCHs' share of the financial risk
in treating the most costly patients and ensure the efficient delivery
of services. Accordingly, we are not proposing to adjust the existing 8
percent outlier target or 80 percent marginal cost factor under the
LTCH PPS HCO policy at this time. However, we continue to be interested
in any comments that would support revisiting the analysis that was
used to establish the existing 8 percent outlier target and the
existing 80 percent marginal cost factor, using the most recent
available data to evaluate whether any changes to the current HCO
policy should be made, and therefore, may result in less of an increase
in the fixed-loss amount for RY 2008.
Furthermore, we note that the proposed fixed-loss amount of $18,774
is lower than the FY 2003 fixed-loss amount of $24,450 (67 FR 56023)
and the 2004 LTCH PPS rate year fixed-loss amount of $19,590 (68 FR
34144), and only slightly higher than the 2005 LTCH PPS rate year
fixed-loss amount of $17,864 (69 FR 25688), all of which were in effect
during the time period that we estimate positive Medicare margins (as
discussed in the RY 2007 LTCH PPS final rule (71 FR 27820 through
27825). Therefore, we believe the proposed fixed-loss amount of $18,774
would appropriately identify unusually costly LTCH cases while
maintaining the integrity of the LTCH PPS. Thus, under the broad
authority of section 123(a)(1) of the BBRA and section 307(b)(1) of
BIPA, we are proposing to establish a fixed-loss amount of $18,774
based on the best available LTCH data and the policies presented in
this proposed rule because we believe a proposed increase in the fixed-
loss amount is appropriate and necessary to maintain estimated outlier
payments are projected to be equal to 8 percent of estimated total LTCH
PPS payments, as required under Sec. 412.525(a).
d. Reconciliation of Outlier Payments Upon Cost Report Settlement
In the June 9, 2003 HCO final rule (68 FR 34508 through 34512), we
established our policy for LTCHs that provided that effective for LTCH
PPS discharges occurring on or after August 8, 2003, any reconciliation
of outlier payments will be based upon the actual CCR computed from the
costs and charges incurred in the period during which the discharge
occurs. In that same final rule, we also established that, for
discharges occurring on or after August 8, 2003, at the time of any
reconciliation, outlier payments may be adjusted to account for the
time value of any underpayments or overpayments based upon a widely
available index to be established in advance by the Secretary and will
be applied from the midpoint of the cost reporting period to the date
of reconciliation. (Additional information on the administration of the
reconciliation process under the IPPS is provided in CMS Program
Transmittal 707 (October 12, 2005; Change Request 3966). We note that
we are currently developing additional instructions on the
administration of the reconciliation process under the LTCH PPS that
would be similar to the IPPS reconciliation process.)
In the FY 2007 IPPS final rule (71 FR 48121 through 48122), for
discharges occurring on or after October 1, 2006, we codified into the
LTCH PPS section of the regulations (42 CFR part 412, subpart O) the
provisions governing the determination of LTCHs' CCRs, including
modifications and editorial clarifications to our existing methodology
for determining the annual LTCH CCR ceiling and applicable Statewide
average CCRs under the LTCH PPS. (We note that we also made

[[Page 4801]]

the same changes under the SSO policy at Sec. 412.529(c)(3), as
discussed in section V.A.1.c. of this preamble).
In the FY 2007 IPPS final rule (71 FR 48122), under the broad
authority of section 123 of the BBRA and section 307(b)(1) of BIPA, we
revised Sec. 412.525(a)(4)(iv)(D) through (E), for discharges
occurring on or after October 1, 2006, to codify in subpart O of 42 CFR
part 412 the provisions discussed concerning the reconciliation of LTCH
PPS outlier payments, including editorial clarifications discussed in
greater detail in this section, that would more precisely describe the
application of those policies. Specifically, at Sec.
412.525(a)(4)(iv)(D), we specified that for discharges occurring on or
after October 1, 2006, any reconciliation of outlier payments will be
based on the CCR calculated based on a ratio of costs-to-charges
computed from the relevant cost report and charge data determined at
the time the cost report coinciding with the discharge is settled. In
addition, at Sec. 412.525(a)(4)(iv)(E), we specified that for
discharges occurring on or after October 1, 2006, at the time of any
reconciliation, outlier payments may be adjusted to account for the
time value of any underpayments or overpayments. We also specified that
such an adjustment will be based upon a widely available index to be
established in advance by the Secretary and will be applied from the
midpoint of the cost reporting period to the date of reconciliation. We
made these additional revisions to Sec. 412.525(a)(4) because we
believe that these changes are more consistent with the LTCH PPS single
payment rate for inpatient operating and capital costs (as discussed in
greater detail previously), and because we believe it is more
appropriate and administratively simpler to include all of the
regulatory provisions concerning the determination of LTCH PPS outlier
payments applicable under the LTCH PPS regulations in subpart O of 42
CFR part 412 of the CFR.
e. Application of Outlier Policy to Short-Stay Outlier (SSO) Cases
As we discussed in the August 30, 2002 final rule (67 FR 56026),
under some rare circumstances, a LTCH discharge could qualify as a SSO
case (as defined under Sec. 412.529 and discussed in section V.A.1.a.
of this preamble) and also as a HCO case. In this scenario, a patient
could be hospitalized for less than five-sixths of the geometric ALOS
for the specific LTC-DRG, and yet incur extraordinarily high treatment
costs. If the costs exceeded the outlier threshold (that is, the SSO
payment plus the fixed-loss amount), the discharge would be eligible
for payment as a HCO. Thus, for a SSO case in the 2008 LTCH PPS rate
year, the HCO payment would be 80 percent of the difference between the
estimated cost of the case and the proposed outlier threshold (the sum
of the proposed fixed-loss amount of $18,774 and the amount paid under
the SSO policy).
4. Other Payment Adjustments
As indicated earlier, we have broad authority under section
123(a)(1) of the BBRA as amended by section 307(b) of BIPA to determine
appropriate adjustments under the LTCH PPS, including whether (and how)
to provide for adjustments to reflect variations in the necessary costs
of treatment among LTCHs. Thus, in the August 30, 2002 LTCH PPS final
rule (67 FR 56014 through 56027), we discussed our extensive data
analysis and rationale for not implementing an adjustment for
geographic reclassification, rural location, treating a
disproportionate share of low-income patients (DSH), or indirect
medical education (IME) costs. In that same final rule, we stated that
we would collect data and reevaluate the appropriateness of these
adjustments in the future once more LTCH data become available after
the LTCH PPS is implemented.
As we discussed in the RY 2007 LTCH PPS final rule (71 FR 27839),
we now believe that after the completion of the 5-year transition,
sufficient new data that will have been generated while LTCHs are
subject to the LTCH PPS may be available for a comprehensive
reevaluation of payment adjustments such as geographic
reclassification, rural location, DSH, and IME. The end of the 5-year
transition occurs with cost reporting periods beginning on or after
October 1, 2007. Therefore, in this proposed rule, we are not proposing
to make any adjustments for geographic reclassification, rural
location, DSH, or IME. However, we will continue to collect and
interpret new data as they become available in the future to determine
if these data support proposing any additional payment adjustments. As
we also discussed in the RY 2007 LTCH PPS final rule (71 FR 27839), we
now believe that it is appropriate to wait for the conclusion of the 5-
year transition to 100 percent of the Federal rate under the LTCH PPS,
to maximize the availability of data that are reflective of LTCH
behavior in response to the implementation of the LTCH PPS to be used
to conduct a comprehensive evaluation of the potential payment
adjustment policies (such as rural location, DSH and IME) in
conjunction with our evaluation of the possibility of making a one-time
prospective adjustment to the LTCH PPS rates provided for at Sec.
412.523(d)(3).
5. Proposed Budget Neutrality (BN) Offset To Account for the Transition
Methodology
Under Sec. 412.533, we implemented a 5-year transition, during
which a LTCH is paid a total LTCH PPS payment that is comprised of an
increasing percentage of the LTCH PPS Federal prospective payment rate
and a decreasing percentage of its payments based on the reasonable
cost-based payment principles for each discharge. Furthermore, we allow
a LTCH (other than those defined as ``new'' under Sec. 412.23(e)(4))
to elect to be paid based on 100 percent of the standard Federal rate
in lieu of the blended methodology.
The standard Federal rate was determined as if all LTCHs will be
paid based on 100 percent of the standard Federal rate. As stated
earlier, we provide for a 5-year transition period that allows LTCHs to
receive LTCH PPS payments in which a component incorporates reasonable
cost principles. To maintain BN for FY 2003 as required by section
123(a)(1) of the BBRA during the 5-year transition period, we reduce
all LTCH Medicare payments (whether a LTCH elects payment based on 100
percent of the Federal rate or whether a LTCH is being paid under the
transition blend methodology) to account for the cost of the applicable
transition period methodology in a given LTCH PPS rate year.
Specifically, during the LTCH PPS rate years governed under the 5-
year transition policy at Sec. 412.533(a), we reduce all LTCH Medicare
payments during the 5-year transition by a factor that is equal to 1
minus the ratio of the estimated TEFRA reasonable cost-based payments
that would be made if the LTCH PPS was not implemented, to the
projected total Medicare program PPS payments (that is, payments made
under the transition methodology and the option to elect payment based
on 100 percent of the Federal rate).
In the RY 2007 LTCH PPS final rule (71 FR 27841), based on the best
available data at that time, we projected that approximately 98 percent
of LTCHs will be paid based on 100 percent of the standard Federal rate
rather than receive payment under the transition blend methodology for
the 2006 LTCH PPS rate year. Using the same methodology described in
the August 30, 2002 LTCH PPS final rule (67 FR 56034), this projection,
which used updated data

[[Page 4802]]

and inflation factors, was based on our estimate that either: (1) A
LTCH has already elected payment based on 100 percent of the Federal
rate prior to the start of the 2007 LTCH PPS rate year (July 1, 2006);
or (2) a LTCH would receive higher payments based on 100 percent of the
2007 LTCH PPS rate year standard Federal rate compared to the payments
it would receive under the transition blend methodology. Similarly, we
projected that the remaining 2 percent of LTCHs would choose to be paid
based on the applicable transition blend methodology (as set forth
under Sec. 412.533(a)) because they would receive higher payments than
if they were paid based on 100 percent of the 2007 LTCH PPS rate year
standard Federal rate.
Also in the RY 2007 LTCH PPS final rule (71 FR 24202), based on the
best available data at that time and policy revisions described in that
same rule, we projected that in absence of a transition BN offset, the
full effect of the final full year of the transition period (including
the election option) as compared to payments as if all LTCHs would be
paid based on 100 percent of the Federal rate would result in a
negligible cost to the Medicare program (that is, less than $1 million
in RY 2007). Because the $1 million in estimated costs to the Medicare
program was such a small percentage of the estimated total LTCH
payments for RY 2007 (over $5 billion), the formula that we use to
establish the BN offset resulted in a factor, which we reduce all
Medicare payments by to account for the additional costs of the
transition methodology of zero (due to rounding). Therefore, we
established a zero percent transition period BN offset to all LTCH PPS
payments for discharge occurring on or after July 1, 2006 through June
30, 2007, to account for the estimated cost of the transition period
methodology (including the option to elect payment based on 100 percent
of the Federal rate) in RY 2007. Furthermore, in that same final rule
(71 FR 27841), we explained that we are no longer projecting a small
cost for the 2008 LTCH PPS rate year (July 1, 2007 through June 30,
2008) even though some LTCH's will have a cost reporting period for the
5th year of the transition period which will be concluding in the first
3 months of the 2008 LTCH PPS rate year. This is because, based on the
most available data, we are projecting that the vast majority of LTCHs
would have made the election to be paid based on 100 percent of the
Federal rate rather than the transition blend which would result in a
negligible cost to the Medicare program. In fact, based on the most
recent available data from the July 2006 update of the PSF, we continue
to estimate that nearly all (over 98 percent) LTCHs are currently being
paid based on 100 percent of the Federal rate (rather than the
transition blend methodology). Even for those few remaining LTCHs paid
under the transition blend methodology set forth at Sec. 412.533(a),
the majority of their LTCH PPS payments are now based on at least 80
percent of the Federal rate and 20 percent of the reasonable cost
amount (for cost reporting periods beginning during FY 2006) since
there are no longer any LTCHs in their cost reporting periods that
began during FY 2003 through FY 2005 (the first three years of the 5-
year transition period). Therefore, we continue to believe that there
would be no measurable estimated cost to the Medicare program due to
the transition period methodology (including the option to elect
payment based on 100 percent of the Federal rate) in RY 2008.
Accordingly, in this proposed rule, based on updated data and using the
same methodology established in the August 30, 2002 final rule (67 FR
56034), we are not proposing a transition BN offset to all LTCH PPS
payments for discharges occurring on or after July 1, 2007 through June
30, 2008, to account for the estimated cost of the transition period
methodology (including the option to elect payment based on 100 percent
of the Federal rate, since some LTCHs may still be paid under the 4th
year of the transition blend methodology, specified at Sec. 412.533,
for the first 3 months of RY 2008) in RY 2008.
6. One-Time Prospective Adjustment to the Standard Federal Rate
As we discussed in the August 30, 2002 LTCH PPS final rule (67 FR
56036), consistent with the statutory requirement for BN in section
123(a)(1) of the BBRA, we estimated aggregate payments under the LTCH
PPS for FY 2003 to be equal to the estimated aggregate payments that
would be made if the LTCH PPS were not implemented. Our methodology for
estimating payments for purposes of the BN calculations used the best
available data at the time and necessarily reflected assumptions. As
the LTCH PPS progresses, we are monitoring payment data and will
evaluate the ultimate accuracy of the assumptions used in the BN
calculations (for example, inflation factors, intensity of services
provided, or behavioral response to the implementation of the LTCH PPS)
described in the August 30, 2002 LTCH PPS final rule (67 FR 56027
through 56037). To the extent these assumptions significantly differ
from actual experience, the aggregate amount of actual payments may
turn out to be significantly higher or lower than the estimates on
which the BN calculations were based.
Section 123(a)(1) of the BBRA as amended by section 307(b) of BIPA
provides broad authority to the Secretary in developing the LTCH PPS,
including the authority for establishing appropriate adjustments. Under
this broad authority to make appropriate adjustments, as implemented in
the existing Sec. 412.523(d)(3) (as revised in the RY 2007 LTCH PPS
final rule), we have provided for the possibility of making a one-time
prospective adjustment to the LTCH PPS rates by July 1, 2008, so that
the effect of any significant difference between actual payments and
estimated payments for the first year of the LTCH PPS would not be
perpetuated in the LTCH PPS rates for future years. In the RY 2007 LTCH
PPS final rule (71 FR 27842), based on the best available data at that
time, we estimated that total Medicare program payments for LTCH
services over the next 5 LTCH PPS rate years would be $5.27 billion for
the 2007 LTCH PPS rate year; $5.43 billion for the 2008 LTCH PPS rate
year; $5.63 billion for the 2009 LTCH PPS rate year; $5.86 billion for
the 2010 LTCH PPS rate year; and $6.13 billion for the 2011 LTCH PPS
rate year.
In this proposed rule, consistent with the methodology established
in the August 30, 2002 final rule (67 FR 56036), based on the most
recent available data, we estimate that total Medicare program payments
for LTCH services for the next 5 LTCH PPS rate years would be as shown
in Table 4.

Table 4
------------------------------------------------------------------------
Estimated
LTCH PPS rate year payments ($ in
billions)
------------------------------------------------------------------------
2008................................................... $4.65
2009................................................... 4.84
2010................................................... 5.02
2011................................................... 5.24
2012................................................... 5.48
------------------------------------------------------------------------

In accordance with the methodology established in the August 30,
2002 LTCH PPS final rule (67 FR 56037), these estimates are based on
the most recent available data, including the projection that nearly
all LTCHs will be paid based on 100 percent of the LTCH PPS standard
Federal rate during the majority of RY 2008 (in accordance with the
transition blend percentages set

[[Page 4803]]

forth at Sec. 412.533(a)). These estimates are also based on our
estimate of LTCH PPS rate year payments to LTCHs using CMS' Office of
the Actuary's (OACT) most recent estimate of the RPL market basket of
3.2 percent for the 2008 LTCH PPS rate year, 2.9 percent for the 2009
LTCH PPS rate year, 2.5 percent for the 2010 LTCH PPS rate year, and
2.9 percent for the 2011 and 2012 LTCH PPS rate years. (We note that
OACT develops its spending projections based on existing policy.
Therefore, changes that have not yet been implemented are not reflected
in the spending projections shown in this section.) We also considered
OACT's most recent projections of changes in Medicare beneficiary
enrollment that estimate a change in Medicare fee-for-service
beneficiary enrollment of 0.2 percent in the 2008 LTCH PPS rate year,
0.5 percent in the 2009 LTCH PPS rate year, 0.1 percent in the 2010
LTCH PPS rate year, 0.2 percent in the 2011 LTCH PPS rate year and, 0.4
percent in the 2012 LTCH PPS rate year.
In the August 30, 2002 LTCH PPS final rule implementing the LTCH
PPS (67 FR 55954), we set forth the implementing regulations, based
upon the broad authority granted to the Secretary, under section 123 of
the BBRA as amended by section 307(b) of the BIPA. Section 123(a)(1) of
the BBRA required that the system ``maintain budget neutrality'' for FY
2003, that is, that estimated aggregate payments under the LTCH PPS
would be projected to be equal to the estimated aggregate payments that
would be made if the LTCH PPS would not be implemented for FY 2003. The
methodology for determining the LTCH PPS standard Federal rate for FY
2003 that would ``maintain budget neutrality'' is described in
considerable detail in the August 30, 2002 final rule (67 FR 56027
through 56037). As we discussed in that same final rule, our
methodology for estimating payments for the purposes of BN calculations
used the best available data and necessarily reflects assumptions in
estimating aggregate payments that would be made if the LTCH PPS was
not implemented. We also stated our intentions to monitor LTCH PPS
payment data to evaluate the ultimate accuracy of the assumptions used
in the BN calculations (for example, inflation factors, intensity of
services provided, or behavioral response to the implementation of the
LTCH PPS). To the extent that those assumptions significantly differ
from actual experience, the estimated aggregate amount of actual
payments during FY 2003 may result in significantly higher or lower
estimated payments than the estimates upon which the BN calculations
were based. In that same final rule, the Secretary exercised his broad
authority in establishing the LTCH PPS and provided for the possibility
of a one-time prospective adjustment to the LTCH PPS rates by October
1, 2006, in Sec. 412.523(d)(3) (this deadline was revised to July 1,
2008, in the RY 2007 LTCH PPS final rule). The purpose of that
provision was to prevent any significant difference between actual
payments and estimated payments for the 1st year of the LTCH PPS, when
we established the budget neutral Federal rate as required by the
statute (discussed previously), from being perpetuated in the PPS rates
for future years.
As we discussed in the RY 2007 LTCH PPS final rule (71 FR 27842
through 27844), because the LTCH PPS was only recently implemented,
sufficient new data had not been generated that would enable us to
conduct a comprehensive reevaluation of our BN calculations. Therefore,
in that same final rule, we did not implement a one-time adjustment
under Sec. 412.523(d)(3) so that the effect of any significant
difference between actual payments and estimated payments for the 1st
year of the LTCH PPS would not be perpetuated in the PPS rates for
future years. However, we stated that we will continue to collect and
interpret new data as it becomes available in the future to determine
if this adjustment should be proposed. Therefore, in the RY 2007 LTCH
PPS final rule (71 FR 27842), we revised Sec. 412.523(d)(3) by
changing the original October 1, 2006 deadline (established in the
August 30, 2002 final rule that implemented the LTCH PPS) to July 1,
2008, to postpone the requirement due to the time lag in the
availability of Medicare data upon which this adjustment would be
based.
As we discussed in the RY 2007 LTCH PPS final rule (71 FR 27843
through 27844), we now believe that after the conclusion of the 5-year
transition period sufficient new data will be generated by the LTCH PPS
for a comprehensive reevaluation of our FY 2003 BN calculations.
Specifically, we explained that the final year of the 5-year transition
to LTCH PPS payments based on 100 percent of the Federal rate for all
LTCHs will begin for cost reporting periods beginning on or after
October 1, 2006 (FY 2007), and end with cost reporting periods
beginning before October 1, 2007 (FY 2008). After the conclusion of the
5-year transition period (October 1, 2007), we expect to have between 3
and 4 years (FY 2003 through FY 2006) of LTCH data generated since the
implementation of the LTCH PPS. We note that there is a lag time
between the submission of claims data and cost report data, and the
availability of that data in the MedPAR files and HCRIS, respectively.
Based on a comprehensive analysis of that data, we may then propose to
make a one-time prospective adjustment to the LTCH PPS rates as
provided for in Sec. 412.523(d)(3). As also explained in that same
final rule, we believe that postponing the deadline of the possible
one-time prospective adjustment to the LTCH PPS rates provided for in
Sec. 412.523(d)(3) to July 1, 2008, would result in the availability
of additional data generated under the LTCH PPS and, therefore, our
decisions regarding a possible adjustment would be based on more
complete and up-to-date data. This data would be reflective of LTCH
behavior in response to the implementation of the LTCH PPS.
Evaluating the appropriateness of the possible one-time prospective
adjustment will entail a thorough review of the actual Medicare costs
incurred by LTCHs during the 1st year of the LTCH PPS, that is, for
LTCH cost reporting periods beginning on or after October 1, 2002
through September 30, 2003. When we established the FY 2003 standard
Federal rate to be budget neutral, we used the most recent LTCH cost
data available at that time, and trended that data forward to estimate
what Medicare would have paid to LTCHs under the TEFRA payment system
if the PPS were not implemented (67 FR 56033). Our methodology for
estimating payments for the purposes of BN calculations, utilized the
best available data and necessarily reflected assumptions in estimating
aggregate payments that would have been made had the LTCH PPS not been
implemented. (The methodology for determining the LTCH PPS standard
Federal rate for FY 2003 that would ``maintain budget neutrality'' is
described in considerable detail in the August 30, 2002 LTCH PPS final
rule (67 FR 56027 through 56037).) In that same final rule (67 FR
56036), we also stated our intentions to monitor LTCH PPS data to
evaluate the ultimate accuracy of the assumptions used in the BN
calculations (for example, inflation factors, intensity of services
provided, or behavioral response to the implementation of the LTCH
PPS). To the extent that those assumptions significantly differed from
actual experience, the aggregate amount of actual payments during FY
2003 could be significantly higher or lower than the

[[Page 4804]]

estimates upon which the BN calculations were based.
At the outset of the LTCH PPS, we provided for the possibility of a
one-time prospective adjustment at Sec. 412.523(d)(3). Among other
things, we wanted the opportunity to adjust the LTCH PPS Federal
payment rate once data were available that reflected the actual cost-
based payments that would have been made under the Medicare program
during FY 2003 if the LTCH PPS had not been implemented, rather than
perpetuate any significant difference between actual payments and
estimated payments in the 1st year of the LTCH PPS used in determining
the Federal rate into future years. Therefore, in the RY 2007 LTCH PPS
final rule, we revised Sec. 412.523(d)(3) to postpone the adjustment
until July 1, 2008, because by that time, given the lag time typically
involved in the entire cost report settlement procedure, we believe we
will be able to utilize the most accurate data reflecting the actual
costs incurred by LTCHs for cost reporting periods beginning during FY
2003.
We continue to believe that collecting and evaluating new data as
it becomes available will allow us to have the best data from the 1st
year of the LTCH PPS upon which to base an adjustment such as this. As
we explained in the RY 2007 LTCH PPS final rule (71 FR 27844), there
are many LTCHs with cost reporting periods from September 1 through
August 30 which first became subject to the LTCH PPS on September 1,
2003. Given the lag time required for typical cost report settlement
involving submission, desk review, and in some cases an audit, which
can take approximately 2 additional years to complete (and we expect to
audit a number of LTCH cost reports for the purpose of this analysis),
we believe that the October 1, 2006 deadline established Sec.
412.523(d)(3) is no longer reasonable or realistic. In fact, we believe
that for cost reports for providers on August 2004 fiscal year ending
date, we would be in possession of the most reliable cost report data,
indicating the actual costs of the Medicare program of the LTCH PPS
during the year in which we established the Federal payment rate by
July 2007. Any proposed adjustment under Sec. 412.523(d)(3), if
finalized could then be implemented on July 1, 2008. Therefore, at this
time, for the reasons discussed in this section, we believe that we
still do not have sufficient new data to enable us to conduct a
comprehensive reevaluation of our FY 2003 BN calculations. Accordingly,
in this proposed rule, we are not proposing to make a one-time
adjustment under Sec. 412.523(d)(3) at this time.

V. Other Proposed Policy Changes for the 2008 LTCH PPS Rate Year

[If you choose to comment on issues in this section, please include
the caption ``OTHER PROPOSED POLICY CHANGES FOR THE 2008 LTCH PPS RATE
YEAR'' at the beginning of your comments.]

A. Short Stay Outlier (SSO) Cases

1. Background
In the August 30, 2002 rule for the LTCH PPS, under Sec. 412.529,
we established a special payment policy for SSO cases, that is, cases
with a covered LOS that is less than or equal to five-sixths of the
geometric average LOS for each LTC-DRG. When we established the SSO
policy, we explained that ``[a] short-stay outlier case may occur when
a beneficiary receives less than the full course of treatment at the
LTCH before being discharged (67 FR 55995). Also in the August 30, 2002
LTCH PPS final rule, we stated that when we first described the policy,
in the March 27, 2002 proposed rule, ``* * * we based the proposed
policy on the belief that many of these patients could have been
treated more appropriately in an acute hospital subject to the acute
care hospital inpatient prospective payment system'' (67 FR 55995).
Therefore, under the LTCH PPS, we implemented a special payment
adjustment for SSO cases. Under the original SSO policy, for LTCH PPS
discharges with a covered LOS of up to and including five-sixths the
geometric average LOS for the LTC-DRG, we adjusted the per discharge
payment under the LTCH PPS by the least of 120 percent of the estimated
cost of the case, 120 percent of the LTC-DRG specific per diem amount
multiplied by the covered LOS of that discharge, or the full LTC-DRG
payment 67 FR 55995 through 56000).
As noted previously, generally LTCHs are defined by statute as
having an ALOS of greater than 25 days. We stated that we believed that
the SSO payment adjustment results in more appropriate payments, since
these cases most likely did not receive a full course of a LTCH-level
of treatment in such a short period of time and the full LTC-DRG
payment would generally not be appropriate. Payment-to-cost ratio
analyses indicated that if LTCHs received a full LTC-DRG payment for
those cases, they would have been significantly ``overpaid'' for the
resources they have actually expended in treating those patients (67 FR
55995 through 56000).
Furthermore, in establishing the SSO policy, we stated that we
believed that providing a reduced payment for SSO cases would
discourage hospitals from admitting these patients. We also believed
that the policy did not severely penalize providers that, in good
faith, had admitted a patient and provided some services before
realizing that the beneficiary could receive more appropriate treatment
at another site of care. As we explained in the FY 2003 LTCH PPS final
rule, establishing a SSO payment for these types of cases addresses the
incentives inherent in a discharge-based PPS for LTCHs for treating
patients with a short LOS (67 FR 55995 through 56000).
2. Additional Discussion of the SSO Payment Formula
In the August 30, 2002 LTCH PPS final rule, when we first presented
our rationale for establishing the SSO policy, we had proposed an
adjustment to ensure appropriate payment for cases that we believed may
have been transferred from an acute hospital prematurely. Even if a
patient was an appropriate admission to the LTCH, we also believed that
a short stay case at a LTCH most likely did not receive a full course
of medical treatment during the short stay and that a full LTC-DRG
payment would therefore, be inappropriate (67 FR 55995 through 56000).
In keeping with these concerns, and based on an evaluation of data
from more than 3 years of the LTCH PPS, which revealed that a large
percentage of SSOs had a covered LOS of 14 days or less, we revised our
payment policy for SSO cases in the RY 2007 LTCH PPS final rule for
subclause (I) LTCHs (71 FR 27845 through 27870).
Consistent with the Secretary's broad authority ``to provide for
appropriate adjustments to the long-term hospital payment system * *
*'' established under section 123 of the BBRA as amended by section
307(b)(1) of BIPA, for RY 2007, we reduced the cost-based option of the
SSO policy adjustment to 100 percent of the estimated costs of the case
for discharges occurring on or after July 1, 2006. We believed that by
reducing the Medicare payment to a LTCH for a specific SSO case so that
it would not exceed the estimated costs incurred for that case, we
would be removing what we believed could be a financial incentive to
admit and treat SSO cases that the then existing policy had established
for LTCHs. We did not change the payment option of 120 percent of the
per diem for a specific LTC-DRG multiplied by the covered LOS for that
case because as described

[[Page 4805]]

in detail in the FY 2003 final rule LTCH PPS, when we first established
the SSO policy, we found that by adjusting the per discharge payment by
paying at 120 percent of the per diem LTC-DRG payment, once a stay
reaches five-sixths of the geometric average LOS for the LTC-DRG, the
full LTC-DRG payment will have been made (67 FR 55999). We continue to
believe that this specific methodology, which results in a gradual
increase in payment as the LOS increases without producing a
significant payment ``cliff'' at any one point, provides a reasonable
payment option under the SSO policy.
However, an analysis of the FY 2004 MedPAR data indicated that even
under the existing SSO policy, LTCHs were admitting short stay patients
that we believe could have continued treatment at the acute care
hospitals (paid for under the IPPS) but could have been actually being
prematurely discharged to LTCHs. Therefore, in the RY 2007 LTCH PPS
final rule, we added a fourth payment option. This fourth payment
alternative, a blend of an LTCH PPS amount that is comparable to the
IPPS per diem payment amount, and 120 percent of the LTC-DRG per diem
payment amount, as described below in this section, reflects our belief
that as the length of a SSO stay increases, the case begins to resemble
a more ``typical'' LTCH stay and, therefore, it is appropriate that
incrementally, payment should be based more on what would otherwise be
payable under the LTCH PPS and less on the IPPS-comparable amount.
(Specifics of calculating the IPPS-comparable amount are set forth in
considerable detail in the RY 2007 LTCH PPS final rule (71 FR 27852
through 27853).
We noted at the outset of the LTCH PPS for FY 2003, that the LTCH
standard rate was calibrated based on LTCH resources expended in
treating a patient population requiring long stays. Therefore, in
establishing the SSO policy at the beginning of the LTCH PPS, we
determined that it was appropriate that we not pay a full LTC-DRG
payment for a patient stay not requiring those resources (67 FR 55995
through 56000). Our revision of the payment formula for SSOs for RY
2007 reflected our belief that where a case met our definition of a SSO
at Sec. 412.529(a), as the covered LOS increased, the case began to
more closely resemble a characteristic LTCH case (and less like a short
term acute care hospital case). Therefore, it was appropriate to base
an increasing percentage of payment for SSOs on the LTC-DRG payment
amount and a decreasing percentage of the LTCH PPS payment amount based
upon the IPPS-comparable amount.
We continue to believe that in defining a LTCH as a hospital with
an inpatient ALOS of greater than 25 days in section
1886(d)(1)(B)(iv)(I) of the Act, that the Congress was focusing on LOS
as the essential characteristic of this provider category. Furthermore,
we believe that the statutory change requiring the establishment of the
LTCH PPS emphasized that the payment system should reflect the
different resource use related to inpatient hospital services provided
by hospitals specified by section 1886(d)(1)(B)(iv) of the Act, that
is, by LTCHs (71 FR 27865). Specifically, we believe that the language
of the statute indicates that the Congress believed that LTCHs treat or
should be treating patients with different medical needs which results
in those patients having a significantly longer LOS than those acute
care hospital patients that we pay for under the IPPS.
In section 4422 of the BBA of 1997, which required that the
Secretary develop a legislative proposal for the establishment of a PPS
for LTCHs, the Congress specified that the system ``shall include an
adequate patient classification system that reflects the differences in
patient resource use and costs among such hospitals.'' Section 123 of
the BBRA of 1999, which required implementation of a PPS for LTCHs for
cost reporting periods beginning on or after October 1, 2002,
specified, among other things, that the system be a per discharge
payment system, based on diagnosis-related groups (DRGs), and
``reflects the differences in patient resource use and costs'' of long-
term care hospital patients. Section 307(b) of the BIPA of 2000
required the Secretary ``to examine the feasibility and the impact of
basing payment under such a system on the use of existing (or refined)
hospital DRGs that have been modified to account for different resource
use of LTCH patients.''
When we developed the LTCH PPS for FY 2003, the most recently
available MedPAR data (generally, for FYs 1998 and 1999) revealed that
52 percent of the Medicare patients at LTCHs nationwide had a LOS of
less than two-thirds of the ALOS for the LTC-DRG to which they were
grouped. Of these cases, 20 percent had stays of less than 8 days.
Since payments under the LTCH PPS were based on the resources necessary
for treatment requiring long term hospital-level stays, beginning with
the start of the LTCH PPS, we established the SSO policy, to provide
appropriate payment for stays that were significantly shorter than the
ALOS for each specific LTC-DRG.
The original SSO policy focused on our concerns that a SSO patient
would generally receive less than the full course of treatment at the
LTCH before being discharged and a full LTC-DRG payment would not be
appropriate (67 FR 55943, 55995 through 55996). As we noted in the RY
2007 LTCH PPS final rule, when we revised the SSO policy based on our
analysis of the nearly 3 years of data since we designed the LTCH PPS,
we believed that our SSO policy should reflect our conviction that many
SSO patients could otherwise have continued to receive appropriate care
in the acute care hospital from which they were admitted. Had these
patients not been discharged from the acute care hospital, the
additional days of treatment would have continued to have been paid for
under the IPPS (71 FR 27845 through 27865).
Section 123 of the BBRA, as amended by section 307(b) of the BIPA,
confers broad authority on the Secretary to implement a PPS for LTCHs,
including provisions for appropriate adjustments to the payment system.
This broad authority gives the Secretary flexibility to fashion a LTCH
PPS based on both original policies, as well as concepts borrowed from
other payment systems that are adapted, where appropriate to the LTCH
context. In the RY 2007 LTCH PPS final rule, we formulated a payment
adjustment under the LTCH PPS that we believed would result in an
appropriate payment adjustment for those inpatient stays that we
believe are not characteristic of LTCHS but could be more appropriately
treated in another setting.
Subsequent to the RY 2007 LTCH PPS final rule, we have performed
additional analysis of more recent data FY 2005 MedPAR data, and have
determined that 42 percent of LTCH SSO discharges, or approximately
19,750 cases, had lengths of stay that were less than or equal to the
average LOS plus one standard deviation of an IPPS discharge that is
the same DRG as the LTC-DRG to which the case was assigned. (One
standard deviation is a statistical test which measures the certainty
of the average of a set of measurements for the purpose of data
analysis. The standard deviation is the quantity commonly used by
statisticians to measure the variation in a data set.) We believe that
it is appropriate to compare the covered LOS of a LTCH case grouped to
a particular LTC-DRG to the ALOS plus one standard deviation for the
corresponding DRG under the IPPS. At one standard deviation, we have
identified approximately 68 percent of

[[Page 4806]]

the IPPS cases within that DRG that were discharged from acute care
hospitals and paid for under the IPPS. Using the statistical test of
one standard deviation of the ALOS for each DRG under the IPPS,
identifies the majority of IPPS discharges in any DRG.
We believe that the 42 percent of LTCH SSO cases in the RY 2005
MedPAR files with lengths of stay that are equal to or less than the
IPPS ALOS plus one standard deviation for the same DRGs under the IPPS
appear to be comparable to typical stays at acute care hospitals.
Although LTCHs are certified by Medicare as acute care hospitals,
we believe that the Congress intended for the higher LTCH PPS payments
to be made to LTCHs that treat patients requiring prolonged hospital-
level care. Payments under the LTCH PPS, in compliance with the
statutory mandates, have been calibrated based on ``the different
resource use'' of LTCHs as compared to acute care hospitals paid under
the IPPS. We believe that we are ``overpaying,'' under the LTCH PPS,
for those SSO cases in LTCHs with covered lengths of stay that are
equal to or less than the typical IPPS ALOS (that is, a LOS that is
less than or equal to the average IPPS LOS plus one standard deviation
for the same DRG under the IPPS).
We further believe that in excluding LTCHs from being paid under
the IPPS, the Congress also recognized several types of hospital-level
providers that offered a different type of treatment than could
reasonably be paid for under the IPPS. Specifically, in the FY 2002
LTCH PPS final rule, we reviewed the history of LTCHs as hospitals
excluded from the IPPS. At that time we quoted the legislative history
of the 1983 Social Security Amendments which stated, with regard to
LTCHs, that the ``DRG system was developed for short-term acute care
general hospitals and as currently constructed does not adequately
account for special circumstances of diagnoses requiring long stays''
(Report of the Committee on Ways and Means, U.S. House of
Representatives, to Accompany HR 1900, H.R. Rept. No. 98025, at 141
(1983) (67 FR 55957)). Therefore, from the very outset of the IPPS, the
Congress distinguished LTCHs from short term acute care hospitals by
patients' lengths of stay. The PPS for LTCHs that we implemented in FY
2003, complied with the statutory mandate, cited above in this section,
that payments under the LTCH PPS be calibrated based on ``the different
resource use'' of these long-stay LTCH patients as distinct from the
resources used to treat short stay patients at acute care hospitals and
paid under the IPPS. Consequently, as we stated in the RY 2007 LTCH PPS
final rule, we believe that ``LTCHs that admit SSO patients with
lengths of stay more typical of an acute care hospital may be, in fact,
behaving like acute care hospitals'' (71 FR 27847), and we also believe
that it is reasonable for payments under the LTCH PPS for such cases to
reflect this behavior.
Our data indicates that for the approximately 350 LTCHs in
existence during FY 2005 that discharged approximately 130,000 cases,
46,600 discharges were SSO patients. During that same period, the
approximately 3,600 acute care hospitals throughout the United States
discharged approximately 12.7 million Medicare beneficiaries. At the
approximately 3,600 acute care hospitals, treatment for Medicare
patients is paid for under the IPPS, including those cases with a LOS
that is the same as the LOS for SSO treated at a LTCH. However at a
LTCH, even under the blend payment option of the SSO policy that we
established for RY 2007, a percentage of the payment for those short
stay patients at LTCHs may be based on a payment rate that was
calculated to reflect the ``different resource use'' at LTCHs as
compared to payment based on DRGs at acute care hospitals paid for
under the IPPS. We believe that based on this analysis under the
existing SSO policy for short stay patients where the patient's LOS is
less than or equal to the average LOS plus one standard deviation for
the same DRG at an acute care hospital, paid for under the IPPS, our
blended payment methodology could result in an excessive payment.
Our data further indicates that typically LTCHs admit approximately
80 percent of their patients from acute care hospitals where their
urgent conditions have been diagnosed, treated, and stabilized. We
believe that when these patients are admitted to a LTCH for an
extremely short stay, the LTCH appears to be serving as a step-down
unit of the acute care hospital (71 FR 27857 through 27858). (Section
1886(d)(1)(B) of the Act, provides for the establishment of
rehabilitation and psychiatric units of section 1886(d) hospitals (that
is, acute care hospitals paid for under the IPPS) but not LTCH units.)
As we stated in the RY 2007 LTCH PPS final rule, ``* * * an
analysis of the CY 2004 MedPAR files revealed that for specified DRGs
for acute care cases following ICU/CCU days, there were significantly
fewer `recuperative' days (nearly 50 percent) for acute care outlier
patients that were discharged from the acute care hospital and then
admitted to a LTCH than for those patients that were discharged from
the acute care hospital and not subsequently admitted to a LTCH. For
example, under the IPPS for DRG 475 (Respiratory system diagnosis with
ventilator support) and DRG 483 (Trach with mechanical vent 96+ hours
or PDX except face, mouth and neck diagnosis), the number of
``recuperative'' days were considerably shorter at the acute care
hospital if there was a discharge at the acute care hospital followed
by an admission to a LTCH. The data in Table 5 is consistent with our
belief that many LTCHs appear to be admitting some SSO patients that
could have received the care at the acute care hospital. (71 FR 27857)

Table 5.--HCO LOS, ICU/CCU LOS, and Post-ICU/CCU LOS for Selected Inpatient DRGs by Post-Discharge Status
[Live discharges only]
----------------------------------------------------------------------------------------------------------------
Outlier ICU/ Post ICU/CCU
DRG Cases LOS CCU days days
----------------------------------------------------------------------------------------------------------------
475 (no LTCH)............................................. 3,887 32.5 20.5 12
475 (with LTCH)........................................... 515 29.6 22.6 7
483 (no LTCH)............................................. 3,257 73.6 53.6 20
483 (with LTCH)........................................... 2,353 45.7 41 4.7
----------------------------------------------------------------------------------------------------------------

In our analysis of what we believe are excessive payments under the
existing LTCH PPS for the shortest SSOs, we are focusing on those SSO
cases where a LTCH patient's covered LOS at the LTCH is less than or
equal to the ALOS

[[Page 4807]]

plus one standard deviation for the same DRG at acute care hospitals
(the ``IPPS comparable threshold'') and distinguishing between those
SSO cases with lengths of stay that are less than or equal to the
``IPPS comparable threshold'' from those that exceed that threshold.
For the purposes of this discussion, whether the LTCH SSO case is
within the ``IPPS comparable threshold'' is determined by comparing the
covered LOS of that SSO case which has been assigned to a particular
LTC-DRG to the ALOS for the same DRG under the IPPS. For example, if
the covered LOS of the LTCH SSO case is equal to or less than the
average LOS plus one standard deviation for the same DRG under the
IPPS, the LTCH SSO case would be within the ``IPPS comparable
threshold''. We believe an alternative payment option would be
appropriate for such a case. We are considering an approach where if
the covered LOS was equal to or less than the ``IPPS comparable
threshold'' (defined above in this section) of the same DRG under the
IPPS, the SSO payment methodology could be revised so that payment
would be based upon the least of 100 percent of estimated costs of the
case as determined under Sec. 412.529(d)(2); 120 percent of the LTC-
DRG per diem multiplied by the covered LOS of the case as determined
under Sec. 412.529(d)(1); the Federal prospective payment for the LTC-
DRG as determined under Sec. 412.529(d)(3); or an LTCH PPS amount
comparable to the IPPS per diem amount as defined at Sec.
412.529(d)(4), not to exceed the full IPPS comparable amount.
We would note that the RTI Report, discussed in Section XI. of this
proposed rule, includes an RTI recommendation that ``* * * for LTCH
cases whose LOS is within 1 standard deviation of the IPPS average LOS,
LTCHs should be paid the IPPS rate. When this occurs, it suggests that
LTCH is providing general acute care for these patients. This will
allow LTCHs to treat these cases but be paid on an equitable basis with
other acute hospitals since the shorter length stay would suggest
general acute treatment is being provided.'' (Recommendation 11, p.
139) (We discuss the RTI report in Section XI. and have included the
Executive Summary of the RTI Report as Addendum B of this proposed
rule.)
Under this approach, SSO cases with covered lengths of stay that
exceed the ``IPPS comparable threshold'' would continue to be paid
under the existing SSO payment policy at Sec. 412.529(c)(2) which is
the least of: 100 percent of the estimate cost of the case as
determined under Sec. 412.529 (d)(2); 120 percent of the per diem of
the LTC-DRG multiplied by the covered LOS of the case as determined
under Sec. 412.529(d)(1); the Federal prospective payment for the LTC-
DRG as determined under Sec. 412.529(d)(3); or a blend of the 120
percent of the LTC-DRG specific per diem amount and an amount
comparable to the IPPS per diem amount as set forth in Sec. 412.529
(c)(2)(iv). (The methodology for the calculation of these amounts is
specified at Sec. 412.529(d).)
We believe this approach is appropriate because we believe that we
should continue to ensure that the LTCH PPS payments are appropriate
for all cases; including those with a LOS that resemble cases typically
treated at acute care hospitals. Therefore, as noted in the above
discussion in this section, for the shortest SSO cases (that is, if the
LTCH patient's covered LOS is less than or equal to the ``IPPS-
comparable threshold''), the IPPS comparable per diem amount, capped at
the full IPPS comparable amount that is used under the blend option of
the current SSO policy, under this approach could be the fourth payment
option in the SSO payment formula, replacing the blend option in the
adjusted LTCH PPS payment formula at existing Sec. 412.529(c)(2)(iv).
We are considering this policy because we believe that based on our
analysis for this particular type of case, it is inappropriate for
Medicare to pay a LTCH a LTCH PPS payment that results in a per
discharge payment amount that is greater than a hospital paid under the
IPPS. Consistent with this approach, those SSO cases where the covered
LOS exceeded the ``IPPS-comparable threshold,'' payment (that is, cases
that more closely resemble a characteristic LTCH case and less a short
term acute care hospital case) would continue to be made under the
existing SSO policy at Sec. 412.529(c)(2).
In considering this policy direction, at the present time, we do
not believe that this approach for SSOs would be appropriate for the
specific situation of a subsection (II) LTCH (that is, a LTCH meeting
the definition specified in section 1886(d)(1)(B)(iv)(II) of the Act).
We have addressed the uniqueness of this type of LTCH in several
notices ((62 FR 45966, 46016, and 46026), (67 FR 55954 and 55974), (68
FR 34147 through 34148) (71 FR 27863)). We believe that subclause (II)
LTCHs operate under a unique Congressional mandate which, as set forth
in section 1886(d)(1)(B)(iv)(II) of the Act, circumscribes such a
LTCHs' admission policies to the extent that it is being identified as
a LTCH in order to provide a particular type of service (for which the
ALOS is greater than 20 days) to a particular population (at least 80
percent have a principal diagnosis of neoplastic disease) (68 FR
34147). Exempting subsection (II) LTCHs under this approach is
consistent with positions regarding the application of SSO policies to
subclause (II) LTCHs. For example, in RY 2004, we provided a
distinctive phase-in formula for subclause (II) LTCHs (Sec.
412.529(e)), and in the RY 2007 LTCH PPS final rule, we did not apply
SSO policy revisions for subclause (I) LTCHs (Sec. 412.529(c)(2)) to
subclause (II) LTCHs ((68 FR 34122, 34147 through 34148) (71 FR
27798,27863)).
To encourage a thorough and accurate evaluation of this approach,
we have included a column in Table 3 of Addendum A of this proposed
rule, which sets forth what would be the IPPS-comparable threshold for
each LTC-DRG. We note that to determine the ``IPPS Comparable
Threshold'' for some DRGs it may be necessary to supplement IPPS
hospital statistical data due to a low volume of IPPS cases grouped to
those DRGs. In addition, although IPPS hospital statistical data for
the six transplant DRGs (103, 302, 480, 495, 512 and 513) and two error
DRGs (469 and 470) may be available, we could assign a value of zero
for the ``IPPS Comparable Threshold'' for these LTC-DRGs. This is
consistent with our on-going policy under the LTCH PPS to assign a
value of 0.0000 to the relative weights for these LTC-DRGs, as
discussed in section III.D.
As we have stated in this section, we continue to be concerned
about appropriate payment for SSO cases under the LTCH PPS, and
therefore, we are considering a policy change for the purpose of
differentiating between those SSO cases that we believe are more
appropriately admitted and treated at LTCHs as distinguished from those
with a LOS that resemble cases typically treated at acute care
hospitals. As described in this section, for the shortest SSO cases
(that is, if the LTCH patient's covered LOS is less than or equal to
the ``IPPS-comparable threshold''), the IPPS comparable per diem
amount, capped at the full IPPS-comparable amount that is used under
the blend option of the current SSO policy, could be the fourth payment
option in the SSO payment formula, replacing the blend option in the
adjusted LTCH PPS SSO payment formula at existing Sec.
412.529(c)(2)(iv). Consistent with this approach, those SSO cases where
the covered LOS exceeded the ``IPPS-comparable threshold,'' payment
(that is, cases that more closely resemble a characteristic

[[Page 4808]]

LTCH case and less a short term acute care hospital case) would
continue to be made under the existing SSO policy at Sec.
412.529(c)(2).
As we detailed in this discussion, we are concerned as to whether
it is appropriate to pay cases that have a covered LOS in the LTCH that
is less than or equal to the IPPS ALOS plus one standard deviation for
the same DRG more than would be paid under the IPPS for a similar case.
We are interested in soliciting comments on this approach as well as
suggestions as to alternative ways in which to address our concerns.
Technical Correction.
We are proposing a technical correction to existing Sec.
412.529(a) which would add the term ``covered'' immediately before the
phrase ``length of stay'' in the initial definition of a SSO case. This
technical correction is not a substantive policy change but rather
corrects the regulatory definition of a SSO case so that it is
consistent with policy determinations that we have made since the FY
2003 implementation of the LTCH PPS. We would note that utilizing only
Medicare covered days for payment purposes has been our policy from the
outset of the LTCH PPS, as is specified at Sec. 412.503 where we
defined ``discharge'' for purposes of payment, as ``* * * when the
patient stops receiving Medicare-covered long-term care services * *
*'' Furthermore, in subsequent revisions of our SSO policy, we included
the term ``covered'' in new regulation text, that is, Sec.
412.529(c)(2)(iv)(A) and proposed Sec. 412.529(c)(3)(i)(B) and
(c)(3)(ii)(B). We are proposing this technical correction to conform
all references in the regulation text at Sec. 412.529 to our existing
policy regarding a SSO discharge which is determined based on the
number of ``covered'' days in the patient stay.
3. Determination of Cost-to-Charge Ratios (CCRs)
In the FY 2007 IPPS final rule (71 FR 48117 through 48121), similar
to the revisions to the HCO policy as discussed in IV.D.3.d. of the
preamble of this proposed rule, we revised our methodology for
determining the annual CCR ceiling and Statewide average CCRs under the
LTCH PPS because we believe that those changes are more consistent with
the LTCH PPS single payment rate for inpatient operating and capital
costs. Under the broad authority of section 123 of the BBRA and section
307(b)(1) of BIPA, for discharges occurring on or after October 1,
2006, the LTCH CCR ceiling specified under Sec.
412.529(c)(3)(iv)(C)(2) is calculated as three standard deviations
above the corresponding national geometric mean total CCR (established
and published annually by CMS). (As discussed in greater detail in this
section, the FI may use a Statewide average CCR if, among other things,
a LTCH's CCR is in excess of the LTCH CCR ceiling.) The LTCH total CCR
ceiling is determined based on IPPS CCR data, by first calculating the
``total'' (that is, operating and capital) IPPS CCR for each IPPS
hospital and then determining the average ``total'' IPPS CCR for all
hospitals. The LTCH CCR ceiling is then established at 3 standard
deviations from the corresponding national geometric mean total CCR.
(For further detail on our methodology for annually determining the
LTCH CCR ceiling, refer to the FY 2007 IPPS final rule (71 FR 48117
through 48119).) We also established that the LTCH ``total'' CCR
ceiling used under the LTCH PPS will continue to be published annually
in the IPPS proposed and final rules, and the public should continue to
consult the annual IPPS proposed and final rules for changes to the
LTCH total CCR ceiling that would be effective for discharges occurring
on or after October 1 each year. Accordingly, in the FY 2007 IPPS final
rule (71 FR 48119), we established a FY 2007 LTCH total CCR ceiling of
1.321, effective for discharges occurring on or after October 1, 2006.
In addition, under the broad authority of section 123 of the BBRA
and section 307(b)(1) of BIPA, for discharges on or after October 1,
2006, we revised our methodology to determine the Statewide average
CCRs under Sec. 412.529(c)(3)(iv)(C) for use under the LTCH PPS in a
manner similar to the way we compute the ``total'' LTCH CCR ceiling
using IPPS CCR data (71 FR 48120). Specifically, under this revised
methodology, we first calculate the total (that is, operating and
capital) CCR for each IPPS hospital. We would then calculate a weighted
average ``total'' CCR for all IPPS hospitals in the rural areas of the
State and weighted average ``total'' CCR for all IPPS hospitals in the
urban areas of the State. (For further detail on our methodology for
annually determining the LTCH urban and rural Statewide average CCRs,
refer to the FY 2007 IPPS final rule (71 FR 48119 through 48121).) We
also established that the applicable Statewide average ``total''
(operating and capital) CCRs used under the LTCH PPS will continue to
be published annually in the IPPS proposed and final rules, and the
public should continue to consult the annual IPPS proposed and final
rules for changes to the applicable Statewide average total CCRs that
would be effective for discharges occurring on or after October 1 each
year. Accordingly, in the FY 2007 IPPS final rule (71 FR 48122), the FY
2007 LTCH PPS Statewide average total CCRs for urban and rural
hospitals, effective for discharges occurring on or after October 1,
2006, were presented in Table 8C of the Addendum of that final rule (71
FR 48303).
Additionally, in the FY 2007 IPPS final rule (71 FR 48119), under
the broad authority of section 123 of the BBRA and section 307(b)(1) of
BIPA, we established under the LTCH PPS SSO policy at Sec.
412.529(c)(3)(iv)(C) that the FI may use a Statewide average CCR, which
is established annually by CMS, if it is unable to determine an
accurate CCR for a LTCH in one of the following three circumstances:
(1) New LTCHs that have not yet submitted their first Medicare cost
report (for this purpose, a new LTCH would be defined as an entity that
has not accepted assignment of an existing hospital's provider
agreement in accordance with Sec. 489.18); (2) LTCHs whose CCR is in
excess of the LTCH CCR ceiling; and (3) other LTCHs for whom data with
which to calculate a CCR are not available (for example, missing or
faulty data). Other sources of data that the FI may consider in
determining a LTCH's CCR included data from a different cost reporting
period for the LTCH, data from the cost reporting period preceding the
period in which the hospital began to be paid as a LTCH (that is, the
period of at least 6 months that it was paid as a short-term acute care
hospital), or data from other comparable LTCHs, such as LTCHs in the
same chain or in the same region.
Furthermore, in the FY 2007 IPPS final rule (71 FR 48121), we
established under Sec. 412.529(c)(3)(iv)(B) that, for discharges
occurring on or after October 1, 2006, the CCR applied at the time a
claim is processed will be based on either the most recently settled
cost report or the most recent tentatively settled cost report,
whichever is from the latest cost reporting period. Under the broad
authority of section 123 of the BBRA and section 307(b)(1) of BIPA, in
that same final rule, we also established at Sec. 412.529(c)(3)(iv)(A)
that, for discharges occurring on or after October 1, 2006, we may
specify an alternative to the CCR computed under Sec.
412.529(c)(3)(iv)(B) (that is, computed from the most recently settled
cost report or the most recent tentatively settled cost report,
whichever is later), or a hospital may also request that the FI use a
different (higher or lower) CCR based on substantial evidence presented
by the hospital. A complete discussion

[[Page 4809]]

of these revisions to our methodology for determining a LTCH's CCR is
discussed in the FY 2007 IPPS final rule (71 FR 48119 through 48121).
4. Reconciliation of SSO Cases
In the FY 2007 IPPS final rule (71 FR 48121 through 48122), under
the broad authority of section 123 of the BBRA and section 307(b)(1) of
BIPA, we revised Sec. 412.529(c)(3)(iv)(D) through (E), for discharges
occurring on or after October 1, 2006, to codify in subpart O of 42 CFR
part 412 the provisions concerning the reconciliation of LTCH PPS
outlier payments, including editorial clarifications discussed in
greater detail below in this section, that would more precisely
describe the application of those policies.
Specifically, at Sec. 412.529(c)(3)(iv)(D), similar to our current
policy, we specified that for discharges occurring on or after October
1, 2006, any reconciliation of outlier payments will be based on the
CCR calculated based on a ratio of costs to charges computed from the
relevant cost report and charge data determined at the time the cost
report coinciding with the discharge is settled. In addition, at Sec.
412.529(c)(3)(iv)(E), we specified that for discharges occurring on or
after October 1, 2006, at the time of any reconciliation, outlier
payments may be adjusted to account for the time value of any
underpayments or overpayments. Such an adjustment will be based upon a
widely available index to be established in advance by the Secretary
and will be applied from the midpoint of the cost reporting period to
the date of reconciliation. We made these additional revisions to Sec.
412.529(c)(3) because we believe that these changes would be more
consistent with the LTCH PPS single payment rate, and because we
believe it would be more appropriate and administratively simpler to
include all of the regulatory provisions concerning the determination
of LTCH PPS outlier payments applicable under the LTCH PPS regulations
at subpart O of 42 CFR part 412. (For a complete discussion on the
revisions made to the SSO reconciliation policy, refer to the FY 2007
IPPS final rule (71 FR 48121 through 48122).)

B. Proposed Expansion of Special Payment Provisions for LTCH Hospitals
Within Hospitals (HwHs) and LTCH Satellites: Proposed Expansion of the
25 Percent Rule to Certain Situations Not Currently Covered Under
Existing Sec. 412.534

In the FY 2005 IPPS final rule we established the special payment
provisions at Sec. 412.534 for LTCHs that are HwHs and for satellites
of LTCHs that are co-located with host hospitals. In developing that
policy, we were particularly concerned with patient shifting between
the host acute care hospitals and the co-located LTCH HwH or satellite
for financial rather than for medical reasons, a scenario that we
believed was encouraged by physical proximity, and that resulted in
inappropriate increased cost to the Medicare program (69 FR 49191). We
specified in the FY 2005 IPPS final rule that the payment adjustment
for co-located LTCHs at Sec. 412.534 was also applicable to hospitals
other than acute care hospitals that served as hosts to both LTCH HwHs
and satellites of LTCHs and that we had similar concerns to those
stated above regarding patient shifting between such hosts and their
co-located LTCHs. However, the vast majority of host hospitals continue
to be acute care hospitals (69 FR 49198).
In the FY 2005 IPPS final rule, we quoted the FY 1995 IPPS final
rule where we first discussed the concern that LTCH HwHs were, in
effect, operating as step-down units of acute care hospitals. We
explained that this was inconsistent with the statutory framework and
that such a configuration could lead to two Medicare bills being
submitted (one from the acute care hospital and the other from the
LTCH) for what was essentially one episode of care (69 FR 49191 through
49192, 59 FR 45389).
When we first established the separateness and control criteria for
LTCH HwHs at Sec. 412.22(e) in the FY 1995 IPPS final rule, our main
objective was to address the shifting of costly, long-stay patients
from the host to the on-site LTCH, resulting in two hospital stays
which would result in a financial windfall for both providers. We
sought to protect the integrity of the IPPS by ensuring that those
costly, long-stay patients who could reasonably continue treatment in
an acute care hospital would not be unnecessarily discharged to an
onsite LTCH, a behavior that would undermine the Medicare IPPS DRG
payment system for acute care hospitals. We explained that the Federal
standardized payment amount for the IPPS was based on the average cost
of an acute care patient across all acute care hospitals. This is
premised on the assumption that, on average, both high-cost and low-
cost patients are treated at hospitals. Although we might pay a
hospital less than was expended for a particular costly case, the
hospital would also receive more than was expended for other less
costly cases. However, an acute care hospital that consistently
discharges higher cost patients to a post-acute care setting for the
purpose of lowering its costs, undercuts the foundation of the IPPS DRG
payment system which is based on averages, as noted above. In this
circumstance, the hospital inappropriately would have incurred lower
costs under the IPPS because the course of acute treatment had not been
completed and the hospital did not incur those additional costs for
what would have been the remainder of the patient's stay at the IPPS
acute care hospital. We were concerned that once that patient was
discharged from the IPPS acute care hospital, the patient, still under
active treatment for the same condition, would be admitted to a LTCH,
thereby generating a second admission and Medicare payment that would
not have taken place but for the availability of the LTCH (59 FR 45389
through 45393).
With the growth of satellite entities, another category of co-
located facility, we established ``separateness and control'' policies
applicable to satellites of excluded hospitals, which we defined at
Sec. 412.22(h) as ``a part of a hospital that provides inpatient
services in a building also used by another hospital or in one or more
entire buildings located on the same campus as buildings used by
another hospital.'' In the FY 2003 IPPS final rule at Sec. 412.22(h),
we finalized additional regulations governing the satellites of
hospitals (64 FR 41532 through 41535 and 67 FR 50105 through 50106).
As detailed in the FY 2005 proposed rule and final rule for the
IPPS (69 FR 28323 through 28327, 69 FR 49191 through 49214), with the
explosive growth in the number of LTCH HwHs and concomitant cost to the
Medicare program, we reevaluated the effectiveness of existing policies
regarding HwHs. (OSCAR data showed that there were 105 LTCHs in 1993 of
which 10 were HwHs. By October 2005, there were 373 LTCHs of which most
were HwHs.) We reconsidered whether our regulations sufficiently
protected the Medicare program from the problems that we envisioned in
the FY 1995 IPPS final rule, as discussed in this section. We also
questioned the effectiveness of the ``performance of basic hospital
functions'' aspect of the ``separateness and control'' requirements
alone because we were aware that some co-located providers had been
establishing complex arrangements among corporate affiliates, and had
obtained services from those affiliates, masking true corporate
identities and therein diluting or impairing the effectiveness of the

[[Page 4810]]

separateness criteria in determining whether both hospitals were
interrelated. While technically remaining within the parameters of the
rule, these arrangements intermingled corporate interests so that the
corporate distinctness was lost, thus side-stepping the intent of our
regulations. (Although we have had similar concerns regarding patient
movement between host hospitals and their satellites, there had never
been any ``performance of basic hospital functions'' criteria
established in Sec. 412.22(h) because satellites are part of another
hospital, and therefore, share a Medicare provider number with ``the
hospital of which they are a part'' thus making it administratively
burdensome to distinguish between the inpatient operating costs of the
main hospital and its satellite(s).)
In the FY 2005 IPPS final rule, following serious consideration of
the public comments that we received on our proposed policy revisions
for LTCH HwHs and satellites (69 FR 28323 through 28327) and further
evaluation of the issues, regulatory changes were finalized for HwH
separateness and control policies at Sec. 412.22(e) and a new payment
adjustment was established for LTCH HwHs and for satellites of LTCHs at
Sec. 412.534. (We wish to note that the term ``satellite facility'' in
this section refers to satellites of excluded hospitals, in particular,
LTCHs, and does not include satellites of excluded units at Sec.
412.25.)
Specifically, in the FY 2005 IPPS final rule (69 FR 49091 through
49214), effective for cost reporting periods beginning on or after
October 1, 2004, for LTCHs we eliminated the performance of basic
hospital functions test under Sec. 412.22(e)(5)(i), the 15 percent
test under existing Sec. 412.22(e)(5)(ii), and the 75 percent of
admissions from other than the host criteria at Sec.
412.22(e)(5)(iii). A LTCH that met administrative separateness and
control requirements at Sec. 412.22(e)(1)(i) through (e)(1)(iv), under
our finalized policy, satisfied the LTCH HwH requirements. (As noted
above in this section, the performance of basic hospital functions test
does not exist for satellites. Therefore, we did not similarly revise
Sec. 412.22(h).) However, we established a payment adjustment based
upon an annual threshold criteria for LTCH HwHs or LTCH satellites at
Sec. 412.534 of 25 percent (or an applicable percentage) for LTCH
discharges who were admitted from their host hospitals.
Section 412.534, Special payment provisions for long-term care
hospitals within hospitals and satellites of long-term care hospitals,
provides that if a LTCH HwH or LTCH satellite's discharges that were
admitted from its host hospital exceed 25 percent (or the applicable
percentage) of its total Medicare discharges for the LTCH HwH or LTCH
satellite's cost reporting period, an adjusted payment would be made at
the lesser of the otherwise payable amount under the LTCH PPS or the
amount payable under the LTCH PPS that would be equivalent to what
Medicare would otherwise pay under the IPPS. In determining whether a
hospital met the 25 percent (or applicable percentage) criterion,
patients transferred from the host hospital that had already qualified
for outlier payments at the host would not count as a discharge that
had been admitted from the host. (We commonly refer to this throughout
the preamble and regulations text as the discharge not being counted
towards the applicable threshold.)
It is important to note that if the hospital exceeds its threshold,
LTCH discharges admitted from the host before the LTCH exceeds the 25
percent threshold, would be paid an otherwise unadjusted payment under
the LTCH PPS. That is, not adjusted by Sec. 412.534.
We also finalized additional adjustments to the 25 percent policy
for specific circumstances. For LTCH HwHs or LTCH satellites located in
a rural area, there is no payment adjustment applied under Sec.
412.534 if no more than 50 percent rather than 25 percent of the
Medicare patients discharged were admitted from the host. In addition,
in determining the percentage of patients admitted from the host, any
patients that had been Medicare outliers at the host and then
discharged to the rural LTCH HwH or LTCH satellite would be considered
as if they were admitted to the LTCH or satellite from a non-host
hospital. In addition, in the case of a LTCH or LTCH satellite facility
that was co-located with the only other hospital in the MSA or with an
MSA-dominant hospital, as defined at Sec. 412.534(e)(4), we provided a
payment threshold that we believed responded to ``the unique needs of
these communities'' (69 FR 49207). Under Sec. 412.534(e)(2), we do not
adjust payments to those LTCH HwHs or LTCH satellite facilities as long
as the percentage of Medicare patients discharged from the LTCH HwH or
LTCH satellite that were admitted from the urban single or MSA dominant
host hospital, did not exceed the percentage of the total Medicare
discharges in the MSA in which the hospital is located that were
discharged from the host hospital, for the cost reporting period for
which the adjustment would be made, but in no case is the percentage
less than 25 percent or more than 50 percent. In addition, in
determining the percentage of patients admitted to the LTCH from the
urban single or MSA dominant host hospital, any patients that had been
Medicare outliers at the host and then transferred to the LTCH HwH or
LTCH satellite would be considered as if they were admitted to the LTCH
from a non-host hospital. (When we refer to ``the 25 percent (or
applicable percentage)'' patient threshold throughout this proposed
rule, the ``applicable percentage'' refers to these special adjustments
that we have provided for the special circumstances of rural, urban
single, or MSA-dominant hospital or to the percentage associated with
the transition policy, discussed below in this section.)
When implementing this policy, we also provided for a 4-year
transition for existing LTCH HwHs or LTCH satellites that met the
applicable criteria outlined in the regulations to allow a reasonable
period during which hosts and co-located LTCH HwH or LTCH satellites
and specific ``LTCHs under formation'' would be able to adapt to the
requirements of the new policy. For cost reporting periods beginning on
or after October 1, 2004 through September 30, 2005, these transitioned
hospitals were to be grandfathered, with the 1st year as a ``hold
harmless'' year. However, we required that even for these facilities
that were being phased-in to the full payment adjustment, in the first
cost reporting period, the hold harmless year, the percentage of
discharges admitted from the host hospital to the LTCH could not exceed
the percentage of discharges admitted from the host hospital to the
LTCH HwH or LTCH satellite in its FY 2004 cost reporting period. (For
the purposes of Sec. 412.534, we established the hospital's cost
reporting period during FY 2004, the last cost reporting period prior
to the implementation of Sec. 412.534, as a ``base period'' for
purposes of establishing the gradual phase-in of the full payment
threshold adjustment (69 FR 49196).
Therefore, while we allowed for a 4-year transition for those above
specified LTCH HwHs and satellites for cost reporting periods beginning
on or after October 1, 2004 and before October 1, 2005 (FY 2005),
payments to the LTCH hospital or LTCH satellite facility would be
limited based on the percentage that it had admitted during its FY 2004
cost reporting period. After the first grandfathered cost reporting
period, these LTCH HwHs and LTCH satellite facilities were required to
meet a percentage transition over the 3-year period beginning in FY
2006. For the second year (cost reporting periods

[[Page 4811]]

beginning on or after October 1, 2005 but before October 1, 2006), the
percentage of Medicare discharges that may be admitted from the host
with no adjustment may not exceed the lesser of the percentage of their
discharges admitted from their host during its FY 2004 cost reporting
period or 75 percent. For the third year (cost reporting periods
beginning on or after October 1, 2006 but before October 1, 2007), the
percentage of Medicare discharges that may be admitted from the host
with no adjustment may not exceed the lesser of the percentage of its
Medicare discharges admitted from its host during its FY 2004 cost
reporting period beginning or 50 percent, and finally, 25 percent (or
other applicable percentage) beginning with the fourth year (cost
reporting periods beginning on or after October 1, 2007). Additionally,
the 25 percent policy for co-located LTCHs is currently implemented in
a location-specific manner, which means that the computation of the
percentage of LTCH HwH or LTCH satellite discharges admitted from a
host is based solely on the admissions from the physically co-located
host and not from other campuses or remote locations which may share a
common Medicare provider number with the host.
Although the payment adjustment at Sec. 412.534 focused on LTCH
HwHs and satellites of LTCHs and its host hospitals, the relationship
between a receiving provider and any referring hospital has been an
issue of concern for the Medicare program, even in the absence of co-
location. Under section 1886(d)(5)(J) of the Act, added by section 4407
of the BBA of 1997, the Congress provided for a post-acute transfer
policy which addressed certain patient discharges from acute care
hospitals that subsequently received additional treatment delivered by
a second Medicare provider. We believe that the Congress enacted this
legislation to discourage acute care hospitals from prematurely
discharging patients to another treatment setting in order to increase
Medicare payment.
The Congress' enactment of the legislation authorizing the post-
acute transfer policy is indicative of its serious concerns about
patient shifting between acute and post-acute providers. In the case of
the post-acute transfer policy, described above in this section, we
focused on overpayment, under the IPPS, to the transferring hospital
when a patient is prematurely discharged to another provider during the
same episode of illness.
The payment adjustment for co-located LTCHs at Sec. 412.534 was
based on concerns similar to those underlying the post-acute transfer
policy at Sec. 412.4, that is, an inappropriately truncated
hospitalization at a host facility and an admission to another
provider, specifically a LTCH, for which an additional Medicare payment
would be generated. However, the payment adjustment at Sec. 412.534 is
not applied to the transferring hospital but rather, to discharges from
the co-located LTCH to which the presumably prematurely discharged
patient has been admitted. Moreover, although the referring hospital
under the post-acute transfer policy must be an acute care hospital,
for the purposes of the payment adjustment at Sec. 412.534, any
hospital is a potential host if it is co-located with a LTCH HwH or
LTCH satellite.
The payment adjustment under Sec. 412.534 applies only to
determining payments under the LTCH PPS for patients discharged from
the LTCH or LTCH satellite which had been admitted to the LTCH or LTCH
satellite from the onsite host hospital. For example, if an IRF was co-
located with an LTCH HwH and upon discharge from the IRF, the patient
was admitted to the onsite LTCH, upon discharge from the LTCH, Medicare
payment for that LTCH discharge, would be governed by Sec. 412.534 (69
FR 49198). This would also be the case for a patient shifted to a LTCH
from a co-located host acute care hospital following complications from
a surgical procedure; a patient requiring rehabilitation who has been
discharged from a host IRF to a LTCH; or a patient who had been an
inpatient at an IPF and was discharged to an on-site LTCH for care that
could otherwise have been continued at the host hospital (that a
significant number of LTCHs specialize in rehabilitation and
psychiatric cases further supports this point (71 FR 4704 through
4719)). We believe that it is appropriate to pay the LTCH HwH or LTCH
satellite that is co-located with an IRF or IPF and exceeds the
applicable threshold at the IPPS equivalent rate and not a LTCH PPS
rate that would be equivalent to the amount otherwise paid under the
IRF or IPF PPS rate, since the HwH and the satellite LTCH are, as we
explained earlier in this section, facilities that in many ways are
comparable to an acute care hospital.
When we proposed the 25 percent (or applicable percentage) payment
adjustment for co-located LTCHs in the FY 2005 IPPS proposed rule,
MedPAC expressed concern that the 25 percent patient threshold policy
would have a significant impact and could possibly lead to an
inequitable situation for co-located LTCHs, as compared to freestanding
LTCHs. Among their concerns were the following: freestanding LTCHs also
have strong relationships with acute care hospitals, and that where on
average LTCH HwHs receive 61 percent of their patients from their
hosts, on average freestanding LTCHs receive 42 percent of their
patients from their primary referring hospital; a 25 percent rule that
only applied to LTCH HwHs and not to freestanding LTCHs could therefore
be inequitable; and this approach could be circumvented by an increase
in the number of freestanding LTCHs instead of LTCH HwHs (69 FR 49211).
In the RY 2007 LTCH PPS final rule, we also stated that according
to a commenter, the data indicated ``* * * that it is common practice
for LTCHs * * * to admit patients from a single-source acute care
hospitals'' and that 71.2 percent of free-standing LTCHs admit more
than 25 percent of their patients from a single source acute-care
hospital (71 FR 27878).
Additionally, in comments received on a proposed policy to preclude
common ownership of a host and a HwH (which was not finalized), two
commenters asserted that the financial incentive to accept
inappropriate patients from an acute care hospital could exist only
when the acute care hospital and the LTCH were commonly owned and when
there was common governance, a situation that ``can exist even without
co-location, that is, a freestanding LTCH, exempt from the requirements
of Sec. 412.22(e) could be owned and governed by the hospital from
which it receives the majority of its referrals'' (69 FR 49202).
Despite the commenters' assertions, we do not believe that either
common ownership or co-location are the only circumstances under which
financial incentives exist for acute care hospitals to prematurely
discharge Medicare patients to LTCHs for additional treatment during
the same episode of patient care. In fact, we are aware anecdotally of
the existence of ``arrangements'' between Medicare acute and post-acute
hospital-level providers that may not have any ties of ownership or
governance relating to patient shifting that appear to be based on
mutual financial gain rather than on significant medical benefits for
the patient. This could be the case if an acute care hospital
discharges a Medicare beneficiary who continues to require hospital-
level care, to preclude that patient's case from reaching outlier
status at the acute care hospital, to an LTCH for additional treatment.
Under this scenario, Medicare would pay the acute care hospital under
the IPPS for

[[Page 4812]]

the beneficiary's care but the hospital would be able to avoid both the
``fixed loss'' amount and absorbing 20 percent of the remaining costs
of patient care, as established under the IPPS outlier policy at
subpart F of part 412. However, Medicare would be responsible for an
additional payment, to the LTCH, under the LTCH PPS upon the patient's
discharge from the LTCH. Accordingly, we believe that additional
regulation in this area is both necessary and appropriate in order to
protect the Medicare Trust Fund when generating two payments under two
different payment systems for what was essentially one episode of
beneficiary care.
When we finalized the payment adjustment at Sec. 412.534 which
focused solely on co-located LTCHs, that is, LTCH HwHs and satellites
of LTCHs, and as we subsequently noted in the RY 2007 final rule for
the LTCH PPS, we took considerable note of these comments and we have
continued since that time to monitor the relationships between
referring hospitals and LTCHs (71 FR 27878). Specifically, we have
analyzed patient claims data from the 2004 MedPAR files for acute care
patients who are admitted to free-standing LTCHs. We have analyzed the
discharge and LOS information from this data to evaluate whether there
is a significant difference in patient shifting behavior between co-
located LTCHs and their host acute care hospitals and those free-
standing LTCHs that admit a majority of their patients from particular
referring acute care hospitals. (As stated previously, in fact for the
purposes of the payment adjustment at existing Sec. 412.534, any
inpatient hospital-level provider is a potential host if it is co-
located with a LTCH HwH or LTCH satellite (69 FR 49198). Similarly,
free-standing LTCHs also admit patients from sources other than acute
care hospitals. However, our data reveals that approximately 80 percent
of all LTCH admissions are from acute care hospitals. Therefore, our
data analysis discussed below in this section, focuses on the
relationship between a referring acute care hospital and a LTCH.)
We also analyzed data on relationships between LTCHs and acute care
hospitals from which they received a significant percentage of
referrals. The RY 2005 MedPAR files indicate that only 12.0 percent of
the then 174 free-standing LTCHs admitted 25 percent or less of their
Medicare discharges from an individual acute care hospital; for 36.8
percent of those freestanding LTCHs, the percentage was between 25 and
50 percent; for 34.5 percent it is between 50 and 75 percent, and for
16.66 percent of those free-standing LTCHs it was between 75 and 100
percent of their Medicare discharges that were admitted from one acute
care hospital. Thus, the data indicates that for over 50 percent of all
freestanding LTCHs, at least 50 percent of their discharges were for
patients admitted from an individual acute care hospital.
Generally, the data reveals minimal differences for cases grouped
to the same DRG between the ALOS at the acute care hospital prior to an
admission to a co-located LTCH and the ALOS at a referring acute
hospital prior to admission to a free-standing LTCH. For example, we
evaluated data from CY 2004 MedPAR files regarding LTC-DRG 475,
Respiratory System Diagnosis with Ventilator Support, for both LTCH
HwHs with more than 25 percent of their discharges admitted from their
host hospital and free-standing LTCHs with more than 25 percent of
their discharges admitted from an individual referring hospital. The
ALOS for patients stays that have not reached outlier status at the
host prior to being discharged to the co-located LTCH was 12.7 days and
for free-standing LTCHs, the average LOS at their individual referring
hospital was 12.9 days. Similarly, for LTC-DRG 416, Septicemia, the
ALOS at the host acute care hospital was 9.8 days prior to admission to
the co-located LTCH and the prior ALOS at the individual referring
acute care hospital was 9.6 days prior to admission to the free-
standing LTCH. We believe that this data indicates considerable
similarity between the patient shifting behavior at acute care
hospitals and co-located LTCHs and acute care hospitals and LTCHs that
are not co-located. We would have expected the LOS at the acute care
hospital that discharged patients to non-co-located LTCHs to be longer.
Furthermore, as noted above in this section, we have concentrated
on the relationships between acute care hospitals and non-co-located
LTCHs in this discussion, because approximately 80 percent of Medicare
patients in LTCHs are admitted from acute care hospitals. However, we
believe that the same concerns, articulated above, would also exist
when the patient source is not an acute care hospital. There could
still be a financial incentive on the part of the referring hospital
(for example, an IRF, to prematurely discharge a beneficiary to a LTCH
for additional post-acute treatment in order to avoid absorbing high
treatment costs under the IRF outlier policy at Sec. 412.624(e)(5))
that would result in two Medicare payments, one to the initial provider
and the other to the LTCH for a single episode of beneficiary care. (We
recognize that a patient could experience a medical crisis while an
inpatient at an IRF, but typically, the most appropriate setting for
such urgent care would be a general acute care hospital, rather than a
LTCH.)
We believe that this data gives further credence to concerns
articulated by MedPAC and the assertions made by the Lewin Group in its
comments on our FY 2005 IPPS proposed rule regarding the ``strong
relationships'' for referral purposes that exist between many acute
care hospitals and free-standing LTCHs. Although our decade-old
concerns, about LTCHs functioning as long-stay or step-down ``units''
of acute care hospitals, focused on co-located LTCHs (HwHs and LTCH
satellites), we believe that this data indicates that many free-
standing LTCHs may also be serving the same purpose as those that are
co-located, that is, as functional step-down units of their primary
referring acute care hospital.
We are also concerned about other attempts to evade our regulations
at Sec. 412.534. In implementing the HwH regulations at Sec.
412.22(e) and the satellite regulations at Sec. 412.22(h), we have
consistently utilized the definition of ``campus'' that was established
in the provider-based regulations at Sec. 413.65(a)(2) which specifies
that a campus is ``the physical area immediately adjacent to the
provider's main buildings, other areas and structures that are not
strictly contiguous to the main buildings but are located within 250
yards of the main buildings, and any other areas determined on an
individual basis, by the CMS regional office, to be part of the
provider's campus.'' We have become aware of certain LTCH companies
that have both established new LTCHs and/or are considering relocating
existing HwHs or LTCH satellites so that they are at least 300 yards
from the acute care hospital, thus side-stepping the intent of existing
Sec. 412.534. We believe that our proposals to extend the existing
payment policy will address the type of ``gaming,'' described above in
this section, as well as dealing with our concern that LTCHs appear to
be admitting patients from referring hospitals prior to the delivery of
a full episode of care so that we are making two payments, one to the
referring hospital and another much higher payment under the LTCH PPS
to the LTCH for what is essentially one episode of care. While
reviewing the following proposals, we would also be interested in
receiving suggestions as to other ways in which we could

[[Page 4813]]

effectively address attempts to evade the intent of our regulations
governing patient-shifting between referring hospitals and LTCHs.
We first noted in the RY 2006 LTCH PPS final rule (71 FR 27878),
our concern that in many cases the line of ``functional separateness''
between free-standing LTCHs and their major referral sources appears to
have been erased. We believe that our analysis of patient movement
between these facilities supports these concerns.
Therefore, under the broad authority conferred on the Secretary by
section 123 of the BBRA, as amended by section 307(b) of the BIPA to
implement a prospective payment system for LTCHs, including authority
to provide for appropriate adjustments to the payment system, we are
proposing to extend the payment adjustment at Sec. 412.534, presently
applicable to co-located subclause (I) LTCHs, to all subclause (I)
LTCHs (section 1886(d)(1)(B)(iv)(I) of the Act), as explained below in
this section. (For the purposes of the discussion of this proposed
policy, ``subclause (I) LTCH'' is also intended to include satellites
of these LTCHs. Our proposal regarding subclause (II) LTCHs, that is
those LTCHs that meet the definition at section 1886(d)(1)(B)(iv)(II)
of the Act, is discussed below in this section.) Specifically, at
proposed Sec. 412.536, we are setting forth proposed regulations that
govern payments under the LTCH PPS for LTCH and LTCH satellite Medicare
discharges admitted from non-co-located hospitals. We are proposing
that the policy provisions of the existing 25 percent (or applicable
percentage) payment adjustment would apply to any subclause (I) LTCH or
LTCH satellite regardless of the physical proximity to the hospital
from which it is accepting admissions. In order to apply this policy at
all subclause (I) LTCHs and LTCH satellites, we are additionally
proposing to revise existing Sec. 412.534 to include a new provision
at proposed Sec. 412.534(h) that would extend the 25 percent (or
applicable percentage) payment threshold to those grandfathered co-
located subclause (I) LTCH HwHs and LTCH satellites at Sec. 412.22(f)
and Sec. 412.22(h)(3)(i), respectively, for Medicare discharges that
had been admitted from the grandfathered LTCH of LTCH satellite
facility's host for cost reporting periods beginning on or after July
1, 2007. (We address the issue of satellites of subclause (II) LTCHs
below in this section.
We are proposing to add new Sec. 412.536 that will specify a
comparable payment adjustment governing Medicare discharges from
subclause (I) LTCHs and LTCH satellites that were admitted from non-co-
located hospitals. We note that under this proposal, the payment
adjustment at Sec. 412.536 would also apply to those Medicare
discharges from co-located subclause (I) LTCHs (HwHs and LTCH satellite
facilities) that have been admitted from hospitals other than those
with which they are co-located. We believe that this proposed policy
will address our concerns with LTCHs and LTCH satellites that in many
cases appear to be functioning like step-down units of acute care
hospitals.
Furthermore, we believe it is appropriate that the same analytical
standards and payment policies be applied by Medicare to all subclause
(I) LTCHs. Therefore, we are proposing to amend existing Sec. 412.534
to include subclause (I) grandfathered LTCH HwHs and LTCH satellite
facilities, as well as proposing to use the same thresholds applicable
to co-located LTCH HwHs and LTCH satellite facilities for subclause (I)
LTCHs and LTCH satellite facilities that admit Medicare patients from
non-co-located hospitals under Sec. 412.536. Specifically, we are
proposing that for cost reporting periods beginning on or after July 1,
2007, as we specify in proposed revised Sec. 412.534(h), this payment
adjustment would include those subclause (I) LTCH HwHs and satellites
that have been ``grandfathered'' under Sec. 412.22(f) and Sec.
412.22(h)(3)(i) respectively and that are presently exempted from the
existing payment adjustment for co-located LTCHs. As noted previously,
both grandfathered HwHs at Sec. 412.22(f) and satellite facilities at
Sec. 412.22(h)(3)(i) are permitted to retain their exclusions from the
IPPS despite not meeting ``separateness and control'' policies with
regard to their relationships with their host hospitals, as long as
they continue to comply with applicable Medicare requirements. This
proposed inclusion of grandfathered LTCH HwHs and LTCH satellites in
the 25 percent (or applicable percentage) threshold policy would not
affect their ability to continue to be ``grandfathered'' and excluded
from the IPPS. Moreover, as noted above, the proposed 25 percent (or
the applicable percentage) threshold policy governing discharges from
subclause (I) LTCHs that had been admitted from any individual non-co-
located hospital, at new proposed Sec. 412.536, would also apply in
determining payments under the LTCH PPS for Medicare discharges from
LTCH HwHs and LTCH satellites that had been admitted from non-co-
located hospitals other than their hosts, including grandfathered HwHs
and LTCH satellites. Under the proposed policies applicable to
grandfathered subclause (I) LTCH HwHs and LTCH satellites, we would pay
an adjusted amount for those discharged Medicare patients that were
admitted from their co-located host, under proposed Sec. 412.534(h) or
from any other referring hospital under proposed Sec. 412.536, in
excess of the applicable percentage threshold. The grandfathered LTCHs
and LTCH satellite facility's Medicare discharges that reached outlier
status at the host, at proposed Sec. 412.534(b), or at the non-co-
located referring hospital, as proposed at Sec. 412.536, would not
count towards the applicable threshold.
When we implemented the existing 25 percent (or applicable
percentage) for cost reporting periods beginning on or after October 1,
2004, we opted to do so on a ``location-specific'' basis rather than
based on Medicare provider numbers. That is, we applied the percentage
threshold payment adjustment only to discharges from a specific
location of a LTCH HwH or LTCH satellite that were admitted from the
host hospital with which they share a building or campus. However,
since implementing this policy, we have been contacted by numerous
representatives of LTCH chains whose questions appear to indicate that
the site-specific implementation of the threshold percentage had
resulted in patient-shifting between hospital locations that shared a
Medicare provider number and even between separately owned LTCHs (for
their mutual advantage) that side-stepped the intent of our policy.
Specifically, we offer the following example of a situation that was
occurring: a host hospital at Location A was discharging patients to a
LTCH HwH or satellite at Location B while the host hospital at Location
B discharged patients to the LTCH HwH or satellite at Location A.
We believe that since we are proposing to expand the 25 percent
policy to all subclause (I) LTCHs and LTCH satellite facilities it is
appropriate to propose inclusion of LTCH HwHs and LTCH satellites,
grandfathered respectively under Sec. 412.22(f) and Sec.
412.22(h)(3)(i), in our proposal. The provisions at proposed Sec.
412.534(h) would apply for Medicare discharges from grandfathered LTCH
and LTCH satellite facilities admitted from co-located hospitals and
the provisions at Sec. 412.536 would apply for discharges admitted
from any individual non-co-located referring hospital. As we noted in
our RY 2007 final rule regarding grandfathered HwHs, ``[W]e do not
believe that it is reasonable to assume that by creating a limited
exception for these hospitals, the Congress was

[[Page 4814]]

immunizing these facilities from any further regulation by the
Secretary as to their growth and financial impact on the Medicare
program. We do not believe the Congress was establishing a separate
class of providers'' (71 FR 48109).
Furthermore, for those co-located LTCHs already subject to the 25
percent (or applicable percentage) payment adjustment at existing Sec.
412.534, the proposed policy expansion at proposed Sec. 412.536 would
apply to payments under the LTCH PPS for patients discharged from co-
located LTCHs (HwHs and satellites) that were admitted from referral
sources other than their host hospital(s).
Therefore, we are proposing that, for cost reporting periods
beginning on or after July 1, 2007, that a subclause (I) LTCH or LTCH
satellite that discharges more than 25 percent (or applicable
percentage) of Medicare patients admitted from any non-co-located
individual hospital (that had not already reached outlier status, as
discussed above) would be subject to the proposed payment adjustment at
proposed Sec. 412.536 for Medicare discharges from that hospital in
excess of the applicable threshold. Furthermore, we believe that with
the application of our proposed policy at Sec. 412.536 to Medicare
discharges from subclause (I) LTCH HwHs and LTCH satellites that were
admitted from any individual non-co-located referring hospitals, we are
closing the ``location-specific loophole'' established by the
implementation of Sec. 412.534, described above. The proposed change
would affect all LTCHs or LTCH satellite Medicare discharges that were
admitted from hospitals that are located on a different campus.
The proposed payment adjustment at proposed Sec. 412.534(h) for
grandfathered LTCH HwHs and LTCH satellite facilities will track the
applicable provisions of the existing payment adjustment at Sec.
412.534. Therefore, we are proposing at Sec. 412.534(h) that for cost
reporting periods beginning on or after July 1, 2007, the provisions of
Sec. 412.534 would also apply to grandfathered subclause (I) LTCH HwHs
and LTCH satellite facilities. Accordingly, under the proposed changes
to Sec. 412.534, if the percentage of the grandfathered LTCH or LTCH
satellite's discharged Medicare inpatient population that were admitted
from its co-located host exceeds 25 percent (or the applicable
percentage) of the LTCH's Medicare discharges for that cost reporting
period, an adjusted payment would be made for those discharges that
were admitted from that hospital beyond the 25 percent threshold (or
the applicable percent threshold), at the lesser of the otherwise
payable amount under subpart O of 42 CFR part 412 or the amount payable
under subpart O that would be equivalent to what Medicare would
otherwise pay under the rules at subpart A, Sec. 412.1(a). (The
specifics of this payment formula are explained in considerable detail
in the RY 2007 LTCH PPS final rule (71 FR 27879).) In addition, we are
proposing that for cost reporting periods beginning on or after July 1
2007, that the existing transition to the full 25 percent (or
applicable percentage) threshold, specified at Sec. 412.534(g) would
apply, as well to these grandfathered subclause (I) LTCH HwHs and LTCH
satellites. We provide at existing Sec. 412.534(g), that in order to
qualify for the transition, the LTCH HwH or LTCH satellite facility
must have been paid under the provisions of subpart O on October 1,
2004, or was a hospital paid under the provisions of subpart O on
October 1, 2005, and whose qualifying period under Sec. 412.23(e)
began on or before October 1, 2004. We believe that it is appropriate
to apply the same October 1, 2004 base year to all subclause (I) co-
located HwHs and satellites, including grandfathered subclause (I) LTCH
HwHs and LTCH satellites, applicable to all other co-located LTCHs.
Accordingly, the percentage set forth in Sec. 412.534(g)(3), which is
the lesser of the percentage of patients admitted from the host during
its FY 2004 cost reporting period or the 50 percent threshold would
apply to those grandfathered facilities with cost reporting periods
beginning on or after July 1, 2007 and before October 1, 2007. Those
grandfathered subclause (I) LTCH HwHs and LTCH satellites with cost
reporting periods beginning on or after October 1, 2007 have the 25
percent (or applicable percentage) payment adjustment threshold, as
specified in Sec. 412.534(g)(4) applied immediately, with no phase-in.
In proposing the expansion of the 25 percent threshold payment
adjustment policy for cost reporting periods beginning on or after July
1, 2007, to all subclause (I) LTCH and LTCH satellite facilities
(including LTCH HwHs) for Medicare discharges admitted from non-co-
located hospitals, we are proposing at the new Sec. 412.536, to
generally track the provisions of the payment formula at existing Sec.
412.534. For example, in determining whether a hospital meets the 25
percent criterion, Medicare discharges that have already qualified for
outlier payments at the non-co-located referring hospital would not be
included in the count of Medicare discharges admitted from the
referring hospital.
That is, even though the case would count as a discharge from the
LTCH and be included in the denominator of the percentage calculation,
because the patient had been an outlier at the referring hospital the
case would not count towards determining whether or not the LTCH had
exceeded the applicable threshold (that is, it would not be included in
the numerator). An example of this is as follows: If one month prior to
the end of a cost reporting period, a LTCH discharged 98 Medicare
patients, 24 of which were admitted from an individual referring
hospital, and during that last month, two additional patients were
discharged from the LTCH that had been admitted from that referring
hospital, at the close of the cost reporting period, there would have
been a total of 100 discharges from the LTCH and the relevant concern
would be to determine whether or not those last two cases would have
caused the LTCH to exceed the 25 percent threshold. If the cases had
achieved outlier status at the referring hospital, they would be not
included in the percentage calculation (which would remain, for that
referring hospital, at \24/100\) and not having caused the LTCH to
exceed the 25 percent threshold, they would not be included in the
numerator of the calculation. If both of those LTCH cases had been
discharged from that referring hospital prior to having achieved
outlier status, under our proposed policy, the percentage calculation
would be 26 percent (\26/100\) and, having exceeded the 25 percent
threshold, Medicare would apply the payment adjustment set forth in
Sec. 412.536 to the last discharge.
We are also proposing, under proposed Sec. 412.534, that for those
patients, the LTCH or LTCH satellite facility would be eligible for
payment under the LTCH PPS with no adjustment even after the 25 percent
(or applicable percentage) threshold was exceeded. (As under existing
Sec. 412.534, proposed Sec. 412.536 will provide that a subclause (I)
LTCH or LTCH satellite facility's Medicare discharges (including HwHs)
admitted from any individual non-co-located referring hospital before
the LTCH exceeds the 25 percent threshold or applicable threshold for
that hospital would be paid an otherwise unadjusted payment under the
LTCH PPS.)
We are also proposing not to extend the proposed payment adjustment
in Sec. 412.534(h) and Sec. 412.536 to those LTCHs and LTCH satellite
facilities that we refer to as subclause (II) LTCHs and LTCH
satellites, established by section

[[Page 4815]]

1886(d)(1)(B)(iv)(II) of the Act. The policy that we are proposing for
subclause (I) LTCHs and LTCH satellites is based on a calculation of
the percentage of Medicare discharges that a LTCH admits from an
individual hospital during a cost reporting period as compared to the
LTCH's total Medicare discharges during that cost reporting period.
Because of a significant policy distinction that we made at the start
of the LTCH PPS for FY 2003, at this time we do not believe that this
proposed policy should be applied to subclause (II) LTCHs and LTCH
satellite facilities. With the implementation of the LTCH PPS, we
revised the Sec. 412.23(e)(2)(i) and (e)(3)(i) to calculate the ALOS
based solely on Medicare patients who required long-stay
hospitalizations at subclause (I) LTCHs defined by section
1886(d)(1)(B)(iv)(I) of the Act; however, we did not change the formula
for calculating the ALOS for a LTCH governed by section
1886(d)(1)(B)(iv)(II) of the Act, implemented at Sec.
412.23(e)(2)(ii), for a ``subclause (II)'' LTCH. We believed that in
establishing a ``subclause (II)'' LTCH, the Congress provided an
exception to the general definition of LTCHs under subclause (I). We
had no reason to believe that the change in methodology for determining
the average inpatient LOS would better identify the hospitals that the
Congress intended to exclude under subclause (II) (67 FR 55974).
Similarly, when we established the existing 25 percent or applicable
percentage payment adjustment at Sec. 412.534, we determined that its
application to subclause (II) LTCHs was inappropriate because the
designation of a subclause (II) LTCH was not dependent upon Medicare
discharges (69 FR 49205). Therefore, we are not proposing to apply the
expansion of the 25 percent policy that we are proposing at new Sec.
412.536 and amended Sec. 412.534 to LTCHs and LTCH satellite
facilities defined under section 1886(d)(1)(B)(iv)(II) of the Act. The
existing and proposed amended payment threshold adjustments at Sec.
412.534 and at proposed Sec. 412.536 for subclause (I) LTCHs and LTCH
satellites are based solely on percentages of LTCH Medicare discharges.
As stated above, we continue to believe that since we include both
Medicare and non-Medicare discharges in our calculations for defining a
subclause (II) LTCH at Sec. 412.23(e)(2)(ii) that applying a payment
adjustment that is based solely on Medicare discharges may not be
appropriate. Furthermore, consistent with our policy not to include
satellites of subclause (II) LTCHs which were specifically
grandfathered at Sec. 412.22(h)(3)(ii) in proposed Sec. 412.536, we
have excluded subclause (II) LTCH satellites in the proposed
application of the 25 percent payment adjustment for co-located
grandfathered LTCHs at proposed Sec. 412.534(h).
In summary, we are proposing a new provision at Sec. 412.534(h)
that would apply the policies established under existing Sec. 412.534
to grandfathered subclause (I) LTCH HwHs and LTCH satellites for
Medicare discharges that were admitted from co-located host hospitals.
We are also proposing to apply those policies at Sec. 412.534 to
Medicare discharges admitted from any individual non-co-located
referring hospitals to all subclause (I)LTCHs and LTCH satellites at
proposed Sec. 412.536, generally tracking the existing regulation at
Sec. 412.534, where applicable.
We are also proposing additional adjustments to the 25 percent
policy at Sec. 412.536 for specific circumstances in order to be
consistent with the policy for co-located LTCHs under Sec. 412.534. At
proposed Sec. 412.536(c) for Medicare discharges from subclause (I)
LTCHs or LTCH satellites located in rural areas, we are proposing that
Medicare discharges in excess of 50 percent, rather that 25 percent of
the LTCH's total Medicare discharges for a cost reporting period from
an individual non-co-located referring hospital would be subject to the
payment adjustment specified at proposed Sec. 412.536(c). In addition,
in the case of a rural subclause (I) LTCH or LTCH satellite facility,
in determining the percentage of Medicare discharges admitted from a
non-co-located referring hospital, any patients that had been Medicare
outliers at the referring hospital and then discharged to the LTCH or
LTCH satellite are not counted towards the threshold percentage (as
described above).
In proposed Sec. 412.536, we are also providing that if the non-
co-located referring hospital is the only other hospital in the MSA or
an MSA-dominant hospital as defined at proposed Sec. 412.536(e)(4), we
proposed to allow the subclause (I) LTCH or LTCH satellite facility a
threshold percentage equal to the non-co-located referring hospital's
percentage of total Medicare discharges for like hospitals in the MSA
for the most recent fiscal year that data is available. Consistent with
our policy at existing Sec. 412.534(e), we also propose to apply a
floor of 25 percent and a ceiling of 50 percent to this threshold for
those hospitals described in proposed Sec. 412.536(d)(4). As with the
existing policy for co-located LTCHs, we believe that this adjusted
payment threshold responds to ``the unique needs of these communities''
(69 FR 49207). Similar to the existing provisions at Sec.
412.534(e)(2),we would not adjust payments to these hospitals as long
as the percentage of Medicare patients discharged from the LTCH or LTCH
satellite that were admitted from the non-co-located referring urban
single or MSA-dominant hospital, did not exceed this threshold. In
addition, in determining the percentage of Medicare discharges admitted
to the LTCH or LTCH satellite facility from the urban single or MSA
dominant hospital, any patients that had been Medicare outliers at the
referring hospital before being admitted to the LTCH or LTCH satellite
would not count towards the applicable threshold, as discussed above.
The proposed payment adjustment at Sec. 412.536 would be
synchronized with the phase-in of the current policy adjustment for
LTCH HwHs and LTCH satellites at existing Sec. 412.534(g). Therefore,
for cost reporting periods beginning on or after July 1, 2007, and
before October 1, 2007, the percentage of Medicare discharges that may
be admitted from the non-co-located referring hospital with no payment
adjustment is the lesser of the percentage of Medicare discharges
admitted from the host during its FY 2005 cost reporting period or the
50 percent threshold. We note that under our proposed provision, at
Sec. 412.536, subclause (I) LTCHs and LTCH satellite facilities with
cost reporting periods beginning on or after July 1, 2007, and before
October 1, 2007, would be limited by the percentage of total Medicare
discharges admitted from the referring non-co-located hospital during
the FY 2005 cost reporting period, rather than utilizing the FY 2004
``base year'' which is applicable under Sec. 412.534. We are also
proposing that in determining the percentage of Medicare discharges
admitted from any referring hospital, patients who reached HCO status
at the referring hospital before being admitted to the LTCH or LTCH
satellite would not count towards the applicable threshold, as
discussed above.
Subclause (I) LTCHs and LTCH satellite facilities with a cost
reporting period beginning on or after October 1, 2007, would have the
25 percent (or applicable percentage) payment threshold applied. The
percentage of Medicare discharges that a subclause (I) LTCH or
satellite facility may admit from any individual non-co-located
referring hospital with no payment adjustment for Medicare discharges
admitted from that hospital may not

[[Page 4816]]

exceed 25 percent or the applicable percentage (the additional
adjustments for rural, urban-single, or MSA-dominant hospitals).
It is important to note that we are also proposing that co-located
subclause (I) LTCHs (HwHs and LTCH satellite facilities) would also be
subject to the applicable payment adjustment threshold at Sec. 412.536
for those Medicare discharges admitted from any individual hospital
with which they are not co-located.
Finally, in proposing this payment adjustment, we believe that we
are addressing policy concerns that are consistent with those that we
originally expressed when we implemented the payment adjustment for
LTCHs discharging patients that were admitted from co-located
hospitals.

VI. Computing the Proposed Adjusted Federal Prospective Payments for
the 2008 LTCH PPS Rate Year

In accordance with Sec. 412.525 and as discussed in section IV.C.
of this proposed rule, the standard Federal rate is adjusted to account
for differences in area wages by multiplying the labor-related share of
the standard Federal rate by the appropriate LTCH PPS wage index (as
shown in Tables 1 and 2 of Addendum A to this proposed rule). The
standard Federal rate is also adjusted to account for the higher costs
of hospitals in Alaska and Hawaii by multiplying the nonlabor-related
share of the standard Federal rate by the appropriate cost-of-living
factor (shown in Table 3 in section IV.D.2 of this preamble). In the RY
2007 LTCH PPS final rule (71 FR 27827), we established a standard
Federal rate of $38,086.04 for the 2007 LTCH PPS rate year. In this
proposed rule, based on the best available data and the proposed
policies described in this proposed rule, we are proposing that the
standard Federal rate for the 2008 LTCH PPS rate year would be
$38,356.45 as discussed in section IV.C.3. of this preamble. We
illustrate the methodology that would be used to adjust the proposed
Federal prospective payments for the 2008 LTCH PPS rate year in the
following examples:
Example:
During the 2008 LTCH PPS rate year, a Medicare patient is in a LTCH
located in Chicago, Illinois (CBSA 16974). This LTCH is in the final
year of the wage index phase-in, thus, the proposed full (that is,
five-fifths) wage index values are applicable. The proposed full LTCH
PPS wage index value for CBSA 16974 is 1.0751 (see Table 1 in Addendum
A to this proposed rule). The Medicare patient is classified into LTC-
DRG 9 (Spinal Disorders and Injuries), which has a current relative
weight of 1.0424 (see Table 3 of Addendum A to this proposed rule).
To calculate the LTCH's proposed total adjusted Federal prospective
payment for this Medicare patient, we compute the proposed wage-
adjusted Federal prospective payment amount by multiplying the proposed
unadjusted standard Federal rate ($38,356.45) by the proposed labor-
related share (75.511 percent) and the proposed wage index value
(1.0751). This proposed wage-adjusted amount is then added to the
nonlabor-related portion of the proposed unadjusted standard Federal
rate (24.489 percent; adjusted for cost of living, if applicable) to
determine the proposed adjusted Federal rate, which is then multiplied
by the LTC-DRG relative weight (1.0424) to calculate the proposed total
adjusted Federal prospective payment for the 2008 LTCH PPS rate year
($42,250.14). (As discussed in section IV.C.5. of this preamble, for
the 2008 LTCH PPS rate year, we are no longer proposing to apply a
transition period BN offset (to account for the costs of the transition
methodology) in determining the proposed total adjusted Federal
prospective payment.) Table 6 illustrates the components of the
calculations in this example.

Table 6
------------------------------------------------------------------------

------------------------------------------------------------------------
Unadjusted Proposed Standard Federal Prospective $38,356.45
Payment Rate........................................
Proposed Labor-Related Share......................... x 0.75511
------------------
Proposed Labor-Related Portion of the Federal Rate... = $28,963.34
Proposed Full Wage Index (CBSA 16974)................ x 1.0751
------------------
Proposed Wage-Adjusted Labor Share of Federal Rate... = $31,138.49
Proposed Nonlabor-Related Portion of the Federal Rate + $9,393.11
($38,356.45 x 0.24489)..............................
------------------
Proposed Adjusted Federal Rate Amount................ = $40,531.60
LTC-DRG 9 Relative Weight............................ x 1.0424
------------------
Proposed Total Adjusted Federal Prospective Payment*. = $42,250.14
------------------------------------------------------------------------
* We are no longer proposing to apply a transition period BN offset to
account for the costs of the transition methodology in determining the
proposed total adjusted Federal prospective payment for RY 2008.)

VII. Transition Period

To provide a stable fiscal base for LTCHs, under Sec. 412.533, we
implemented a 5-year transition period whereby a LTCH (except those
defined as ``new'' under Sec. 412.23(e)(4)) received a LTCH PPS
payment consisting of a portion based on reasonable cost-based
reimbursement principles under the TEFRA system and a portion based on
the Federal prospective payment rate (unless the LTCH elected payment
based on 100 percent of the Federal rate). As discussed in the August
30, 2002 final rule (67 FR 56038), we believed that a 5-year phase-in
provided LTCHs time to adjust their operations and capital financing to
the LTCH PPS, which is based on prospectively determined Federal
payment rates. Furthermore, we believed that the 5-year phase-in under
the LTCH PPS also allowed LTCH personnel to develop proficiency with
the LTC-DRG coding system, which will result in improvement in the
quality of the data used for generating our annual determination of
relative weights and payment rates.
Under Sec. 412.533, the 5-year transition period for all hospitals
subject to the LTCH PPS began with the hospital's first cost reporting
period beginning on or after October 1, 2002 and extends through the
hospital's last cost reporting period beginning before October 1, 2007.
During the 5-year transition period, a LTCH's total PPS payment under
the LTCH PPS was based on two payment percentages--one based on
reasonable cost-based principles and the other based on the standard
Federal prospective payment rate. The percentage of the LTCH PPS
payment based on the LTCH PPS Federal rate increased by 20 percentage
points each year, while the reasonable portion of the LTCH PPS payment
based on cost-based principles decreased by 20 percentage points each
year, for the next 4 fiscal years. For cost reporting periods beginning
on or after October 1, 2006, Medicare payment to LTCHs will be
determined entirely under the Federal rate.
In implementing the LTCH PPS, one of our goals was to transition
hospitals to prospective payments based on 100 percent of the adjusted
Federal prospective payment rate as soon as appropriate. Therefore,
under Sec. 412.533(c), we allowed a LTCH (other than new LTCHs defined
at Sec. 412.23(e)(4)), which was subject to a blended rate, to elect
payment based on 100 percent of the Federal rate at the start of any of
its cost reporting periods during the 5-year transition period.

[[Page 4817]]

Once a LTCH elected to be paid based on 100 percent of the Federal
rate, it could not revert back to the transition blend.

VIII. Payments to New LTCHs

Under Sec. 412.23(e)(4), for purposes of Medicare payment under
the LTCH PPS, we define a new LTCH as a provider of inpatient hospital
services that meets the qualifying criteria for LTCHs, set forth in
Sec. 412.23(e)(1) and (e)(2), and under present or previous ownership
(or both), has its first cost reporting period as a LTCH beginning on
or after October 1, 2002. As we discussed in the August 30, 2002 final
rule (67 FR 56040), this definition of new LTCHs should not be confused
with those LTCHs first paid under the TEFRA payment system for
discharges occurring on or after October 1, 1997, described in section
1886(b)(7)(A) of the Act, as added by section 4416 of the Balanced
Budget Act of 1997 (BBA) (Pub. L. 105-33). As stated in Sec.
413.40(f)(2)(ii), for cost reporting periods beginning on or after
October 1, 1997, the payment amount for a ``new'' (post-FY 1998) LTCH
is the lower of the hospital's net inpatient operating cost per case or
110 percent of the national median target amount payment limit for
hospitals in the same class for cost reporting periods ending during FY
1996, updated to the applicable cost reporting period (see 62 FR 46019,
August 29, 1997).
Under Sec. 412.533(d), new LTCHs, as defined in Sec.
412.23(e)(4), will be paid based on 100 percent of the standard Federal
rate. As we discussed in the August 30, 2002 final rule (67 FR 56040),
the transition period was intended to provide existing LTCHs time to
adjust to payment under the new system. Since these new LTCHs with
their first cost reporting periods as LTCHs beginning on or after
October 1, 2002, would not have received payment under reasonable cost-
based reimbursement for the delivery of LTCH services prior to the
effective date of the LTCH PPS, we did not believe that those new LTCHs
required a transition period in order to make adjustments to their
operations and capital financing, as will LTCHs that have been paid
under the reasonable cost-based methodology.

IX. Method of Payment

Under Sec. 412.513, a Medicare LTCH patient is classified into a
LTC-DRG based on the principal diagnosis, up to eight additional
(secondary) diagnoses, and up to six procedures performed during the
stay, as well as age, sex, and discharge status of the patient. The
LTC-DRG is used to determine the Federal prospective payment that the
LTCH will receive for the Medicare-covered Part A services the LTCH
furnished during the Medicare patient's stay. Under Sec. 412.541(a),
the payment is based on the submission of the discharge bill. The
discharge bill also provides data to allow for reclassifying the stay
from payment at the full LTC-DRG rate to payment for a case as a SSO
(under Sec. 412.529) or as an interrupted stay (under Sec. 412.531),
or to determine if the case will qualify for a HCO payment (under Sec.
412.525(a)).
Accordingly, the ICD-9-CM codes and other information used to
determine if an adjustment to the full LTC-DRG payment is necessary
(for example, LOS or interrupted stay status) are recorded by the LTCH
on the Medicare patient's discharge bill and submitted to the Medicare
FI for processing. The payment represents payment in full, under Sec.
412.521(b), for inpatient operating and capital-related costs, but not
for the costs of an approved medical education program, bad debts,
blood clotting factors, anesthesia services by hospital-employed
nonphysician anesthetists or the costs of photocopying and mailing
medical records requested by a Quality Improvement Organization (QIO),
which are costs paid outside the LTCH PPS.
As under the previous reasonable cost-based payment system, under
Sec. 412.541(b), a LTCH may elect to be paid using the periodic
interim payment (PIP) method described in Sec. 413.64(h) and may be
eligible to receive accelerated payments as described in Sec.
413.64(g).
For those LTCHs that are being paid under the transition
methodology set forth at Sec. 412.533, for cost reporting periods that
began on or after October 1, 2002, and before October 1, 2006, the PIP
amount is based on the transition blend. For those LTCHs that are paid
based on 100 percent of the standard Federal rate, the PIP amount is
based on the estimated prospective payment for the year rather than on
the estimated reasonable cost-based reimbursement. We exclude HCO
payments that are paid upon submission of a discharge bill from the PIP
amounts. In addition, Part A costs that are not paid for under the LTCH
PPS, including Medicare costs of an approved medical education program,
bad debts, blood clotting factors, anesthesia services by hospital-
employed nonphysician anesthetists and the costs of photocopying and
mailing medical records requested by a QIO, are subject to the interim
payment provisions as specified in Sec. 412.541(c).
Under Sec. 412.541(d), LTCHs with unusually long lengths of stay
that are not receiving payment under the PIP method may bill on an
interim basis (60 days after an admission and at intervals of at least
60 days after the date of the first interim bill) and this should
include any HCO payment determined as of the last day for which the
services have been billed.

X. Monitoring

In the August 30, 2002 final rule (67 FR 56014), we described an
on-going monitoring component to the new LTCH PPS. Specifically, we
discussed on-going analysis of the various policies that we believe
would provide equitable payment for stays that reflect less than the
full course of treatment and reduce the incentives for inappropriate
admissions, transfers, or premature discharges of patients that are
present in a discharge-based PPS. As a result of our data analysis, we
have revisited a number of our original and even pre-LTCH PPS policies
in order to address what we believe are behaviors by certain LTCHs that
lead to inappropriate Medicare payments. In recent Federal Register
publications, we have proposed and subsequently finalized revisions to
the interruption of stay policy in the RY 2005 LTCH PPS final rule (69
FR 25692), and we established a payment adjustment for LTCH HwHs and
satellites in the FY 2005 IPPS final rule (69 FR 49191 through 49214).
In section V.A.2., we are revisiting the payment adjustment
methodology established for SSOs (71 FR 27845) as a consequence of
recent data analysis and discuss an approach being considered that
would revise one of the existing four alternatives under the existing
SSO payment methodology for certain SSO cases to an amount that would
otherwise be paid under the IPPS.
As we discuss in section X., our monitoring of discharges between
acute care hospitals and LTCHs reveals that a significant number of
LTCHs that are ``free-standing'', that is, not co-located with other
hospital-level providers (as defined in Sec. 412.22(e) and Sec.
412.22(h)), admit their patients from one specific acute care hospital.
When we established the payment adjustment for LTCH HwHs and satellites
of LTCHs at Sec. 412.534, we stated our concern that these on-site
LTCHs could be functioning as units of their host (generally, an acute
care hospital), a configuration that is not permitted in section
1886(d)(1)(B) of the Act. (The statute specifically allows only for IRF
and IPF units in acute care hospitals, but not for LTCH units.) As a
result of our data monitoring and analysis, which is detailed in
section V.B. of this proposed rule, we propose to expand the existing
payment adjustment at

[[Page 4818]]

Sec. 412.534 to apply to certain situations not currently covered by
the existing policy for LTCHs co-located with other hospitals.
As we discussed in the RY 2004 LTCH PPS final rule (68 FR 34157),
the Medicare Payment Advisory Commission (MedPAC) endorsed our
monitoring activity as a primary aspect of the design of the LTCH PPS.
Furthermore, the Commission pursued an independent research initiative
that led to a section in MedPAC's June 2004 Report to Congress entitled
``Defining long-term care hospitals''. This study included
recommendations that we develop facility and patient criteria for LTCH
admission and treatment and that we require a review by QIOs to
evaluate whether LTCH admissions meet criteria for medical necessity
once the recommended facility and patient criteria are established (70
FR 24209). In response to the recommendation in MedPAC's June 2004
Report, we awarded a contract to Research Triangle Institute,
International (RTI), on September 27, 2004, to conduct a thorough
examination of the feasibility of implementing MedPAC's
recommendations.
We are continuing to pursue our on-going program, existing QIO
monitoring and studies described in the RY 2006 LTCH PPS final rule (70
FR 24211), and our considerations of expanding the QIO role in the LTCH
PPS. Furthermore, RTI has completed its examination of the feasibility
of implementing MedPAC's recommendations in the June 2004 Report to
Congress. However, we note that we do not anticipate expanding QIO
activities during the current scope of work.
The Executive Summary of RTI's final report is included in Addendum
B of this proposed rule and is available on our Web site at http://www.cms.hhs.gov/LongTermCareHospitalPPS/02a_RTIReports.asp#TopOfPage.

XI. MedPAC Recommendations: The RTI Contract

With the recommendations of MedPAC's June 2004 Report to Congress
as a point of departure, RTI evaluated the feasibility of developing
patient and facility level characteristics for LTCHs to identify and
distinguish the role of these hospitals as a Medicare provider.
RTI completed this project in two phases. In Phase I, RTI prepared
a background report summarizing existing information regarding LTCHs'
current role in the Medicare system: Their history as Medicare
participating providers; the types of patients they treat; the criteria
QIOs currently use to review appropriateness of care in these settings;
and the types of regulations they face as Medicare participating
providers. This work reviewed prior analyses of these issues and
included discussions with MedPAC, other researchers, CMS, the QIOs, and
the hospital associations.
In Phase II, RTI collected additional information on tools
currently used by the QIOs and the industry to assess patient
appropriateness for admission; analyzed claims to understand
differences between hospital patients with outlier stays in non-LTCHs
and those treated in LTCHs; and visited different types of hospitals to
observe first-hand how LTCH patients differ from those in other
settings and how this pattern varies in different parts of the country.
RTI worked with different associations, including the National
Association of Long Term Hospitals (NALTH), the Acute Long Term
Hospital Association (ALTHA), the AHA, and the American Medical Peer
Review Association (AMPRA), as well as several of the larger LTCH
chains. The final report submitted by RTI summarizes these efforts and
makes numerous recommendations to CMS regarding LTCHs.
The reports on both Phase I and Phase II of RTI's research have
been posted on our Web site at http://www.cms.hhs.gov/LongTermCareHospitalPPS/02a_RTIReports.asp#TopOfPage. Please note that
this report does not represent our position or policy. We are currently
evaluating RTI's recommendations regarding the feasibility of
developing patient and facility level criteria from several
standpoints. Most significantly, we are concerned that several of RTI's
recommendations may require statutory changes. Furthermore, even among
those recommendations for action that would be accomplished on a
regulatory level, there are many significant issues that require
further analysis. We have consistently encouraged meaningful contact
between RTI and industry stakeholders throughout this research phase of
the contract. Furthermore, RTI has solicited on-going involvement and
will continue to seek such input from physicians who treat LTCH type
patients both in LTCHs and as inpatients in other provider settings in
forming a technical expert panel (TEP) to further develop some of its
recommendations. RTI is currently determining the appropriate
composition of this group, preparing a time table, and preparing an
agenda for the TEP.
While the reports from both Phase I and Phase II of RTI's research
are posted in their entirety on the CMS Web site at http://www.cms.hhs.gov/LongTermCareHospitalPPS/02a_RTIReports.asp#TopOfPage, we are including The Executive Summary of
RTI's Phase II report in Addendum B to this proposed rule. This
material is being reproduced as received from the contractors and does
not represent our position or policy.

XII. Payment for Direct Graduate Medical Education (GME) (Sec. 413.79)

[If you choose to comment on issues in this section, please include
the caption ``PAYMENT FOR DIRECT GRADUATE MEDICAL EDUCATION'' at the
beginning of your comments.]

A. GME Background

Section 1886(h) of the Act, as added by section 9202 of the
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L.
99-272) and implemented in regulations at existing Sec. 413.75 through
Sec. 413.83, establishes a methodology for determining payments to
hospitals for the direct costs of approved graduate medical education
(GME) programs. Section 1886(h)(2) of the Act, as added by COBRA, sets
forth a payment methodology for direct GME costs involving the
determination of a hospital-specific, base-period per resident amount
(PRA) that is calculated by dividing a hospital's allowable costs of
GME for a base period by its number of residents in the base period.
The base period is, for most hospitals, the hospital's cost reporting
period beginning in FY 1984 (that is, the period beginning between
October 1, 1983, through September 30, 1984). Generally, for cost
reporting periods beginning on or after July 1, 1985, Medicare direct
GME payments are calculated by multiplying the hospital's PRA by the
weighted number of full-time equivalent (FTE) residents working in all
areas of the hospital (and nonhospital sites, when applicable), and by
the hospital's Medicare percentage of total inpatient days. In
addition, as specified in section 1886(h)(2)(D)(ii) of the Act, for
cost reporting periods beginning between October 1, 1993, through
September 30, 1995, each hospital-specific PRA for the previous cost
reporting period is not updated for inflation for any FTE residents who
are not either a primary care or an obstetrics and gynecology resident.
As a result, hospitals that trained primary care, and obstetrics and
gynecology residents, as well as nonprimary care residents in FY 1994
or FY 1995, have two separate PRAs: One for primary care, and
obstetrics and gynecology residents; and one for nonprimary care
residents.

[[Page 4819]]

The Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-
113) (BBRA) amended section 1886(h)(2) of the Act to establish a
methodology for the use of a national average PRA in computing direct
GME payments for cost reporting periods beginning on or after October
1, 2000, and on or before September 30, 2005. The BBRA established a
``floor'' for hospital-specific PRAs that is equal to 70 percent of the
locality-adjusted national average PRA. In addition, the BBRA
established a ``ceiling'' that limited the annual inflation update to a
hospital-specific PRA if the hospital's PRA exceeded 140 percent of the
locality-adjusted national average PRA. Section 511 of the Benefits
Improvement and Protection Act of 2000 (Pub. L. 106-554) (BIPA)
increased the floor established by the BBRA to equal 85 percent of the
locality-adjusted national average PRA. For purposes of calculating
direct GME payments, each hospital-specific PRA is compared to the
floor and the ceiling to determine whether a hospital-specific PRA
should be revised.
Section 1886(h)(4)(F) of the Act established limits on the number
of allopathic and osteopathic residents that a hospital may count for
purposes of calculating direct GME payments. For most hospitals, the
limits are the number of allopathic and osteopathic FTE residents
training in the hospital's most recent cost reporting period ending on
or before December 31, 1996.

B. Residents Training in Nonhospital Settings

1. Background
For purposes of direct GME payments, since July 1, 1987, the
statute allows hospitals to count the time residents spend training in
sites that are not part of the hospital (referred to as ``nonprovider''
or ``nonhospital sites'') under certain conditions. Section
1886(h)(4)(E) of the Act requires that the Secretary's rules concerning
computation of FTE residents for purposes of direct GME payments
``provide that only time spent in activities relating to patient care
shall be counted and that all the time so spent by a resident under an
approved medical residency training program shall be counted towards
the determination of full-time equivalency, without regard to the
setting in which the activities are performed, if the hospital incurs
all, or substantially all, of the costs for the training program in
that setting.'' (Section 1886(h)(4)(E) of the Act, as added by section
of 9314 of the Omnibus Budget Reconciliation Act of 1986 (Pub. L. 99-
509) (OBRA 86).) Regulations regarding the treatment of time spent by
residents training in nonhospital sites for purposes of direct GME
payments were first implemented in the September 29, 1989 final rule
(54 FR 40286). In regulations adopted in that same rule at Sec.
413.86(f)(3) (now Sec. 413.78(c)), we stated that a hospital may count
the time residents spend in nonprovider settings for purposes of direct
GME payment if the residents spend their time in patient care
activities and there is a written agreement between the hospital and
the nonprovider entity stating that the hospital will incur all or
substantially all of the costs of the program. The regulations at that
time defined ``all or substantially all'' of the costs to include the
residents' compensation for the time spent at the nonprovider setting.
Before October 1, 1997, for IME payment purposes, hospitals were not
permitted to count the time residents spent training in nonhospital
settings. Section 4621(b)(2) of the BBA revised section 1886(d)(5)(B)
of the Act to allow providers to count time residents spend training in
nonprovider sites for IME purposes, effective for discharges occurring
on or after October 1, 1997. Specifically, section 1886(d)(5)(B)(iv) of
the Act was amended to provide that ``all the time spent by an intern
or resident in patient care activities under an approved medical
residency program at an entity in a nonhospital setting shall be
counted towards the determination of full-time equivalency if the
hospital incurs all, or substantially all, of the costs for the
training program in that setting.'' In the July 31, 1998 final rule (63
FR 41004 through 41005) at Sec. 412.105(f)(1)(ii)(C) and Sec.
413.78(d) (formerly designated Sec. 413.86(f)(4)), we specified the
requirements a hospital must meet to include the time spent by
residents training in a nonhospital site in its FTE count for portions
of cost reporting periods occurring on or after January 1, 1999 for
purposes of both direct GME and IME payments. Section 413.75(b)
redefined ``all or substantially all of the costs for the training
program in the nonhospital setting'' as the residents' salaries and
fringe benefits (including travel and lodging where applicable), and
the portion of the cost of teaching physicians' salaries and fringe
benefits attributable to direct GME. Section 413.78(e) provides that,
in order for a hospital to be permitted to count FTE residents training
in a nonhospital setting, a written agreement must be in place between
the hospital and the nonhospital site providing that the hospital will
incur the costs of the resident's salary and fringe benefits while the
resident is training in the nonhospital site. The hospital must also
provide reasonable compensation to the nonhospital site for supervisory
teaching activities, and the written agreement must specify that
compensation amount.
2. Moratorium on Disallowances of Allopathic or Osteopathic Family
Practice Residents Training Time in Nonhospital Settings, and Questions
and Answers (Qs&As) on CMS Web Site (Section 713 of the MMA and Sec.
413.78)
In order for the hospital to incur ``all or substantially all'' of
the costs in accordance with the regulations, the actual cost of the
time spent by teaching physicians in supervising residents in the
nonhospital setting must be compensated by the hospital. The amount of
supervisory GME costs is dependent upon the teaching physician's salary
and the percentage of time that he or she devotes to activities related
to the residency program at the nonhospital site. (We note that the
teaching physician's involvement in the provision of patient care is
not considered attributable to direct GME.) As long as there are
supervisory GME costs associated with the nonhospital training, the
hospital must reimburse the nonhospital setting for those costs in
order to count FTE resident time spent in the nonhospital site for
purposes of IME and direct GME payments.
Many hospitals have entered into written agreements with
nonhospital sites that state that the teaching physician is
``volunteering'' his or her time in the nonhospital site, and,
therefore, the hospital is not providing any compensation to the
teaching physician. Other hospitals have paid only a nominal amount of
compensation for the supervisory teaching physicians' time in the
nonhospital setting. Because Sec. 413.78(d) requires that the hospital
must incur ``all or substantially all'' of the direct GME costs,
including those costs associated with the teaching physician,
regardless of whether the written agreement states that the teaching
physician is ``volunteering,'' we have required that the hospital pay
these costs in order to count FTE residents training in the nonhospital
site, as long as these teaching physician costs exist.
Section 713 of the MMA imposed a 1-year moratorium relating to
certain nonhospital site teaching physician costs for the period from
January 1, 2004, through December 31, 2004. During this 1-year period,
we were required to allow hospitals to count FTE

[[Page 4820]]

allopathic or osteopathic family practice residents training in
nonhospital settings for IME and direct GME payment purposes without
regard to the financial arrangement between the hospital and the
teaching physician practicing in the nonhospital setting to which the
resident was assigned.
We instructed our contractors (formerly called ``fiscal
intermediaries'' or ``FIs'') regarding the effect of section 713 of the
MMA in the One-Time Notification (OTN), ``Changes to the FY 2004
Graduate Medical Education (GME) Payments as Required by the Medicare
Modernization Act of 2003 (MMA)'' (CR 3071, Transmittal 61, issued on
March 12, 2004). Generally, we stated in the OTN that, when settling
prior year cost reports during this 1-year period, or for family
practice residents actually training in nonhospital settings during
this 1-year period, contractors should allow hospitals to count
allopathic and osteopathic family practice residents training in a
nonhospital setting for direct GME and IME payment purposes without
regard to the financial arrangement between the hospital and the
nonhospital site pertaining to the teaching physicians' costs
associated with the residency program. For further information on this
provision and for a summary of comments and responses related to this
provision, please refer to the FY 2005 IPPS final rule (69 FR 49176).
Furthermore, in response to questions and concerns raised by the
industry and Medicare contractors as to how to determine the costs
associated with residency training at the nonhospital setting, as well
as how and when to pay the nonhospital setting for these costs, we
posted Qs&As on the CMS Web site on April 8, 2005 at http://www.cms.hhs.gov/AcuteInpatientPPS/Downloads/nonhospQA.pdf. In the Qs&As, in response to the question of whether
there are situations where it is acceptable for the teaching physician
to ``volunteer'' his or her time supervising residents at the
nonhospital site, we stated that ``* * * the relevant question is not
whether volunteerism is permissible, but whether there is a cost to the
nonhospital site for supervising the resident training. If there is a
cost, the hospital must reimburse the nonhospital site for those
costs.'' We further stated that we believe in situations where the
teaching physician receives a predetermined compensation amount for his
or her time at the nonhospital site that does not vary with the number
of patients he or she treats, there is a cost for the teaching
physician time spent in GME activities. In contrast, if the physician's
compensation at the nonhospital site is based solely on his or her
billings, there is no cost for teaching physician time spent in GME
activities. Accordingly, the statute continues to require that a
hospital must pay ``all or substantially all'' the costs of training
residents at the nonhospital site in order to count FTE residents
training at that site, including teaching physician costs, as long as
those costs exist.
3. Requirements for Written Agreements for Residency Training in
Nonhospital Settings (Sec. 413.78(e))
In implementing section 1886(h)(4)(E) of the Act, in order to
assist contractors in determining whether a hospital incurred ``all or
substantially all'' of the costs of the program in the nonhospital
setting, we required in Sec. 413.78(c) and (d) (formerly Sec.
413.86(f)(3) and (4)) that there must be a written agreement between
the hospital and the nonhospital site stating that the hospital will
incur ``all or substantially all'' of the costs of training in the
nonhospital setting. We later specified at Sec. 413.78(d)(2) that the
written agreement must indicate the amount of compensation provided by
the hospital to the nonhospital site for supervisory teaching
activities.
In an effort to respond to concerns expressed by hospitals about
the administrative burden associated with meeting the written agreement
requirements, in the FY 2005 IPPS final rule (69 FR 49179), at Sec.
413.78(e), we revised our regulations to allow hospitals to choose to
either enter into a written agreement with the nonhospital site before
the hospital may begin to count residents training at the nonhospital
site, or to pay concurrently for the cost of training at the
nonhospital setting. That is, in the absence of a written agreement,
hospitals are required to pay ``all or substantially all'' of the costs
of the training program in the nonhospital setting by the end of the
third month following the month in which the training occurs.
4. Modification of the Definition of ``All or Substantially All of the
Costs for the Training Program in the Nonhospital Setting''
We have met numerous times with industry representatives with the
goal of developing a proposal which would respond to the concerns
expressed by the teaching hospital community about the administrative
burden associated with determining and documenting that hospitals are
paying for ``all or substantially all'' of the costs for the training
in the nonhospital setting. Some industry representatives recently
suggested that we could ease administrative burdens by modifying the
requirements hospitals must satisfy to meet the statutory requirement
to incur ``all or substantially all'' of the costs by allowing a
teaching physician to attest that at least 90 percent of the teaching
physician's GME time is spent in patient care activities. However, we
explained in response that the statutory test is tied to whether the
hospital has incurred ``all or substantially all'' of the costs of the
training at that site, not to how the teaching physician's GME time is
spent. Therefore, we do not believe the attestation proposed by the
industry adequately addresses the statutory requirement that the
hospital incur ``all or substantially all'' of the costs of the
training program at that site. We continue to believe that any Medicare
policy approach to allowing hospitals to count FTE residents training
in nonhospital settings for IME and direct GME payment purposes must be
consistent with the statutory requirement that hospitals incur ``all,
or substantially all'' of the costs of a training program in a
nonhospital setting. The statute is clearly concerned about the cost to
the nonhospital site, and we believe the statute has set a priority to
move resources, in terms of both residents and funding, out into
community settings. Therefore, where there is a cost to the nonhospital
setting for training residents, we believe that the Medicare program is
obligated to ensure that the nonhospital settings receive the funding
they are entitled to receive from hospitals under the statute.
Accordingly, we continue to believe that our current definition of
``all or substantially all'' of the costs, which is based on the costs
of the training program at the nonhospital site, is true to the intent
of the statute. However, to address the industry's concerns related to
burdensome documentation requirements, we propose to establish an
alternative methodology that hospitals may choose to use in determining
and paying for the teaching physician costs attributable to direct GME
in the nonhospital sites. As we explain below in this section, we are
proposing to revise the current definition of ``all or substantially
all'' of the costs to require hospitals to incur a percentage of the
costs of the training program at the nonhospital site. Our proposal
also generally incorporates the industry representatives' concept of a
90 percent threshold, but does not specifically relate it to the
percentage of time spent by the teaching physician on GME activities,
as suggested by industry

[[Page 4821]]

representatives. Furthermore, as explained in more detail below in this
section, in determining whether a hospital has met the 90 percent cost
threshold, we are proposing to allow hospitals to use certain shortcuts
or proxies in the place of actual cost data specific to each teaching
physician at each nonhospital site. However, hospitals would always
still have the option of calculating the actual teaching physician
costs and the 90 percent threshold using actual cost data specific to
all, or some of their applicable teaching physicians. That is, even if
a hospital chooses to calculate the direct GME costs of a program using
actual teaching physician time and cost data (as under existing
regulations) rather than using the proxies, under this proposal, a
hospital would only be required to pay at least 90 percent of the total
of the residents' salaries and fringe benefits (including travel and
lodging where applicable) and the portion of the teaching physicians'
costs attributable to direct GME for a program at the nonhospital site.
That is, we are proposing that a hospital would no longer be required
to pay 100 percent of the residents' salaries and fringe benefits
(including travel and lodging where applicable), plus the portion of
the teaching physicians' costs attributable to direct GME at the
nonhospital site. Instead, we are proposing that a hospital would be
required to pay for 90 percent of the GME costs of a training program
in a nonhospital site, and would have a choice between two approaches
for calculating teaching physician's costs.
Currently, ``all or substantially all of the costs for the training
program in the nonhospital setting'' is defined at Sec. 413.75(b) as
the residents' salaries and fringe benefits (including travel and
lodging where applicable) and the portion of the cost of teaching
physicians' salaries and fringe benefits attributable to direct GME. We
are proposing to define ``all or substantially all of the costs for the
training program in the nonhospital setting'' under Sec. 413.75(b)
(prospectively for cost reporting periods beginning on or after July 1,
2007) to mean at least 90 percent of the total of the costs of the
residents' salaries and fringe benefits (including travel and lodging
where applicable) and the portion of the cost of teaching physicians'
salaries attributable to direct GME. We believe this standard is
consistent with the statute, in that hospitals would still be required
to incur substantially all of the costs of training programs in
nonhospital settings, and we would expect this standard to further
encourage hospitals to shift training to nonhospital settings as
intended by the statute. Under this revised definition of ``all or
substantially all'' of the costs for the training program in the
nonhospital setting, we would create a 90 percent threshold that
hospitals must meet in order to count FTE resident time spent training
at the nonhospital setting for IME and direct GME payment purposes.
Additionally, under the new definition, hospitals would only have to
incur a minimum of 90 percent of the costs of the program at a
nonhospital site to count FTE resident time spent training at the site.
Furthermore, as is the case with the current definition of ``all or
substantially all,'' the new definition would not include overhead
costs.
We are also soliciting comments on our proposed effective date for
purposes of both direct GME and IME as to whether this proposal should
be effective immediately for portions of cost reporting periods
occurring on or after July 1, 2007, or alternatively, for cost
reporting periods beginning on or after July 1, 2007. Although an
effective date of ``portions of cost reporting periods occurring on or
after July 1, 2007,'' would provide a more immediate response to
concerns raised by teaching hospitals, we are concerned that
establishing new policies in the middle of hospitals' cost reporting
periods presents some logistical challenges, both from an
implementation and an audit perspective. Therefore, we are proposing
that the new definition of ``all or substantially all'' of the costs
would be effective for both direct GME and IME for cost reporting
periods beginning on or after July 1, 2007, although, as stated above
in this section, we are specifically soliciting comments on this
effective date.
As we explained, rather than adopt the industry's suggested
standard of 90 percent of the teaching physicians' time spent in
patient care activities, which we do not believe would be sufficiently
true to the requirements of the statute, as a compromise, we propose to
accept that hospitals have incurred ``all or substantially all'' of the
costs of the program at the nonhospital site (and are therefore
permitted to count the FTE residents training at the nonhospital site
for IME and direct GME Medicare payment purposes) if the hospital
incurs at least 90 percent of the costs of training at that site. Under
this proposal, a hospital would not have to demonstrate that it has
incurred the costs of the teaching physician's time if it has otherwise
incurred at least 90 percent of the nonhospital site training costs by
paying the residents' salaries and fringe benefits (including travel
and lodging where applicable) during the time spent training at the
site. However, if the residents' salaries and fringe benefits
(including travel and lodging where applicable) account for less than
90 percent of the costs of training at the nonhospital site, we propose
the hospital would have to compensate the nonhospital site for its
teaching physician costs so that the hospital is incurring at least 90
percent of the training program costs at the nonhospital site. If the
hospital does not meet the 90 percent threshold by only paying for the
cost of the residents' salaries and fringe benefits (including travel
and lodging where applicable), we propose the hospital would have to
meet the threshold by incurring some portion of the teaching
physicians' salaries that is attributable to direct GME.
As previously stated in the Qs&As on the CMS Web site on April 8,
2005 at http://www.cms.hhs.gov/AcuteInpatientPPS/Downloads/nonhospQA.pdf (Answer 4), we believe there are typically no
costs for teaching physician time if the physician's compensation at
the nonhospital site is based solely and directly on the number of
patients treated and for which he or she bills, which is the case with
a solo practitioner. When the solo practitioner is not treating
patients, he or she is not receiving payment for any other duties at
the nonhospital site. Therefore, in this instance, there is no cost to
the nonhospital site for the teaching physician's time. However, in the
case of a group practice or clinic setting, the physician often
receives a predetermined payment amount, such as a salary, for his or
her work at the nonhospital site. This predetermined payment amount
reflects all of his or her responsibilities at the nonhospital site,
including treating patients, training residents, and other
administrative activities (as applicable), and he or she may receive
that predetermined payment from the nonhospital site regardless of how
many patients he or she actually treats. The predetermined amount
implicitly also compensates the physician for supervising residents. A
portion of this implicit compensation is the cost attributable to
teaching activities, and, in order to count the residents training at
that site, the hospital must pay the nonhospital site this amount.
However, there may be instances in a group practice, where a teaching
physician is not receiving a form of predetermined compensation for his
or her work at the nonhospital site.

[[Page 4822]]

For example, three physicians may work in the same office and share
overhead expenses such as electricity and rent, but otherwise, there is
no sharing of revenues from patient care activities, and the physicians
operate as solo practitioners and are not compensated according to some
predetermined arrangement. In cases such as these, we assume that the
teaching physician is functioning as a solo practitioner and that
teaching physician costs for GME training at the nonhospital site are
zero. Accordingly, this proposal affects members of group practices
where the teaching physician receives a salary or other form of
predetermined compensation for his or her work at the nonhospital site.
However, we note that under our proposal, in the case of solo
practitioners, hospitals must continue to pay for at least 90 percent
of the total cost of the residents' salaries and fringe benefits,
including travel and lodging where applicable.
5. Implementation of a 90 Percent Cost Threshold
In proposing a new revised definition of ``all or substantially
all'' of the costs of the program at a nonhospital site, and in
establishing a 90 percent threshold, there are several variables that
are important in the methodology for determining the minimum amount
that a hospital must pay in order to count FTE residents training in a
nonhospital site. These variables are: teaching physicians' salaries,
residents' salaries and fringe benefits (including travel and lodging
where applicable), the number of hours per week that the teaching
physician spends in direct GME (not billable patient care) activities
in the nonhospital site, and the number of hours that a nonhospital
site is open each week. To provide the reader with a context for the
new methodology that we are proposing, we will first explain the
methodology briefly, provide two examples, and then proceed to an in-
depth discussion of each variable (see section XII.B.5.b. of the
preamble of this proposed rule).
a. Methodology
One of the primary complaints voiced by the hospital industry over
the past several years is that our policy requiring hospitals to
determine the portion of the teaching physician cost attributable to
direct GME in the nonhospital site results in an untenable
documentation burden since many physicians are reluctant to disclose
their salary information to the hospitals. One solution to this problem
suggested by the hospital industry is to use national average physician
salary information as a proxy for teaching physician-specific salaries
in the determination of the total cost of the program at a nonhospital
site. In addition, since the cost of the teaching physician time that
the hospital must incur is based on the amount of time the teaching
physician spends in nonpatient care GME activities, the hospital
industry has been concerned that determining this GME time could
require burdensome time studies. Therefore, we are proposing to adopt
an alternative methodology that hospitals may choose to use, instead of
actual costs, to calculate teaching physician costs in nonhospital
sites. Using this alternative methodology, to facilitate a less
burdensome way for a hospital to calculate the teaching physician costs
associated with GME training at the nonhospital site, we propose to
allow hospitals to use 3 hours per week as a presumptive standard
number of hours that a teaching physician spends in nonpatient care GME
activities at a particular nonhospital site. To determine the
percentage of the average salary associated with the 3 hours the
teaching physician is presumed to spend in nonpatient care GME
activities, we propose that a hospital would divide 3 hours by the
number of hours the nonhospital site is open each week. Next, we
propose that the hospital would multiply this percentage of time spent
in nonpatient care GME activities by the national average salary of
that teaching physician's specialty to calculate the cost of the
teaching physician's direct GME time. The cost of the teaching
physician's direct GME time would then be added to the costs of the
salaries and fringe benefits (including travel and lodging expenses,
where applicable) of the FTE resident(s) rotating in that program to
that nonhospital site to determine the GME costs for that program at
that site. (If FTE resident(s) are not rotating to a particular
nonhospital site throughout a whole year, then the national average
salary of the teaching physician would be prorated accordingly. The
cost of the residents' salaries and fringe benefits (including travel
and lodging where applicable) would already be reflective of an FTE
count). We propose that the hospital must pay at least 90 percent of
these total GME costs for the program at that nonhospital site in order
to count the resident(s) training there for direct GME and IME
purposes. If the hospital is already paying all, or even a portion of
the residents' salaries and fringe benefits (including travel and
lodging where applicable), and if the amount that the hospital is
paying for the residents' salaries and fringe benefits (including
travel and lodging where applicable) is equal to at least 90 percent of
the GME costs at the nonhospital site (that is, the 90 percent
threshold), then the hospital would be considered to be incurring ``all
or substantially all'' of the costs, and need not incur an additional
amount for teaching physician compensation to be permitted to include
the FTE residents training in the nonhospital site in its FTE count for
purposes of direct GME and IME payments. However, if the costs of the
residents' salaries and fringe benefits (including travel and lodging
where applicable) does not equal at least 90 percent of the GME costs
of the training program at the nonhospital site, then the hospital must
incur an additional amount for teaching physician costs based on the
national average salary information until it is incurring at least 90
percent of the GME costs for that nonhospital site program. That is,
under the proposed alternative definition of ``all or substantially
all'' of the costs, a hospital is required to incur at least 90 percent
of the total GME costs for a particular program at a particular
nonhospital site. The GME costs of a particular program at a particular
nonhospital site consist of FTE residents' salaries and fringe benefits
(including travel and lodging costs where applicable), and the portion
of teaching physician compensation (which may be based on national
average survey data) attributable to direct GME. As will be explained
in more detail below in this section, the hospital always has the
option of documenting the actual teaching physician's cost using actual
time or salary information to pay at least 90 percent of the total
costs of the program at the nonhospital site. In summary, the formula
for determining the 90 percent threshold, or the minimum amount that a
hospital must pay for the GME costs of a particular program at a
particular nonhospital site is:

0.90 x [(sum of each FTE resident's salary + fringe benefits (including
travel and lodging where applicable)) plus the portion of the teaching
physician's compensation attributable to direct GME activities.]

The portion of the teaching physician's compensation attributable
to direct GME activities may be calculated as follows:

(3/number of hours nonhospital site is open per week) x (national
average salary for each teaching physician*)

* The number of teaching physicians included in this formula is
subject to a 1:1

[[Page 4823]]

resident to teaching physician limit, as explained below in this
section.

The following are two examples of the proposed alternative
methodology:

Example 1: Assume one teaching physician is supervising one FTE
resident in a nonhospital site for 1 residency year. The national
average published salary amount for that teaching physician's
specialty is $120,000, and he works in a clinic that is open 60
hours per week. Using the standard of 3 hours spent in GME
activities per week, the teaching physician spends 5 percent of his
time in GME activities (that is, 3/60 = 0.05 or 5 percent). To
determine the cost of the teaching physician's time, the hospital
may make the following calculation: $120,000 x 0.05 = $6,000. This
teaching physician's cost is added to the resident's salary and
fringe benefits to calculate the cost of the training at the
nonhospital site in the following manner: $6,000 [cost of one
teaching physician] + $60,000 [actual cost of the FTE residents'
salary & fringe benefits] = $66,000. To meet the proposed new
definition of ``all or substantially all,'' the hospital would be
required to pay at least 90 percent of the costs of the training
program at the nonhospital site, which in this example equals
$59,400 (that is, 0.90 x $66,000). Since in this case the cost of
one FTE resident's salary and fringe benefits is $60,000, the
hospital could reach the 90 percent cost threshold by simply
incurring the resident's salary and fringe benefits during training
at the nonhospital site.
Example 2: Assume one teaching physician is supervising one FTE
resident in a nonhospital site for an entire residency year. The
national average published salary amount for that teaching
physician's specialty is $200,000, and she works in a clinic that is
open 40 hours per week. Using the standard of 3 hours spent in GME
activities per week, the teaching physician spends 7.5 percent of
her time in GME activities (that is, 3/40 = 0.075 or 7.5 percent).
To determine the cost of the teaching physician's time, the hospital
may make the following calculation: $200,000 x 0.075 = $15,000. This
teaching physician's cost is added to the resident's salary and
fringe benefits to calculate the cost of the training at the
nonhospital site in the following manner: $15,000 [cost of one
teaching physician] + $60,000 [actual cost of the FTE residents'
salary and fringe benefits] = $75,000. To meet the proposed new
definition of ``all or substantially all,'' the hospital would be
required to incur at least 90 percent of the costs of the training
at the nonhospital site, which in this example equals $67,500 (that
is, 0.90 x $75,000). Since in this case the cost of one FTE
resident's salary and fringe benefits is $60,000, the hospital has
not met the 90 percent threshold by only incurring the resident's
salary and fringe benefits. The hospital would have to incur at
least an additional $7,500 of the cost (that is, $67,500 - $60,000)
to reach the 90 percent threshold to be permitted to count the FTE
resident for IME and direct GME purposes. Alternatively, the
hospital could document the actual teaching physician cost using
time or salary information specific to that teaching physician at
that site, and use that amount to calculate 90 percent of the actual
training program costs.
b. Explanation of Variables
In the following section, we discuss each variable in the proposed
methodology for determining the cost that a hospital must incur in
order to count FTE residents training in nonhospital sites, and explain
our rationale for proposing to employ each of these variables. As
stated previously, the proposed variables are: teaching physicians'
salaries; residents' salaries and fringe benefits (including travel and
lodging where applicable); the number of hours per week that the
teaching physician spends in nonpatient care GME activities in a
nonhospital site; and the number of hours that a nonhospital site is
open each week.
(1) National Average Physician Salary Data by Specialty
One of the foremost objections voiced by the hospital industry to
our current policy is the documentation burden associated with
requesting salary information from individual teaching physicians in
nonhospital sites. Hospitals believe that many teaching physicians in
nonhospital sites are reluctant to disclose their personal salary
information, yet this disclosure is necessary to enable the hospital to
determine and pay the nonhospital site for the actual costs of the GME
program in accordance with our current regulations. One suggestion
mentioned by the hospital industry as an alternative to obtaining
individual teaching physician-specific salary information is to allow
hospitals to use national average salary survey data by specialty. We
understand that there are a number of organizations that conduct annual
national surveys on physician compensation. We are proposing to allow
hospitals to use physician compensation survey data as a proxy to
determine the teaching physician costs associated with GME in a program
at a particular nonhospital site. For example, one such national
organization that collects data on physician compensation that we are
considering using is the American Medical Group Association (AMGA).
AMGA's 2006 Medical Group Compensation and Financial Survey was
performed under contract by RSM McGladrey. Founded in 1950, AMGA
(formerly the American Association of Medical Clinics) is a trade
association which dedicates itself to making the ``* * * multi-
specialty medical group model the preferred delivery system for
patient-centered, affordable, quality medical care in America,'' and
represents 283 medical groups that include an average of 272
physicians. AMGA's use of the term ``medical group'' is based on the
American Medical Association's definition of ``group practice,'' which
is defined as a group that ``includes the provision of health care
services by three or more physicians who are formally organized as a
legal entity governed by physicians in which business, clinical, and
administrative facilities, records and personnel are shared and the
practice goals, objectives, and values are commonly defined. Income
from medical services provided by the group is treated as receipts of
the group and is distributed according to some prearranged plan.'' AMGA
has been performing surveys like the 2006 Medical Group Compensation
and Financial Survey since 1986. The 2006 survey was sent to over 2,600
medical groups, including medical groups that are not members of AMGA.
To give readers an idea of the average compensation amounts in the
survey, we have randomly selected 10 specialties included in the 2006
survey and listed their compensation information in Table 7. If we
adopt the AMGA survey for use to determine the cost of teaching
physicians' time attributable to GME, we would make the salary
information for all specialties accessible to hospitals on our Web site
and would provide it in a manner similar to Table 7.

Table 7.--Physician Salary Information
------------------------------------------------------------------------
Mean salary Median salary
*Specialty (in dollars) (in dollars)
------------------------------------------------------------------------
Cardiology.............................. $411,916 $363,081
Dermatology............................. 336,531 306,935
Family Medicine......................... 187,891 178,366
Gynecology and Obstetrics............... 286,418 271,273
Internal Medicine....................... 192,264 183,840

[[Page 4824]]

Ophthalmology........................... 307,044 281,112
Pediatrics & Adolescent: General........ 191,122 182,186
Physical Medicine and Rehabilitation.... 208,442 207,004
Diagnostic Radiology: Non-Interventional 415,521 400,000
General Surgery......................... 331,970 310,736
------------------------------------------------------------------------
*This information was obtained from the 2006 Medical Group Compensation
and Financial Survey published by the American Medical Group
Association[supreg] (AMGA). For further information, visit AMGA's Web
site at http://www.amga.org/.

We are soliciting comments as to whether we should use the mean or
median compensation amounts for purposes of determining the teaching
physicians' cost. In addition, although we recognize that there are
generally geographic variations in salary amounts within each specialty
(and, although not included in Table 7, AMGA does provide some detail
of salaries by geographic area), we are proposing to use the single
national average or median salary amount for each specialty, rather
than consider geographic variations, because we would like to simplify
and streamline the proposed methodology for determining the GME costs
in nonhospital sites as much as possible. We are specifically
soliciting comments about whether AMGA's salary information should be
used, and if not, which other physician compensation survey (or
possible mix of surveys) would be more appropriate for this purpose,
and whether we should consider additional factors such as geographic
variation in physician salaries within each specialty. We note that we
believe it is important for the organization providing specialty-
specific physician compensation information for this purpose to be one
that is nationally recognized as an authoritative source. Additionally,
we believe the data should contain compensation amounts for the fullest
range possible of specialties and subspecialties, and should be issued
annually so that hospitals will always have the most current data to
use in determining the teaching physician costs in nonhospital sites.
In addition, we would prefer a survey that is available to the public
at no cost. (We understand that a number of these surveys are
proprietary.) We are also soliciting comments as to how to make the
survey data available in the most efficient possible manner.
Regardless of the survey source that we ultimately use, we are
proposing that hospitals would use the most recent survey data
available as of the beginning of the hospital's particular cost
reporting year. For example--
If residents are rotating to a particular nonhospital site
to receive training in family practice in a hospital's cost reporting
year beginning January 1, 2008, then the hospital would use the family
practice average salary from the most recently issued survey (in the
case of AMGA, 2007) as the salary cost of that teaching physician, even
though that teaching physician may in fact earn more or less than that
national average salary amount.
If the teaching physician is a neurologist providing
residents with neurology training in a nonhospital site in a hospital's
cost reporting year beginning July 1, 2007, then the hospital would use
the neurology average salary from most recently issued survey (in the
case of AMGA, 2006, since AMGA's surveys are typically released in
August) as the salary cost of that teaching physician.

Determining Teaching Physicians' Cost

In determining the teaching physicians' cost, the specialty of the
teaching physician is the relevant criterion, not the specialty of the
residents that the teaching physician is training in the nonhospital
site. Generally, we believe the specialty of the teaching physician
will be self-evident, and the hospital can easily locate the national
average salary information for that teaching physician's specialty on
the survey (for example, if family practice residents are rotating to a
dermatology practice to receive training in dermatology, then the
national average salary for dermatologists would be used from the
survey). However, it is possible that the teaching physician is highly
specialized and the average compensation for his or her subspecialty is
not listed in the survey we decide to use. In such a case, we are
proposing that the hospital should use the immediately less-specialized
form of that specialty applicable to that teaching physician (or the
hospital may use the physician's actual salary information). For
example, if residents are receiving training from a forensic
pathologist, and the national average salary for the subspecialty of
forensic pathology is not included in the physician compensation
survey, then we are proposing that the hospital should instead use the
national average salary for the specialty of pathology to determine the
cost of that teaching physician. We believe this is the simplest method
of assigning a national average physician compensation amount in the
instance where the teaching physician's actual subspecialty is not
included in the survey. However, we are soliciting comments as to
whether it is possible or appropriate to use survey data from other
sources in the event that data is not available from the particular
survey source.
In addition, although it may not be a common occurrence, it is
possible that residents could be receiving training in a nonhospital
site from a teaching physician that is board certified in more than one
specialty, but the residents are only receiving training in one of the
specialties in which the physician is board certified. In this case, we
are proposing that the national average salary that should be used to
determine the teaching physician's cost should be the one for the
specialty in which the teaching physician is training the residents.
For example, if residents are being supervised by a cardiologist who is
board certified in internal medicine and cardiology, but the residents
are training with him or her specifically to learn internal medicine,
then we are proposing that the hospital should use the national average
salary for internal medicine, and not cardiology, to determine the
teaching cost of that physician. That is, in instances where the
residents are receiving training at a nonhospital site from a teaching
physician that is board certified in more than one specialty, and it is
unclear which specialty to use for purposes of assigning a national
average salary to that physician, we are proposing that the question
for the hospital to ask is, why are the residents training with that
physician? If the answer is, ``to receive

[[Page 4825]]

training in Specialty X,'' then the national average salary amount for
Specialty X should be used to determine the teaching physician's cost.
If the answer is, ``to receive training in Specialty Y,'' then the
national average salary amount for Specialty Y should be used to
determine the teaching physician's cost, regardless of the specific
board certification that the teaching physician has actually received.
In general, the hospital, with assistance from the GME Program Director
as necessary, should be able to document for the Medicare contractor
the specialty in which the residents are receiving training at the
nonhospital site, and the national average physician compensation
amount for that specialty used in paying ``all or substantially all''
of the costs, as defined in this proposed rule.
Multiple Teaching Physicians and Residents: 1:1 Resident to
Teaching Physician Ratio
We understand that it is not unusual for several residents in the
same program to rotate to a particular nonhospital site at the same
time, and be supervised by one teaching physician, or for residents to
be supervised by several teaching physicians during their time at that
nonhospital site. In determining the total costs of the training
program at the nonhospital site, it is necessary to consider all of the
residents' salaries and fringe benefits (including travel and lodging
where applicable), and the teaching physicians' national average
salaries. However, to maintain administrative simplicity, we are
proposing to allow hospitals to apply a maximum of a 1:1 resident-to-
teaching physician ratio ``limit'' in determining the total GME costs
applicable to a program at a nonhospital site. For example, if at the
nonhospital site there are two teaching physicians and one FTE
resident, the hospital may determine 90 percent of the total costs of
the program using a 1:1 resident-to-teaching physician ratio, not a 1:2
resident-to-teaching physician ratio. The 90 percent threshold would be
based on the total cost of the one FTE resident (salary and fringe
benefits, and travel and lodging where applicable) and one teaching
physician (national average salary for the specialty multiplied by the
percentage of time spent in nonpatient care GME activities). Similarly,
if a hospital rotated 3 FTE residents in the same program to a
particular nonhospital site with 7 physicians, unless the hospital
documents otherwise, we would assume that all 7 physicians supervise
the residents at some point during the training, but, for purposes of
determining the 90 percent threshold, we propose to assume that there
are only 3 FTE residents being supervised by 3 teaching physicians.
Accordingly, the 90 percent threshold would be based on the total cost
of the 3 FTE residents' salaries and fringe benefits (including travel
and lodging where applicable) and 3 teaching physicians (national
average salaries for the specialties multiplied by the percentage of
time spent in nonpatient care GME activities). (In addition, we note
that the 1:1 limit may be applied to FTE fractions, as well. That is,
if in the preceding example, 3.5 FTE residents were being supervised by
7 physicians, the 90 percent threshold would be determined based on the
costs associated with a resident-to-teaching physician ratio of
3.5:3.5.)
In the case of multiple teaching physicians, we must also consider
that a particular nonhospital site may be staffed by physicians in
different specialties. For example, an orthopedics practice may include
orthopedists and radiologists. In this case, we would still maintain
the 1:1 resident-to-teaching physician limit, even if the teaching
physicians are in different specialties, unless the hospital can
document that the number of physicians actually teaching the residents
is less than the number of FTE residents training at that nonhospital
site. Once the number of teaching physicians is established, we are
proposing that the hospital would determine the national average salary
for each of those teaching physicians from the national survey data,
and then calculate the average national salary of the mix of physician
specialties in the practice to be used in computing the 90 percent
threshold. For example, assume that 3 FTE residents are rotating to an
orthopedic surgery practice staffed by a total of 7 physicians; 4 are
orthopedic surgeons, and 3 are diagnostic radiologists. Again, unless
the hospital documents otherwise, we would assume that all 7 physicians
supervise the residents at some point during their rotation to this
practice. First, the hospital would access the national average salary
for orthopedic surgeons (assume $400,000), and the national average
salaries for diagnostic radiologists (assume $412,000). Then, the
hospital would calculate the average salary for these physicians as
follows: [($400,000 x 4) + ($412,000 x 3)]/7 = $405,143. Next, the 1:1
resident-to-teaching physician ratio would be applied, such that for
purposes of determining the 90 percent threshold, there would be 3 FTE
residents and 3 teaching physicians. Since the 3 teaching physicians
are not in the same specialty, the hospital would multiply the average
salary cost of $405,143 by 3 to get the total teaching physician
salaries for the training program at that site ($405,143 x 3 =
$1,215,429). The hospital would then multiply $1,215,429 by the
percentage of time spent by the teaching physicians in nonpatient care
GME activities (that percentage is 3 hours divided by the number of
hours the practice is open during a week) to determine the teaching
physician GME cost for the training program at that site. This teaching
physician cost is then added to the salaries and fringe benefits
(including travel and lodging where applicable) of the 3 FTE residents
to determine the GME cost of the program at that practice, and the
hospital must ensure that it incurs at least 90 percent of that GME
cost to count the 3 FTE residents training at the nonhospital site.
We note that, as we indicated above in this section, if there are
several physicians in a nonhospital site, we would assume that they all
supervise the residents at some point during the residents' training.
However, it may be that in fact only some of the physicians actually
supervise the residents, while other physicians are not involved in the
training program at all. The hospital may wish to document that only
certain physicians are involved in the training program (in order to
more accurately represent the structure and costs of the training
program in a particular nonhospital site). Such documentation would
increase the number of residents relative to teaching physicians that
is used to calculate the teaching physician costs. That is, using the
example above where the resident-to-teaching physician limit was
presumed to be 3:3, since there were actually 3 FTE residents and 7
physicians, if the hospital can document that only 2 physicians
supervised the residents (and the other 5 physicians were not involved
in the GME program at all), then the resident-to-teaching physician
ratio would be 3:2. As a result, the hospital might be required to
incur less teaching physician costs, if any, to meet the 90 percent
threshold.
(2) Residents' Salaries and Fringe Benefits
The second variable in our proposed methodology for determining the
costs of a program at a nonhospital site is the salaries and fringe
benefits (including travel and lodging where applicable) of the FTE
residents that are rotating to a particular nonhospital site. We
understand that since the salaries and

[[Page 4826]]

fringe benefits (including travel and lodging where applicable) of most
residents are already paid by hospitals (either directly, or by
reimbursing another entity such as a medical school), the portion of
the actual cost of the residents attributable to training in the
nonhospital setting can be easily identified and documented by a
hospital. Therefore, as under existing regulations, in determining the
90 percent threshold for a particular program at a specific nonhospital
site, the hospital must use the actual cost of each FTE resident's
salary and fringe benefits (including travel and lodging where
applicable). In addition, the cost of the residents will vary by
specialty and by program year. Furthermore, as with current policy, the
total residents' costs will be based on the FTE number rotating to a
particular nonhospital site in a cost reporting period, not the number
of individuals actually training in a nonhospital site.
(3) The Number of Hours Spent in Nonpatient Care GME Activities in a
Week and the Number of Hours That the Nonhospital Site Is Open in a
Week
The third variable used in the determination of the costs of a
training program at a nonhospital site is the amount of time that the
teaching physician(s) spends on direct GME (nonpatient care) activities
in a week. As we first explained in the July 31, 1998 Federal Register
(63 FR 40987), and more recently in the August 8, 2005 Qs&As posted on
the CMS Web site at http://www.cms.hhs.gov/AcuteInpatientPPS/Downloads/nonhospQA.pdf, determination of the teaching physician costs to the
nonhospital site is dependent upon the teaching physician's salary and
the percentage of time he or she devotes to activities related to non-
billable GME activities at the nonhospital site (such as conferences,
practice management, lectures, and administrative activities like
resident evaluations). Hospitals and teaching physicians have protested
that documenting the percentage of time that teaching physicians spend
on activities relating to nonpatient care GME activities at the
nonhospital site is an onerous and impractical task. In an effort to
eliminate the documentation burden on physicians of keeping track of
the amount of time they spend in nonpatient care GME activities in the
nonhospital site, rather than require teaching physicians to estimate
the number of hours per week that they spend in such activities with or
on behalf of the residents, we are proposing an alternative option that
hospitals may choose to use to determine the percentage of the teaching
physician's time that is spent in nonpatient care GME activities. This
option is an administrative shortcut or a proxy that we are proposing,
rather than continuing to require in all cases that the hospital must
document and pay for the actual costs of a training program at a
nonhospital site. However, a hospital always has the option of
documenting and paying for at least 90 percent of the costs of a
program at a nonhospital site using the teaching physician's actual
salary and information on the time spent in nonpatient care GME
activities.
Under the proposed proxy methodology, we would apply a presumed
standard number of hours spent by teaching physicians in nonpatient
care GME activities in every nonhospital site. Specifically, we are
proposing to use a standard of 3 hours per week spent in nonpatient
care GME activities by teaching physicians. We propose that the 3 hour
standard would be used in all cases in the formula for determining the
teaching physician costs at all nonhospital sites, regardless of the
specialty of the residents or the number of teaching physicians or
residents training at that nonhospital site. Although some hospital
industry representatives have stated that the amount of time spent by
teaching physicians in nonpatient care GME activities in nonhospital
sites is ``de minimus,'' and, therefore, there is typically little if
any teaching cost to the nonhospital site, we believe there is also
evidence indicating that in many cases the teaching physician is
spending a significant amount of time with or on behalf of the
residents in nonpatient care GME activities. We believe the standard of
3 hours of nonpatient care GME activities per week is a reasonable
proxy based on data collected from surveys conducted by the Association
of American Medical Colleges (AAMC), the American Osteopathic
Association (AOA), and the Academic Family Medicine Advocacy Alliance
(AFMAA), in addition to information compiled from our own informal
surveys of teaching physicians.
In September 2005, in response to a request by CMS, the AFMAA, AOA,
and AAMC conducted informal surveys to determine the amount of time
spent in nonpatient care activities by teaching physicians in
nonhospital sites. In the survey results shared with CMS by these
associations, we received a range of hours for the amount of teaching
physician time spent per week in nonpatient care GME activities at the
nonhospital site. Such nonpatient care GME time included time spent by
the teaching physician in training activities when the patient was not
present and time spent in administrative activities related to the GME
program. The surveys showed means ranging from 1.1 to 4.0 hours per
week and medians of 1.5 to 4.0 hours per week for time spent on
residency training when patients were not present. The surveys also
showed means ranging from 1.6 to 4.7 hours per week and medians of 0 to
2 hours per week for time spent on administrative activities related to
residency training at the nonhospital site. Given the range of survey
results, we believe that 3 hours per week serves as a reasonable number
to use as a shortcut or a proxy for determining teaching physician time
spent in nonpatient care GME activities at the nonhospital site. As
previously stated, hospitals always still have the option of
calculating teaching physician costs and the 90 percent cost threshold
using actual data (as under current regulations) specific to the number
of hours the teaching physician spends per week on GME activities at
the nonhospital site. For example, if a hospital can document that a
teaching physician actually spends 1.5 hours per week on GME activities
at the nonhospital site, then the hospital may use 1.5 hours per week
in calculating the teaching physician cost and the 90 percent cost
threshold.
We are proposing to use the standard of 3 hours of nonpatient care
activities per week as the proxy regardless of the number of FTE
residents the teaching physician is supervising because we believe that
when the number of FTE residents at a nonhospital site increases, the
teaching physician time associated with those FTE residents in many
instances will increase by only a small multiple. For example, a
teaching physician would provide a lecture to the residents together,
rather than separately lecturing each FTE resident training at the
nonhospital site. Accordingly, the time spent by the teaching physician
in nonpatient care activities may increase only slightly with each
additional FTE resident being supervised.
While we are proposing to use the standard number of hours spent by
teaching physician(s) in nonpatient care direct GME activities across
all training occurring at all nonhospital sites (that is, 3 hours per
week), we are proposing to introduce a fourth variable in the
determination of the cost of a training program in a nonhospital site
that will vary depending on the specific nonhospital site. This fourth
variable is the number of hours that a nonhospital site is open each
week. Since only a percentage of the teaching physician's

[[Page 4827]]

salary is attributable to direct GME activities, and that percentage is
based on time he or she devotes to activities related to non-billable
GME activities at the nonhospital site, we are proposing to determine
this percentage by dividing the standard number of hours spent in
nonpatient care GME activities by the number of hours the specific
nonhospital site is open each week. We are proposing that the numerator
will always be 3 hours, and the denominator will vary depending on the
nonhospital site. For example, if FTE residents rotate throughout the
year to a nonhospital site that is open 40 hours per week, then the
percentage of time spent by the teaching physician(s) in nonpatient
care GME activities throughout the year at that site is 3/40 = 0.075 or
7.5 percent. (If FTE residents rotate to that nonhospital site for only
a portion of a year, then the ratio of 3/40 would be further multiplied
by the percentage of the year that the FTE residents train there. For
example, if the FTE residents only rotate to this nonhospital site for
3 months of the year, then the percentage of time that the teaching
physician(s) spends on nonpatient care GME activities at that site
equals (3/40 x 0.25 = 0.019 or 1.9 percent). Similarly, if FTE
residents rotate throughout the year to a nonhospital site that is open
50 hours per week, then the percentage of time spent by the teaching
physician(s) in nonpatient care direct GME activities throughout the
year is 3/50 = 0.06 or 6 percent. We recognize that the teaching
physician(s) may not spend 100 percent of his or her time in that
nonhospital site. In fact, many teaching physicians spend some of their
week working in a hospital or other facilities. However, we believe
that deriving the true amount of time spent by each teaching physician
in each nonhospital site in nonpatient care GME activities would
involve the imposition of another form of the documentation burden that
the hospital industry and teaching physicians have found onerous up to
this point. This proposed methodology eliminates the need for any time
studies and it is easy to gather the information needed.
We also acknowledge that this proposal to use the number of hours
that a particular nonhospital site is open as a proxy in the
denominator for determining the percentage of time spent by the
teaching physician(s) in nonpatient care GME activities could, in some
extreme instances, result in an unusually high percentage of teaching
time, which, in turn, would result in a determination of unusually high
teaching costs. This is so because, since 3 hours is a constant in the
numerator, the fewer the number of hours the clinic is open (the
denominator), the greater the calculated percentage of time spent by
the teaching physician in nonpatient care GME activities. To use an
extreme example, if a clinic is only open 10 hours a week, then 3/10,
or 30 percent of the national average salary for the teaching
physician's specialty would represent the teaching physician's cost
that would be used to determine 90 percent of the costs of the program
at the clinic. However, we believe that, for most nonhospital training
situations, this proposal to use the 3 hour standard and the number of
hours the nonhospital site is open per week is a reasonable alternative
to the current procedures for determining the actual teaching
physician's cost because these proxies are easily obtainable, discrete
numbers that do not necessitate any time studies. Nevertheless, we are
soliciting comments on alternative proxies that might be appropriate to
use in the place of the ratio of 3 hours to the number of hours a
nonhospital site is open per week. We also note that in the event that
this proposed methodology for calculating teaching physician costs in a
particular nonhospital site results in an unrealistic amount, we
reiterate that a hospital always has the option of determining and
paying at least 90 percent of the GME costs using actual physician
salary and teaching time information, for all, or some of its training
programs occurring in nonhospital settings. In fact, we are proposing
that a hospital may choose to use a combination of actual information
and proxy information for determining the teaching physician cost. For
example, a hospital may choose to use actual physician salary
information instead of the national average survey data, but use the 3
hour standard and the number of hours the nonhospital site is open per
week to determine the percentage of time spent on teaching activities,
or vice versa. Furthermore, we reiterate that under the proposed new
definition of ``all or substantially all,'' even if a hospital chooses
to document the teaching physician cost using actual teaching
physician-specific information, the hospital need only incur 90 percent
of the residents' salaries and fringe benefits (including travel and
lodging where applicable), and the portion of the teaching physicians'
salaries attributable to direct GME, and not 100 percent of those
costs.
Under our proposal, 90 percent of the GME costs for a particular
program at a particular nonhospital site would be the minimum amount
that a hospital must pay to count the FTE resident(s) training at that
site for direct GME and IME purposes. If the hospital is already paying
the resident's salaries and fringe benefits (including travel and
lodging where applicable), and if the costs of the resident's salaries
and fringe benefits are equal to at least 90 percent of the total GME
costs at the nonhospital site (that is, the 90 percent threshold), then
the hospital is paying ``all or substantially all'' of the costs in
accordance with our proposed definition, and need not pay an additional
amount for teaching physician compensation in order to count the FTE
residents. However, if the hospital is paying less than 90 percent of
the costs of the training program at the nonhospital site, then the
hospital must pay an additional amount toward the teaching physician
costs until it is paying at least 90 percent of the GME costs for that
program. We believe our proposal is relatively simple, easy to
administer, and eliminates the documentation burdens cited by the
industry as being associated with the current policy. However, we note
again that even under our proposal, a hospital is not precluded from
choosing to calculate and pay 90 percent of the teaching costs of a
program in a nonhospital site in accordance with the existing policy
requirements. That is, the hospital may still choose to document the
actual teaching physician cost using actual time and salary information
from the teaching physician(s) to determine what the true direct GME
costs are at that nonhospital site. Once the hospital calculates the
actual direct GME costs, we propose that it would only be required to
pay at least 90 percent of the actual direct GME costs, consistent with
our proposed definition of ``all or substantially all of the costs for
the training program in the nonhospital setting.''
The following is an additional example of the application of the
proposed methodology:

Example: For the July 2008 through June 2009 academic year, a
hospital with a family practice program sends 3 FTE residents (in
different program years) to train at the Family Medicine Center
(FMC), a nonhospital site. The hospital's cost reporting period
began on January 1, 2008. The FMC is staffed by 5 physicians, all of
whom supervise the residents at some point during the year. Four of
the physicians are family practitioners, and 1 physician is a
psychiatrist. The FMC is open for 50 hours per week. To determine
the cost of the teaching physicians, the hospital refers to the most
recent national average salary amounts on the national survey
published prior to January 1, 2008, which is the 2007 survey. Assume
that the national average published salary amount for family
practice is $180,000, and the national

[[Page 4828]]

average published salary amount for psychiatry is $187,000. Since
there are multiple physicians in different specialties (absent
specific documentation provided by the hospital), the average salary
of one FMC physician is calculated as follows: [($180,000 x 4 family
practice physicians) + ($187,000 x 1 psychiatrist)]/5 = $181,400.
Since the residents are on the payroll of the hospital, the hospital
knows that the total actual cost of the 3 FTE residents' salaries
and fringe benefits (including travel and lodging, if applicable) is
$182,000. After applying the 1:1 resident-to-teaching physician
limit, there are 3 FTE residents to 3 teaching physicians (again,
absent specific documentation provided by the hospital). Thus, the
GME cost of the 3 teaching physicians is calculated as follows:
($181,400 x 3) x (3 hours/50 hours) = $32,652. This teaching
physicians' cost of $32,652 is added to the residents' cost of
$182,000 to arrive at the total cost of the training program at the
nonhospital site of $214,652. To meet the proposed definition of
``all or substantially all,'' the hospital would be required to pay
at least 90 percent of the costs of the training program at the
nonhospital site, which in this example equals $193,187 (that is,
0.90 x $214,652). Since in this case the cost of the 3 FTE
residents' salaries and fringe benefits is $182,000, the hospital
would not reach the 90 percent cost threshold by simply incurring
the costs associated with the residents. The hospital must pay at
least an additional $11,187 (that is, $193,187-$182,000) to meet the
90 percent threshold and satisfy the requirement to pay ``all or
substantially all'' of the costs of the family practice program at
the FMC.

C. Other Issues To Be Considered

Although we are proposing a revised standard for a hospital to
incur ``all or substantially all of the costs for the training program
in the nonhospital setting'' in order to count FTE residents training
in nonhospital sites, the other existing regulations regarding
nonhospital sites would still generally apply, but would require some
modification. Under the existing regulations at Sec. 413.78(e), a
hospital is permitted to count residents training in nonhospital sites
only if the residents spend their time in patient care activities, and
the hospital must comply with either of the following: (a) It must pay
all or substantially all of the costs of the training program in the
nonhospital site by the end of the third month following the month in
which the training in the nonhospital site occurred; or (b) it must
have a written agreement with the nonhospital site that states that the
hospital will incur the cost of the resident's salary and fringe
benefits while the resident is training in the nonhospital site and the
hospital is providing reasonable compensation to the nonhospital site
for supervisory teaching activities. The written agreement must
indicate the compensation the hospital is providing to the nonhospital
site for supervisory teaching activities. We are proposing to add a new
Sec. 413.78(f) for cost reporting periods beginning on or after July
1, 2007, to reflect the revised definition of ``all or substantially
all of the costs for the training program in the nonhospital setting.''
First, if a hospital chooses to make concurrent payments; that is, pay
the training costs by the end of the third month following the month in
which the training occurred, then we propose that the hospital must be
able to document for audit purposes that the concurrent payments it
makes reflects ``all or substantially all'' of the costs, in accordance
with the new proposed definition at Sec. 413.75(b).
Alternatively, if the hospital chooses to maintain a written
agreement with the nonhospital site (which, we note, must be in place
before the hospital may begin to count residents training at a
nonhospital site), we are proposing that the new Sec. 413.78(f) would
state that the written agreement must indicate that the hospital will
incur at least 90 percent of the total of the costs of the resident's
salary and fringe benefits (including travel and lodging where
applicable) while the resident is training in the nonhospital site and
the portion of the cost of the teaching physician's salary attributable
to direct GME. We are proposing that the written agreement should
specify the total compensation amount the hospital will incur to the
nonhospital site to meet the 90 percent ``all or substantially all''
threshold, and whether this amount reflects only residents' salaries
and fringe benefits (including travel and lodging where applicable), or
reflects an amount for teaching physician compensation as well. We
believe the written agreement should specify the total amount of
nonhospital site training costs the hospital will incur and specify
what costs are included in that amount because the hospital would need
to determine up front the amount it must pay to the nonhospital site in
order to meet the 90 percent threshold and incur ``all or substantially
all'' of the cost in accordance with our proposed definition. In
addition, the provision of this information in the written agreement
will simplify the audit process when the Medicare contractor determines
whether the amount paid by the hospital to the nonhospital site
reflects ``all or substantially all'' of the costs of the program in
the nonhospital site in accordance with the new proposed definition at
Sec. 413.75(b). We note that regardless of whether a hospital chooses
to make concurrent payments to the nonhospital site, or to have a
written agreement, the hospital must demonstrate that it is paying for
at least 90 percent of the costs of each program at each nonhospital
site according to the following formula (although actual data may be
used in place of the proxies):

The portion of the teaching physician's compensation attributable
to direct GME activities may be calculated as follows:

(3/number of hours nonhospital site is open per week) x (national
average salary for each teaching physician).

If there are no teaching costs (because, for example, the residents
are rotating to a nonhospital site where the teaching physician is a
solo practitioner), then the written agreement should indicate that the
specified compensation amount reflects only residents' salaries and
fringe benefits (including travel and lodging where applicable) because
there are no teaching physician costs (since the teaching physician is
a solo practitioner). Finally, we note that, as under existing
regulations, if the hospital does choose to have a written agreement
with the nonhospital site, the hospital must, at a minimum, liquidate
the costs identified in the written agreement in accordance with the
regulations at Sec. 413.100(c)(2)(i).
In addition, we note that under current policy, a hospital may
choose to provide non-monetary, in-kind compensation rather than
provide direct financial compensation to the nonhospital site for
supervisory teaching activities. Under the new proposed definition of
``all or substantially all,'' a hospital would still be permitted to
provide in-kind compensation to the nonhospital site, but, as under
current policy, the hospital must be able to document that the value of
the in-kind compensation is at least equivalent monetarily to the
portion of the actual or proxy-based costs for that physician
attributable to nonpatient care GME activities. That is, the hospital
must show that the value of in-kind compensation is sufficient to meet
the 90 percent threshold using the formula stated above in this
section.
We also believe it is important to review how the written agreement
requirements apply when a hospital's residents rotate to nonhospital
sites such as clinics owned by a medical

[[Page 4829]]

school. As we stated in response to Question 9 on the Qs&As on our Web
site at http://www.cms.hhs.gov/AcuteInpatientPPS/Downloads/nonhospQA.pdf, ``rather than having a written agreement with each
clinic, it would be appropriate for the hospital to have a written
agreement with the medical school, since the medical school owns the
clinics. If the residents are training in various medical school
clinics, the hospital must have written agreement(s) reflecting the
compensation arrangements for each clinic'' (emphasis added).
Unfortunately, we have learned of numerous situations where a hospital
has a single agreement with the medical school in which the hospital
specifies a lump sum dollar amount that it is paying the medical school
for GME-related services that the medical school is providing, but
there is no breakout at all as to the specific training costs
attributable to individual clinics, or to the specific programs at
those clinics. Without a breakout of the residents' salaries and fringe
benefits (including travel and lodging where applicable), and the
portion of the teaching physicians' salaries attributable to nonpatient
care GME activities at each nonhospital site, the Medicare contractor
is unable to determine whether the hospital has properly paid the costs
of each specialty program at each nonhospital site in accordance with
the statutory and regulatory requirements. Likewise, under the new
proposed definition of ``all or substantially all,'' whether hospitals
pay for the costs of a program at a nonhospital site on a concurrent
basis, or if they have a written agreement, they must be able to
document how they are paying for ``all or substantially all'' of the
costs of a particular program at each nonhospital site. Global
agreements with lump sum payment amounts, either for teaching physician
costs or for nonhospital training in general, have not been sufficient
under existing policy and would not be sufficient under the proposed
policy. Similarly, as under current policy, if two (or more) hospitals
both train residents in the same accredited program, and the residents
rotate to the same nonhospital site(s), the hospitals cannot share the
costs of that program at that nonhospital site (for example, by
dividing the FTE residents they wish to count according to some pre-
determined methodology), as this violates the statutory requirement at
section 1886(h)(4)(E) of the Act that the hospital incur ``all, or
substantially all, of the costs for the training program in that
setting'' (emphasis added). Finally, as under current policy, we note
that in the instance where a hospital is sending residents in several
different specialty programs to train in the same nonhospital site, and
it wishes to count all of those FTE residents for purposes of IME and
direct GME payment, the hospital must be able to document that it is
separately meeting the ``all or substantially all'' threshold for each
specialty program at that site. (That is, the hospital would determine
the 90 percent threshold in accordance with the proposed methodology
described above separately for multiple teaching physicians and
residents, and would apply the resident-to-teaching physician ratio
limit if applicable).
In summary, we are proposing to revise Sec. 413.75(b) to modify
the definition of ``all or substantially all of the costs for the
training program in the nonhospital setting'' to reflect the policies
in place between January 1, 1999 and July 1, 2007, and our proposed
policy on or after July 1, 2007. We are revising the definition of
``all or substantially all of the costs for the training program in the
nonhospital setting'' to mean: (a) Effective on or after January 1,
1999 and for cost reporting periods beginning before July 1, 2007, the
residents' salaries and fringe benefits (including travel and lodging
where applicable) and the portion of the cost of teaching physicians'
salaries and fringe benefits attributable to direct graduate medical
education (GME); and (b) effective for cost reporting periods beginning
on or after July 1, 2007, at least 90 percent of the total of the costs
of the residents' salaries and fringe benefits (including travel and
lodging where applicable) and the portion of the cost of teaching
physicians' salaries attributable to direct GME.
In addition, we are proposing to revise Sec. 412.105(f)(1)(ii)(C)
for IME and add a new Sec. 413.78(f) to reflect the revised
requirement to pay ``all or substantially all'' of the GME costs in a
nonhospital site, effective for cost reporting periods beginning on or
after July 1, 2007.

XIII. Technical Amendment

In the Revisions to Hospital Inpatient Prospective Payment
Systems--FY 2007 final rule (71 FR 47870 through 48136), in an
amendatory instruction to Sec. 412.22(h)(3), we inadvertently omitted
the words ``introductory text.'' Therefore, paragraphs Sec.
412.22(h)(3)(i) and (ii) were removed. We are proposing to replace
Sec. 412.22(h)(3)(i) and (ii) in this proposed rule.

XIV. Waiver of Proposed Rulemaking and Delay in the Effective Date

We ordinarily publish a notice of proposed rulemaking in the
Federal Register and invite public comment on the proposed rule in
accordance with 5 U.S.C. section 553(b) of the Administrative Procedure
Act (APA). The notice of proposed rulemaking includes a reference to
the legal authority under which the rule is proposed, and the terms and
substances of the proposed rule or a description of the subjects and
issues involved. This procedure can be waived, however, if an agency
finds good cause that a notice-and-comment procedure is impracticable,
unnecessary, or contrary to the public interest and incorporates a
statement of the finding and its reasons in the rule issued.
In addition, we ordinarily provide a 30-day delay in the effective
date of the provisions of a proposed rule. Section 553(d) of the APA (5
U.S.C. section 553(d)) ordinarily requires a 30-day delay in the
effective date of final rules after the date of their publication in
the Federal Register. This 30-day delay in effective date can be
waived, however, if an agency finds for good cause that the delay is
impracticable, unnecessary, or contrary to the public interest, and the
agency incorporates a statement of the finding and its reasons in the
rule issued.
In the Revisions to Hospital Inpatient Prospective Payment
Systems--FY 2007 Occupational Mix Adjustment to Wage Index;
Implementation; Final rule (71 FR 47870 through 48136), in an
amendatory instruction to Sec. 412.22(h)(3), we inadvertently omitted
the words ``introductory text.'' Therefore, paragraphs Sec.
412.22(h)(3)(i) and (ii) were removed from the CFR. We believe that
since we are merely making a technical correction by correcting an
amendatory instruction and since these paragraphs were subject to
notice and comment when originally added to the CFR, we have just cause
to waive additional notice and comment rulemaking at this time. Also,
it is in the public interest to have these paragraphs reinstated
immediately because the entities to which these provisions apply may
believe they will no longer be excluded from the IPPS and may be in the
process of closing their facilities including transferring patients to
other facilities. In addition, it is in the public interest to have
these paragraphs reinstated immediately because they are part of
current policy. The paragraphs are being added without any changes to
the language or its intent. For these same reasons, we believe that we
have

[[Page 4830]]

just cause to waive the 30-day delay in effective date since we are
correcting an error from the previously published rule and not
implementing new policy.
For the reasons stated above in this section, we find that both
notice and comment and the 30-day delay in effective date for this
correction are unnecessary and impracticable, and that it is in the
public interest to make this notice effective in conjunction with the
final rule to which the corrections apply (and could be contrary to the
public interest to do otherwise). The technical correction is effective
as if it had been included in the Revisions to Hospital Inpatient
Prospective Payment Systems--FY 2007 Occupational Mix Adjustment to
Wage Index; Implementation; Final rule.

XV. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
We are soliciting public comment on each of these issues for the
following sections of this document that contain information collection
requirements:

Section 413.78 Direct GME Payments: Determination of the Total Number
of FTE Residents

Section 413.78(f) outlines the requirements that must be met for
the time residents spend in non-provider settings to be included in
determining the number of FTE residents used in the computation of a
hospital's resident count. A resident must spend his or her time in
patient care activities; the hospital must incur substantially all of
the costs of the training program in a nonhospital setting.
In addition, Sec. 413.78(f)(3) requires that a hospital comply
with one of the two requirements listed in Sec. 413.78(f)(3)(i) and
Sec. 413.78(f)(3)(ii).
Section 413.78(f)(3)(i) states that a hospital must document that
it is paying for all or substantially all of the costs associated with
the training program in nonhospital settings. The costs must be
incurred between the training date and the end of the third month after
the training date. The burden associated with this requirement is the
time and effort associated with documenting and maintaining records of
the incurred costs and subsequent payments made by a hospital.
Section 413.78(f)(3)(ii) states that a hospital must have a written
agreement with the nonhospital site. The agreement must state that the
hospital will incur at least 90 percent of the cost of the resident's
salary and fringe benefits (and travel and lodging where applicable)
while the resident is training in the nonhospital site and the portion
of the cost of the teaching physician's salary is attributable to GME.
The written agreement must also specify the compensation amount the
hospital is paying the nonhospital site, and whether this amount
reflects only residents' salaries and fringe benefits (and travel and
lodging is applicable), or includes an amount for teaching physician
compensation. The burden associated with this requirement is the time
and effort associated with drafting, signing, and maintaining the
written agreement.
The requirements listed in Sec. 413.78(f)(3)(i) and Sec.
413.78(f)(3)(ii) are exempt from the Paperwork Reduction Act of 1995 in
accordance with Pub. L. 99-272.
We will be submitting a copy of this proposed rule to OMB for its
review of the information collection requirements described above.
These requirements are not effective until they have been approved by
OMB.
If you comment on these information collection and recordkeeping
requirements, please mail copies directly to the following:

Centers for Medicare & Medicaid Services, Office of Strategic
Operations and Regulatory Affairs, Regulations Development Group, Attn:
William N. Parham, III, [CMS-1529-P], Room C4-26-05, 7500 Security
Boulevard, Baltimore, MD 21244-1850; and
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, New Executive Office Building, Washington, DC
20503, Attn: Carolyn Lovett, CMS Desk Officer, [CMS-1529-P], [email protected]. Fax (202) 395-6974.

XVI. Regulatory Impact Analysis

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

A. Introduction

We have examined the impacts of this proposed 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 Act, the Unfunded Mandates Reform Act of
1995 (UMRA) (Pub. L. 104-4), and Executive Order 13132.
1. Executive Order 12866
Executive Order 12866 (as amended by Executive Order 13258, which
merely assigns 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 one
year). We are using the proposed rates, factors and policies presented
in this proposed rule, including updated proposed wage index values,
and the best available claims and CCR data to estimate the change in
proposed payments for the 2008 LTCH PPS rate year. Based on the best
available data for 369 LTCHs, we estimate that the proposed expansion
of the existing payment provision for co-located LTCHs (HwHs and
satellites of LTCHs) at existing Sec. 412.534 to certain situations
not presently covered by existing Sec. 412.534 for subclause (I) LTCHs
(as discussed in section V.B. of the preamble of this proposed rule),
in conjunction with the proposed update to the Federal rate for RY 2008
(discussed in section IV.C. of the preamble of this proposed rule), the
proposed changes to the area wage adjustment (discussed in section
IV.D.1. of the preamble of this proposed rule), and the proposed
increase in the outlier fixed-loss amount (discussed in section
IV.D.3.c. of the preamble of this proposed rule) for the 2008 LTCH PPS
rate year, would result in a decrease in estimated payments from the
2007 LTCH PPS rate year of approximately $80 million (or about 2.0
percent) for the 369 LTCHs in our database.

[[Page 4831]]

Regarding the approach discussed for addressing our concerns with the
existing SSO policy presented in section V.A.2. of the preamble of this
proposed rule, we estimate that such an approach would result in a
decrease in estimated payments in the 2008 LTCH PPS rate year of about
an additional $37 million (for a total decrease in estimated aggregate
payments of $117 million ($80 million plus $37 million) or about 2.9
percent) for the 369 LTCHs in our database. (An estimate of Medicare
program payments for LTCH services for the next 5 years is shown in
section IV.D.5. of the preamble of this proposed rule. The impact of
the proposed policy change relating to payment for Hospital Direct and
Indirect Graduate Medical Education Payments (GME) is discussed in
section XVI.C.2. of this regulatory impact analysis.) The estimated
impact of the provisions presented in this proposed rule (as detailed
above) for the 369 LTCHs in our database are in Table 8.

Table 8.--Estimated Impact of the Provisions of This Proposed Rule \1\
------------------------------------------------------------------------
Estimated
percent change
Proposed policy in estimated
aggregate LTCH
PPS payments
------------------------------------------------------------------------
Proposed Payment Rate and Policy Changes:
Proposed Changes to the Federal Rate \2\............ 0.61
Proposed Changes to the Area Wage Adjustment........ -0.49
Approach Discussed for SSO Policy................... -0.91
---------------
Subtotal \3\.................................... -0.7

Expansion of the ``25 Percent'' Policy \4\.............. -2.2
---------------
Total \5\ (-0.7% + -2.2%)........................... -2.9
------------------------------------------------------------------------
\1\ Percent change in estimated aggregate LTCH PPS payments from the
2007 LTCH PPS rate year to the 2008 LTCH PPS rate year based on the
best available data for 369 LTCHs.
\2\ As discussed in greater detail in section XV.B.4. of this regulatory
impact analysis, because about 35 percent of all LTCH cases are
projected to receive a payment under the existing SSO policy that is
based either on the estimated cost of the case or the ``IPPS
comparable amount'' (rather than the proposed Federal rate).
Therefore, the percent change in estimated aggregate LTCH PPS payments
due to the proposed changes to the Federal rate, 0.61 percent, is
slightly less than the proposed update to the Federal rate of 0.71
percent.
\3\ In absence of including the approach considered for the SSO policy
(discussed in section V.A.2. of this proposed rule), we estimate that
in place of the 0.7 percent decrease in estimated aggregate LTCH PPS
payments, on average, for all LTCHs, there would be 0.25 percent
increase in estimated aggregate LTCH PPS payments, on average, for all
LTCHs for all proposed payment rate and policy changes. We also note
that the estimated percent change for all proposed payment rate and
policy changes may not exactly equal the sum of the estimated percent
change for the proposed changes to the Federal rate, the proposed
changes to the area wage adjustment and the approach discussed for the
SSO policy due to the effect of estimated changes in aggregate HCO
payments as well as other interactive effects that cannot be isolated.

\4\ Proposed expansion of the existing special payment provision for co-
located LTCHs (HwHs and satellites of LTCHs) at existing Sec.
412.534 to certain situations not presently covered by existing Sec.
412.534 for subclause (I) LTCHs (as discussed in section V.B. of the
preamble of this proposed rule).
\5\ Total estimated impact of the provisions of this proposed rule (that
is, sum of the estimated impact of the proposed payment rate and
policy change, including the approach discussed for the SSO policy,
and the estimated impact of the expansion of the ``25 percent''
policy). We note that in absence of including the approach discussed
for the SSO policy, we project that the total estimated impact of the
provisions of this proposed rule are projected to result in a 2.0
percent decrease in estimated aggregate LTCH PPS payments.

Because the combined distributional effects and estimated changes
to the Medicare program payments would be greater than $100 million if
we take into consideration the approach discussed for the SSO policy
(in section V.A.2. of the preamble of this proposed rule), this
proposed rule would be considered a major economic rule, as defined in
this section. We note the $117 million (or 2.9 percent) decrease in
estimated aggregate LTCH PPS payments resulting from the provisions
presented in this proposed rule does not reflect changes in LTCH
admissions or case-mix intensity in estimated LTCH PPS payments, which
would also affect overall payment changes.
2. Regulatory Flexibility Act (RFA)
The RFA requires agencies to analyze options for regulatory relief
of small entities. For purposes of the RFA, small entities include
small businesses, nonprofit organizations, and small governmental
jurisdictions. Most hospitals and most other providers and suppliers
are small entities, either by nonprofit status or by having revenues of
$6 million to $29 million in any 1 year. For purposes of the RFA,
proprietary hospitals are small entities if they meet the small
business size standard described above (for further information, see
the Small Business Administration's regulation at 65 FR 69432, November
17, 2000). Because we lack data on individual hospital receipts, we
cannot determine the number of small proprietary LTCHs. Therefore, we
assume that all LTCHs are considered small entities for the purpose of
the analysis that follows. Medicare FIs are not considered to be small
entities. Individuals and States are not included in the definition of
a small entity.
Currently, our database of 369 LTCHs includes the data for 78 non-
profit (voluntary ownership control) LTCHs and 246 proprietary LTCHs.
Of the remaining 45 LTCHs, 13 LTCHs are Government-owned and operated
and the ownership type of the other 32 LTCHs is unknown (as shown in
Table 9). The impact of the proposed payment rate and policy changes
for the 2008 LTCH PPS rate year (including the proposed update to the
Federal rate, proposed changes to the area wage adjustment, and the
approach discussed for the SSO policy) is discussed in section
XVI.B.4.c. of this regulatory impact analysis. The impact of other
proposed policy changes, such as the effects of the proposed expansion
of the special payment provisions for LTCHs HwHs and LTCH satellites to
certain situations not presently covered by Sec. 412.534 for subclause
(I) LTCHs, is discussed in section XVI.C. of this regulatory impact
analysis.
As we discuss in detail throughout the preamble of this proposed
rule, based on the most recent available LTCH data, we believe that
although the

[[Page 4832]]

provisions of this proposed rule would result in a decrease in
estimated aggregate LTCH PPS payments, we believe the resulting LTCH
PPS payment amounts result in appropriate Medicare payments. However,
we believe that although appropriate, the provisions of this proposed
rule could have a significant impact on some small entities (as defined
above in this section). As also discussed in greater detail below in
this section, we are unable to determine how significant the impact of
some of the provisions of this proposed rule may be on small entities
since we expect many LTCHs to adjust their admission practices if some
of these provisions are implemented. We note that LTCHS have been
adapting their behavior in response to the policy changes we have
implemented over the past few years (for example, the annual update to
the LTC-DRG relative weights, the ``25 percent policy'' at existing
Sec. 412.534, the revision to the SSO payment formula at existing
Sec. 412.529(c)(2), and the zero percent update to the RY 2007 Federal
rate). Although those policy changes were projected to result in
decreases in estimated aggregate LTCH PPS payments, the growth in the
number of LTCHs has continued (although at a reduced rate). Based on
the most recent available OSCAR data, the number of LTCHs has increased
over 10 percent in the past 2 years (from October 1, 2004 and October
1, 2006). Because we acknowledge that many of the affected entities are
small entities, the analysis discussed throughout the preamble of this
proposed rule, in conjunction with the discussion presented in greater
detail below in this section and throughout the remainder of this
regulatory impact analysis, constitutes our initial RFA. Therefore, in
this proposed rule, we are soliciting comments on our estimates and
analysis of the impact of the provisions of this proposed rule on small
entities.
The proposed changes presented in this proposed rule, which include
the proposed payment rate and policy changes and the proposed expansion
of the ``25 percent'' policy (described above in this section), are
estimated to result in approximately a 2.0 percent ($80 million)
decrease in estimated payments per discharge in the 2008 LTCH PPS rate
year, on average, to all LTCHs. As shown Table 8, taking into
consideration the approach discussed for the SSO policy in section
V.A.2. of the preamble of this proposed rule in addition to the
proposed payment rate and policy changes and the proposed expansion of
the ``25 percent'' policy (described above in this section), we
estimate that the provisions of this proposed rule could result in
approximately a 2.9 percent (or $117 million) decrease in estimated
payments per discharge in the 2008 LTCH PPS rate year, on average, to
all LTCHs. Table 8 shows that the proposed payment rate and policy
changes (including the approach discussed for the SSO policy) is
projected to result in a 0.7 percent decrease in estimated aggregate
LTCH PPS payments, and the proposed expansion of the ``25 percent''
policy is projected to result in a 2.2 percent decrease in estimated
aggregate LTCH PPS payments. Thus, the majority of the approximately
2.9 percent decrease in estimated aggregate payments in the 2008 LTCH
PPS rate year as compared to the 2007 LTCH PPS rate year would be due
to the proposed expansion of the special payment provisions for co-
located LTCHs to certain situations not presently covered by existing
Sec. 412.534 for subclause (I) LTCHs (as discussed in section V.B. of
this proposed rule).
As discussed in greater detail in section XVI.C.1. of this
regulatory impact analysis, because we believe that this proposed
policy would discourage inappropriate patient shifting to LTCHs and
would encourage all subclause (I) LTCHs to engage in more appropriate
admission policies since, under this proposal no payment adjustment
would be made if the patient has reached HCO status at the co-located
host (under the proposed revision to Sec. 412.534) or at the referring
hospital (under proposed Sec. 412.536) prior to being admitted for
additional post-acute care at the LTCH (as discussed in greater detail
in section V.B. of this proposed rule). Because we expect that such a
proposed policy would reduce the financial incentives that may be
present currently for certain situations not presently covered by
existing Sec. 412.534 to admit patients prematurely discharged from
other hospitals, we believe this proposed policy would result in fewer
admissions to LTCHs before a complete course of patient care is
provided at the non-co-located referring hospital (under proposed Sec.
412.536) or co-located referring hospital (under the proposed revision
to Sec. 412.534). Thus, any change in admission practices as a result
of this proposed policy would result in less of a decrease in estimated
aggregate LTCH PPS payments than the 2.2 percent (90 million) estimated
based on current admission practices. Thus, the projected 2.2 percent
(decrease in estimated aggregate LTCH PPS payments resulting from this
proposed policy change would only occur if there were no changes in
LTCH admission practices. Furthermore, we believe that this proposed
policy would result in appropriate Medicare payments since, as noted
above, we expect that such a policy would reduce the financial
incentives to admit patients prematurely discharged from other
hospitals and would encourage all LTCHs to engage in more appropriate
admission policies. For these reasons, although we estimate that, if
implemented, this proposed policy would result in a decrease in
estimated aggregate LTCH PPS payments, we do not believe that such a
projected decrease in estimated aggregate LTCH PPS payments, although
possibly significant, would adversely affect LTCHs' ability to deliver
efficient care to Medicare beneficiaries nor would there be an adverse
affect on Medicare beneficiaries' access to care.
The impact analysis of proposed payment rate and policy changes in
Table 9 (including the approach discussed for the SSO policy in section
V.A.2. of the preamble of this proposed rule) shows that estimated
payments per discharge are expected to decrease approximately 0.7
percent, on average, for all LTCHs from the 2007 LTCH PPS rate year as
compared to the 2008 LTCH PPS rate year. Although we are proposing a
0.71 percent increase to the Federal rate for RY 2008 (as discussed in
section IV.C. of this proposed rule), the projected percent decrease in
estimated payments per discharge from the 2007 LTCH PPS rate year to
the 2008 LTCH PPS rate year is attributable to the proposed changes to
the area wage adjustment (discussed in section IV.D.1. of this proposed
rule), in conjunction with the approach discussed for SSO cases in
section V.A.2. of this proposed rule, as well as the proposed increase
to the HCO fixed-loss amount (as discussed in section IV.D.3.c. of this
proposed rule). (As discussed in greater detail in section XVI.B.4.,
the 2.2 percent decrease in estimated aggregate LTCH PPS payments due
to the proposed expansion of the ``25 percent policy'' to certain
situations not presently covered by existing Sec. 412.534 for
subclause (I) LTCHs is not reflected in Table 9. However, as noted
above, the impact of that proposed policy is discussed in greater
detail in section XVI.C.1. of this regulatory impact analysis.)
As the impact analysis in Table 9 shows, estimated changes to the
area wage adjustment from RY 2007 to RY 2008 (resulting from both
established policy and proposed changes presented in section IV.D.1. of
this proposed rule, as discussed in greater detail below in

[[Page 4833]]

this section) contribute to the decrease in estimated aggregate LTCH
PPS payments from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate
year. As discussed in section IV.D.1. of this proposed rule, we are
proposing to update the wage index values for RY 2008, in accordance
with the progression of the existing 5-year phase-in of the area wage
adjustment, based on the most recent available wage data. We believe
that proposing to update the LTCH PPS wage index based on the most
recent available wage data would ensure that the LTCH PPS wage index
adjustment appropriately accounts for and reflects the relative
hospital wage levels in the geographic area of the hospital as compared
to the national average hospital wage level. In addition, we are
proposing to decrease the labor-related share from 75.665 percent to
75.511 percent under the LTCH PPS for RY 2008 based on the most recent
available data on the relative importance of the labor-related share of
operating and capital costs of the LTCH PPS market basket (also
discussed in section IV.D.1. of this proposed rule). We believe that
proposing to revise the labor-related share based on the most recent
available data would appropriately identify the portion of the proposed
LTCH PPS Federal rate that is adjusted to account for geographic
differences in area wage levels by applying the applicable proposed
LTCH PPS wage index value. As discussed in greater detail in section
IV.D.1. of this proposed rule, we believe that these proposed changes
to the LTCH PPS area wage adjustment based on the most recent available
wage data and data on the relative importance of the labor-related
share of the LTCH PPS market basket, respectively, would result in
appropriate and accurate LTCH PPS payments for the resources used by
LTCHs in a given area. Such updated data appropriately reflects
national differences in area wage levels and identifies the portion of
the proposed Federal rate that should be adjusted to account for such
differences in area wages.
We also note that, even though we have not proposed to make any
changes to the existing 5-year phase-in of the wage index adjustment
that was established when the LTCH PPS was implemented (August 30,
2002; 67 FR 56018), the continued progression of this phase-in also
contributes to the decrease in estimated aggregate LTCH PPS payments
for RY 2008. That is, since under the established phase-in of the wage-
index adjustment, LTCHs receive an increasing percentage of the
applicable full wage index value (which is less than 1.0 for the
majority of LTCHs), we expect that estimated aggregate LTCH PPS
payments would decrease from RY 2007 to RY 2008 as a result of the
progression of the existing 5-year phase-in of the area wage
adjustment. Thus, the majority of the 0.5 percent decrease in estimated
payments per discharge, on average, for all LTCHs (see Table 9) is due
to the existing 5-year phase-in of the wage index adjustment, and is
not due to proposed policy changes presented in this proposed rule.
Because the existing 5-year phase-in of the area wage adjustment has
been a feature of the LTCH PPS since it was implemented beginning
October 1, 2002, and since a large majority (over 70 percent) of LTCHs
are located in areas where historically the wage index value is less
than 1.0, the decrease in estimated aggregate LTCH PPS payments
resulting from this policy should be anticipated by LTCHs, and
therefore, already accounted for in their fiscal planning. In addition,
we note that, although the portion of the decrease in estimated
aggregate LTCH PPS payments that is due to the existing 5-year phase-in
of the wage index adjustment is expected, we believe that any change in
LTCHs' wage index values under this policy is appropriate since LTCHs
will be receiving an increasing percentage of the applicable full wage
index value, which, by definition, reflects the relative hospital wage
levels for the area in which the LTCH is located as compared to the
national average hospital wage level.
Because we cannot determine to what extent LTCHs may have planned
for the decrease in estimated aggregate LTCH PPS payments that is due
to the existing 5-year phase-in of the area wage adjustment, even
though the impact may be significant for some LTCHs, we believe that
most LTCHs would not be adversely affected since, as explained above,
we believe that the proposed changes to the area wage adjustment (that
is, the proposed use of update wage data and the proposed change in the
labor-related share), in conjunction with the continued progression of
the 5-year phase-in of the area wage adjustment, would result in
appropriate LTCH PPS payments in RY 2008. For these reasons, we believe
that the decrease in estimated aggregate LTCH PPS payments resulting
from proposed changes to the area wage adjustment, although possibly
significant for some LTCHs, is appropriate and would not adversely
affect LTCHs' ability to deliver efficient care to Medicare
beneficiaries nor would there be an adverse affect on Medicare
beneficiaries' access to care.
In addition, as also shown in Table 9, the approach for the SSO
policy discussed in section V.A.2. of this proposed rule would also
contribute to the estimated 0.7 percent decrease in estimated aggregate
LTCH PPS payments in RY 2008, on average, for all LTCHs. Under that
approach, we believe that the LTCH cases that appear to be ``similar
to'' the same type of cases treated in an acute care hospital and paid
for under the IPPS, as discussed in greater detail in section V.A.2. of
this proposed rule, would receive an appropriately adjusted LTCH PPS
payment to treat such cases. We believe that those SSO cases that are
``similar to IPPS cases'' most likely do not receive a full course of
an LTCH-level of treatment in such a short period of time since, in
general, LTCHs are intended to treat longer stay patients. Although we
project a decrease in estimated aggregate LTCH PPS with the approach
discussed for the SSO policy in section V.A.2. of this proposed rule,
we believe that such an approach would result in appropriate and
adequate Medicare payments for the treatment of Medicare beneficiaries
with a LOS is ``similar to'' typical IPPS cases.
Furthermore, we believe that, if adopted, the approach to the SSO
policy discussed in section V.A.2. of the preamble of this proposed
rule would accomplish our stated goal of removing the incentive for
LTCHs to admit patients for whom a long-term hospital stay is not
necessary, and therefore, for whom the LTCH would not be providing
complete treatment. As noted previously, the vast majority of LTCH
cases, including SSO cases, are admitted to the LTCH directly from an
acute-care hospital, and therefore, many SSO cases may still be in need
of acute-level care (as we discuss in greater detail in section V.A.2.
of the preamble of this proposed rule). Therefore, we believe that in
response to the approach discussed for the SSO policy in section V.A.2.
of this proposed rule LTCHs may reduce the number of SSO cases that are
``similar to IPPS cases'' that they admit (and most of those patients
would continue to receive treatment at the acute-care hospital). To the
extent that LTCHs continue to admit SSO cases that are ``similar to
IPPS cases,'' we believe that this approach to the SSO policy would
result in an adjusted LTCH PPS payment that is appropriate, as
discussed above. For these reasons, although we estimate that the
approach to the SSO policy discussed in section V.A.2. of this proposed
rule would result in a decrease in estimated

[[Page 4834]]

aggregate LTCH PPS payments, we do not believe that such an impact on
estimated aggregate LTCH PPS payments, although possibly significant,
would adversely affect LTCHs' ability to deliver efficient care to
Medicare beneficiaries nor would there be an adverse affect on Medicare
beneficiaries' access to care.
For all of the reasons discussed above in this section, although we
do not expect an estimated incremental decrease of 2.9 percent
(approximately $117 million) in estimated aggregate LTCH PPS payments
to have a significant adverse financial impact on LTCHs, nor do we
expect there would be an effect on beneficiaries' access to care, we
acknowledge that the provisions of this proposed rule could have a
significant impact on some small entities. However, we believe that the
provisions of this proposed rule would result in appropriate LTCH PPS
payments in RY 2008. We also note that LTCHs provide some services to
(and generate revenue from) patients other than Medicare beneficiaries,
and the revenue to LTCHs from treating those patients is not affected
by this proposed rule. The analysis presented above, in conjunction
with the remainder of this section, demonstrates that this proposed
rule is consistent with the regulatory philosophy and principles
identified in the RFA. We believe the provisions presented in this
proposed rule would affect payments to LTCHs, and the effects on some
LTCHs, although they may be significant, are appropriate (as discussed
above).
3. Impact on Rural Hospitals
Section 1102(b) of the Act requires us to prepare a regulatory
impact analysis if a rule may have a significant impact on the
operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 603 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area and has fewer than 100 beds. As shown in Table 9, we
are projecting a 2.6 percent decrease in estimated payments per
discharge for the 2008 LTCH PPS rate year as compared to the 2007 LTCH
PPS rate year for rural LTCHs as a result of the proposed payment rate
changes, including the approach discussed for addressing our concerns
with the existing SSO policy presented in section V.A.2. of the
preamble of this proposed rule, based on the data of the 25 rural LTCHs
in our database of 369 LTCHs for which complete data were available.
As shown in Table 9, the majority of the estimated decrease in
estimated LTCH PPS payments in the 2008 LTCH PPS rate year as compared
to the 2007 LTCH PPS rate year for proposed payment rate and policy
changes for rural LTCHs is due to the proposed change in the area wage
adjustment (as discussed in greater detail in section V.D.1. of the
preamble of this proposed rule). Specifically, as discussed above,
although we are not making any changes to the existing 5-year phase-in
of the wage index adjustment that was established when the LTCH PPS was
implemented (August 30, 2002; 67 FR 56018), the continued progression
of this phase-in contributes to the decrease in estimated payments to
rural LTCHs for RY 2008. This is because, under the established phase-
in of the wage-index adjustment, LTCHs receive an increasing percentage
of the applicable full wage index value (which is less than 1.0 for all
of the 25 rural LTCHs in our database), we expect that estimated
payments per discharge for rural LTCHs would decrease from RY 2007 to
RY 2008 as a result of the progression of the 5-year phase-in of the
wage index adjustment. Thus, the majority of the projected 2.6 percent
decrease in estimated payments per discharge shown in Table 9 for rural
LTCHs is due to the existing 5-year phase-in of the wage index
adjustment, and is not due to proposed policy changes presented in this
proposed rule. As discussed above, we believe that the decrease in
estimated aggregate LTCH PPS payments resulting from this existing
policy should be anticipated by LTCHs, and therefore, already accounted
for in their fiscal planning. In addition, we note that, although the
portion of the decrease in estimated aggregate LTCH PPS payments that
is due to this existing policy is expected, we believe that any change
in LTCHs' wage index values due to the continued progression of the
phase-in of the area wage adjustment is appropriate since LTCHs will be
receiving an increasing percentage of the applicable full wage index
value, which, by definition, reflects the relative hospital wage levels
for the area in which the LTCH is located as compared to the national
average hospital wage level.
Furthermore, as also explained in greater detail above, we believe
that the proposed changes to the area wage adjustment presented in this
proposed rule (that is, the proposed use of update wage data and the
proposed change in the labor-related share) would result in accurate
and appropriate LTCH PPS payments in RY 2008 since they are based on
the most recent available data. Such updated data appropriately reflect
national differences in area wage levels and identifies the portion of
the proposed Federal rate that should be adjusted to account for such
differences in area wages, thereby, resulting in accurate and
appropriate LTCH PPS payments. Because we cannot determine to what
extent LTCHs may have planned for the decrease in estimated aggregate
RY 2008 LTCH PPS payments that results from the existing 5-year phase-
in of the area wage adjustment, we believe that although the effects of
the proposed changes to the area wage adjustment on some rural LTCH may
be significant, most rural LTCHs should be not adversely affected
because those proposed changes are expected to result in appropriate
LTCH PPS payments in RY 2008.
We also believe that the proposed expansion of the payment
adjustment at existing Sec. 412.534 to certain situations not
presently covered by that policy for subclause (I) LTCHs may have a
significant adverse impact on some rural LTCHs, although we cannot
determine how significant for the reasons explained below in this
section. Even though this proposed policy is estimated to reduce
estimated aggregate LTCH PPS payments in RY 2008 and may result in a
significant impact on some rural LTCHs, we also believe, that such
changes would result in appropriately adjusted LTCH PPS payments (as
explained below in this section). As discussed in greater detail in
section V.B. of this proposed rule, in designing features of the
original ``25 percent policy'' for co-located LTCHs (HwHs and LTCH
satellites), which we are proposing to extend to certain situations not
presently covered by existing Sec. 412.534 for subclause (I) LTCHs, we
provided special treatment for rural hospitals which would increase the
threshold from 25 percent to 50 percent. When we established the 25
percent (or applicable percentage) payment adjustment for co-located
LTCHs at existing Sec. 412.534, after which this proposed payment
adjustment for situations not presently covered by that policy has been
modeled, we noted in response to comments that ``the Congress has
authorized special treatment for rural areas under the Medicare program
because of the particular geographic and demographic challenges in
those locations, as well as the difference between the provision and
availability of medical services as compared to urban areas'' (69 FR
49206). Therefore, under our proposed policy, we would apply the same

[[Page 4835]]

rationale to certain situations not presently covered by existing Sec.
412.534 that would occur in subclause (I) LTCHs that are located in
rural areas. Accordingly, rather than a 25 percent threshold (as is
being proposed for most urban LTCHs), for rural LTCHs, the payment
adjustment would be applied only to those LTCH's or LTCH satellite
facility's Medicare discharges that were admitted from a non-co-located
referring hospital under proposed Sec. 412.536 or co-located host
under the proposed revision to Sec. 412.534 that are in excess of 50
percent of the LTCH's total Medicare discharges for that hospital for
any cost reporting period. Under this proposal, consistent with the
existing policy at Sec. 412.534, no payment adjustment would be made
if the patient has reached HCO status at the referring hospital (under
proposed Sec. 412.536) or at the co-located host (under the proposed
revision to Sec. 412.534) prior to being admitted for additional post-
acute care at the LTCH. That is, in calculating the proposed 50 percent
threshold (for rural LTCHs), patients who achieved HCO status prior to
admission to the LTCH would not be counted toward the applicable
threshold under proposed Sec. 412.536 or under the proposed revision
to Sec. 412.534 (although the admission would still be counted toward
the LTCH's total Medicare discharges).
Furthermore, because such a policy would reduce the financial
incentives for all LTCHs, including rural LTCHs, to admit patients
prematurely discharged from other hospitals, we believe this proposed
policy would result in fewer admissions to LTCHs before a complete
course of patient care is provided at the referring hospital. As noted
above, any changes in admission practices as a result of this proposed
policy would result in less of a decrease in estimated aggregate LTCH
PPS payments than the $90 million estimated based on current admission
practices. Thus, the decrease in estimated aggregate LTCH PPS payments
to rural LTCHs resulting from this proposed policy change would only
occur if there were no change in rural LTCH admission practices. It is
our intention, under this proposed policy, to discourage LTCHs from
serving as ``step-down'' units after a patient has been diagnosed and
received initial treatment at another hospital, a scenario that results
in two Medicare payments (one to the referring hospital and one to the
LTCH) for what was essentially one episode of patient care. Rather, it
is our intent to encourage LTCHs to admit patients who required
additional long-stay hospital-level treatment following the provision
of a full episode of care at the referring hospital. For those
patients, under this proposed policy, Medicare would pay an unadjusted
amount under the LTCH PPS. We believe that this proposed policy would
result in more appropriate admission policies by rural LTCHs.
Therefore, we believe that although the effects on some rural LTCHs of
the proposed expansion of the payment adjustment at existing Sec.
412.534 to certain situations not presently covered by that policy for
subclause (I) LTCHs may be significant, most rural LTCHs should be not
adversely affected because this proposed policy changes is expected to
result in changes in admission practices and appropriate payments for
such cases, as explained above in this section.
In addition, the approach for SSO policy discussed in section
V.A.2. of this proposed rule would also contribute to the projected
decrease in estimated payments to rural LTCHs for RY 2008. As discussed
below in section XVI.B.4.a. of this regulatory impact analysis, we
project a slightly larger than average decrease in estimated payments
per discharge (as compared to urban LTCHs; see column 9 of Table 9) if
this approach were adopted. About 40 percent of rural LTCHs treat a
larger than average percentage of SSO cases (in fact, based on FY 2005
data for a few rural LTCHs, SSO cases represent over half of their
total cases). However, we are not able to determine whether this
approach, if adopted, would result in an adverse financial impact on
rural LTCHs because we believe that most LTCHs (including rural LTCHs)
would reduce the number of SSO cases that they admit that are ``similar
to IPPS cases'' (as discussed in greater detail above). (We note that
although we expect most LTCHs (including rural LTCHs) to admit fewer
SSO cases under this approach to the SSO policy, most of those patients
would continue to receive treatment at the acute-care hospital from
which they are typically discharged immediately prior to their LTCH
(short-stay) admission.) Thus, the projected 2.6 percent decrease in
estimated payments per discharge shown in Table 9 for rural LTCHs
represent an average maximum reduction in estimated aggregate LTCH PPS
payments in RY 2008, and since we anticipate that LTCHs (including
rural LTCHs) would admit fewer SSO patients for whom payments would be
affected by this approach to the SSO policy, if adopted, we believe
that the actual decrease in rural LTCHs' payments for RY 2008 would be
less than the 2.6 percent decrease in estimated payments for RY 2008
shown in Table 9.
Furthermore, to the extent that rural LTCHs would continue to admit
SSO cases with a LOS that is ``similar to IPPS cases,'' we believe the
approach discussed for the SSO policy would result in an appropriate
adjusted LTCH PPS payment because we believe that many of those SSO
cases most likely do not receive a full course of a LTCH-level of
treatment in such a short period of time since, in general, LTCHs are
intended to treat longer stay patients. Therefore, although we estimate
the approach discussed for the SSO policy in section V.A.2. of this
proposed rule could result in a decrease in estimated aggregate LTCH
PPS payment to rural LTCHs, we do not believe that such an estimated
impact on rural LTCHs' LTCH PPS payments, even though possibly
significant, would adversely affect most rural LTCHs because this
approach would be expected to result in changes in admission practices
and in appropriate payments for such cases.
For these reasons, we believe that there may be a significant
impact on some rural LTCHs resulting from the proposed changes present
in this proposed rule. However, a portion of the decrease in rural
LTCHs' estimated payments per discharge from RY 2007 to RY 2008 would
be less than what we estimate based on current admission practices (as
explained above in this section). We also believe (as discussed
previously) a significant portion of the projected decrease in
estimated payments per discharge for RY 2008, which is due to the
established phase-in of the wage index adjustment, is not a result of a
proposed policy change, and may already be accounted for in LTCHs'
fiscal plans. Therefore, although we believe this proposed rule would
affect payments to rural LTCHs, and the effects on some rural LTCHs,
although appropriate, may be significant, we are unable to determine
how significantly the proposed changes presented in this proposed rule,
if adopted, would adversely affect rural LTCHs. However, because we
expect changes in admission practice and appropriate payments, if the
changes present in this proposed rule are adopted (as discussed above),
we do not anticipate that the provisions of this proposed rule would
affect the ability of the vast majority of rural LTCHs to provide cost
efficient services to Medicare patients nor do we expect there would be
an adverse effect on beneficiaries' access to care. The analysis
presented above, in conjunction with the remainder of this regulatory
impact analysis, demonstrates that this proposed rule is

[[Page 4836]]

consistent with the regulatory philosophy and principles identified in
section 1102(b) of the Act. (For additional information on the
estimated impact of the changes on rural LTCHs presented in this
proposed rule, refer to section XVI.B.4.a. of this regulatory impact
analysis.) However, in this proposed rule, we are soliciting comments
on our estimates and analysis of the impact of the provisions of this
proposed rule on rural LTCHs.
4. Unfunded Mandates
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any one year of
$100 million in 1995 dollars, updated annually for inflation. That
threshold level is currently approximately $120 million. This proposed
rule would not mandate any requirements for State, local, or tribal
governments, nor would it result in expenditures by the private sector
of $120 million or more in any 1 year.
5. Federalism
Executive Order 13132 establishes certain requirements that an
agency must meet when it publishes 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 examined this proposed rule under the criteria set forth in
Executive Order 13132 and have determined that this proposed rule would
not have any significant impact on the rights, roles, and
responsibilities of State, local, or tribal governments or preempt
State law, based on the 13 State and local LTCHs in our database of 369
LTCHs for which data were available.
6. Alternatives Considered
In preamble of this proposed rule, we are setting forth the
proposed annual update to the payment rates for the LTCH PPS, as well
as proposing other policy changes and discussing approaches for other
areas of concern. In this preamble, we specify the statutory authority
for the provisions that are presented, identify those proposed policies
(and approaches discussed) when discretion has been exercised, and
present rationale for our decisions, alternatives that were considered
and solicit comments on suggested alternatives from commenters (where
relevant).

B. Anticipated Effects of Proposed Payment Rate Changes

We discuss the impact of the proposed changes to the payment rates,
factors, and other payment rate policies presented in the preamble of
this proposed rule (including the approach discussed for the SSO policy
in section IV.A.2. of this proposed rule) in terms of their estimated
fiscal impact on the Medicare budget and on LTCHs. (We note that the
impact of other policy changes presented in this proposed rule, which
do not directly affect the LTCH PPS per discharge payment rates (for
example, the proposed expansion of the existing payment provision for
co-located LTCHs to certain situations not presently covered by
existing Sec. 412.534 for subclause (I) LTCHs discussed in section
V.B. of this proposed rule and the proposed policy change relating to
GME payments discussed in section XII. of this proposed rule), are not
included as part of the impact analysis shown in Table 9. However, the
impact of certain other proposed policies are discussed separately in
section XVI.C. of this regulatory impact analysis.
1. Budgetary Impact
Section 123(a)(1) of the BBRA requires that the PPS developed for
LTCHs ``maintain budget neutrality.'' We believe that the statute's
mandate for budget neutrality (BN) applies only to the first year of
the implementation of the LTCH PPS (that is, FY 2003). Therefore, in
calculating the FY 2003 standard Federal rate under Sec.
412.523(d)(2), we set total estimated payments for FY 2003 under the
LTCH PPS so that estimated aggregate payments under the LTCH PPS are
estimated to equal the amount that would have been paid if the LTCH PPS
had not been implemented. However, as discussed in greater detail in
the August 30, 2002 final rule (67 FR 56033 through 56036), the FY 2003
LTCH PPS standard Federal rate ($34,956.15) was calculated based on all
LTCHs being paid 100 percent of the standard Federal rate in FY 2003.
As discussed in section IV.D.5. of this proposed rule, during LTCH rate
years governed by the 5-year transition period policy set forth at
Sec. 412.533(a), we applied a BN offset to payments to account for the
monetary effect of the applicable transition period methodology
(including the option to elect payments based on 100 percent of the
Federal rate in lieu of the transition blend methodology) in a given
LTCH PPS rate year. Specifically, for FY 2003 and RYs 2004 through
2007, the amount of the transition period BN offset was equal to 1
minus the ratio of the estimated payments based on 100 percent of the
LTCH PPS Federal rate to the projected total Medicare program payments
that would be made under the transition methodology and the option to
elect payment based on 100 percent of the Federal prospective payment
rate. However, as we discuss in greater detail in section IV.D.5. of
this proposed rule, we are no longer projecting a small cost for the
2008 LTCH PPS rate year (July 1, 2007 through June 30, 2008) even
though some LTCH's will have a cost reporting period for the 5th year
of the transition period which will be concluding in the first 3 months
of the 2008 LTCH PPS rate year. Based on the most recent available
data, we are projecting that the vast majority of LTCHs would have made
the election to be paid based on 100 percent of the Federal rate rather
than the transition blend, which would result in a negligible cost to
the Medicare program. Therefore, in this proposed rule, we did not
propose a transition BN offset to all LTCH PPS payments for RY 2008 to
account for the estimated cost of the transition period methodology
(including the option to elect payment based on 100 percent of the
Federal rate) in RY 2008.
2. Impact on Providers
The basic methodology for determining a per discharge LTCH PPS
payment is set forth in Sec. 412.515 through Sec. 412.525. In
addition to the basic LTC-DRG payment (standard Federal rate multiplied
by the LTC-DRG relative weight), we make adjustments for differences in
area wage levels, COLA for Alaska and Hawaii, and SSOs. Furthermore,
LTCHs may also receive HCO payments for those cases that qualify based
on the threshold established each rate year.
To understand the impact of the proposed changes to the LTCH PPS
payment rates and payment rate policy changes discussed in sections IV.
and V.A. of this proposed rule on different categories of LTCHs for the
2008 LTCH PPS rate year, it is necessary to estimate payments per
discharge under the LTCH PPS rates, factors and policies established
for RY 2007 (established in the RY 2007 LTCH PPS final rule (71 FR
27798 through 27939)) and to estimate proposed payments per discharge
that would be made under the proposed LTCH PPS rates, factors and
policies for the 2008 LTCH PPS rate year (as discussed in the preamble
of this proposed rule). We also evaluated the change in estimated 2007
LTCH PPS rate year payments to estimated proposed 2008 LTCH PPS rate
year

[[Page 4837]]

payments (on a per discharge basis) for each category of LTCHs.
Hospital groups were based on characteristics provided in the OSCAR
data, FY 2002 through FY 2004 cost report data in HCRIS, and PSF data.
Hospitals with incomplete characteristics were grouped into the
``unknown'' category. Hospital groups include:
Location: Large Urban/Other Urban/Rural.
Participation date.
Ownership control.
Census region.
Bed size.
To estimate the impacts of the proposed payment rates and payment
rate policy changes among the various categories of existing providers,
we used LTCH cases from the FY 2005 MedPAR file to estimate payments
for RY 2007 and to estimate proposed payments for RY 2008 for 369
LTCHs. While currently there are just under 400 LTCHs, the most recent
growth is predominantly in for-profit LTCHs that provide respiratory
and ventilator-dependent patient care. We believe that the discharges
from the FY 2005 MedPAR data for the 369 LTCHs in our database, which
includes 246 proprietary LTCHs, provide sufficient representation in
the LTC-DRGs containing discharges for patients who received LTCH care
for the most commonly treated LTCH patients' diagnoses.
As discussed in greater detail in section VII. of this proposed
rule, under the 5-year transition set forth at Sec. 412.533(a), a
LTCH's total payment under the LTCH PPS was based on an increasing
percentage of the Federal rate with a corresponding decrease in the
percentage of its LTCH PPS payment based on reasonable cost principles.
However, effective for cost reporting periods beginning on or after
October 1, 2006, total LTCH PPS payments are based entirely on the
Federal rate. Therefore, even though some LTCH's will have a cost
reporting period for the 4th year of the transition period that will be
concluding in the first 3 months of the 2008 LTCH PPS rate year, the
portion of those LTCHs' LTCH PPS payments that will be based on
reasonable cost principles during RY 2008 is negligible relative to
LTCH PPS payments based on the Federal rate. This is because, as
discussed in greater detail in section IV.D.5. of this proposed rule,
based on the most recent available data, we are projecting that the
vast majority of LTCHs have already made the election to be paid based
on 100 percent of the Federal rate rather than the transition blend
prior to the start of their FY 2006 cost reporting period (that is, the
4th year of the transition period as set forth at Sec. 412.533(a)),
and even for those few remaining LTCHs paid under the transition blend
methodology set forth at Sec. 412.533(a), their total LTCH PPS
payments are now based mostly on the Federal rate (since the transition
blend percentages for cost reporting periods beginning during FY 2006
are 80 percent of the Federal rate and 20 percent of the LTCH PPS
payment based on reasonable cost principles). Therefore, in this
proposed rule, we are no longer providing a separate impact table
reflecting the applicable transition blend percentages, which required
cost data to determine estimated LTCH PPS payments based on reasonable
cost principles. Accordingly, the impact analyses of the proposed
payment rates and payment rate policy changes presented below reflects
estimated LTCH PPS payments to all LTCHs based solely on the Federal
rate.
These impacts reflect the estimated ``losses'' or ``gains'' among
the various classifications of LTCHs for the 2007 LTCH PPS rate year
(July 1, 2006 through June 30, 2007) compared to the 2008 LTCH PPS rate
year (July 1, 2007 through June 30, 2008) based on the proposed payment
rates and payment rate policy changes presented in this proposed rule.
Prospective payments for the 2007 LTCH rate year were based on the
standard Federal rate of $38,086.04, the outlier fixed-loss amount of
$14,887, and the LTCHs' estimated case-mix based on FY 2005 LTCH claims
data. Estimated proposed prospective payments for the 2008 LTCH PPS
rate year would be based on the proposed standard Federal rate of
$38,356.45 (based on the proposed 0.71 percent update discussed in
section IV.C.3. of the preamble to this proposed rule), the proposed
outlier fixed-loss amount of $18,774, and the same FY 2005 LTCH claims
data.
3. Calculation of Prospective Payments
To estimate per discharge payments under the LTCH PPS, we simulated
payments on a case-by-case basis by applying the established (for RY
2007) and proposed (for RY 2008) adjustments for area wage differences
(as described in section IV.D.1. of the preamble of this proposed
rule), and the COLA for Alaska and Hawaii (as described in section
IV.D.2. of the preamble of this proposed rule). As discussed above, we
also accounted for the existing payment policy for SSOs in RY 2007 and
the approach for the SSO policy in RY 2008 discussed in section V.A.2.
of this proposed rule). Additional payments would also be made for HCOs
(as described in section IV.D.3. of this proposed rule). As noted in
section IV.D.4. of this proposed rule, we are not proposing to make
adjustments for rural location, geographic reclassification, indirect
medical education costs, or a DSH payment for the treatment of low-
income patients because sufficient new data have not been generated
that would enable us to conduct a comprehensive reevaluation of these
payment adjustments.
We adjusted for area wage differences for estimated 2007 LTCH PPS
rate year payments by computing a weighted average of a LTCH's
applicable wage index during the period from July 1, 2006 through June
30, 2007 because some providers may experience a change in the wage
index phase-in percentage during that period. For cost reporting
periods beginning on or after October 1, 2005, and before September 30,
2006 (FY 2006), the labor portion of the Federal rate is adjusted by
four-fifths of the applicable LTCH PPS wage index. For cost reporting
periods beginning on or after October 1, 2006, and before September 30,
2007 (FY 2007), the labor portion of the Federal rate is adjusted by
five-fifths (that is, the full amount) of the applicable LTCH PPS wage
index. Therefore, during RY 2007, a provider with a cost reporting
period that began October 1, 2006, would have 3 months (July 2006
through September 2006) of payments under the four-fifths wage index
value and 9 months (October 2006 through June 2007) of payment under
the (full) five-fifths wage index value. For this provider, we computed
a blended wage index of 25 percent (3 months/12 months) of the four-
fifths wage index value and 75 percent (9 months/12 months) of the
(full) five-fifths wage index value. The applicable LTCH PPS wage index
values for the 2007 LTCH PPS rate year are shown in Tables 1 and 2 of
the Addendum to the RY 2007 LTCH PPS final rule (71 FR 27906 through
27930). We adjusted for area wage differences for estimated 2007 LTCH
PPS rate year payments using the current LTCH PPS labor-related share
of 75.665 percent (71 FR 27830).
Similarly, we adjusted for area wage differences for estimated
proposed 2008 LTCH PPS rate year payments by computing a weighted
average of a LTCH's applicable wage index during the period from July
1, 2007, through June 30, 2008, because, although under the established
phase-in of the wage index adjustment for cost reporting periods
beginning on or after October 1, 2006, the applicable LTCH wage index
value is the full (five-fifths) LTCH PPS wage index value, during RY
2008 some providers will still experience a change in the wage index
phase-in percentage

[[Page 4838]]

during that period. For example, during RY 2008, a provider with a FY
2006 cost reporting period that began September 1, 2006, (and will end
on August 31, 2007,) would have 2 months (July 2007 and August 2007) of
payments under the proposed four-fifths wage index value and 10 months
(September 2007 through June 2007) of payment under the proposed (full)
five-fifths wage index value. For this provider, we computed a blended
wage index of 16.7 percent (2 months/12 months) of the proposed four-
fifths wage index value and 83.3 percent (10 months/12 months) of the
proposed (full) five-fifths wage index value. The proposed applicable
LTCH PPS wage index values for the 2008 LTCH PPS rate year are shown in
Tables 1 and 2 of Addendum A to this proposed rule. We adjusted for
area wage differences for estimated 2008 LTCH PPS rate year payments
using the proposed LTCH PPS labor-related share of 75.511 percent (see
section IV.D.1.c. of this proposed rule).
As noted previously in this proposed rule, under the 5-year
transition set forth at Sec. 412.533(a), a LTCH's total payment under
the LTCH PPS was based on an increasing percentage of the Federal rate
with a corresponding decrease in the percentage of the LTCH PPS payment
that is based on reasonable cost principles. However, effective for
cost reporting periods beginning on or after October 1, 2006, total
LTCH PPS payments are based solely on the Federal rate. Therefore, even
though some LTCH's will have a cost reporting period for the 4th year
of the transition period that will be concluding in the first 3 months
of the 2008 LTCH PPS rate year, the portion of those LTCH PPS payments
that will be based on reasonable cost principles during RY 2008 is
negligible relative to LTCH PPS payments based on the Federal rate, and
therefore, we are no longer estimating transition payments as we have
done in past impact analyses (for example, 71 FR 27892).
Furthermore, in estimating both RY 2007 and proposed RY 2008 LTCH
PPS payments, we did not apply a transition period BN offset to
payments to account for the effect of the 5-year transition methodology
and election of payment based on 100 percent of the Federal rate on
Medicare program payments (established in the August 30, 2002 final
rule (67 FR 56034)). This is because, for RY 2007, we established a 0.0
percent BN offset (a BN factor of 1.0) to payments to account for the
effect of the 5-year transition methodology and election of payment
based on 100 percent of the Federal rate on Medicare program payments
in RY 2007 (71 FR 27841). As noted above and discussed in greater
detail in section IV.D.5. of this proposed rule, we are not proposing a
transition period BN offset to all LTCH PPS payments in RY 2008 to
account for the estimated cost of the transition period methodology
(including the option to elect payment based on 100 percent of the
Federal rate) in RY 2008 since we are projecting that such costs would
be negligible.
As noted in Table 9, we show the impact as if all LTCHs would be
paid 100 percent of the Federal rate since, based on the most recent
available data and the transition blend percentages set forth at Sec.
412.533(a), nearly all LTCH PPS payments would be based on 100 percent
of the applicable LTCH PPS standard Federal rate during the majority of
RYs 2007 and 2008. Table 9 illustrates the estimated aggregate impact
of the LTCH PPS among various classifications of LTCHs.
The first column, LTCH Classification, identifies the type
of LTCH.
The second column lists the number of LTCHs of each
classification type.
The third column identifies the number of LTCH cases.
The fourth column shows the estimated payment per
discharge for the 2007 LTCH PPS rate year.
The fifth column shows the estimated proposed payment per
discharge for the 2008 LTCH PPS rate year.
The sixth column shows the estimated percentage change in
estimated payments per discharge from the 2007 LTCH PPS rate year to
the 2008 LTCH PPS rate year for proposed changes to the Federal rate.
The seventh column shows the percentage change in
estimated payments per discharge from the 2007 LTCH PPS rate year to
the 2008 LTCH PPS rate year for proposed changes to the area wage
adjustment at Sec. 412.525(c) (as discussed in section IV.D.1. of the
preamble of this proposed rule).
The eighth column shows the percent change in estimated
payments per discharge from the 2007 LTCH PPS rate year to the 2008
LTCH PPS rate year for the approach discussed for addressing our
concerns with the existing SSO policy at Sec. 412.529 (as discussed in
section V.A.2. of the preamble of this proposed rule).
The ninth column shows the estimated percentage change in
estimated payments per discharge from the 2007 LTCH PPS rate year to
the 2008 LTCH PPS rate year for all proposed changes (and includes the
estimated impact of the approach for the SSO policy discussed in
section V.A.2. of the preamble of this proposed rule).

Table 9.--Projected Impact of Proposed Payment Rate and Payment Rate Policy Changes to LTCH PPS Payments for RY 2008*
[Estimated 2007 LTCH PPS rate year payments compared to estimated proposed 2008 LTCH PPS rate year payments*]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent
increase Percent Percent
in decrease decrease Percent
estimated \3\ in \3\ in decrease
Average payments estimated estimated \3\ in
Average estimated per payments payments estimated
estimated proposed discharge per per payments
Number of RY 2007 RY 2008 from RY discharge discharge per
LTCH Classification Number of LTCH PPS LTCH PPS LTCH PPS 2007 to from RY from RY discharge
LTCHs cases rate year rate year (proposed) 2007 to RY 2007 to RY from RY
payment payment RY 2008 2008 for 2008 for 2007 to RY
per case per case for proposed approach 2008 for
\1\ \2\ proposed changes to discussed all
changes to the area for the proposed
the wage SSO policy changes
Federal adjustment \6\* \7\*
rate \4\ \5\
--------------------------------------------------------------------------------------------------------------------------------------------------------
ALL PROVIDERS........................................... 369 129,584 $31,486 $31,278 0.6 0.5 0.9 0.7
BY LOCATION:
RURAL............................................... 25 5,044 25,100 24,447 0.7 2.2 1.0 2.6
URBAN............................................... 344 124,540 31,744 31,555 0.6 0.5 0.9 0.6
LARGE........................................... 181 77,511 32,819 32,768 0.6 0.1 0.9 0.2
OTHER........................................... 163 47,029 29,974 29,555 0.6 1.1 1.0 1.4

[[Page 4839]]

BY PARTICIPATION DATE:
BEFORE OCT. 1983.................................... 15 7,966 26,999 27,157 0.6 -0.1 0.4 -0.6
OCT. 1983-SEPT. 1993................................ 44 22,661 33,171 33,050 0.6 0.3 1.0 0.4
OCT. 1993-SEPT. 2002................................ 207 75,380 31,382 31,169 0.6 0.6 0.9 0.7
AFTER OCT. 2002..................................... 101 23,163 31,709 31,303 0.6 1.0 1.0 1.3
UNKNOWN............................................. 2 414 31,888 32,068 0.6 -0.4 0.8 -0.6
BY OWNERSHIP CONTROL:
VOLUNTARY........................................... 78 26,725 30,329 30,069 0.6 0.6 1.0 0.9
PROPRIETARY......................................... 246 96,236 31,715 31,532 0.6 0.5 0.9 0.6
GOVERNMENT.......................................... 13 3,087 32,116 31,763 0.6 0.9 0.9 1.1
UNKNOWN............................................. 32 3,536 33,437 33,072 0.6 0.8 1.0 1.1
BY CENSUS REGION:
NEW ENGLAND......................................... 14 9,858 26,775 26,984 0.6 -0.4 0.5 -0.8
MIDDLE ATLANTIC..................................... 28 7,697 32,405 32,063 0.6 1.0 0.9 1.1
SOUTH ATLANTIC...................................... 43 13,684 35,178 34,834 0.6 0.9 1.0 1.0
EAST NORTH CENTRAL.................................. 66 18,555 35,545 35,508 0.6 0.1 0.9 0.1
EAST SOUTH CENTRAL.................................. 28 7,525 31,242 30,611 0.6 1.6 1.2 2.0
WEST NORTH CENTRAL.................................. 18 5,173 34,383 34,057 0.6 0.7 1.0 0.9
WEST SOUTH CENTRAL.................................. 134 52,681 27,848 27,454 0.6 1.2 0.9 1.4
MOUNTAIN............................................ 22 6,378 33,642 33,894 0.6 -1.0 1.1 -0.7
PACIFIC............................................. 16 8,033 41,224 41,801 0.6 -1.3 0.8 -1.4
BY BED SIZE:
BEDS: 0-24.......................................... 25 4,120 29,754 29,266 0.6 1.1 1.1 1.6
BEDS: 25-49......................................... 174 43,374 31,469 31,133 0.6 0.9 0.9 1.1
BEDS: 50-74......................................... 57 22,539 31,860 31,664 0.6 0.4 1.0 0.6
BEDS: 75-124........................................ 45 21,862 32,641 32,473 0.6 0.5 0.9 0.5
BEDS: 125-199....................................... 23 21,724 30,395 30,286 0.6 0.3 0.9 0.4
BEDS: 200 +......................................... 13 12,429 30,756 30,869 0.6 -0.2 0.7 -0.4
UNKNOWN............................................. 32 3,536 33,437 33,072 0.6 0.8 1.0 1.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
\*\ As discussed above in section XVI.A.1. of this regulatory impact analysis, we estimate that the approach discussed for addressing our concerns with
the existing SSO policy presented in section V.A.2. of the preamble of this proposed rule would result in the decrease in estimated payments in the
2008 LTCH PPS rate year (approximately an additional $37 million, on average, for all LTCHs as shown in column 8). However, we note that in absence of
including such an approach, we estimate that in place of the 0.7 percent decrease in estimated payments per discharge, on average, for all LTCHs
(shown in column 9), there would be 0.3 percent increase in estimated payments per discharge, on average, for all LTCHs from the 2007 LTCH PPS rate
year to the 2008 LTCH PPS rate year for all proposed payment rate and policy changes presented in the preamble of this proposed rule. We also note
that, as discussed above in section XVI.B.4. of this regulatory impact analysis, the 2.2 percent decrease in estimated aggregate LTCH PPS payments due
to the proposed expansion of the special payment provision for co-located LTCHs to certain situations not presently covered by existing Sec. 412.534
for subclause (I) LTCHs (as discussed in section V.B. of this proposed rule) is not reflected in this impact table. However, the impact of the
proposed expansion of the ``25 percent'' policy is discussed in greater detail below in section XVI.C.1. of this regulatory impact analysis.
\1\ Estimated average estimated payment per case for the 12-month period of July 1, 2006 through June 30, 2007.
\2\ Estimated proposed average estimated payment per case for the 12-month period of July 1, 2007 through June 30, 2008.
\3\ As the percent change shown in this column represents a percent decrease in estimated payments per discharge, a negative (that is, minus) sign
indicates a percent increase in estimated payments per discharge and the absence of a sign (that is, a positive sign) indicates a percent decrease in
estimated payments per discharge.
\4\ Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for the proposed changes to the
Federal rate. (Note, as discussed in section XVI.B.4. of this regulatory impact analysis, because about 35 percent of all LTCH cases are projected to
receive a payment under the existing SSO policy that is based either on the estimated cost of the case or the ``IPPS comparable amount'' (rather than
the proposed Federal rate), the percent change in estimated payments per discharge due to the proposed changes to the Federal rate for most of the
categories of LTCHs, 0.6 percent, is slightly less than the proposed update to the Federal rate of 0.71 percent.)
\5\ Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for proposed changes to the area
wage adjustment policy at Sec. 412.525(c) (as discussed in section V.D.1. of the preamble of this proposed rule).
\6\ Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for the approach discussed to
address our concerns with the existing SSO policy at Sec. 412.529 (presented in section V.A.1.a. of the preamble of this proposed rule).
\7\ Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year (as established in the RY 2007 LTCH PPS final rule (71 FR 27798
through 27939)) to the 2008 LTCH PPS rate year (as discussed in the preamble of this proposed rule, including the approach to the SSO policy discussed
in section V.A.2. of this proposed rule) for all of the payment rate and policy provisions presented in the preamble of this proposed rule. Note, this
column, which shows the percent change in estimated payments per discharge for all proposed changes, may not exactly equal the sum of the percent
changes in estimated payments per discharge for proposed changes to the Federal rate (column 7), for proposed area wage adjustment changes (column 8)
and the approach discussed for the SSO policy (column 9) due to the effect of estimated changes in aggregate HCO payments, as well as other
interactive effects that cannot be isolated.

4. Results
Based on the most recent available data (as described previously
for 369 LTCHs), we have prepared the following summary of the impact
(as shown in Table 9) of the proposed LTCH PPS payment rate and payment
rate policy changes presented in this proposed rule (including the
approach to the SSO policy discussed in section V.A.2. of this proposed
rule). (As noted above, the impact of other policy changes presented in
this proposed rule, which do not directly affect the LTCH PPS per
discharge payment rate, such as the proposed expansion of the existing
payment provision for co-located LTCHs

[[Page 4840]]

to certain situations not presently covered by existing Sec. 412.534
for subclause (I) LTCHs, are not included as part of the impact
analysis shown in Table 9. However, the impact of those other proposed
policies are discussed separately in section XVI.C. of this regulatory
impact analysis.)
The impact analysis in Table 9 shows that estimated payments per
discharge are expected to decrease approximately 0.7 percent, on
average, for all LTCHs from the 2007 LTCH PPS rate year as compared to
the 2008 LTCH PPS rate year as a result of the proposed payment rate
and policy changes presented in this proposed rule. We note that
although we are proposing a 0.71 percent increase to the Federal rate
for RY 2008, the impact analysis shown in Table 9 (column 6), only
shows a 0.6 percent increase in estimated payments per discharge from
RY 2007 to RY 2008, for most categories of LTCHs, as a result of the
proposed changes to the Federal rate. The reason that this column shows
an estimated 0.6 percent increase rather than an estimated 0.7 percent
increase (based on the proposed 0.71 percent update to the Federal
rate) is because about 35 percent of all LTCH cases are projected to
receive a payment under the existing SSO policy. Under either the
existing SSO policy or the approach for the SSO policy discussed in
section V.A.2. of this proposed rule, the majority of SSO cases would
receive an adjusted LTCH PPS payment in RY 2008 that would be based
either on the estimated cost of the case or the ``IPPS comparable
amount'' (that is, either under the ``blend amount'' at existing Sec.
412.529(c)(2)(iv) or the amount discussed in our approach to address
our concerns with the existing SSO policy) rather than a LTCH PPS
payment based on the proposed Federal rate. Therefore, because over 30
percent of all LTCH PPS cases would receive a payment that is not based
on the proposed Federal rate, the percent change in estimated payments
per discharge due to the proposed changes to the Federal rate for most
categories of LTCHs shown in Table 9 is projected to be slightly less
(0.6 percent) than the proposed 0.71 percent update to the Federal
rate. Although, we are proposing a 0.71 percent increase to the Federal
rate for RY 2008, the projected percent decrease in estimated payments
per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS
rate year shown in Table 9 is due the proposed changes to the area wage
adjustment (discussed in section IV.D.1. of this proposed rule), in
conjunction with the approach to the SSO policy (discussed in section
V.A.2. of this proposed rule) and the proposed increase to the HCO
fixed-loss amount (as discussed in section IV.D.3.c. of this proposed
rule).
Specifically, as we discussed in greater detail in section IV.D.1.
of the preamble of this proposed rule, we are proposing to update the
wage index values for RY 2008 in accordance with the progression of the
5-year phase-in of the wage index adjustment. We are also proposing to
decrease the labor-related share from 75.665 percent to 75.511 percent
under the LTCH PPS beginning in RY 2008. Because this proposed change
to the labor-related share would lower the portion of the Federal rate
that is adjusted by the wage index to account for differences in local
cost variation (in accordance with Sec. 412.525(c)), LTCHs located in
areas with a proposed RY 2008 wage index value that is greater than 1.0
would experience a slight decrease in estimated payments per discharge
as a result of the proposed decrease in the labor-related share.
Conversely, LTCHs located in areas with a proposed RY 2008 wage index
value that is less than 1.0 are expected to experience an increase in
estimated payments per discharge as a result of the proposed decrease
in the labor-related share since a smaller portion of the Federal rate
would be adjusted by the proposed wage index to account for differences
in local cost variation (in accordance with Sec. 412.525(c)). However,
the effect of the progression of the 5-year phase-in of the wage index
adjustment, which results in a relatively more significant decrease in
estimated payments for LTCHs located in areas with a proposed RY 2008
wage index value that is less than 1.0, would likely offset the effect
on payments due to the decrease in the labor-related share.
Consequently, the proposed changes to the wage index adjustment
presented in this proposed rule for LTCHs located in areas with a
proposed RY 2008 wage index value that is less than 1.0 are expected to
also contribute to the projected decrease in estimated payments per
discharge from RY 2007 as compared to RY 2008.
In addition, under the approach discussed to address our concerns
with the existing SSO policy (discussed in section V.A.2. of this
proposed rule), those LTCH SSO cases with a covered LOS that is less
than or equal to the IPPS ALOS plus one standard deviation for the same
DRG would receive a lower adjusted LTCH PPS payment than under the
current SSO policy. We believe that the LTCH cases meeting the criteria
stated above appear to be similar to the same type of cases treated in
an acute care hospital and paid for under the IPPS since one standard
deviation is a statistical test which measures the certainty of the
average of a set of measurements for the purpose of this data analysis.
Accordingly, we believe the approach discussed for the SSO policy could
be appropriate, given that many of these SSO cases that are ``similar
to IPPS cases'' most likely do not receive a full course of a LTCH-
level of treatment in such a short period of time since, in general,
LTCHs are intended to treat longer stay patients. Furthermore, since by
far the majority of SSO cases were admitted to the LTCH directly from
an acute-care hospital, they are likely to still be in need of acute-
level care at the time of admission to the LTCH. We believe that this
may indicate that the LTCH admission is a premature and inappropriate
discharge from the acute-care hospital and an inappropriate admission
to the LTCH. We believe that the approach for the SSO policy could
result in appropriate payments for short-stay cases treated at LTCHs as
discussed in greater detail in section V.A.2. of this proposed rule.
Furthermore, as we discussed in greater detail in section IV.D.3.c.
of the preamble of this proposed rule, given the regulatory requirement
at Sec. 412.525(a) that estimated outlier payments equal 8 percent of
estimated total LTCH PPS payments, this decrease in estimated LTCH PPS
payments for RY 2008 resulting primarily from the proposed changes to
the SSO policy and the proposed changes to the area wage adjustment
would require a proposed increase in the HCO fixed-loss amount to
maintain estimated outlier payments at 8 percent of the estimated total
LTCH PPS payments (resulting from the proposed payment rate and policy
changes presented in this proposed rule). Thus, the proposed increase
in the outlier fixed-loss amount also contributes to the projected
decrease in estimated payments per discharge from the 2007 LTCH PPS
rate year to the 2008 LTCH PPS rate year. For example, many LTCHs are
expected to receive a decrease in HCO payments. As a result of the
proposed increase to the fixed-loss amount from the 2007 LTCH PPS rate
year ($14,887) to the 2008 LTCH PPS rate year ($18,774), fewer cases
would qualify as outlier cases (that is, the estimated cost of the case
exceeds the outlier threshold). Since many LTCHs are expected to
receive fewer outlier payments, total estimated payments per discharge
are expected to decrease slightly from RY 2007 to RY 2008.

[[Page 4841]]

a. Location
Based on the most recent available data, the majority of LTCHs are
in urban areas. Approximately 7 percent of the LTCHs are identified as
being located in a rural area, and approximately 4 percent of all LTCH
cases are treated in these rural hospitals. The impact analysis
presented in Table 9 shows that the percent decrease in estimated
payments per discharge for the 2007 LTCH PPS rate year compared to the
2008 LTCH PPS rate year for rural LTCHs would be 2.6 percent for all
proposed changes, and would be 0.6 percent for urban LTCHs for all
proposed changes.
The primary reasons that the projected percent decrease in
estimated payments to rural LTCHs is greater than that for urban LTCHs
is that rural LTCHs are expected to experience a larger decrease in
estimated payments due to the approach discussed for the SSO policy
because, based on the most recent available data, many rural LTCHs
treat a larger than average percentage of SSO cases (in fact, for a few
rural LTCHs, SSO cases represent over half of their total cases based
on FY 2005 data). Furthermore, rural LTCHs are projected to experience
a higher than average decrease in estimated payments per discharge as a
result of the proposed changes to the area wage adjustment because the
proposed wage index for all rural LTCHs is less than 1.0, as explained
above in this section.
Large urban LTCHs are projected to experience a 0.2 percent
decrease in estimated payments per discharge from the 2007 LTCH PPS
rate year compared to the 2008 LTCH PPS rate year, while other urban
LTCHs are projected to experience a 1.4 percent decrease in estimated
payments per discharge from the 2007 LTCH PPS rate year compared to the
2008 LTCH PPS rate year, as shown in Table 9. Other urban LTCHs are
projected to experience a higher than average decrease in estimated
payments per discharge primarily because of the proposed changes to the
area wage adjustment. This is because the majority of other urban LTCHs
(over 80 percent) are located in urban areas that have a proposed wage
index value of less than 1.0, and therefore, would experience a higher
than average decrease in estimated payments per discharge as a result
of the proposed changes to the wage index adjustment, as explained
above. In addition, other urban LTCHs have a slightly higher percentage
of SSO cases and therefore, are projected to experience a slightly
higher than average decrease in estimated payments per discharge as a
result of the approach discussed for the SSO policy (as also discussed
in greater detail above in this section).
Large urban LTCHs are projected to experience a lower than average
decrease in estimated payments per discharge for all changes primarily
because of the proposed changes to the area wage adjustment because the
majority of large urban LTCHs are located in urban areas that have a
proposed wage index value of greater than 1.0, as explained above in
this section.
b. Participation Date
LTCHs are grouped by participation date into four categories: (1)
Before October 1983; (2) between October 1983 and September 1993; (3)
between October 1993 and September 2002; and (4) after October 2002.
Based on the most recent available data, the majority (approximately 56
percent) of the LTCH cases are in hospitals that began participating
between October 1993 and September 2002, and are projected to
experience a 0.7 percent decrease in estimated payments per discharge
from the 2007 LTCH PPS rate year compared to the 2008 LTCH PPS rate
year, as shown in Table 9.
Approximately 12 percent of LTCH PPS cases are in LTCHs that began
participating in Medicare between October 1983 and September 1993, and
those LTCHs are projected to experience a 0.4 percent decrease in
estimated payments per discharge from the 2007 LTCH PPS rate year
compared to the 2008 LTCH PPS rate year, as shown in Table 9. We are
projecting that LTCHs that began participating in Medicare between
October 1983 and September 1993 would experience a lower than average
decrease in estimated payments for RY 2008 primarily because we are
projecting that these LTCHs are expected to experience a lower than
average decrease (0.3 percent) in estimated payments per discharge due
to the proposed changes to the area wage adjustment. This is because
many of the LTCHs that began participating in Medicare between October
1983 and September 1993 are located in areas where the proposed RY 2008
wage index value would be greater than the RY 2007 wage index value,
and because several of these LTCHs are located in areas that have a
proposed wage index value of greater than 1.0, (as explained above).
LTCHs that began participating before October 1983 are projected to
experience a 0.6 percent increase in estimated payments per discharge
from the 2007 LTCH PPS rate year compared to the 2008 LTCH PPS rate
year (see Table 9). We are projecting that LTCHs that began
participating in Medicare before October 1983 would experience an
increase in estimated payments for RY 2008 as compared to RY 2007
primarily because we are projecting that LTCHs in this participation
date category would experience a slight increase in estimated payments
in RY 2008 as compared to RY 2007 due to the proposed changes to the
area wage adjustment. This is because many of the LTCHs that began
participating in Medicare before October 1983 are located in areas
where the proposed RY 2008 wage index value would be greater than the
proposed RY 2007 wage index value, and because several of these LTCHs
are located in areas that would have a proposed RY 2008 wage index
value of greater than 1.0, (as discussed in section XVI.B.4. of this
regulatory impact analysis). In addition, LTCHs that began
participating in Medicare before October 1983 are expected to
experience a lower than average decrease in estimated payments due to
the approach discussed for the SSO policy (discussed in section V.A.2.
of this proposed rule). Specifically, based on the FY 2005 LTCH claims
data, the majority of LTCHs in this participation date category treat a
smaller than average percentage of SSO cases.
Approximately 27 percent of LTCHs began participating in Medicare
after October 2002 (that is, the beginning of the LTCH PPS, which was
implemented for cost reporting periods beginning on or after October 1,
2002), and those LTCHs are projected to experience a 1.3 percent
decrease in estimated payments per discharge from the 2007 LTCH PPS
rate year compared to the 2008 LTCH PPS rate year (see Table 9). We are
projecting that LTCHs that began participating in Medicare after
October 2002 will experience a higher than average decrease in
estimated payments for RY 2008 primarily because we are projecting that
these LTCHs would experience a larger than average decrease (1.0
percent) in estimated payments per discharge due to the proposed
changes to the area wage adjustment. This is because the majority of
the LTCHs that began participating in Medicare after October 2002 are
located in areas where the proposed RY 2008 wage index value would be
less than the RY 2007 wage index value, and because the majority (over
80 percent) of these LTCHs are located in areas that would have a
proposed RY 2008 wage index value of less than 1.0, (as discussed above
in this section).

[[Page 4842]]

c. Ownership Control
Other than LTCHs whose ownership control type is unknown, LTCHs are
grouped into three categories based on ownership control type:
Voluntary; proprietary; and government. Based on the most recent
available data, approximately 4 percent of LTCHs are identified as
government-owned and operated. We expect that for these government-
owned and operated LTCHs, estimated 2008 LTCH PPS rate year payments
per discharge would decrease 1.1 percent in comparison to the 2007 LTCH
PPS rate year, as shown in Table 9. We are projecting that government-
run LTCHs would experience a higher than average decrease in estimated
payments in RY 2008 as compared to RY 2007 primarily due to the effect
of the proposed changes to the area wage adjustment. This is because
all but 3 of the 13 government-run LTCHs in our database are located in
areas where the proposed wage index value for RY 2008 is less than 1.0,
as explained above.
Similarly, we project that estimated 2008 LTCH PPS rate year
payments per discharge for voluntary LTCHs, which account for
approximately 21 percent of LTCHs, would decrease 0.9 percent in
comparison to estimated 2007 LTCH PPS rate year payments (see Table 9).
We are projecting that voluntary LTCHs would experience a slightly
higher than average decrease in estimated payments in RY 2008 as
compared to RY 2007 due to the proposed changes to the wage index
adjustment, as well as the approach discussed for the SSO policy.
Specifically, we expect voluntary LTCHs would experience a slightly
higher than average decrease in estimated payments in RY 2008 as
compared to RY 2007 due to the approach discussed for the SSO policy
since over half (48 LTCHs) of the voluntary LTCHs have a higher than
average percentage of SSO cases. We expect voluntary LTCHs would
experience a slightly higher than average decrease in estimated
payments in RY 2008 as compared to RY 2007 due to the proposed changes
to the wage index adjustment since over three-quarters (61 LTCHs) of
the voluntary LTCHs are located in areas where the proposed wage index
value is less than 1.0 (as discussed above).
The majority (approximately 67 percent) of LTCHs are identified as
proprietary. We project that 2008 LTCH PPS rate year estimated payments
per discharge for these proprietary LTCHs would decrease 0.6 percent in
comparison to the 2007 LTCH PPS rate year (see Table 9).
d. Census Region
Estimated payments per discharge for the 2008 LTCH PPS rate year
are projected to decrease for LTCHs located in most regions (with the
exception of New England, Mountain, and Pacific regions) in comparison
to the 2007 LTCH PPS rate year. The percent decrease in estimated
payments per discharge from the 2007 LTCH PPS rate year to the 2008
LTCH PPS rate year for most regions is largely attributable to the
approach discussed for the SSO policy, the proposed changes in the area
wage adjustment, and the increase in the HCO fixed-loss amount (as
explained above).
Of the 9 census regions, we project that the decrease in proposed
2008 LTCH PPS rate year estimated payments per discharge in comparison
to the 2007 LTCH PPS rate year would have the largest impact on LTCHs
in the East South Central and West South Central regions (2.0 percent
and 0.5 percent, respectively; see Table 9). LTCHs located in both the
East South Central and West South Central regions are expected to
experience a higher than average decrease in estimated payments due to
the proposed changes in the area wage adjustment (1.6 percent for the
East South Central region, and 1.2 percent for the West South Central
region, as shown in Table 9). This is because nearly all LTCHs located
in the East South Central region and the West South Central regions are
located in areas with a wage index value that is less than 1.0 (as
described above). In addition, LTCHs are also expected to experience a
higher than average decrease in estimated payments per discharge due to
the approach discussed for the SSO policy since many of the LTCHs in
these two regions have a larger than average percentage of SSO cases
(based on FY 2005 LTCH claims data).
We project that proposed 2008 LTCH PPS rate year estimated payments
per discharge would increase for LTCHs in the New England, Mountain and
Pacific region in comparison to the 2007 LTCH PPS rate year (0.8
percent, 0.7 percent and 1.4 percent, respectively; see Table 9). We
estimate that for LTCHs located in these three regions, the projected
increases in estimated payments per discharge for the 2008 LTCH PPS
rate year compared to the 2007 LTCH PPS rate year are largely a result
of the proposed changes to the area wage adjustment. Specifically, we
are projecting an increase in estimated LTCH PPS payments due to the
changes to the area wage adjustment because all LTCHs in the New
England and Pacific regions and the majority (over 68 percent) of LTCHs
in the Mountain region are located in areas where the proposed wage
index value for RY 2008 is greater than 1.0, and because many of the
LTCHs in these three regions are located in areas where the proposed RY
2008 wage index value is greater than the RY 2007 wage index value (as
described above).
e. Bed Size
LTCHs were grouped into seven categories based on bed size: 0-24
beds; 25-49 beds; 50-74 beds; 75-124 beds; 125-199 beds; greater than
200 beds; and unknown bed size.
We are projecting a decrease in estimated 2008 LTCH PPS rate year
payments per discharge in comparison to the 2007 LTCH PPS rate year for
all bed size categories except for the category with greater than 200
beds. Most LTCHs are in bed size categories where estimated 2008 LTCH
PPS rate year payments per discharge are projected to decrease between
1.1 percent and 1.6 percent in comparison to the 2007 LTCH PPS rate
year (that is, LTCHs with less than 49 beds). As noted above, the
projected percent increase in estimated payments per discharge from the
2007 LTCH PPS rate year to the 2008 LTCH PPS rate year is largely
attributable to the approach discussed for the SSO policy, the proposed
changes in the area wage adjustment, and the proposed increase in the
outlier fixed-loss amount (as explained above).
Estimated payments per discharge for the 2008 LTCH PPS rate year
for LTCHs with 0-24 beds are projected to decrease the most in
comparison to the 2007 LTCH PPS rate year (1.6 percent; see Table 9),
followed by LTCHs with 25-49 beds (1.1 percent; see Table 9). This
higher than average decrease in estimated payments per discharge for
LTCHs with less than 49 beds (that is, LTCHs in the 0-24 bed size
category and LTCHs in the 25-49 bed size category) is largely due to
the proposed changes to the area wage adjustment and the approach
discussed for the SSO policy. Specifically, the majority of LTCHs with
49 beds or less are located in areas where the proposed RY 2008 wage
index value is less than the RY 2007 wage index value. In addition, the
majority (over 80 percent) of LTCHs with 49 beds or less are located in
areas where the proposed RY 2008 wage index is less than 1.0.
Furthermore, many of the LTCHs with less than 25 beds have a larger
than average percentage of SSO cases, and therefore, are expected to
experience a larger than average decrease in estimated payments

[[Page 4843]]

per discharge due to the approach discussed for the SSO policy.
We project that LTCHs with greater than 200 beds would have a
slight increase in estimated 2008 LTCH PPS rate year payments per
discharge in comparison to the 2007 LTCH PPS rate year (0.4 percent;
see Table 9). This slight increase in estimated payments per discharge
for LTCHs with greater than 200 beds is primarily due to the proposed
changes to the area wage adjustment. This is because the majority of
these LTCHs are located in areas where the proposed RY 2008 wage index
value is greater than the RY 2007 wage index value, and because 12 of
the 13 LTCHs with greater than 200 beds are located in an area where
the proposed RY 2008 wage index value is greater than 1.0 (as described
above).
5. Effect on the Medicare Program
Based on actuarial projections, an estimate of Medicare spending
(total estimated Medicare program payments) for LTCH services over the
next 5 years based on current LTCH PPS policy (as established in
previous LTCH PPS final rules) is shown in Table 4 in section IV.D.5.
of the preamble of this proposed rule. As noted we project that the
provisions of this proposed rule (including the approach discussed for
the SSO policy), would result in a decrease in estimated aggregate LTCH
PPS payments in RY 2008 of about $117 million (or about 2.9 percent)
for the 369 LTCHs in our database, as explained in greater detail above
in section XVI.A. of this regulatory impact analysis.
Consistent with the statutory requirement for BN, as we discussed
in the August 30, 2002 final rule that implemented the LTCH PPS, in
developing the LTCH PPS, we intended estimated aggregate payments under
the LTCH PPS in FY 2003 be projected to equal the estimated aggregate
payments that would have been made if the LTCH PPS were not
implemented. Our methodology for estimating payments for purposes of
the BN calculations for determining the FY 2003 standard Federal rate
uses the best available data and necessarily reflects assumptions. As
we collect data from LTCHs, we will monitor payments and evaluate the
ultimate accuracy of the assumptions used in the BN calculations (that
is, inflation factors, intensity of services provided, or behavioral
response to the implementation of the LTCH PPS). As discussed in
section IV.D.6. of this proposed rule, we still do not have sufficient
new cost report and claims data generated under the LTCH PPS to enable
us to conduct a comprehensive reevaluation of our FY 2003 BN
calculation at this time.
Section 123 of the BBRA and section 307 of the BIPA provide the
Secretary with extremely broad authority in developing the LTCH PPS,
including the authority for appropriate adjustments. In accordance with
this broad authority, we may discuss in a future proposed rule a
possible one-time prospective adjustment to the LTCH PPS rates under
Sec. 412.523(d)(3) on or before July 1, 2008, so that the effect of
any significant differences between actual payments and estimated
payments for the first year of the LTCH PPS is not perpetuated in the
LTCH PPS payment rates for future years.
6. Effect on Medicare Beneficiaries
Under the LTCH PPS, hospitals receive payment based on the average
resources consumed by patients for each diagnosis. We do not expect any
changes in the quality of care or access to services for Medicare
beneficiaries under the LTCH PPS, but we expect that paying
prospectively for LTCH services would enhance the efficiency of the
Medicare program.

C. Impact of Other Proposed Policy Changes

1. Effects of Proposed Policy Expansion of the Special Payment
Provisions for LTCH HwHs and LTCH Satellites to Certain Situations Not
Presently Covered by Existing Sec. 412.534 for Subclause (I) LTCHs
In section V.B. of the preamble to this proposed rule, we are
proposing to revise Sec. 412.534 and add a Sec. 412.536 to expand the
existing payment provision for co-located LTCHs (HwHs and satellites of
LTCHs) to certain situations not presently covered by existing Sec.
412.534 for subclause (I) LTCHs. Under the existing policy, which was
finalized for FY 2004, a payment adjustment is applied to those
discharges from co-located LTCHs that were admitted from host hospitals
that are in excess of a specified threshold unless those patients had
reached HCO status at the referring hospital. Following a 4-year phase-
in of this payment adjustment, for cost reporting periods beginning
during FY 2008, the threshold is 25 percent or an applicable percentage
established under the regulation that takes into account the particular
circumstances of rural, urban single, or MSA dominant hospitals.
Specifically, at existing Sec. 412.534, we have provided that under
the LTCH PPS, Medicare will pay the lesser of an amount otherwise
payable under subpart O of 42 CFR part 412 or a LTCH PPS payment amount
equivalent to what would have been paid under the IPPS for those
discharges that were not HCOs from the referring hospital and that
exceed 25 percent (or the applicable percentage) of the LTCH or LTCH
satellite's Medicare discharges for any cost reporting period (69 FR
49191 through 49213). We originally established this payment adjustment
because our data suggested that in many cases, hospitals were
prematurely shifting patients to co-located LTCHs, and therefore, that
we were generating a Medicare payment to the first hospital (generally
an acute care hospital paid under the IPPS) and also an additional
Medicare payment under the LTCH PPS to an LTCH for what was, in
essence, one episode of care. Consequently, we believed that in such
circumstances co-located LTCHs were functioning as step-down units of
their host hospitals, a configuration which is not permitted under
section 1886(d)(1)(B) of the Act, which provides for the establishment
of rehabilitation and psychiatric units of acute care hospitals but
does not allow LTCH units.
As detailed in section V.B. of the preamble of this proposed rule,
our data suggests that many of our concerns regarding patient shifting
between co-located providers also pertain to those LTCHs that are not
co-located with other hospitals. The RY 2005 LTCH discharges from the
MedPAR files indicate that only about 12 percent of the then 174 free-
standing LTCHs admitted 25 percent or less of their Medicare discharges
from an individual acute care hospital; for about 37 percent of those
freestanding LTCHs, the percentage was between 25 and 50 percent; for
about 34 percent, it was between 50 and 75 percent; and for about 17
percent of those free-standing LTCHs, it was between 75 and 100 percent
of their Medicare discharges were admitted from one acute care
hospital. In addition, the RY 2005 LTCH discharges from the MedPAR
files indicate that for over 50 percent of all LTCHs, at least 50
percent of their discharges are for patients admitted from an
individual acute care hospital. Based on this data, as discussed in
section V.B. of this proposed rule, we have proposed to expand this
described payment adjustment at existing Sec. 412.534 to apply equally
to certain situations not presently covered by existing Sec. 412.534
for subclause (I) LTCHs beginning with cost reporting periods starting
in RY 2008. Under this proposed policy, if any subclause (I) LTCH's or
satellite facility's discharges that had been admitted from any non-

[[Page 4844]]

co-located referring hospital (under proposed Sec. 412.536) or from a
co-located host (under the proposed revision to Sec. 412.534) exceed
25 percent (or the applicable percentage) for the LTCH's cost reporting
period, an adjusted payment would be made at the lesser of the
otherwise payable amount under the LTCH PPS or the LTCH PPS payment
amount that would be equivalent to what Medicare would otherwise pay
under the IPPS.
It is our intent that the proposed revisions would discourage
inappropriate patient shifting to LTCHs before the referring hospital
delivers a full episode of patient care. To the extent that LTCHs
change their behaviors because this proposed policy reduces the
financial incentives for certain situations not presently covered by
existing Sec. 412.534 to admit patients prematurely discharged from
other hospitals, we believe that there would be savings to the Medicare
program. Specifically, as under the existing policy for co-located
LTCHs at existing Sec. 412.534, the proposed payment adjustment would
not apply to either those subclause (I) LTCH discharges admitted from
non-co-located referring hospitals (under proposed Sec. 412.536) or
those subclause (I)LTCH HwH or satellite discharges admitted from co-
located host hospitals (under the proposed revision to Sec. 412.534)
that have already reached HCO status.
At this time, based on the most recent LTCH claims data available
and assuming no change in LTCH behavior if this proposed policy were
implemented, we estimate that the proposed extension of the 25 percent
(or applicable percentage) threshold at existing Sec. 412.534 to
certain situations not presently covered by existing Sec. 412.534
subclause (I) LTCHs would result in savings of $90 million to the
Medicare program (or 2.2 percent decrease in estimated aggregate LTCH
PPS payments) in RY 2008. (As noted above, this estimated $90 million
impact is in addition to the estimated impact of the proposed payment
rate and policy changes discussed in section XVI.B.4. of this
regulatory impact analysis. Thus, the projected 2.2 percent decrease in
estimated aggregate LTCH PPS payments due to this proposed policy is
included in the 2.9 percent decrease in estimated aggregate LTCH PPS
payments projected for all of the provisions of this proposed rule, as
explained in greater detail above in section XVI.A. of this regulatory
impact analysis.) As discussed above in this section, because we
believe that this proposed policy would discourage inappropriate
patient shifting to LTCHs before the non-co-located referring hospital
or co-located host delivered a full episode of patient care and because
we believe that this proposed policy would result in appropriate
Medicare payments under the LTCH PPS, we do not believe that there
would be an adverse financial impact on LTCHs, nor would there be an
adverse impact on Medicare beneficiaries' access to care.
2. Effects of Proposed Policy Change Relating to Payment for Direct
Graduate Medical Education (GME)
In section XII. of the preamble of this proposed rule, with respect
to the rules that hospitals must meet to count residents training in
nonhospital settings for indirect medical education (IME) and direct
GME payment purposes, we are proposing to revise Sec. 413.75(b) to
revise the definition of ``all or substantially all of the costs for
the training program in the nonhospital setting.'' The revised
definition would be at least 90 percent of the total cost of the
residents' salaries and fringe benefits (including travel and lodging
where applicable) and the portion of the cost of teaching physicians'
salaries attributable to direct GME. This differs from the current
definition of ``all or substantially all of the costs for the training
program in the nonhospital setting'' which requires that, to count FTE
residents training in nonhospital setting, hospitals must pay for 100
percent of the residents' salaries and fringe benefits, as well as the
portion of the actual cost of the teaching physicians' salary and
fringe benefits attributable to GME activities during the time the
residents are training in the nonhospital site. In addition, under the
proposed definition of ``all or substantially all'' of the costs, in
response to hospitals' concerns regarding the difficulty of acquiring
actual salary data from teaching physicians to document the actual cost
of the teaching physicians' time spent on GME activities, we are
proposing to allow hospitals to use certain proxy information, such as
national average physician compensation amounts, to calculate the cost
of the teaching physicians' time spent in GME activities in nonhospital
sites.
We believe that the administrative burden on hospitals related to
calculating and documenting that they are paying for all or
substantially all of the costs of residency training in nonhospital
sites would be significantly reduced, if not eliminated, under our
proposal. If the proposed changes are not made, and we continue to
require that hospitals provide extensive documentation that they are
paying for ``all'' of the costs of the training program in the
nonhospital setting, we understand that there is industry concern that
hospitals may significantly reduce the amount of training occurring in
nonhospital settings, and may transfer that residency training back to
hospitals. We further note that the Congress intended to encourage the
shift of training to nonhospital settings and we believe this proposed
policy change could facilitate further shifts to nonhospital settings.
Since we are not proposing a change that would impact the aggregate
amount of residency training that will occur, and Medicare would
continue to pay for residency training occurring in hospitals, overall
Medicare payments for residency training as a result of this proposal
will remain constant.

D. Accounting Statement

As discussed in section XVI.A.1. of this regulatory impact
analysis, including the approach discussed for addressing our concerns
with the existing SSO policy (presented in section V.A.2. of the
preamble of this proposed rule) in the impact analysis of this proposed
rule results in a decrease in estimated aggregate payments of $117
million (or about 2.9 percent) for the 369 LTCHs in our database.
Therefore, as required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 10, we have
prepared an accounting statement showing the classification of the
expenditures associated with the provisions of this proposed rule.
Table 10 provides our best estimate of the proposed decrease in
Medicare payments under the LTCH PPS as a result of the provisions
presented in this proposed rule based on the data for the 369 LTCHs in
our database. All expenditures are classified as transfers to Medicare
providers (that is, LTCHs).

[[Page 4845]]

Table 10.--Accounting Statement: Classification of Estimated
Expenditures, From the 2007 LTCH PPS Rate Year to the 2008 LTCH PPS Rate
Year
[In millions]
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers......... Negative transfer--Estimated
decrease in expenditures:
$117.*
From Whom To Whom?..................... Federal Government To LTCH
Medicare Providers.
------------------------------------------------------------------------
* As noted above and as discussed in greater detail above in section
XVI.A.1. of this regulatory impact analysis, we have included the
approach discussed for addressing our concerns with the existing SSO
policy in the impact analysis of this proposed rule, which is
projected to result in a $117 million decrease in estimated aggregate
LTCH PPS payments from RY 2007 to RY 2008. However, we note that in
absence of including such an approach, we estimate that the estimated
impact of the provisions of this proposed rule are projected to result
in an $80 million decrease in estimated aggregate LTCH PPS payments
from RY 2007 to RY 2008.

In accordance with the provisions of Executive Order 12866, this
proposed rule 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 413

Health facilities, Kidney diseases, Medicare, Reporting and
recordkeeping requirements.

For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services would amend 42 CFR chapter IV as set forth below:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL
SERVICES

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) and section 124 of Pub. L. 106-113 (113
Stat. 1501A-332).

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

2. Section 412.22 is amended by adding paragraphs (h)(3)(i) and
(ii) to read as follows:

Sec. 412.22 Excluded hospitals and hospital units: General rules.

* * * * *
(h) * * *
(3) * * *
(i) Any hospital structured as a satellite facility on September
30, 1999, and excluded from the prospective payment systems on that
date, to the extent the hospital continues operating under the same
terms and conditions, including the number of beds and square footage
considered, for the purposes of Medicare participation and payment, to
be part of the hospital, in effect on September 30, 1999; or
(ii) Any hospital excluded from the prospective payment systems
under Sec. 412.23(e)(2)(ii).
* * * * *

Subpart G--Special Treatment of Certain Facilities Under the
Prospective Payment System for Inpatient Operating Costs

3. Section 412.105 is amended by revising paragraph (f)(1)(ii)(C)
to read as follows:

Sec. 412.105 Special treatment: Hospitals that incur indirect costs
for graduate medical education programs.

* * * * *
(f) * * *
(1) * * *
(ii) * * *
(C) Effective for discharges occurring on or after October 1, 1997,
the time spent by a resident in a nonhospital setting in patient care
activities, as defined in Sec. 413.75(b) of this subchapter, under an
approved medical residency training program is counted towards the
determination of full-time equivalency if the criteria set forth in
Sec. 413.78(c), (d), (e), or (f) of this subchapter, as applicable,
are met.
* * * * *

Subpart O--Prospective Payment System for Long-Term Care Hospitals

4. Section 412.517 is amended by --
A. Redesignating the introductory text and paragraphs (a), (b),
(c), and (d) as paragraphs (a) introductory text, (a)(1), (a)(2),
(a)(3), and (a)(4), respectively.
B. Adding new paragraph (b).
The addition reads as follows:

Sec. 412.517 Revision of LTC-DRG group classifications and weighting
factors.

* * * * *
(b) Beginning in FY 2008, the annual changes to the LTC-DRG
classifications and recalibration of the weighting factors described in
paragraph (a) are made in a budget neutral manner such that estimated
aggregate LTCH PPS payments are not affected.
5. Section 412.523 is amended by adding new paragraph (c)(3)(iv) to
read as follows:

Sec. 412.523 Methodology for calculating the Federal prospective
payment rates.

* * * * *
(c) * * *
(3) * * *
(iv) For long-term care hospital prospective payment system rate
year beginning July 1, 2007 and ending June 30, 2008. The standard
Federal rate for long-term care hospital prospective payment system
rate year beginning July 1, 2007 and ending June 30, 2008 is the
standard Federal rate for the previous long-term care hospital
prospective payment system rate year updated by 0.71 percent. The
standard Federal rate is adjusted, as appropriate, as described in
paragraph (d) of this section.
* * * * *
6. Section 412.534 is amended by--
A. Revising paragraph (b).
B. Adding paragraph (h).
The revision and addition read as follows:

Sec. 412.534 Special payment provisions for long-term care hospitals
within hospitals and satellites of long-term care hospitals.

* * * * *
(b) Patients admitted from hospitals not located in the same
building or on the same campus as the long-term care hospital or long-
term care hospital satellite. Payments to the long-term care hospital
for patients admitted to the long-term care hospital to a satellite of
the long-term care hospital from another hospital that is not the co-
located hospital are made under the rules in this subpart with no
adjustment under this section. For cost reporting periods beginning on
or after July 1, 2007, payments to the long-term care hospital or long-
term care hospital satellite facility for patients admitted to the LTCH
hospital or LTCH satellite facility of the long-term care hospital from
another hospital that is not the co-

[[Page 4846]]

located hospital are subject to the provisions in Sec. 412.536.
* * * * *
(h) Effective date of policies in this section. The policies set
forth in this section apply to discharges occurring in cost reporting
periods beginning on or after July 1, 2007 from long-term care
hospitals as described in Sec. 412.23(e)(2)(i) that meet criteria in
Sec. 412.22(f)and satellite facilities of long-term care hospitals as
described at Sec. 412.22(h)(3)(i).
7. Section 412.536 is added to read as follows:

Sec. 412.536 Special payment provisions for long-term care hospitals
and satellites not co-located with other hospitals.

(a) Scope. For cost reporting periods beginning on or after July 1,
2007, the policies set forth in this section apply to discharges from
long-term care hospitals as described in Sec. 412.23(e)(2)(i) and
satellite facilities of long-term care hospitals described in Sec.
412.22(h), including satellite facilities of long-term care hospitals
described in (h)(3)(i) but excluding satellite facilities described in
(h)(3)(ii).
(b) For cost reporting periods beginning on or after July 1, 2007,
payments for discharged patients admitted from a hospital not located
in the same building or on the same campus as the long-term care
hospital or long-term care hospital satellite facility will be made
under either paragraph (b)(1) or paragraph (b)(2) of this section.
(1) Except as provided in paragraphs (c), (d) or (f) of this
section, for any cost reporting period beginning on or after July 1,
2007 in which a long-term care hospital or a long-term care hospital
satellite facility has a discharged Medicare inpatient population of
whom no more than 25 percent were admitted to the hospital or the
satellite facility from any individual hospital, payments for the
Medicare discharges admitted from that hospital are made under the
rules at Sec. 412.500 through Sec. 412.541 in this subpart with no
adjustment under this section.
(2) Except as provided in paragraph (c), (d), or (f) of this
section, for any cost reporting period beginning on or after July 1,
2007 in which a long-term care hospital or long-term care hospital
satellite facility has a discharged Medicare inpatient population of
whom more than 25 percent were admitted to the hospital or satellite
facility from any individual hospital, payment for the Medicare
discharges who are admitted from that hospital and who cause the long-
term care hospital or satellite facility to exceed the 25 percent
threshold for discharged patients who have been admitted from that
referring hospital, are determined at the lesser of the amount
otherwise payable under this subpart or the amount payable under this
subpart that is equivalent, as set forth in paragraph (e) of this
section, to the amount that would be determined under the rules at
Subpart A, Sec. 412.1(a). Payments for the remainder of the long-term
care hospital's or satellite facility's patients admitted from that
referring hospital are made under the rules in this subpart at Sec.
412.500 through Sec. 412.541 with no adjustment under this section.
(3) In determining the percentage of Medicare discharges admitted
to the long-term care hospital or long-term care hospital satellite
facility from any referring hospital under paragraphs (b)(1) and (b)(2)
of this section, patients on whose behalf a Medicare outlier payment
was made to the referring hospital are not counted towards the 25
percent threshold from that referring hospital.
(c) Special treatment of rural hospitals. (1) Subject to paragraph
(f) of this section, in the case of a long-term care hospital or long-
term care hospital satellite facility that is located in a rural area
as defined in Sec. 412.64(b)(1)(ii)(C) that has a discharged Medicare
inpatient population of whom more than 50 percent were admitted to the
long-term care hospital or long-term care hospital satellite facility
from a hospital, payment for the Medicare discharges who are admitted
from that hospital and who cause the long-term care hospital or
satellite facility to exceed the 50 percent threshold for Medicare
discharges is determined at the lesser of the amount otherwise payable
under this subpart or the amount payable under this subpart that is
equivalent, as set forth in paragraph (e) of this section, to the
amount that is otherwise payable under subpart A, Sec. 412.1(a).
Payments for the remainder of the long-term care hospital's or long-
term care hospital satellite facility's Medicare discharges admitted
from the referring hospital are made under the rules in this subpart at
Sec. 412.500 through Sec. 412.541 with no adjustment under this
section.
(2) In determining the percentage of Medicare discharges admitted
from the referring hospital under paragraph (c)(1) of this section,
patients on whose behalf a Medicare outlier payment was made at the
referring hospital are not counted toward the 50 percent threshold.
(d) Special treatment of urban single or MSA dominant hospitals.
(1) Subject to paragraph (f) of this section, in the case of a long-
term care hospital or long-term care hospital satellite facility that
admits Medicare patients from the only other hospital in the MSA or
from a MSA dominant hospital as defined in paragraph (d)(4) of this
section, for any cost reporting period beginning on or after July 1,
2007, in which the long-term care hospital or satellite facility has a
discharged Medicare inpatient population of whom more than the
percentage calculated under paragraph (d)(2) of this section were
admitted to the hospital from the urban single or MSA-dominant
referring hospital, payment for the Medicare discharges who are
admitted from the referring hospital and who cause the long-term care
hospital or long-term care hospital satellite facility to exceed the
applicable threshold for Medicare discharges who have been admitted
from the referring hospital is the lesser of the amount otherwise
payable under this subpart or the amount under this subpart that is
equivalent, as set forth in paragraph (e) of this section, to the
amount that otherwise would be determined under Subpart A, Sec.
412.1(a). Payments for the remainder of the long-term care hospital's
or satellite facility's Medicare discharges admitted from that
referring hospital are made under the rules in this subpart at Sec.
412.500 through Sec. 412.541 with no adjustment under this section.
(2) For purposes of paragraph (d)(1) of this section, the
percentage used is the percentage of total Medicare discharges in the
Metropolitan Statistical Area (MSA) in which the hospital is located
that are from the referring hospital for the cost reporting period for
which the adjustment was made, but in no case is less than 25 percent
or more than 50 percent.
(3) In determining the percentage of patients admitted from the
referring hospital under paragraph (d)(1) of this section, patients on
whose behalf a Medicare outlier payment was made at the referring
hospital are not counted toward the applicable threshold.
(4) For purposes of this paragraph, an ``MSA-dominant hospital'' is
a hospital that has discharged more than 25 percent of the total
hospital Medicare discharges in the MSA in which the hospital is
located.
(e) Calculation of rates. (1) Calculation of long-term care
hospital prospective payment system amount. CMS calculates an amount
payable under subpart O equivalent to an amount that would otherwise be
paid under the hospital inpatient prospective payment system. The
amount is based on the sum of the applicable hospital inpatient
prospective payment system operating standardized amount and capital
Federal rate in effect at the time of the long-term care hospital
discharge.
(2) Operating inpatient prospective payment system standardized
amount.

[[Page 4847]]

The hospital inpatient prospective payment system operating
standardized amount--
(i) Is adjusted for the applicable hospital inpatient prospective
payment system DRG weighting factors;
(ii) Is adjusted for different area wage levels based on the
geographic classifications set forth at Sec. 412.64(b)(1)(ii)(A)
through (C) and the applicable hospital inpatient prospective payment
system labor-related share, using the applicable hospital inpatient
prospective payment system wage index value for non-reclassified
hospitals. For long-term care hospitals located in Alaska and Hawaii,
this amount is also adjusted by the applicable hospital inpatient
prospective payment system cost of living adjustment factors;
(iii) Includes, where applicable, adjustments for indirect medical
education costs and for the costs of serving a disproportionate share
of low-income patients.
(3) Hospital inpatient prospective payment system capital Federal
rate. The hospital inpatient prospective payment system capital Federal
rate--
(i) Is adjusted for the applicable hospital inpatient prospective
payment system DRG weighting factors;
(ii) Is adjusted by the applicable geographic adjustment factors,
including local cost variation based on the applicable geographic
classifications set forth at Sec. 412.64(b)(1)(ii)(A) through (C) and
the applicable full hospital inpatient prospective payment system wage
index value for non-reclassified hospitals, applicable large urban
location and cost of living adjustment factors for long-term care
hospitals for Alaska and Hawaii, if applicable;
(iii) Includes, where applicable, capital inpatient prospective
payment system adjustments for indirect medical education costs and the
costs of serving a disproportionate share of low-income patients.
(4) High cost outlier. An additional payment for high cost outlier
cases is based on the fixed loss amount established for the hospital
inpatient prospective payment system.
(f) Transition period for long-term care hospitals and long-term
care hospital satellite facilities paid under this subpart. (1) In the
case of a long-term care hospital or a long-term care hospital
satellite facility that is paid under the provisions of this subpart,
for cost reporting periods beginning on or after July 1, 2007, the
amount paid is based on the following:
(2) For long term care hospitals or long term care hospital
satellite facilities with cost reporting period beginning on or after
July 1, 2007, and before October 1, 2007, the percentage of Medicare
discharges admitted from the referring hospital with no payment
adjustment, may not exceed the lesser of the percentage of the long
term care hospital or long-term care hospital satellite's Medicare
discharges that were admitted from the referring hospital during the FY
2005 cost reporting period or 50 percent. In determining the percentage
of Medicare discharges admitted from the referring hospital under this
paragraph, patients on whose behalf a Medicare outlier payment was made
at the referring hospital are not counted toward this threshold.
(3) For long term care hospitals or long term care hospital
satellites with cost reporting periods beginning on or after October 1,
2007, the percentage of Medicare discharges admitted from any referring
hospital with no payment adjustment, may not exceed 25 percent or the
applicable percentage determined under paragraph (c) or (d) of this
section.

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE SERVICES; PROSPECTIVELY DETERMINED PAYMENT
RATES FOR SKILLED NURSING FACILITIES

8. The authority citation for part 413 continues to read as
follows:

Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), and
(n), 1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act
(42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and (n),
1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww); and sec. 124 of Pub.
L. 106-133 (113 Stat. 1501A-332).

Subpart F--Specific Categories of Costs

9. Section 413.75(b) is amended by revising the definition ``all or
substantially all of the costs for the training program in the
nonhospital setting'' to read as follows:

Sec. 413.75 Direct GME payments: General requirements.

* * * * *
(b) * * *
* * * * *
All or substantially all of the costs for the training program in
the nonhospital setting means--(1) Effective on or after January 1,
1999 and for cost reporting periods beginning before July 1, 2007, the
residents' salaries and fringe benefits (including travel and lodging
where applicable) and the portion of the cost of teaching physicians'
salaries and fringe benefits attributable to direct graduate medical
education (GME); and
(2) Effective for cost reporting periods beginning on or after July
1, 2007, at least 90 percent of the total of the costs of the
residents' salaries and fringe benefits (including travel and lodging
where applicable) and the portion of the cost of teaching physicians'
salaries attributable to direct GME.
* * * * *
10. Section 413.78 is amended by adding new paragraph (f) to read
as follows:

Sec. 413.78 Direct GME payments: Determination of the total number of
FTE residents

* * * * *
(f) For cost reporting periods beginning on or after July 1, 2007,
the time residents spend in non-provider settings such as freestanding
clinics, nursing homes, and physicians' offices in connection with
approved programs may be included in determining the number of FTE
residents the calculation of a hospital's resident count if the
following conditions are met--
(1) The resident spends his or her time in patient care activities.
(2) The hospital must incur all or substantially all of the costs
for the training program in the nonhospital setting(s) (in accordance
with the definition under Sec. 413.75(b)).
(3) The hospital must comply with one of the following:
(i) The hospital must document that it is paying for all or
substantially all of the costs for the training program in a
nonhospital setting(s) attributable to training that occurs during a
month by the end of the third month following the month in which the
training in the nonhospital site occurred; or
(ii) There is a written agreement between the hospital and the
nonhospital site that states that the hospital will incur at least 90
percent of the total of the costs of the resident's salary and fringe
benefits (and travel and lodging where applicable) while the resident
is training in the nonhospital site and the portion of the cost of the
teaching physician's salary attributable to direct GME. The written
agreement must specify the total amount the hospital will incur, and
must indicate the portion of this amount that reflects residents'
salaries and fringe benefits (and travel and lodging where applicable),
and the portion of this amount that reflects teaching physician
compensation.
(4) The hospital is subject to the principles of community support
and redistribution of costs as specified in Sec. 413.81.

[[Page 4848]]

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

Dated: December 14, 2006.
Leslie V. Norwalk,
Acting Administrator, Centers for Medicare & Medicaid Services.
Approved: January 24, 2007.
Michael O. Leavitt,
Secretary.

[[Page 4849]]

Note: The following addenda will not appear in the Code of
Federal Regulations.

Addendum A

Addendum A contains the tables referred to throughout the
preamble to this proposed rule. The tables presented below are as
follows:
Table 1: Proposed Long-Term Care Hospital Wage Index for Urban
Areas for Discharges Occurring from July 1, 2007 through June 30,
2008.
Table 2: Proposed Long-Term Care Hospital Wage Index for Rural
Areas for Discharges Occurring from July 1, 2007 through June 30,
2008.
Table 3: FY 2007 LTC-DRG Relative Weights, Geometric Average
Length of Stay, and five-sixths of the Geometric Average Length of
Stay (for Short-Stay Outlier Cases) (effective for discharges
occurring on or after October 1, 2006 through September 30, 2007),
and the IPPS Average Length of Stay plus one Standard Deviation
(that could be used under the approach discussed for Short-Stay
Outlier policy). (Note: The first four columns of this table are the
same information provided in Table 11 of the FY 2007 IPPS final rule
(71 FR 48321 through 48320), which has been reprinted here for
convenience. The fifth column of this table was added to provide
information on the approach discussed for the short-stay outlier
policy, discussed in section VI.A.2. of the preamble of this
proposed rule.)

Table 1.--Proposed Long-Term Care Hospital Wage Index For Urban Areas
For Discharges Occurring From July 1, 2007 Through June 30, 2008 \1\
------------------------------------------------------------------------
Full 4/5ths
CBSA code Urban area (constituent wage wage
counties) index \2\ index \3\
------------------------------------------------------------------------
10180................ Abilene, TX................ 0.8000 0.8400
Callahan County, TX
Jones County, TX
Taylor County, TX
10380................ Aguadilla-Isabela-San 0.3915 0.5132
Sebasti[aacute]n, PR.
Aguada Municipio, PR
Aguadilla Municipio, PR
A[ntilde]asco Municipio,
PR
Isabela Municipio, PR
Lares Municipio, PR
Moca Municipio, PR
Rinc[oacute]n Municipio,
PR
San Sebasti[aacute]n
Municipio, PR
10420................ Akron, OH.................. 0.8654 0.8923
Portage County, OH
Summit County, OH
10500................ Albany, GA................. 0.8991 0.9193
Baker County, GA
Dougherty County, GA
Lee County, GA
Terrell County, GA
Worth County, GA
10580................ Albany-Schenectady-Troy, NY 0.8720 0.8976
Albany County, NY
Rensselaer County, NY
Saratoga County, NY
Schenectady County, NY
Schoharie County, NY
10740................ Albuquerque, NM............ 0.9458 0.9566
Bernalillo County, NM
Sandoval County, NM
Torrance County, NM
Valencia County, NM
10780................ Alexandria, LA............. 0.8006 0.8405
Grant Parish, LA
Rapides Parish, LA
10900................ Allentown-Bethlehem-Easton, 0.9947 0.9958
PA-NJ.
Warren County, NJ
Carbon County, PA
Lehigh County, PA
Northampton County, PA
11020................ Altoona, PA................ 0.8812 0.9050
Blair County, PA
11100................ Amarillo, TX............... 0.9169 0.9335
Armstrong County, TX
Carson County, TX
Potter County, TX
Randall County, TX
11180................ Ames, IA................... 0.9760 0.9808
Story County, IA
11260................ Anchorage, AK.............. 1.2023 1.1618
Anchorage Municipality,
AK
Matanuska-Susitna
Borough, AK
11300................ Anderson, IN............... 0.8681 0.8945
Madison County, IN
11340................ Anderson, SC............... 0.9017 0.9214

[[Page 4850]]

Anderson County, SC
11460................ Ann Arbor, MI.............. 1.0826 1.0661
Washtenaw County, MI
11500................ Anniston-Oxford, AL........ 0.7770 0.8216
Calhoun County, AL
11540................ Appleton, WI............... 0.9455 0.9564
Calumet County, WI
Outagamie County, WI
11700................ Asheville, NC.............. 0.9216 0.9373
Buncombe County, NC
Haywood County, NC
Henderson County, NC
Madison County, NC
12020................ Athens-Clarke County, GA... 0.9856 0.9885
Clarke County, GA
Madison County, GA
Oconee County, GA
Oglethorpe County, GA
12060................ Atlanta-Sandy Springs- 0.9762 0.9810
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.......... 1.1831 1.1465
Atlantic County, NJ
12220................ Auburn-Opelika, AL......... 0.8096 0.8477
Lee County, AL
12260................ Augusta-Richmond County, GA- 0.9667 0.9734
SC.
Burke County, GA
Columbia County, GA
McDuffie County, GA
Richmond County, GA
Aiken County, SC
Edgefield County, SC
12420................ Austin-Round Rock, TX...... 0.9344 0.9475
Bastrop County, TX
Caldwell County, TX
Hays County, TX
Travis County, TX
Williamson County, TX
12540................ Bakersfield, CA............ 1.0725 1.0580
Kern County, CA
12580................ Baltimore-Towson, MD....... 1.0088 1.0070
Anne Arundel County, MD
Baltimore County, MD

[[Page 4851]]

Carroll County, MD
Harford County, MD
Howard County, MD
Queen Anne's County, MD
Baltimore City, MD
12620................ Bangor, ME................. 0.9711 0.9769
Penobscot County, ME
12700................ Barnstable Town, MA........ 1.2539 1.2031
Barnstable County, MA
12940................ Baton Rouge, LA............ 0.8084 0.8467
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........... 0.9762 0.9810
Calhoun County, MI
13020................ Bay City, MI............... 0.9251 0.9401
Bay County, MI
13140................ Beaumont-Port Arthur, TX... 0.8595 0.8876
Hardin County, TX
Jefferson County, TX
Orange County, TX
13380................ Bellingham, WA............. 1.1104 1.0883
Whatcom County, WA
13460................ Bend, OR................... 1.0743 1.0594
Deschutes County, OR
13644................ Bethesda-Gaithersburg- 1.0903 1.0722
Frederick, MD.
Frederick County, MD
Montgomery County, MD
13740................ Billings, MT............... 0.8712 0.8970
Carbon County, MT
Yellowstone County, MT
13780................ Binghamton, NY............. 0.8786 0.9029
Broome County, NY
Tioga County, NY
13820................ Birmingham-Hoover, AL...... 0.8894 0.9115
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............... 0.7240 0.7792
Burleigh County, ND
Morton County, ND
13980................ Blacksburg-Christiansburg- 0.8213 0.8570
Radford, VA.
Giles County, VA
Montgomery County, VA
Pulaski County, VA
Radford City, VA
14020................ Bloomington, IN............ 0.8533 0.8826
Greene County, IN
Monroe County, IN
Owen County, IN
14060................ Bloomington-Normal, IL..... 0.8944 0.9155
McLean County, IL
14260................ Boise City-Nampa, ID....... 0.9401 0.9521
Ada County, ID
Boise County, ID
Canyon County, ID
Gem County, ID
Owyhee County, ID
14484................ Boston-Quincy, MA.......... 1.1679 1.1343

[[Page 4852]]

Norfolk County, MA
Plymouth County, MA
Suffolk County, MA
14500................ Boulder, CO................ 1.0350 1.0280
Boulder County, CO
14540................ Bowling Green, KY.......... 0.8148 0.8518
Edmonson County, KY
Warren County, KY
14740................ Bremerton-Silverdale, WA... 1.0913 1.0730
Kitsap County, WA
14860................ Bridgeport-Stamford- 1.2659 1.2127
Norwalk, CT.
Fairfield County, CT
15180................ Brownsville-Harlingen, TX.. 0.9430 0.9544
Cameron County, TX
15260................ Brunswick, GA.............. 1.0164 1.0131
Brantley County, GA
Glynn County, GA
McIntosh County, GA
15380................ Buffalo-Niagara Falls, NY.. 0.9424 0.9539
Erie County, NY
Niagara County, NY
15500................ Burlington, NC............. 0.8674 0.8939
Alamance County, NC
15540................ Burlington-South 0.9474 0.9579
Burlington, VT.
Chittenden County, VT
Franklin County, VT
Grand Isle County, VT
15764................ Cambridge-Newton- 1.0970 1.0776
Framingham, MA.
Middlesex County, MA
15804................ Camden, NJ................. 1.0392 1.0314
Burlington County, NJ
Camden County, NJ
Gloucester County, NJ
15940................ Canton-Massillon, OH....... 0.9031 0.9225
Carroll County, OH
Stark County, OH
15980................ Cape Coral-Fort Myers, FL.. 0.9342 0.9474
Lee County, FL
16180................ Carson City, NV............ 1.0025 1.0020
Carson City, NV
16220................ Casper, WY................. 0.9145 0.9316
Natrona County, WY
16300................ Cedar Rapids, IA........... 0.8888 0.9110
Benton County, IA
Jones County, IA
Linn County, IA
16580................ Champaign-Urbana, IL....... 0.9644 0.9715
Champaign County, IL
Ford County, IL
Piatt County, IL
16620................ Charleston, WV............. 0.8542 0.8834
Boone County, WV
Clay County, WV
Kanawha County, WV
Lincoln County, WV
Putnam County, WV
16700................ Charleston-North 0.9145 0.9316
Charleston, SC.
Berkeley County, SC
Charleston County, SC
Dorchester County, SC
16740................ Charlotte-Gastonia-Concord, 0.9554 0.9643
NC-SC.
Anson County, NC
Cabarrus County, NC
Gaston County, NC
Mecklenburg County, NC
Union County, NC
York County, SC
16820................ Charlottesville, VA........ 1.0125 1.0100
Albemarle County, VA

[[Page 4853]]

Fluvanna County, VA
Greene County, VA
Nelson County, VA
Charlottesville City, VA
16860................ Chattanooga, TN-GA......... 0.8948 0.9158
Catoosa County, GA
Dade County, GA
Walker County, GA
Hamilton County, TN
Marion County, TN
Sequatchie County, TN
16940................ Cheyenne, WY............... 0.9060 0.9248
Laramie County, WY
16974................ Chicago-Naperville-Joliet, 1.0751 1.0601
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.................. 1.1053 1.0842
Butte County, CA
17140................ Cincinnati-Middletown, OH- 0.9601 0.9681
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......... 0.8436 0.8749
Christian County, KY
Trigg County, KY
Montgomery County, TN
Stewart County, TN
17420................ Cleveland, TN.............. 0.8109 0.8487
Bradley County, TN
Polk County, TN
17460................ Cleveland-Elyria-Mentor, OH 0.9400 0.9520
Cuyahoga County, OH
Geauga County, OH
Lake County, OH
Lorain County, OH
Medina County, OH
17660................ Coeur d'Alene, ID.......... 0.9344 0.9475
Kootenai County, ID
17780................ College Station-Bryan, TX.. 0.9045 0.9236
Brazos County, TX
Burleson County, TX
Robertson County, TX
17820................ Colorado Springs, CO....... 0.9701 0.9761
El Paso County, CO
Teller County, CO
17860................ Columbia, MO............... 0.8542 0.8834
Boone County, MO
Howard County, MO
17900................ Columbia, SC............... 0.8933 0.9146
Calhoun County, SC
Fairfield County, SC

[[Page 4854]]

Kershaw County, SC
Lexington County, SC
Richland County, SC
Saluda County, SC
17980................ Columbus, GA-AL............ 0.8239 0.8591
Russell County, AL
Chattahoochee County, GA
Harris County, GA
Marion County, GA
Muscogee County, GA
18020................ Columbus, IN............... 0.9318 0.9454
Bartholomew County, IN
18140................ Columbus, OH............... 1.0107 1.0086
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......... 0.8564 0.8851
Aransas County, TX
Nueces County, TX
San Patricio County, TX
18700................ Corvallis, OR.............. 1.1546 1.1237
Benton County, OR
19060................ Cumberland, MD-WV.......... 0.8446 0.8757
Allegany County, MD
Mineral County, WV
19124................ Dallas-Plano-Irving, TX.... 1.0075 1.0060
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................. 0.9093 0.9274
Murray County, GA
Whitfield County, GA
19180................ Danville, IL............... 0.9266 0.9413
Vermilion County, IL
19260................ Danville, VA............... 0.8451 0.8761
Pittsylvania County, VA
Danville City, VA
19340................ Davenport-Moline-Rock 0.8846 0.9077
Island, IA-IL.
Henry County, IL
Mercer County, IL
Rock Island County, IL
Scott County, IA
19380................ Dayton, OH................. 0.9037 0.9230
Greene County, OH
Miami County, OH
Montgomery County, OH
Preble County, OH
19460................ Decatur, AL................ 0.8159 0.8527
Lawrence County, AL
Morgan County, AL
19500................ Decatur, IL................ 0.8172 0.8538
Macon County, IL
19660................ Deltona-Daytona Beach- 0.9263 0.9410
Ormond Beach, FL.
Volusia County, FL
19740................ Denver-Aurora, CO.......... 1.0930 1.0744
Adams County, CO
Arapahoe County, CO
Broomfield County, CO
Clear Creek County, CO

[[Page 4855]]

Denver County, CO
Douglas County, CO
Elbert County, CO
Gilpin County, CO
Jefferson County, CO
Park County, CO
19780................ Des Moines,-West Des 0.9214 0.9371
Moines, IA.
Dallas County, IA
Guthrie County, IA
Madison County, IA
Polk County, IA
Warren County, IA
19804................ Detroit-Livonia-Dearborn, 1.0281 1.0225
MI.
Wayne County, MI
20020................ Dothan, AL................. 0.7381 0.7905
Geneva County, AL
Henry County, AL
Houston County, AL
20100................ Dover, DE.................. 0.9847 0.9878
Kent County, DE
20220................ Dubuque, IA................ 0.9133 0.9306
Dubuque County, IA
20260................ Duluth, MN-WI.............. 1.0042 1.0034
Carlton County, MN
St. Louis County, MN
Douglas County, WI
20500................ Durham, NC................. 0.9826 0.9861
Chatham County, NC
Durham County, NC
Orange County, NC
Person County, NC
20740................ Eau Claire, WI............. 0.9630 0.9704
Chippewa County, WI
Eau Claire County, WI
20764................ Edison, NJ................. 1.1190 1.0952
Middlesex County, NJ
Monmouth County, NJ
Ocean County, NJ
Somerset County, NJ
20940................ El Centro, CA.............. 0.9076 0.9261
Imperial County, CA
21060................ Elizabethtown, KY.......... 0.8697 0.8958
Hardin County, KY
Larue County, KY
21140................ Elkhart-Goshen, IN......... 0.9426 0.9541
Elkhart County, IN
21300................ Elmira, NY................. 0.8240 0.8592
Chemung County, NY
21340................ El Paso, TX................ 0.9053 0.9242
El Paso County, TX
21500................ Erie, PA................... 0.8827 0.9062
Erie County, PA
21604................ Essex County, MA........... 1.0418 1.0334
Essex County, MA
21660................ Eugene-Springfield, OR..... 1.0876 1.0701
Lane County, OR
21780................ Evansville, IN-KY.......... 0.9071 0.9257
Gibson County, IN
Posey County, IN
Vanderburgh County, IN
Warrick County, IN
Henderson County, KY
Webster County, KY
21820................ Fairbanks, AK.............. 1.1059 1.0847
Fairbanks North Star
Borough, AK
21940................ Fajardo, PR................ 0.4036 0.5229
Ceiba Municipio, PR
Fajardo Municipio, PR
Luquillo Municipio, PR

[[Page 4856]]

22020................ Fargo, ND-MN............... 0.8250 0.8600
Cass County, ND
Clay County, MN
22140................ Farmington, NM............. 0.8589 0.8871
San Juan County, NM
22180................ Fayetteville, NC........... 0.8945 0.9156
Cumberland County, NC
Hoke County, NC
22220................ Fayetteville-Springdale- 0.8865 0.9092
Rogers, AR-MO.
Benton County, AR
Madison County, AR
Washington County, AR
McDonald County, MO
22380................ Flagstaff, AZ.............. 1.1601 1.1281
Coconino County, AZ
22420................ Flint, MI.................. 1.0969 1.0775
Genesee County, MI
22500................ Florence, SC............... 0.8388 0.8710
Darlington County, SC
Florence County, SC
22520................ Florence-Muscle Shoals, AL. 0.7843 0.8274
Colbert County, AL
Lauderdale County, AL
22540................ Fond du Lac, WI............ 1.0063 1.0050
Fond du Lac County, WI
22660................ Fort Collins-Loveland, CO.. 0.9544 0.9635
Larimer County, CO
22744................ Fort Lauderdale-Pompano 1.0133 1.0106
Beach-Deerfield Beach, FL.
Broward County, FL
22900................ Fort Smith, AR-OK.......... 0.7731 0.8185
Crawford County, AR
Franklin County, AR
Sebastian County, AR
Le Flore County, OK
Sequoyah County, OK
23020................ Fort Walton Beach-Crestview- 0.8643 0.8914
Destin, FL.
Okaloosa County, FL
23060................ Fort Wayne, IN............. 0.9517 0.9614
Allen County, IN
Wells County, IN
Whitley County, IN
23104................ Fort Worth-Arlington, TX... 0.9569 0.9655
Johnson County, TX
Parker County, TX
Tarrant County, TX
Wise County, TX
23420................ Fresno, CA................. 1.0943 1.0754
Fresno County, CA
23460................ Gadsden, AL................ 0.8066 0.8453
Etowah County, AL
23540................ Gainesville, FL............ 0.9277 0.9422
Alachua County, FL
Gilchrist County, FL
23580................ Gainesville, GA............ 0.8958 0.9166
Hall County, GA
23844................ Gary, IN................... 0.9334 0.9467
Jasper County, IN
Lake County, IN
Newton County, IN
Porter County, IN
24020................ Glens Falls, NY............ 0.8324 0.8659
Warren County, NY
Washington County, NY
24140................ Goldsboro, NC.............. 0.9171 0.9337
Wayne County, NC
24220................ Grand Forks, ND-MN......... 0.7949 0.8359
Polk County, MN
Grand Forks County, ND
24300................ Grand Junction, CO......... 0.9668 0.9734

[[Page 4857]]

Mesa County, CO
24340................ Grand Rapids-Wyoming, MI... 0.9455 0.9564
Barry County, MI
Ionia County, MI
Kent County, MI
Newaygo County, MI
24500................ Great Falls, MT............ 0.8598 0.8878
Cascade County, MT
24540................ Greeley, CO................ 0.9602 0.9682
Weld County, CO
24580................ Green Bay, WI.............. 0.9787 0.9830
Brown County, WI
Kewaunee County, WI
Oconto County, WI
24660................ Greensboro-High Point, NC.. 0.8866 0.9093
Guilford County, NC
Randolph County, NC
Rockingham County, NC
24780................ Greenville, NC............. 0.9432 0.9546
Greene County, NC
Pitt County, NC
24860................ Greenville, SC............. 0.9804 0.9843
Greenville County, SC
Laurens County, SC
Pickens County, SC
25020................ Guayama, PR................ 0.3235 0.4588
Arroyo Municipio, PR
Guayama Municipio, PR
Patillas Municipio, PR
25060................ Gulfport-Biloxi, MS........ 0.8915 0.9132
Hancock County, MS
Harrison County, MS
Stone County, MS
25180................ Hagerstown-Martinsburg, MD- 0.9038 0.9230
WV.
Washington County, MD
Berkeley County, WV
Morgan County, WV
25260................ Hanford-Corcoran, CA....... 1.0282 1.0226
Kings County, CA
25420................ Harrisburg-Carlisle, PA.... 0.9402 0.9522
Cumberland County, PA
Dauphin County, PA
Perry County, PA
25500................ Harrisonburg, VA........... 0.9073 0.9258
Rockingham County, VA
Harrisonburg City, VA
25540................ Hartford-West Hartford-East 1.0894 1.0715
Hartford, CT
Hartford County, CT
Litchfield County, CT
Middlesex County, CT
Tolland County, CT
25620................ Hattiesburg, MS............ 0.7430 0.7944
Forrest County, MS
Lamar County, MS
Perry County, MS
25860................ Hickory-Lenoir-Morganton, 0.9010 0.9208
NC.
Alexander County, NC
Burke County, NC
Caldwell County, NC
Catawba County, NC
26100................ Holland-Grand Haven, MI.... 0.9163 0.9330
Ottawa County, MI
26180................ Honolulu, HI............... 1.1096 1.0877
Honolulu County, HI
26300................ Hot Springs, AR............ 0.8782 0.9026
Garland County, AR
26380................ Houma-Bayou Cane-Thibodaux, 0.8082 0.8466
LA.
Lafourche Parish, LA

[[Page 4858]]

Terrebonne Parish, LA
26420................ Houston-Sugar Land-Baytown, 1.0008 1.0006
TX.
Austin County, TX
Brazoria County, TX
Chambers County, TX
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- 0.8997 0.9198
OH.
Boyd County, KY
Greenup County, KY
Lawrence County, OH
Cabell County, WV
Wayne County, WV
26620................ Huntsville, AL............. 0.9007 0.9206
Limestone County, AL
Madison County, AL
26820................ Idaho Falls, ID............ 0.9088 0.9270
Bonneville County, ID
Jefferson County, ID
26900................ Indianapolis-Carmel, IN.... 0.9895 0.9916
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.............. 0.9714 0.9771
Johnson County, IA
Washington County, IA
27060................ Ithaca, NY................. 0.9928 0.9942
Tompkins County, NY
27100................ Jackson, MI................ 0.9560 0.9648
Jackson County, MI
27140................ Jackson, MS................ 0.8271 0.8617
Copiah County, MS
Hinds County, MS
Madison County, MS
Rankin County, MS
Simpson County, MS
27180................ Jackson, TN................ 0.8853 0.9082
Chester County, TN
Madison County, TN
27260................ Jacksonville, FL........... 0.9165 0.9332
Baker County, FL
Clay County, FL
Duval County, FL
Nassau County, FL
St. Johns County, FL
27340................ Jacksonville, NC........... 0.8231 0.8585
Onslow County, NC
27500................ Janesville, WI............. 0.9655 0.9724
Rock County, WI
27620................ Jefferson City, MO......... 0.8332 0.8666
Callaway County, MO
Cole County, MO
Moniteau County, MO
Osage County, MO
27740................ Johnson City, TN........... 0.8043 0.8434
Carter County, TN
Unicoi County, TN

[[Page 4859]]

Washington County, TN
27780................ Johnstown, PA.............. 0.8620 0.8896
Cambria County, PA
27860................ Jonesboro, AR.............. 0.7662 0.8130
Craighead County, AR
Poinsett County, AR
27900................ Joplin, MO................. 0.8605 0.8884
Jasper County, MO
Newton County, MO
28020................ Kalamazoo-Portage, MI...... 1.0704 1.0563
Kalamazoo County, MI
Van Buren County, MI
28100................ Kankakee-Bradley, IL....... 1.0083 1.0066
Kankakee County, IL
28140................ Kansas City, MO-KS......... 0.9495 0.9596
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, 1.0343 1.0274
WA.
Benton County, WA
Franklin County, WA
28660................ Killeen-Temple-Fort Hood, 0.8901 0.9121
TX.
Bell County, TX
Coryell County, TX
Lampasas County, TX
28700................ Kingsport-Bristol-Bristol, 0.7985 0.8388
TN-VA.
Hawkins County, TN
Sullivan County, TN
Bristol City, VA
Scott County, VA
Washington County, VA
28740................ Kingston, NY............... 0.9367 0.9494
Ulster County, NY
28940................ Knoxville, TN.............. 0.8249 0.8599
Anderson County, TN
Blount County, TN
Knox County, TN
Loudon County, TN
Union County, TN
29020................ Kokomo, IN................. 0.9669 0.9735
Howard County, IN
Tipton County, IN
29100................ La Crosse, WI-MN........... 0.9426 0.9541
Houston County, MN
La Crosse County, WI
29140................ Lafayette, IN.............. 0.8931 0.9145
Benton County, IN
Carroll County, IN
Tippecanoe County, IN
29180................ Lafayette, LA.............. 0.8289 0.8631
Lafayette Parish, LA
St. Martin Parish, LA
29340................ Lake Charles, LA........... 0.7914 0.8331
Calcasieu Parish, LA
Cameron Parish, LA
29404................ Lake County-Kenosha County, 1.0570 1.0456
IL-WI.
Lake County, IL

[[Page 4860]]

Kenosha County, WI
29460................ Lakeland, FL............... 0.8879 0.9103
Polk County, FL
29540................ Lancaster, PA.............. 0.9589 0.9671
Lancaster County, PA
29620................ Lansing-East Lansing, MI... 1.0088 1.0070
Clinton County, MI
Eaton County, MI
Ingham County, MI
29700................ Laredo, TX................. 0.7811 0.8249
Webb County, TX
29740................ Las Cruces, NM............. 0.9273 0.9418
Dona Ana County, NM
29820................ Las Vegas-Paradise, NV..... 1.1430 1.1144
Clark County, NV
29940................ Lawrence, KS............... 0.8365 0.8692
Douglas County, KS
30020................ Lawton, OK................. 0.8065 0.8452
Comanche County, OK
30140................ Lebanon, PA................ 0.8679 0.8943
Lebanon County, PA
30300................ Lewiston, ID-WA............ 0.9853 0.9882
Nez Perce County, ID
Asotin County, WA
30340................ Lewiston-Auburn, ME........ 0.9126 0.9301
Androscoggin County, ME
30460................ Lexington-Fayette, KY...... 0.9181 0.9345
Bourbon County, KY
Clark County, KY
Fayette County, KY
Jessamine County, KY
Scott County, KY
Woodford County, KY
30620................ Lima, OH................... 0.9042 0.9234
Allen County, OH
30700................ Lincoln, NE................ 1.0092 1.0074
Lancaster County, NE
Seward County, NE
30780................ Little Rock-North Little 0.8890 0.9112
Rock, AR.
Faulkner County, AR
Grant County, AR
Lonoke County, AR
Perry County, AR
Pulaski County, AR
Saline County, AR
30860................ Logan, UT-ID............... 0.9022 0.9218
Franklin County, ID
Cache County, UT
30980................ Longview, TX............... 0.8788 0.9030
Gregg County, TX
Rusk County, TX
Upshur County, TX
31020................ Longview, WA............... 1.0011 1.0009
Cowlitz County, WA
31084................ Los Angeles-Long Beach- 1.1760 1.1408
Glendale, CA.
Los Angeles County, CA
31140................ Louisville-Jefferson 0.9118 0.9294
County, KY-IN.
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

[[Page 4861]]

Trimble County, KY
31180................ Lubbock, TX................ 0.8613 0.8890
Crosby County, TX
Lubbock County, TX
31340................ Lynchburg, VA.............. 0.8694 0.8955
Amherst County, VA
Appomattox County, VA
Bedford County, VA
Campbell County, VA
Bedford City, VA
Lynchburg City, VA
31420................ Macon, GA.................. 0.9519 0.9615
Bibb County, GA
Crawford County, GA
Jones County, GA
Monroe County, GA
Twiggs County, GA
31460................ Madera, CA................. 0.8154 0.8523
Madera County, CA
31540................ Madison, WI................ 1.0840 1.0672
Columbia County, WI
Dane County, WI
Iowa County, WI
31700................ Manchester-Nashua, NH...... 1.0243 1.0194
Hillsborough County, NH
Merrimack County, NH
31900................ Mansfield, OH.............. 0.9271 0.9417
Richland County, OH
32420................ Mayag[uuml]ez, PR.......... 0.3848 0.5078
Hormigueros Municipio, PR
Mayag[uuml]ez Municipio,
PR
32580................ McAllen-Edinburg-Mission, 0.8773 0.9018
TX.
Hidalgo County, TX
32780................ Medford, OR................ 1.0818 1.0654
Jackson County, OR
32820................ Memphis, TN-MS-AR.......... 0.9373 0.9498
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................. 1.1471 1.1177
Merced County, CA
33124................ Miami-Miami Beach-Kendall, 0.9812 0.9850
FL.
Miami-Dade County, FL
33140................ Michigan City-La Porte, IN. 0.9118 0.9294
LaPorte County, IN
33260................ Midland, TX................ 0.9786 0.9829
Midland County, TX
33340................ Milwaukee-Waukesha-West 1.0218 1.0174
Allis, WI.
Milwaukee County, WI
Ozaukee County, WI
Washington County, WI
Waukesha County, WI
33460................ Minneapolis-St. Paul- 1.0946 1.0757
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

[[Page 4862]]

Pierce County, WI
St. Croix County, WI
33540................ Missoula, MT............... 0.8928 0.9142
Missoula County, MT
33660................ Mobile, AL................. 0.7913 0.8330
Mobile County, AL
33700................ Modesto, CA................ 1.1729 1.1383
Stanislaus County, CA
33740................ Monroe, LA................. 0.7997 0.8398
Ouachita Parish, LA
Union Parish, LA
33780................ Monroe, MI................. 0.9707 0.9766
Monroe County, MI
33860................ Montgomery, AL............. 0.8009 0.8407
Autauga County, AL
Elmore County, AL
Lowndes County, AL
Montgomery County, AL
34060................ Morgantown, WV............. 0.8423 0.8738
Monongalia County, WV
Preston County, WV
34100................ Morristown, TN............. 0.7933 0.8346
Grainger County, TN
Hamblen County, TN
Jefferson County, TN
34580................ Mount Vernon-Anacortes, WA. 1.0517 1.0414
Skagit County, WA
34620................ Muncie, IN................. 0.8562 0.8850
Delaware County, IN
34740................ Muskegon-Norton Shores, MI. 0.9941 0.9953
Muskegon County, MI
34820................ Myrtle Beach-Conway-North 0.8810 0.9048
Myrtle Beach, SC.
Horry County, SC
34900................ Napa, CA................... 1.3374 1.2699
Napa County, CA
34940................ Naples-Marco Island, FL.... 0.9941 0.9953
Collier County, FL
34980................ Nashville-Davidson-- 0.9847 0.9878
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......... 1.2662 1.2130
Nassau County, NY
Suffolk County, NY
35084................ Newark-Union, NJ-PA........ 1.1892 1.1514
Essex County, NJ
Hunterdon County, NJ
Morris County, NJ
Sussex County, NJ
Union County, NJ
Pike County, PA
35300................ New Haven-Milford, CT...... 1.1953 1.1562
New Haven County, CT
35380................ New Orleans-Metairie- 0.8831 0.9065
Kenner, LA.
Jefferson Parish, LA
Orleans Parish, LA
Plaquemines Parish, LA
St. Bernard Parish, LA
St. Charles Parish, LA

[[Page 4863]]

St. John the Baptist
Parish, LA
St. Tammany Parish, LA
35644................ New York-White Plains- 1.3177 1.2542
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
Queens County, NY
Richmond County, NY
Rockland County, NY
Westchester County, NY
35660................ Niles-Benton Harbor, MI.... 0.8915 0.9132
Berrien County, MI
35980................ Norwich-New London, CT..... 1.1932 1.1546
New London County, CT
36084................ Oakland-Fremont-Hayward, CA 1.5819 1.4655
Alameda County, CA
Contra Costa County, CA
36100................ Ocala, FL.................. 0.8867 0.9094
Marion County, FL
36140................ Ocean City, NJ............. 1.0472 1.0378
Cape May County, NJ
36220................ Odessa, TX................. 1.0073 1.0058
Ector County, TX
36260................ Ogden-Clearfield, UT....... 0.8995 0.9196
Davis County, UT
Morgan County, UT
Weber County, UT
36420................ Oklahoma City, OK.......... 0.8843 0.9074
Canadian County, OK
Cleveland County, OK
Grady County, OK
Lincoln County, OK
Logan County, OK
McClain County, OK
Oklahoma County, OK
36500................ Olympia, WA................ 1.1081 1.0865
Thurston County, WA
36540................ Omaha-Council Bluffs, NE-IA 0.9450 0.9560
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...... 0.9452 0.9562
Lake County, FL
Orange County, FL
Osceola County, FL
Seminole County, FL
36780................ Oshkosh-Neenah, WI......... 0.9315 0.9452
Winnebago County, WI
36980................ Owensboro, KY.............. 0.8748 0.8998
Daviess County, KY
Hancock County, KY
McLean County, KY
37100................ Oxnard-Thousand Oaks- 1.1546 1.1237
Ventura, CA.
Ventura County, CA
37340................ Palm Bay-Melbourne- 0.9443 0.9554
Titusville, FL.
Brevard County, FL
37460................ Panama City-Lynn Haven, FL. 0.8027 0.8422
Bay County, FL
37620................ Parkersburg-Marietta- 0.7977 0.8382
Vienna, WV-OH.
Washington County, OH

[[Page 4864]]

Pleasants County, WV
Wirt County, WV
Wood County, WV
37700................ Pascagoula, MS............. 0.8215 0.8572
George County, MS
Jackson County, MS
37860................ Pensacola-Ferry Pass-Brent, 0.8000 0.8400
FL.
Escambia County, FL
Santa Rosa County, FL
37900................ Peoria, IL................. 0.8982 0.9186
Marshall County, IL
Peoria County, IL
Stark County, IL
Tazewell County, IL
Woodford County, IL
37964................ Philadelphia, PA........... 1.0996 1.0797
Bucks County, PA
Chester County, PA
Delaware County, PA
Montgomery County, PA
Philadelphia County, PA
38060................ Phoenix-Mesa-Scottsdale, AZ 1.0287 1.0230
Maricopa County, AZ
Pinal County, AZ
38220................ Pine Bluff, AR............. 0.8383 0.8706
Cleveland County, AR
Jefferson County, AR
Lincoln County, AR
38300................ Pittsburgh, PA............. 0.8674 0.8939
Allegheny County, PA
Armstrong County, PA
Beaver County, PA
Butler County, PA
Fayette County, PA
Washington County, PA
Westmoreland County, PA
38340................ Pittsfield, MA............. 1.0266 1.0213
Berkshire County, MA
38540................ Pocatello, ID.............. 0.9400 0.9520
Bannock County, ID
Power County, ID
38660................ Ponce, PR.................. 0.4842 0.5874
Juana D[iacute]az
Municipio, PR
Ponce Municipio, PR
Villalba Municipio, PR
38860................ Portland-South Portland- 0.9908 0.9926
Biddeford, ME.
Cumberland County, ME
Sagadahoc County, ME
York County, ME
38900................ Portland-Vancouver- 1.1416 1.1133
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 Pierce, 0.9833 0.9866
FL.
Martin County, FL
St. Lucie County, FL
39100................ Poughkeepsie-Newburgh- 1.0911 1.0729
Middletown, NY.
Dutchess County, NY
Orange County, NY
39140................ Prescott, AZ............... 0.9836 0.9869
Yavapai County, AZ
39300................ Providence-New Bedford-Fall 1.0783 1.0626
River, RI-MA.
Bristol County, MA
Bristol County, RI
Kent County, RI

[[Page 4865]]

Newport County, RI
Providence County, RI
Washington County, RI
39340................ Provo-Orem, UT............. 0.9537 0.9630
Juab County, UT
Utah County, UT
39380................ Pueblo, CO................. 0.8753 0.9002
Pueblo County, CO
39460................ Punta Gorda, FL............ 0.9405 0.9524
Charlotte County, FL
39540................ Racine, WI................. 0.9356 0.9485
Racine County, WI
39580................ Raleigh-Cary, NC........... 0.9864 0.9891
Franklin County, NC
Johnston County, NC
Wake County, NC
39660................ Rapid City, SD............. 0.8833 0.9066
Meade County, SD
Pennington County, SD
39740................ Reading, PA................ 0.9622 0.9698
Berks County, PA
39820................ Redding, CA................ 1.3198 1.2558
Shasta County, CA
39900................ Reno-Sparks, NV............ 1.1963 1.1570
Storey County, NV
Washoe County, NV
40060................ Richmond, VA............... 0.9177 0.9342
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- 1.0904 1.0723
Ontario, CA.
Riverside County, CA
San Bernardino County, CA
40220................ Roanoke, VA................ 0.8647 0.8918
Botetourt County, VA
Craig County, VA
Franklin County, VA
Roanoke County, VA
Roanoke City, VA
Salem City, VA
40340................ Rochester, MN.............. 1.1408 1.1126
Dodge County, MN
Olmsted County, MN
Wabasha County, MN
40380................ Rochester, NY.............. 0.8994 0.9195
Livingston County, NY
Monroe County, NY
Ontario County, NY
Orleans County, NY
Wayne County, NY
40420................ Rockford, IL............... 0.9989 0.9991
Boone County, IL

[[Page 4866]]

Winnebago County, IL
40484................ Rockingham County-Strafford 1.0159 1.0127
County, NH.
Rockingham County, NH
Strafford County, NH
40580................ Rocky Mount, NC............ 0.8854 0.9083
Edgecombe County, NC
Nash County, NC
40660................ Rome, GA................... 0.9193 0.9354
Floyd County, GA
40900................ Sacramento--Arden-Arcade-- 1.3372 1.2698
Roseville, CA.
El Dorado County, CA
Placer County, CA
Sacramento County, CA
Yolo County, CA
40980................ Saginaw-Saginaw Township 0.8874 0.9099
North, MI.
Saginaw County, MI
41060................ St. Cloud, MN.............. 1.0362 1.0290
Benton County, MN
Stearns County, MN
41100................ St. George, UT............. 0.9265 0.9412
Washington County, UT
41140................ St. Joseph, MO-KS.......... 1.0118 1.0094
Doniphan County, KS
Andrew County, MO
Buchanan County, MO
DeKalb County, MO
41180................ St. Louis, MO-IL........... 0.9005 0.9204
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.................. 1.0438 1.0350
Marion County, OR
Polk County, OR
41500................ Salinas, CA................ 1.4337 1.3470
Monterey County, CA
41540................ Salisbury, MD.............. 0.8953 0.9162
Somerset County, MD
Wicomico County, MD
41620................ Salt Lake City, UT......... 0.9402 0.9522
Salt Lake County, UT
Summit County, UT
Tooele County, UT
41660................ San Angelo, TX............. 0.8362 0.8690
Irion County, TX
Tom Green County, TX
41700................ San Antonio, TX............ 0.8844 0.9075
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 1.1354 1.1083
Marcos, CA.

[[Page 4867]]

San Diego County, CA
41780................ Sandusky, OH............... 0.9302 0.9442
Erie County, OH
41884................ San Francisco-San Mateo- 1.5165 1.4132
Redwood City, CA.
Marin County, CA
San Francisco County, CA
San Mateo County, CA
41900................ San Germ[aacute]n-Cabo 0.4885 0.5908
Rojo, PR.
Cabo Rojo Municipio, PR
Lajas Municipio, PR
Sabana Grande Municipio,
PR
San Germ[aacute]n
Municipio, PR
41940................ San Jose-Sunnyvale-Santa 1.5543 1.4434
Clara, CA.
San Benito County, CA
Santa Clara County, CA
41980................ San Juan-Caguas-Guaynabo, 0.4452 0.5562
PR.
Aguas Buenas Municipio,
PR
Aibonito Municipio, PR
Arecibo Municipio, PR
Barceloneta Municipio, PR
Barranquitas Municipio,
PR
Bayam[oacute]n Municipio,
PR
Caguas Municipio, PR
Camuy Municipio, PR
Can[oacute]vanas
Municipio, PR
Carolina Municipio, PR
Cata[ntilde]o Municipio,
PR
Cayey Municipio, PR
Ciales Municipio, PR
Cidra Municipio, PR
Comer[iacute]o 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
Lo[iacute]za Municipio,
PR
Manat[iacute] Municipio,
PR
Maunabo Municipio, PR
Morovis Municipio, PR
Naguabo Municipio, PR
Naranjito Municipio, PR
Orocovis Municipio, PR
Quebradillas Municipio,
PR
R[iacute]o 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 1.1598 1.1278
Robles, CA.
San Luis Obispo County,
CA
42044................ Santa Ana-Anaheim-Irvine, 1.1473 1.1178
CA.
Orange County, CA
42060................ Santa Barbara-Santa Maria, 1.1091 1.0873
CA.
Santa Barbara County, CA
42100................ Santa Cruz-Watsonville, CA. 1.5457 1.4366
Santa Cruz County, CA
42140................ Santa Fe, NM............... 1.0824 1.0659
Santa Fe County, NM
42220................ Santa Rosa-Petaluma, CA.... 1.4464 1.3571
Sonoma County, CA

[[Page 4868]]

42260................ Sarasota-Bradenton-Venice, 0.9868 0.9894
FL.
Manatee County, FL
Sarasota County, FL
42340................ Savannah, GA............... 0.9351 0.9481
Bryan County, GA
Chatham County, GA
Effingham County, GA
42540................ Scranton--Wilkes-Barre, PA. 0.8347 0.8678
Lackawanna County, PA
Luzerne County, PA
Wyoming County, PA
42644................ Seattle-Bellevue-Everett, 1.1434 1.1147
WA.
King County, WA
Snohomish County, WA
42680................ Sebastian-Vero Beach, FL... 0.9573 0.9658
Indian River County, FL
43100................ Sheboygan, WI.............. 0.9026 0.9221
Sheboygan County, WI
43300................ Sherman-Denison, TX........ 0.8502 0.8802
Grayson County, TX
43340................ Shreveport-Bossier City, LA 0.8865 0.9092
Bossier Parish, LA
Caddo Parish, LA
De Soto Parish, LA
43580................ Sioux City, IA-NE-SD....... 0.9200 0.9360
Woodbury County, IA
Dakota County, NE
Dixon County, NE
Union County, SD
43620................ Sioux Falls, SD............ 0.9559 0.9647
Lincoln County, SD
McCook County, SD
Minnehaha County, SD
Turner County, SD
43780................ South Bend-Mishawaka, IN-MI 0.9842 0.9874
St. Joseph County, IN
Cass County, MI
43900................ Spartanburg, SC............ 0.9174 0.9339
Spartanburg County, SC
44060................ Spokane, WA................ 1.0447 1.0358
Spokane County, WA
44100................ Springfield, IL............ 0.8890 0.9112
Menard County, IL
Sangamon County, IL
44140................ Springfield, MA............ 1.0079 1.0063
Franklin County, MA
Hampden County, MA
Hampshire County, MA
44180................ Springfield, MO............ 0.8469 0.8775
Christian County, MO
Dallas County, MO
Greene County, MO
Polk County, MO
Webster County, MO
44220................ Springfield, OH............ 0.8593 0.8874
Clark County, OH
44300................ State College, PA.......... 0.8784 0.9027
Centre County, PA
44700................ Stockton, CA............... 1.1442 1.1154
San Joaquin County, CA
44940................ Sumter, SC................. 0.8083 0.8466
Sumter County, SC
45060................ Syracuse, NY............... 0.9691 0.9753
Madison County, NY
Onondaga County, NY
Oswego County, NY
45104................ Tacoma, WA................. 1.0789 1.0631
Pierce County, WA
45220................ Tallahassee, FL............ 0.8942 0.9154

[[Page 4869]]

Gadsden County, FL
Jefferson County, FL
Leon County, FL
Wakulla County, FL
45300................ Tampa-St. Petersburg- 0.9144 0.9315
Clearwater, FL.
Hernando County, FL
Hillsborough County, FL
Pasco County, FL
Pinellas County, FL
45460................ Terre Haute, IN............ 0.8765 0.9012
Clay County, IN
Sullivan County, IN
Vermillion County, IN
Vigo County, IN
45500................ Texarkana, TX-Texarkana, AR 0.8104 0.8483
Miller County, AR
Bowie County, TX
45780................ Toledo, OH................. 0.9586 0.9669
Fulton County, OH
Lucas County, OH
Ottawa County, OH
Wood County, OH
45820................ Topeka, KS................. 0.8730 0.8984
Jackson County, KS
Jefferson County, KS
Osage County, KS
Shawnee County, KS
Wabaunsee County, KS
45940................ Trenton-Ewing, NJ.......... 1.0835 1.0668
Mercer County, NJ
46060................ Tucson, AZ................. 0.9202 0.9362
Pima County, AZ
46140................ Tulsa, OK.................. 0.8103 0.8482
Creek County, OK
Okmulgee County, OK
Osage County, OK
Pawnee County, OK
Rogers County, OK
Tulsa County, OK
Wagoner County, OK
46220................ Tuscaloosa, AL............. 0.8542 0.8834
Greene County, AL
Hale County, AL
Tuscaloosa County, AL
46340................ Tyler, TX.................. 0.8811 0.9049
Smith County, TX
46540................ Utica-Rome, NY............. 0.8396 0.8717
Herkimer County, NY
Oneida County, NY
46660................ Valdosta, GA............... 0.8369 0.8695
Brooks County, GA
Echols County, GA
Lanier County, GA
Lowndes County, GA
46700................ Vallejo-Fairfield, CA...... 1.5137 1.4110
Solano County, CA
47020................ Victoria, TX............... 0.8560 0.8848
Calhoun County, TX
Goliad County, TX
Victoria County, TX
47220................ Vineland-Millville- 0.9832 0.9866
Bridgeton, NJ.
Cumberland County, NJ
47260................ Virginia Beach-Norfolk- 0.8790 0.9032
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

[[Page 4870]]

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.... 0.9968 0.9974
Tulare County, CA
47380................ Waco, TX................... 0.8633 0.8906
McLennan County, TX
47580................ Warner Robins, GA.......... 0.8380 0.8704
Houston County, GA
47644................ Warren-Troy-Farmington 1.0054 1.0043
Hills, MI.
Lapeer County, MI
Livingston County, MI
Macomb County, MI
Oakland County, MI
St. Clair County, MI
47894................ Washington-Arlington- 1.1054 1.0843
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... 0.8408 0.8726
Black Hawk County, IA
Bremer County, IA
Grundy County, IA
48140................ Wausau, WI................. 0.9722 0.9778
Marathon County, WI
48260................ Weirton-Steubenville, WV-OH 0.8063 0.8450
Jefferson County, OH
Brooke County, WV
Hancock County, WV
48300................ Wenatchee, WA.............. 1.0346 1.0277
Chelan County, WA
Douglas County, WA
48424................ West Palm Beach-Boca Raton- 0.9649 0.9719
Boynton Beach, FL.
Palm Beach County, FL
48540................ Wheeling, WV-OH............ 0.7010 0.7608
Belmont County, OH
Marshall County, WV
Ohio County, WV
48620................ Wichita, KS................ 0.9063 0.9250
Butler County, KS
Harvey County, KS
Sedgwick County, KS
Sumner County, KS
48660................ Wichita Falls, TX.......... 0.8311 0.8649
Archer County, TX

[[Page 4871]]

Clay County, TX
Wichita County, TX
48700................ Williamsport, PA........... 0.8139 0.8511
Lycoming County, PA
48864................ Wilmington, DE-MD-NJ....... 1.0684 1.0547
New Castle County, DE
Cecil County, MD
Salem County, NJ
48900................ Wilmington, NC............. 0.9835 0.9868
Brunswick County, NC
New Hanover County, NC
Pender County, NC
49020................ Winchester, VA-WV.......... 1.0091 1.0073
Frederick County, VA
Winchester City, VA
Hampshire County, WV
49180................ Winston-Salem, NC.......... 0.9276 0.9421
Davie County, NC
Forsyth County, NC
Stokes County, NC
Yadkin County, NC
49340................ Worcester, MA.............. 1.0722 1.0578
Worcester County, MA
49420................ Yakima, WA................. 0.9847 0.9878
Yakima County, WA
49500................ Yauco, PR.................. 0.3854 0.5083
Gu[aacute]nica Municipio,
PR
Guayanilla Municipio, PR
Pe[ntilde]uelas
Municipio, PR
Yauco Municipio, PR
49620................ York-Hanover, PA........... 0.9397 0.9518
York County, PA
49660................ Youngstown-Warren-Boardman, 0.8802 0.9042
OH-PA.
Mahoning County, OH
Trumbull County, OH
Mercer County, PA
49700................ Yuba City, CA.............. 1.0730 1.0584
Sutter County, CA
Yuba County, CA
49740................ Yuma, AZ................... 0.9109 0.9287
Yuma County, AZ
------------------------------------------------------------------------
\1\ As discussed in section IV.D.1.d. of the preamble of this proposed
rule, because there will no longer be any LTCHs in their cost
reporting periods that began during FYs 2003, 2004 or 2005 (the first
3 years of the 5-year wage index phase-in, respectively), we are no
longer showing the 1/5th, 2/5ths and 3/5ths wage index value. For
further details on the 5-year phase-in of the wage index, see section
IV.D.1. of this proposed rule.
\2\ The wage index values are calculated using the same wage data used
to compute the wage index used by acute care hospitals under the IPPS
for Federal FY 2007 (that is, fiscal year 2003 audited acute care
hospital inpatient wage data without regard to reclassification under
section 1886(d)(8) or section 1886(d)(10) of the Act).
\3\ Four-fifths of the proposed full wage index value, applicable for a
LTCH's cost reporting period beginning on or after October 1, 2005
through September 30, 2006 (Federal FY 2006). That is, for a LTCH's
cost reporting period that begins during Federal FY 2006 and located
in Chicago, Illinois (CBSA 16974), the 4/5ths wage index value is
computed as ((4*1.0751) + 1))/5 = 1.0601. For further details on the 5-
year phase-in of the wage index, see section IV.D.1. of this proposed
rule.

Table 2.--Proposed Long-Term Care Hospital Wage Index for Rural Areas
for Discharges Occurring From July 1, 2007 Through June 30, 2008 \1\
------------------------------------------------------------------------
Full 4/5ths
CBSA code Nonurban area wage wage
index \2\ index \3\
------------------------------------------------------------------------
01................... Alabama.................... 0.7591 0.8073
02................... Alaska..................... 1.0661 1.0529
03................... Arizona.................... 0.8908 0.9126
04................... Arkansas................... 0.7307 0.7846
05................... California................. 1.1454 1.1163
06................... Colorado................... 0.9325 0.9460
07................... Connecticut................ 1.1709 1.1367
08................... Delaware................... 0.9705 0.9764
10................... Florida.................... 0.8594 0.8875
11................... Georgia.................... 0.7593 0.8074

[[Page 4872]]

12................... Hawaii..................... 1.0448 1.0358
13................... Idaho...................... 0.8120 0.8496
14................... Illinois................... 0.8320 0.8656
15................... Indiana.................... 0.8538 0.8830
16................... Iowa....................... 0.8681 0.8945
17................... Kansas..................... 0.7998 0.8398
18................... Kentucky................... 0.7768 0.8214
19................... Louisiana.................. 0.7438 0.7950
20................... Maine...................... 0.8443 0.8754
21................... Maryland................... 0.8926 0.9141
22................... Massachusetts \4\.......... ......... .........
23................... Michigan................... 0.9062 0.9250
24................... Minnesota.................. 0.9153 0.9322
25................... Mississippi................ 0.7738 0.8190
26................... Missouri................... 0.7927 0.8342
27................... Montana.................... 0.8590 0.8872
28................... Nebraska................... 0.8677 0.8942
29................... Nevada..................... 0.8944 0.9155
30................... New Hampshire.............. 1.0853 1.0682
31................... New Jersey \4\............. ......... .........
32................... New Mexico................. 0.8332 0.8666
33................... New York................... 0.8232 0.8586
34................... North Carolina............. 0.8588 0.8870
35................... North Dakota............... 0.7215 0.7772
36................... Ohio....................... 0.8658 0.8926
37................... Oklahoma................... 0.7629 0.8103
38................... Oregon..................... 0.9753 0.9802
39................... Pennsylvania............... 0.8320 0.8656
40................... Puerto Rico \4\............ ......... .........
41................... Rhode Island \4\........... ......... .........
42................... South Carolina............. 0.8566 0.8853
43................... South Dakota............... 0.8480 0.8784
44................... Tennessee.................. 0.7827 0.8262
45................... Texas...................... 0.7965 0.8372
46................... Utah....................... 0.8140 0.8512
47................... Vermont.................... 0.9744 0.9795
49................... Virginia................... 0.7940 0.8352
50................... Washington................. 1.0263 1.0210
51................... West Virginia.............. 0.7607 0.8086
52................... Wisconsin.................. 0.9553 0.9642
53................... Wyoming.................... 0.9295 0.9436
------------------------------------------------------------------------
\1\ As discussed in section IV.D.1.d. of the preamble of this proposed
rule, because there are no longer any LTCHs in their cost reporting
periods that began during FYs 2003, 2004 or 2005 (the first 3 years of
the 5-year wage index phase-in, respectively), we are no longer
showing the 1/5th, 2/5ths and 3/5ths wage index value. For further
details on the 5-year phase-in of the wage index, see section IV.D.1.
of this proposed rule.
\2\ The wage index values are calculated using the same wage data used
to compute the wage index used by acute care hospitals under the IPPS
for Federal FY 2007 (that is, fiscal year 2003 audited acute care
hospital inpatient wage data without regard to reclassification under
section 1886(d)(8) or section 1886(d)(10) of the Act).
\3\ Four-fifths of the proposed full wage index value, applicable for a
LTCH's cost reporting period beginning on or after October 1, 2005
through September 30, 2006 (Federal FY 2006). That is, for a LTCH's
cost reporting period that begins during Federal FY 2006 and located
in rural Illinois, the 4/5ths wage index value is computed as
((4*0.8320) + 1))/5 = 0.8656. For further details on the 5-year phase-
in of the wage index, see section IV.D.1. of this proposed rule.
\4\ All counties within the State are classified as urban.

Table 3.--FY 2007 LTC-DRGs, Relative Weights, Geometric Average Length of Stay, Five-Sixths of the Geometric
Average Length of Stay and IPPS Average Length of Stay Plus One Standard Deviation
----------------------------------------------------------------------------------------------------------------
IPPS average
Geometric 5/6ths of the length of stay
LTC-DRG Description Relative average length geometric plus one
weight of stay average length standard
of stay deviation*
----------------------------------------------------------------------------------------------------------------
1.................... \5\ CRANIOTOMY AGE >17 W 1.6835 37.1 30.9 16.1
CC.
2.................... \6\ CRANIOTOMY AGE >17 W/ 1.6835 37.1 30.9 7.1
O CC.
3.................... \6\ CRANIOTOMY AGE 0-17.. 1.6835 37.1 30.9 20.1
6.................... \6\ CARPAL TUNNEL RELEASE 0.4175 17.0 14.2 4.8
7.................... PERIPH & CRANIAL NERVE & 1.2052 36.1 30.1 15.8
OTHER NERV SYST PROC W
CC.
8.................... \2\ PERIPH & CRANIAL 0.5594 21.0 17.5 4.2
NERVE & OTHER NERV SYST
PROC W/O CC.

[[Page 4873]]

9.................... SPINAL DISORDERS & 1.0424 34.0 28.3 9.7
INJURIES.
10................... NERVOUS SYSTEM NEOPLASMS 0.6971 22.1 18.4 9.6
W CC.
11................... \2\ NERVOUS SYSTEM 0.5594 21.0 17.5 5.7
NEOPLASMS W/O CC.
12................... DEGENERATIVE NERVOUS 0.6788 25.1 20.9 8.4
SYSTEM DISORDERS.
13................... MULTIPLE SCLEROSIS & 0.6003 23.1 19.3 7.4
CEREBELLAR ATAXIA.
14................... INTRACRANIAL HEMORRHAGE 0.6772 24.9 20.8 8.6
OR CEREBRALINFARCTION.
15................... NONSPECIFIC CVA & 0.7705 26.1 21.8 6.4
PRECEREBRAL OCCLUSION W/
O INFARCT.
16................... NONSPECIFIC 0.6978 23.1 19.3 10.1
CEREBROVASCULAR
DISORDERS W CC.
17................... \2\ NONSPECIFIC 0.5594 21.0 17.5 4.7
CEREBROVASCULAR
DISORDERS W/O CC.
18................... CRANIAL & PERIPHERAL 0.7503 25.4 21.2 8.2
NERVE DISORDERS W CC.
19................... CRANIAL & PERIPHERAL 0.4512 19.5 16.3 5.3
NERVE DISORDERS W/O CC.
21................... \3\ VIRAL MENINGITIS..... 0.7819 23.9 19.9 9.9
22................... \3\ HYPERTENSIVE 0.7819 23.9 19.9 7.9
ENCEPHALOPATHY.
23................... NONTRAUMATIC STUPOR & 1.0118 29.4 24.5 6.1
COMA.
26................... \6\ SEIZURE & HEADACHE 0.5594 21.0 17.5 6.2
AGE 0-17.
27................... TRAUMATIC STUPOR & COMA, 0.9978 30.6 25.5 7.6
COMA >1 HR.
28................... TRAUMATIC STUPOR & COMA, 0.7983 25.8 21.5 9.1
COMA <1 HR AGE >17 W CC.
29................... \1\ TRAUMATIC STUPOR & 0.4175 17.0 14.2 5.0
COMA, COMA <1 HR AGE >17
W/O CC.
30**................. \6\ TRAUMATIC STUPOR & 0.4175 17.0 14.2 2.0
COMA, COMA <1 HR AGE 0-
17.
31................... \1\ CONCUSSION AGE >17 W 0.4175 17.0 14.2 6.2
CC.
32................... \6\ CONCUSSION AGE >17 W/ 0.4175 17.0 14.2 3.4
O CC.
33**................. \6\ CONCUSSION AGE 0-17.. 0.4175 17.0 14.2 1.6
34................... OTHER DISORDERS OF 0.7029 23.4 19.5 7.4
NERVOUS SYSTEM W CC.
35................... OTHER DISORDERS OF 0.5080 21.1 17.6 4.7
NERVOUS SYSTEM W/O CC.
36................... \6\ RETINAL PROCEDURES... 0.5594 21.0 17.5 2.7
37................... \6\ ORBITAL PROCEDURES... 0.5594 21.0 17.5 6.6
38................... \6\ PRIMARY IRIS 0.5594 21.0 17.5 4.3
PROCEDURES.
39................... \6\ LENS PROCEDURES WITH 0.5594 21.0 17.5 3.1
OR WITHOUT VITRECTOMY.
40................... \6\ EXTRAOCULAR 0.5594 21.0 17.5 6.7
PROCEDURES EXCEPT ORBIT
AGE >17.
41**................. \6\ EXTRAOCULAR 0.5594 21.0 17.5 1.6
PROCEDURES EXCEPT ORBIT
AGE 0-17.
42................... \6\ INTRAOCULAR 0.5594 21.0 17.5 3.7
PROCEDURES EXCEPT
RETINA, IRIS & LENS.
43................... \6\ HYPHEMA.............. 0.4175 17.0 14.2 4.6
44................... \3\ ACUTE MAJOR EYE 0.7819 23.9 19.9 7.4
INFECTIONS.
45................... \1\ NEUROLOGICAL EYE 0.4175 17.0 14.2 4.6
DISORDERS.
46................... \2\ OTHER DISORDERS OF 0.5594 21.0 17.5 6.6
THE EYE AGE >17 W CC.
47................... \6\ OTHER DISORDERS OF 0.4175 17.0 14.2 4.7
THE EYE AGE >17 W/O CC.
48**................. \6\ OTHER DISORDERS OF 0.4175 17.0 14.2 2.9
THE EYE AGE 0-17.
49................... \6\ MAJOR HEAD & NECK 1.1625 29.5 24.6 7.1
PROCEDURES.
50................... \6\ SIALOADENECTOMY...... 1.1625 29.5 24.6 2.6
51................... \6\ SALIVARY GLAND 1.1625 29.5 24.6 4.0
PROCEDURES EXCEPT
SIALOADENECTOMY.
52................... \6\ CLEFT LIP & PALATE 1.1625 29.5 24.6 2.1
REPAIR.
53................... \6\ SINUS & MASTOID 1.1625 29.5 24.6 6.2
PROCEDURES AGE >17.
54**................. \6\ SINUS & MASTOID 1.1625 29.5 24.6 3.2
PROCEDURES AGE 0-17.
55................... \4\ MISCELLANEOUS EAR, 1.1625 29.5 24.6 4.3
NOSE, MOUTH & THROAT
PROCEDURES.
56................... \6\ RHINOPLASTY.......... 1.1625 29.5 24.6 4.1
57................... \6\ T&A PROC, EXCEPT 0.4175 17.0 14.2 4.9
TONSILLECTOMY &/OR
ADENOIDECTOMY ONLY, AGE
>17.
58**................. \6\ T&A PROC, EXCEPT 0.4175 17.0 14.2 1.5
TONSILLECTOMY &/OR
ADENOIDECTOMY ONLY, AGE
0-17.
59................... \6\ TONSILLECTOMY &/OR 0.4175 17.0 14.2 3.6
ADENOIDECTOMY ONLY, AGE
>17.
60................... \6\ TONSILLECTOMY &/OR 0.4175 17.0 14.2 2.7
ADENOIDECTOMY ONLY, AGE
0-17.
61................... \6\ MYRINGOTOMY W TUBE 0.4175 17.0 14.2 10.2
INSERTION AGE >17.
62................... \6\ MYRINGOTOMY W TUBE 0.4175 17.0 14.2 2.3
INSERTION AGE 0-17.
63................... \4\ OTHER EAR, NOSE, 1.1625 29.5 24.6 7.2
MOUTH & THROAT O.R.
PROCEDURES.
64................... EAR, NOSE, MOUTH & THROAT 1.1797 26.2 21.8 10.2
MALIGNANCY.
65................... \1\ DYSEQUILIBRIUM....... 0.4175 17.0 14.2 4.2
66................... \6\ EPISTAXIS............ 0.4175 17.0 14.2 4.8
67................... \3\ EPIGLOTTITIS......... 0.7819 23.9 19.9 5.8
68................... OTITIS MEDIA & URI AGE 0.6211 20.3 16.9 5.9
>17 W CC.

[[Page 4874]]

69................... \1\ OTITIS MEDIA & URI 0.4175 17.0 14.2 4.5
AGE >17 W/O CC.
70................... \6\ OTITIS MEDIA & URI 0.4175 17.0 14.2 3.6
AGE 0-17.
71................... \6\ LARYNGOTRACHEITIS.... 0.5594 21.0 17.5 6.7
72................... \3\ NASAL TRAUMA & 0.7819 23.9 19.9 5.2
DEFORMITY.
73................... OTHER EAR, NOSE, MOUTH & 0.7745 22.9 19.1 6.9
THROAT DIAGNOSES AGE >17.
74................... \6\ OTHER EAR, NOSE, 0.4175 17.0 14.2 3.9
MOUTH & THROAT DIAGNOSES
AGE 0-17.
75................... MAJOR CHEST PROCEDURES... 1.9944 33.5 27.9 15.4
76................... OTHER RESP SYSTEM O.R. 2.3982 42.5 35.4 17.2
PROCEDURES W CC.
77................... \2\ OTHER RESP SYSTEM 0.5594 21.0 17.5 7.4
O.R. PROCEDURES W/O CC.
78................... PULMONARY EMBOLISM....... 0.6746 22.6 18.8 9.4
79................... RESPIRATORY INFECTIONS & 0.8182 22.8 19.0 12.9
INFLAMMATIONS AGE >17 W
CC.
80................... RESPIRATORY INFECTIONS & 0.6485 20.9 17.4 8.3
INFLAMMATIONSAGE >17 W/O
CC.
81................... \6\ RESPIRATORY 0.4175 17.0 14.2 10.1
INFECTIONS &
INFLAMMATIONS AGE 0-17.
82................... RESPIRATORY NEOPLASMS.... 0.8242 21.4 17.8 11.0
83................... \1\ MAJOR CHEST TRAUMA W 0.4175 17.0 14.2 8.2
CC.
84................... \6\ MAJOR CHEST TRAUMA W/ 0.4175 17.0 14.2 4.8
O CC.
85................... PLEURAL EFFUSION W CC.... 0.6956 21.4 17.8 9.9
86................... \6\ PLEURAL EFFUSION W/O 0.4175 17.0 14.2 5.5
CC.
87................... PULMONARY EDEMA & 1.0295 24.8 20.7 10.3
RESPIRATORY FAILURE.
88................... CHRONIC OBSTRUCTIVE 0.6411 19.3 16.1 7.5
PULMONARY DISEASE.
89................... SIMPLE PNEUMONIA & 0.6802 20.6 17.2 8.6
PLEURISY AGE >17 W CC.
90................... SIMPLE PNEUMONIA & 0.4958 17.8 14.8 5.6
PLEURISY AGE >17 W/O CC.
91................... \6\ SIMPLE PNEUMONIA & 0.5594 21.0 17.5 5.3
PLEURISY AGE 0-17.
92................... INTERSTITIAL LUNG DISEASE 0.6638 19.6 16.3 9.4
W CC.
93................... \1\ INTERSTITIAL LUNG 0.4175 17.0 14.2 5.9
DISEASE W/O CC.
94................... PNEUMOTHORAX W CC........ 0.6785 21.3 17.8 9.6
95................... \8\ PNEUMOTHORAX W/O CC.. 0.6785 21.3 17.8 5.3
96................... BRONCHITIS & ASTHMA AGE 0.6230 18.9 15.8 6.7
>17 W CC.
97................... \8\ BRONCHITIS & ASTHMA 0.6230 18.9 15.8 5.2
AGE >17 W/O CC.
98................... \6\ BRONCHITIS & ASTHMA 0.5594 21.0 17.5 4.4
AGE 0-17.
99................... RESPIRATORY SIGNS & 0.9381 24.6 20.5 4.8
SYMPTOMS W CC.
100.................. \3\ RESPIRATORY SIGNS & 0.7819 23.9 19.9 3.1
SYMPTOMS W/O CC.
101.................. OTHER RESPIRATORY SYSTEM 0.8147 22.2 18.5 6.7
DIAGNOSES W CC.
102.................. \1\ OTHER RESPIRATORY 0.4175 17.0 14.2 3.9
SYSTEM DIAGNOSES W/O CC.
103***............... \7\ HEART TRANSPLANT OR 0.0000 0.0 0.0 0.0
IMPLANT OF HEART ASSIST
SYSTEM.
104.................. \6\ CARDIAC VALVE & OTHER 1.1625 29.5 24.6 22.3
MAJOR CARDIOTHORACIC
PROC W CARDIAC CATH.
105.................. \6\ CARDIAC VALVE & OTHER 1.1625 29.5 24.6 15.0
MAJOR CARDIOTHORACIC
PROC W/O CARDIAC CATH.
106.................. \6\ CORONARY BYPASS W 1.1625 29.5 24.6 16.6
PTCA.
108.................. \6\ OTHER CARDIOTHORACIC 1.1625 29.5 24.6 17.1
PROCEDURES.
110.................. \4\ MAJOR CARDIOVASCULAR 1.1625 29.5 24.6 13.8
PROCEDURES W CC.
111.................. \6\ MAJOR CARDIOVASCULAR 1.1625 29.5 24.6 4.9
PROCEDURES W/O CC.
113.................. AMPUTATION FOR CIRC 1.3942 36.1 30.1 20.5
SYSTEM DISORDERS EXCEPT
UPPER LIMB & TOE.
114.................. UPPER LIMB & TOE 1.2425 33.0 27.5 14.0
AMPUTATION FOR CIRC
SYSTEM DISORDERS.
117.................. \2\ CARDIAC PACEMAKER 0.5594 21.0 17.5 6.7
REVISION EXCEPT DEVICE
REPLACEMENT.
118.................. \3\ CARDIAC PACEMAKER 0.7819 23.9 19.9 4.6
DEVICE REPLACEMENT.
119.................. \3\ VEIN LIGATION & 0.7819 23.9 19.9 8.8
STRIPPING.
120.................. OTHER CIRCULATORY SYSTEM 1.0893 31.4 26.2 15.5
O.R. PROCEDURES.
121.................. CIRCULATORY DISORDERS W 0.7451 22.4 18.7 10.1
AMI & MAJOR COMP,
DISCHARGED ALIVE.
122.................. \2\ CIRCULATORY DISORDERS 0.5594 21.0 17.5 5.3
W AMI W/O MAJOR COMP,
DISCHARGED ALIVE.
123.................. CIRCULATORY DISORDERS W 0.7858 17.0 14.2 7.6
AMI, EXPIRED.
124.................. \4\ CIRCULATORY DISORDERS 1.1625 29.5 24.6 7.0
EXCEPT AMI, W CARD CATH
& COMPLEX DIAG.
125.................. \1\ CIRCULATORY DISORDERS 0.4175 17.0 14.2 4.1
EXCEPT AMI, W CARD CATH
W/O COMPLEX DIAG.

[[Page 4875]]

126.................. ACUTE & SUBACUTE 0.8867 26.3 21.9 17.5
ENDOCARDITIS.
127.................. HEART FAILURE & SHOCK.... 0.6832 21.2 17.7 8.0
128.................. \2\ DEEP VEIN 0.5594 21.0 17.5 8.0
THROMBOPHLEBITIS.
129.................. \1\ CARDIAC ARREST, 0.4175 17.0 14.2 3.5
UNEXPLAINED.
130.................. PERIPHERAL VASCULAR 0.6484 22.8 19.0 8.6
DISORDERS W CC.
131.................. PERIPHERAL VASCULAR 0.5267 21.0 17.5 5.9
DISORDERS W/O CC.
132.................. ATHEROSCLEROSIS W CC..... 0.6621 20.7 17.3 4.3
133.................. \2\ ATHEROSCLEROSIS W/O 0.5594 21.0 17.5 3.2
CC.
134.................. HYPERTENSION............. 0.4909 21.7 18.1 4.8
135.................. CARDIAC CONGENITAL & 0.8014 23.8 19.8 6.8
VALVULAR DISORDERS AGE
>17 W CC.
136.................. \1\ CARDIAC CONGENITAL & 0.4175 17.0 14.2 4.1
VALVULAR DISORDERS AGE
>17 W/O CC.
137**................ 6CARDIAC CONGENITAL & 0.4175 17.0 14.2 3.3
VALVULAR DISORDERS AGE 0-
17.
138.................. CARDIAC ARRHYTHMIA & 0.6618 21.9 18.3 6.1
CONDUCTION DISORDERS W
CC.
139.................. \2\ CARDIAC ARRHYTHMIA & 0.5594 21.0 17.5 3.7
CONDUCTION DISORDERS W/O
CC.
140.................. \1\ ANGINA PECTORIS...... 0.4175 17.0 14.2 3.6
141.................. SYNCOPE & COLLAPSE W CC.. 0.5891 22.1 18.4 5.3
142.................. \8\ SYNCOPE & COLLAPSE W/ 0.5891 22.1 18.4 3.8
O CC.
143.................. \1\ CHEST PAIN........... 0.4175 17.0 14.2 3.1
144.................. OTHER CIRCULATORY SYSTEM 0.7715 22.1 18.4 9.6
DIAGNOSES W CC.
145.................. OTHER CIRCULATORY SYSTEM 0.4292 17.0 14.2 3.9
DIAGNOSES W/O CC.
146.................. \5\ RECTAL RESECTION W CC 1.6835 37.1 30.9 14.6
147.................. \6\ RECTAL RESECTION W/O 0.7819 23.9 19.9 8.5
CC.
149.................. \6\ MAJOR SMALL & LARGE 0.7819 23.9 19.9 8.1
BOWEL PROCEDURES W/O CC.
150.................. \5\ PERITONEAL 1.6835 37.1 30.9 17.3
ADHESIOLYSIS W CC.
151.................. \6\ PERITONEAL 0.4175 17.0 14.2 8.2
ADHESIOLYSIS W/O CC.
152.................. \5\ MINOR SMALL & LARGE 1.6835 37.1 30.9 12.0
BOWEL PROCEDURES W CC.
153.................. \6\ MINOR SMALL & LARGE 1.6835 37.1 30.9 7.1
BOWEL PROCEDURES W/O CC.
155.................. \6\ STOMACH, ESOPHAGEAL & 1.6835 37.1 30.9 6.4
DUODENAL PROCEDURES AGE
>17 W/O CC.
156.................. \6\ STOMACH, ESOPHAGEAL & 1.6835 37.1 30.9 12.1
DUODENAL PROCEDURES AGE
0-17.
157.................. \3\ ANAL & STOMAL 0.7819 23.9 19.9 9.3
PROCEDURES W CC.
158.................. \6\ ANAL & STOMAL 0.7819 23.9 19.9 4.1
PROCEDURES W/O CC.
159.................. \5\ HERNIA PROCEDURES 1.6835 37.1 30.9 8.2
EXCEPT INGUINAL &
FEMORAL AGE >17 W CC.
160.................. \1\ HERNIA PROCEDURES 0.4175 17.0 14.2 4.1
EXCEPT INGUINAL &
FEMORAL AGE >17 W/O CC.
161.................. \6\ INGUINAL & FEMORAL 0.4175 17.0 14.2 7.3
HERNIA PROCEDURES AGE
>17 W CC.
162.................. \6\ INGUINAL & FEMORAL 0.4175 17.0 14.2 3.1
HERNIA PROCEDURES AGE
>17 W/O CC.
163.................. \6\ HERNIA PROCEDURES AGE 0.4175 17.0 14.2 4.0
0-17.
164.................. \6\ APPENDECTOMY W 0.7819 23.9 19.9 11.9
COMPLICATED PRINCIPAL
DIAG W CC.
165.................. \6\ APPENDECTOMY W 0.7819 23.9 19.9 6.1
COMPLICATED
PRINCIPALDIAG W/O CC.
166.................. \6\ APPENDECTOMY W/O 0.7819 23.9 19.9 6.8
COMPLICATED PRINCIPAL
DIAG W CC.
167.................. \6\ APPENDECTOMY W/O 0.7819 23.9 19.9 3.1
COMPLICATED PRINCIPAL
DIAG W/O CC.
168.................. \5\ MOUTH PROCEDURES W CC 1.6835 37.1 30.9 7.7
169.................. \6\ MOUTH PROCEDURES W/O 0.5594 21.0 17.5 3.5
CC.
170.................. OTHER DIGESTIVE SYSTEM 1.6163 35.8 29.8 18.0
O.R. PROCEDURES W CC.
171.................. \3\ OTHER DIGESTIVE 0.7819 23.9 19.9 6.7
SYSTEM O.R. PROCEDURES W/
O CC.
172.................. DIGESTIVE MALIGNANCY W CC 0.8497 21.8 18.2 11.1
173.................. \2\ DIGESTIVE MALIGNANCY 0.5594 21.0 17.5 5.6
W/O CC.
174.................. G.I. HEMORRHAGE W CC..... 0.7149 22.9 19.1 7.2
175.................. \2\ G.I. HEMORRHAGE W/O 0.5594 21.0 17.5 4.3
CC.
176.................. COMPLICATED PEPTIC ULCER. 0.9514 24.8 20.7 8.0
177.................. \2\ UNCOMPLICATED PEPTIC 0.5594 21.0 17.5 6.8
ULCER W CC.
178.................. \6\ UNCOMPLICATED PEPTIC 0.4175 17.0 14.2 4.7
ULCER W/O CC.
179.................. INFLAMMATORY BOWEL 0.8157 23.3 19.4 9.1
DISEASE.

[[Page 4876]]

180.................. G.I. OBSTRUCTION W CC.... 0.9126 22.8 19.0 8.3
181.................. \1\ G.I. OBSTRUCTION W/O 0.4175 17.0 14.2 5.1
CC.
182.................. ESOPHAGITIS, GASTROENT & 0.7866 21.8 18.2 6.4
MISC DIGESTDISORDERS AGE
>17 W CC.
183.................. \1\ ESOPHAGITIS, 0.4175 17.0 14.2 4.4
GASTROENT & MISC DIGEST
DISORDERS AGE >17 W/O CC.
184.................. \6\ ESOPHAGITIS, 0.4175 17.0 14.2 5.6
GASTROENT & MISC DIGEST
DISORDERS AGE 0-17.
185.................. DENTAL & ORAL DIS EXCEPT 0.6634 23.2 19.3 7.2
EXTRACTIONS &
RESTORATIONS, AGE >17.
186.................. \6\ DENTAL & ORAL DIS 0.5594 21.0 17.5 5.0
EXCEPT EXTRACTIONS &
RESTORATIONS, AGE 0-17.
187.................. \6\ DENTAL EXTRACTIONS & 0.5594 21.0 17.5 6.8
RESTORATIONS.
188.................. OTHER DIGESTIVE SYSTEM 0.9596 24.4 20.3 8.5
DIAGNOSES AGE >17 W CC.
189.................. \2\ OTHER DIGESTIVE 0.5594 21.0 17.5 4.6
SYSTEM DIAGNOSES AGE >17
W/O CC.
190.................. \6\ OTHER DIGESTIVE 0.5594 21.0 17.5 5.1
SYSTEM DIAGNOSES AGE 0-
17.
191.................. \5\ PANCREAS, LIVER & 1.6835 37.1 30.9 21.1
SHUNT PROCEDURES W CC.
192.................. \6\ PANCREAS, LIVER & 1.6835 37.1 30.9 9.3
SHUNT PROCEDURES W/O CC.
193.................. \4\ BILIARY TRACT PROC 1.1625 29.5 24.6 19.7
EXCEPT ONLY CHOLECYST W
OR W/O C.D.E. W CC.
194.................. \6\ BILIARY TRACT PROC 1.1625 29.5 24.6 9.9
EXCEPT ONLY CHOLECYST W
OR W/O C.D.E. W/O CC.
195.................. \5\ CHOLECYSTECTOMY W 1.6835 37.1 30.9 16.2
C.D.E. W CC.
196.................. \6\ CHOLECYSTECTOMY W 1.1625 29.5 24.6 8.3
C.D.E. W/O CC.
197.................. \4\ CHOLECYSTECTOMY 1.1625 29.5 24.6 14.0
EXCEPT BY LAPAROSCOPE W/
O C.D.E. W CC.
198.................. \6\ CHOLECYSTECTOMY 1.1625 29.5 24.6 6.6
EXCEPT BY LAPAROSCOPE W/
O C.D.E. W/O CC.
199.................. \3\ HEPATOBILIARY 0.7819 23.9 19.9 15.2
DIAGNOSTIC PROCEDURE FOR
MALIGNANCY.
200.................. \5\ HEPATOBILIARY 1.6835 37.1 30.9 17.5
DIAGNOSTIC PROCEDURE FOR
NON-MALIGNANCY.
201.................. OTHER HEPATOBILIARY OR 1.5802 28.8 24.0 22.6
PANCREAS O.R. PROCEDURES.
202.................. CIRRHOSIS & ALCOHOLIC 0.6011 20.2 16.8 9.9
HEPATITIS.
203.................. MALIGNANCY OF 0.7466 19.6 16.3 10.6
HEPATOBILIARY SYSTEM OR
PANCREAS.
204.................. DISORDERS OF PANCREAS 0.8853 22.1 18.4 8.5
EXCEPT MALIGNANCY.
205.................. DISORDERS OF LIVER EXCEPT 0.6933 23.1 19.3 9.4
MALIG,CIRR,ALC HEPA W CC.
206.................. \8\ DISORDERS OF LIVER 0.6933 23.1 19.3 6.0
EXCEPT MALIG,CIRR,ALC
HEPA W/O CC.
207.................. DISORDERS OF THE BILIARY 0.7295 21.5 17.9 8.4
TRACT W CC.
208.................. \1\ DISORDERS OF THE 0.4175 17.0 14.2 4.6
BILIARY TRACT W/O CC.
210.................. HIP & FEMUR PROCEDURES 1.4826 41.9 34.9 9.5
EXCEPT MAJOR JOINT AGE
>17 W CC.
211.................. \6\ HIP & FEMUR 1.6835 37.1 30.9 6.3
PROCEDURES EXCEPT MAJOR
JOINT AGE >17 W/O CC.
212.................. \6\ HIP & FEMUR 1.6835 37.1 30.9 3.8
PROCEDURES EXCEPT MAJOR
JOINT AGE 0-17.
213.................. AMPUTATION FOR 1.1871 33.5 27.9 15.2
MUSCULOSKELETAL SYSTEM &
CONN TISSUE DISORDERS.
216.................. BIOPSIES OF 1.2147 37.6 31.3 8.8
MUSCULOSKELETAL SYSTEM &
CONNECTIVE TISSUE.
217.................. WND DEBRID & SKN GRFT 1.2414 36.5 30.4 20.4
EXCEPT HAND,FOR
MUSCSKELET & CONN TISS
DIS.
218.................. \5\ LOWER EXTREM & HUMER 1.6835 37.1 30.9 8.4
PROC EXCEPT
HIP,FOOT,FEMUR AGE >17 W
CC.
219.................. \6\ LOWER EXTREM & HUMER 1.6835 37.1 30.9 4.8
PROC EXCEPT
HIP,FOOT,FEMUR AGE >17 W/
O CC.
220.................. \6\ LOWER EXTREM & HUMER 1.6835 37.1 30.9 10.5
PROC EXCEPT
HIP,FOOT,FEMUR AGE 0-17.
223.................. \4\ MAJOR SHOULDER/ELBOW 1.1625 29.5 24.6 5.1
PROC, OR OTHER UPPER
EXTREMITY PROC W CC.
224.................. \1\ SHOULDER,ELBOW OR 0.4175 17.0 14.2 2.8
FOREARM PROC,EXC MAJOR
JOINT PROC, W/O CC.
225.................. FOOT PROCEDURES.......... 0.9550 30.6 25.5 8.7

[[Page 4877]]

226.................. SOFT TISSUE PROCEDURES W 1.0626 34.3 28.6 10.6
CC.
227.................. \3\ SOFT TISSUE 0.7819 23.9 19.9 4.0
PROCEDURES W/O CC.
228.................. \3\ MAJOR THUMB OR JOINT 0.7819 23.9 19.9 6.7
PROC,OR OTH HAND OR
WRIST PROC W CC.
229.................. \6\ HAND OR WRIST PROC, 0.4175 17.0 14.2 3.8
EXCEPT MAJOR JOINT PROC,
W/O CC.
230.................. \5\ LOCAL EXCISION & 1.6835 37.1 30.9 8.8
REMOVAL OF INT FIX
DEVICES OF HIP & FEMUR.
232.................. \5\ ARTHROSCOPY.......... 1.6835 37.1 30.9 4.1
233.................. OTHER MUSCULOSKELET SYS & 1.1724 32.4 27.0 10.8
CONN TISS O.R. PROC W CC.
234.................. \6\ OTHER MUSCULOSKELET 0.4175 17.0 14.2 4.1
SYS & CONN TISS O.R.
PROC W/O CC.
235.................. \3\ FRACTURES OF FEMUR... 0.7819 23.9 19.9 7.4
236.................. FRACTURES OF HIP & PELVIS 0.6802 28.9 24.1 6.8
237.................. \1\ SPRAINS, STRAINS, & 0.4175 17.0 14.2 5.9
DISLOCATIONS OF HIP,
PELVIS & THIGH.
238.................. OSTEOMYELITIS............ 0.8589 28.4 23.7 12.8
239.................. PATHOLOGICAL FRACTURES & 0.6031 20.6 17.2 9.6
MUSCULOSKELETAL & CONN
TISS MALIGNANCY.
240.................. CONNECTIVE TISSUE 0.7134 22.4 18.7 10.3
DISORDERS W CC.
241.................. \1\ CONNECTIVE TISSUE 0.4175 17.0 14.2 5.6
DISORDERS W/O CC.
242.................. SEPTIC ARTHRITIS......... 0.7700 26.2 21.8 10.2
243.................. MEDICAL BACK PROBLEMS.... 0.6028 22.3 18.6 7.1
244.................. BONE DISEASES & SPECIFIC 0.5516 22.0 18.3 7.0
ARTHROPATHIES W CC.
245.................. BONE DISEASES & SPECIFIC 0.4463 19.4 16.2 4.8
ARTHROPATHIES W/O CC.
246.................. \2\ NON-SPECIFIC 0.5594 21.0 17.5 5.6
ARTHROPATHIES.
247.................. SIGNS & SYMPTOMS OF 0.4582 17.6 14.7 5.1
MUSCULOSKELETAL SYSTEM &
CONN TISSUE.
248.................. TENDONITIS, MYOSITIS & 0.7328 23.2 19.3 7.5
BURSITIS.
249.................. AFTERCARE, 0.6370 24.0 20.0 6.2
MUSCULOSKELETAL SYSTEM &
CONNECTIVE TISSUE.
250.................. \1\ FX, SPRN, STRN & DISL 0.4175 17.0 14.2 6.0
OF FOREARM, HAND, FOOT
AGE >17 W CC.
251.................. \6\ FX, SPRN, STRN & DISL 0.4175 17.0 14.2 4.3
OF FOREARM, HAND, FOOT
AGE >17 W/O CC.
252**................ \6\ FX, SPRN, STRN & DISL 0.5594 21.0 17.5 1.8
OF FOREARM, HAND, FOOT
AGE 0-17.
253.................. FX, SPRN, STRN & DISL OF 0.5609 24.0 20.0 7.0
UPARM,LOWLEG EX FOOT AGE
>17 W CC.
254.................. \1\ FX, SPRN, STRN & DISL 0.4175 17.0 14.2 4.7
OF UPARM,LOWLEG EX FOOT
AGE >17 W/O CC.
255**................ \6\ FX, SPRN, STRN & DISL 0.5594 21.0 17.5 2.9
OF UPARM,LOWLEG EX FOOT
AGE 0-17.
256.................. OTHER MUSCULOSKELETAL 0.7132 23.6 19.7 7.9
SYSTEM & CONNECTIVE
TISSUE DIAGNOSES.
257.................. \5\ TOTAL MASTECTOMY FOR 1.6835 37.1 30.9 3.8
MALIGNANCY W CC.
258.................. \6\ TOTAL MASTECTOMY FOR 0.7819 23.9 19.9 2.4
MALIGNANCY W/O CC.
259.................. \3\ SUBTOTAL MASTECTOMY 0.7819 23.9 19.9 4.1
FOR MALIGNANCY W CC.
260.................. \6\ SUBTOTAL MASTECTOMY 0.7819 23.9 19.9 1.9
FOR MALIGNANCY W/O CC.
261.................. \2\ BREAST PROC FOR NON- 0.5594 21.0 17.5 3.2
MALIGNANCY EXCEPT BIOPSY
& LOCAL EXCISION.
262.................. \4\ BREAST BIOPSY & LOCAL 1.1625 29.5 24.6 7.7
EXCISION FOR NON-
MALIGNANCY.
263.................. SKIN GRAFT &/OR DEBRID 1.2748 38.0 31.7 16.9
FOR SKN ULCER OR
CELLULITIS W CC.
264.................. SKIN GRAFT &/OR DEBRID 0.8507 29.9 24.9 9.9
FOR SKN ULCER OR
CELLULITIS W/O CC.
265.................. SKIN GRAFT &/OR DEBRID 1.1019 30.2 25.2 10.7
EXCEPT FOR SKIN ULCER OR
CELLULITIS W CC.
266.................. \3\ SKIN GRAFT &/OR 0.7819 23.9 19.9 4.7
DEBRID EXCEPT FOR SKIN
ULCER OR CELLULITIS W/O
CC.
267.................. \6\ PERIANAL & PILONIDAL 0.7819 23.9 19.9 6.8
PROCEDURES.
268.................. \4\ SKIN, SUBCUTANEOUS 1.1625 29.5 24.6 5.4
TISSUE & BREAST PLASTIC
PROCEDURES.
269.................. OTHER SKIN, SUBCUT TISS & 1.2075 34.7 28.9 13.4
BREAST PROC W CC.

[[Page 4878]]

270.................. \3\ OTHER SKIN, SUBCUT 0.7819 23.9 19.9 5.7
TISS & BREAST PROC W/O
CC.
271.................. SKIN ULCERS.............. 0.8269 26.9 22.4 10.7
272.................. MAJOR SKIN DISORDERS W CC 0.6584 23.0 19.2 9.3
273.................. \1\ MAJOR SKIN DISORDERS 0.4175 17.0 14.2 5.9
W/O CC.
274.................. MALIGNANT BREAST 0.7231 21.8 18.2 10.1
DISORDERS W CC.
275.................. \6\ MALIGNANT BREAST 0.7819 23.9 19.9 5.2
DISORDERS W/O CC.
276.................. \2\ NON-MALIGNANT BREAST 0.5594 21.0 17.5 7.3
DISORDERS.
277.................. CELLULITIS AGE >17 W CC.. 0.6089 20.9 17.4 8.4
278.................. CELLULITIS AGE >17 W/O CC 0.4254 18.0 15.0 6.1
279.................. \6\ CELLULITIS AGE 0-17.. 0.4175 17.0 14.2 5.8
280.................. TRAUMA TO THE SKIN, 0.7148 24.1 20.1 6.3
SUBCUT TISS & BREAST AGE
>17 W CC.
281.................. \2\ TRAUMA TO THE SKIN, 0.5594 21.0 17.5 4.3
SUBCUT TISS & BREAST AGE
>17 W/O CC.
282**................ \6\ TRAUMA TO THE SKIN, 0.5594 21.0 17.5 2.2
SUBCUT TISS & BREAST AGE
0-17.
283.................. MINOR SKIN DISORDERS W CC 0.6876 23.1 19.3 7.2
284.................. \2\ MINOR SKIN DISORDERS 0.5594 21.0 17.5 4.6
W/O CC.
285.................. AMPUTAT OF LOWER LIMB FOR 1.2418 31.6 26.3 16.0
ENDOCRINE,NUTRIT,&
METABOL DISORDERS.
286.................. \6\ ADRENAL & PITUITARY 1.1625 29.5 24.6 8.0
PROCEDURES.
287.................. SKIN GRAFTS & WOUND 1.0402 33.0 27.5 15.2
DEBRID FOR ENDOC, NUTRIT
& METAB DISORDERS.
288.................. \4\ O.R. PROCEDURES FOR 1.1625 29.5 24.6 5.4
OBESITY.
289.................. \6\ PARATHYROID 1.1625 29.5 24.6 3.3
PROCEDURES.
290.................. \6\ THYROID PROCEDURES... 1.1625 29.5 24.6 2.8
291.................. \6\ THYROGLOSSAL 1.1625 29.5 24.6 2.1
PROCEDURES.
292.................. OTHER ENDOCRINE, NUTRIT & 1.1549 32.0 26.7 16.9
METAB O.R. PROC W CC.
293.................. \8\ OTHER ENDOCRINE, 1.1549 32.0 26.7 7.8
NUTRIT & METAB O.R. PROC
W/O CC.
294.................. DIABETES AGE >35......... 0.6958 23.9 19.9 6.7
295.................. \2\ DIABETES AGE 0-35.... 0.5594 21.0 17.5 5.7
296.................. NUTRITIONAL & MISC 0.7092 22.3 18.6 7.3
METABOLIC DISORDERSAGE
>17 W CC.
297.................. NUTRITIONAL & MISC 0.4596 19.3 16.1 4.6
METABOLIC DISORDERS AGE
>17 W/O CC.
298.................. \6\ NUTRITIONAL & MISC 0.4175 17.0 14.2 5.3
METABOLIC DISORDERS AGE
0-17.
299.................. \3\ INBORN ERRORS OF 0.7819 23.9 19.9 8.2
METABOLISM.
300.................. ENDOCRINE DISORDERS W CC. 0.7004 23.7 19.8 9.3
301.................. \2\ ENDOCRINE DISORDERS W/ 0.5594 21.0 17.5 5.2
O CC.
302***............... \7\ KIDNEY TRANSPLANT.... 0.0000 0.0 0.0 0.0
303.................. \6\ KIDNEY AND URETER 0.7819 23.9 19.9 9.7
PROCEDURES FOR NEOPLASM.
304.................. \4\ KIDNEY AND URETER 1.1625 29.5 24.6 13.4
PROCEDURES FOR NON-
NEOPLASM W CC.
305.................. \6\ KIDNEY AND URETER 0.7819 23.9 19.9 4.7
PROCEDURES FOR NON-
NEOPLASM W/O CC.
306.................. \4\ PROSTATECTOMY W CC... 1.1625 29.5 24.6 9.1
307.................. \6\ PROSTATECTOMY W/O CC. 1.1625 29.5 24.6 2.9
308.................. \4\ MINOR BLADDER 1.1625 29.5 24.6 8.6
PROCEDURES W CC.
309.................. \6\ MINOR BLADDER 1.1625 29.5 24.6 2.4
PROCEDURES W/O CC.
310.................. \4\ TRANSURETHRAL 1.1625 29.5 24.6 7.2
PROCEDURES W CC.
311.................. \6\ TRANSURETHRAL 1.1625 29.5 24.6 2.7
PROCEDURES W/O CC.
312.................. \3\ URETHRAL PROCEDURES, 0.7819 23.9 19.9 8.0
AGE >17 W CC.
313.................. \6\ URETHRAL PROCEDURES, 0.7819 23.9 19.9 3.6
AGE >17 W/O CC.
314.................. \6\ URETHRAL PROCEDURES, 0.7819 23.9 19.9 360.4
AGE 0-17.
315.................. OTHER KIDNEY & URINARY 1.4016 33.9 28.3 11.1
TRACT PROCEDURES.
316.................. RENAL FAILURE............ 0.8321 22.9 19.1 9.9
317.................. ADMIT FOR RENAL DIALYSIS. 0.9102 24.4 20.3 5.4
318.................. KIDNEY & URINARY TRACT 0.7565 21.0 17.5 9.8
NEOPLASMS W CC.
319.................. \6\ KIDNEY & URINARY 0.7819 23.9 19.9 3.9
TRACT NEOPLASMS W/O CC.
320.................. KIDNEY & URINARY TRACT 0.6200 21.7 18.1 7.7
INFECTIONS AGE >17 W CC.
321.................. KIDNEY & URINARY TRACT 0.4450 18.5 15.4 5.4
INFECTIONS AGE >17 W/O
CC.
322.................. \6\ KIDNEY & URINARY 0.4175 17.0 14.2 5.2
TRACT INFECTIONS AGE 0-
17.
323.................. \1\ URINARY STONES W CC, 0.4175 17.0 14.2 4.8
&/OR ESW LITHOTRIPSY.
324.................. \1\ URINARY STONES W/O CC 0.4175 17.0 14.2 2.7
325.................. \2\ KIDNEY & URINARY 0.5594 21.0 17.5 5.8
TRACT SIGNS & SYMPTOMS
AGE >17 W CC.

[[Page 4879]]

326.................. \6\ KIDNEY & URINARY 0.4175 17.0 14.2 3.9
TRACT SIGNS & SYMPTOMS
AGE >17 W/O CC.
327.................. \6\ KIDNEY & URINARY 0.4175 17.0 14.2 2.8
TRACT SIGNS & SYMPTOMS
AGE 0-17.
328.................. \6\ URETHRAL STRICTURE 0.5594 21.0 17.5 5.4
AGE >17 W CC.
329.................. \6\ URETHRAL STRICTURE 0.5594 21.0 17.5 2.4
AGE >17 W/O CC.
330**................ \6\ URETHRAL STRICTURE 0.5594 21.0 17.5 1.6
AGE 0-17.
331.................. OTHER KIDNEY & URINARY 0.7773 22.5 18.8 8.7
TRACT DIAGNOSES AGE >17
W CC.
332.................. \1\ OTHER KIDNEY & 0.4175 17.0 14.2 4.8
URINARY TRACT DIAGNOSES
AGE >17 W/O CC.
333.................. \6\ OTHER KIDNEY & 0.4175 17.0 14.2 8.4
URINARY TRACT DIAGNOSES
AGE 0-17.
334.................. \6\ MAJOR MALE PELVIC 0.4175 17.0 14.2 6.1
PROCEDURES W CC.
335.................. \1\ MAJOR MALE PELVIC 0.4175 17.0 14.2 3.7
PROCEDURES W/O CC.
336.................. \4\ TRANSURETHRAL 1.1625 29.5 24.6 4.9
PROSTATECTOMY W CC.
337.................. \6\ TRANSURETHRAL 1.1625 29.5 24.6 2.6
PROSTATECTOMY W/O CC.
338.................. \3\ TESTES PROCEDURES, 0.7819 23.9 19.9 9.7
FOR MALIGNANCY.
339.................. \3\ TESTES PROCEDURES, 0.7819 23.9 19.9 8.4
NON-MALIGNANCY AGE >17.
340**................ \6\ TESTES PROCEDURES, 0.7819 23.9 19.9 2.4
NON-MALIGNANCY AGE 0-17.
341.................. \5\ PENIS PROCEDURES..... 1.6835 37.1 30.9 4.4
342.................. \6\ CIRCUMCISION AGE >17. 0.7819 23.9 19.9 4.6
343**................ \6\ CIRCUMCISION AGE 0-17 0.7819 23.9 19.9 1.7
344.................. \3\ OTHER MALE 0.7819 23.9 19.9 3.9
REPRODUCTIVE SYSTEM O.R.
PROCEDURES FOR
MALIGNANCY.
345.................. \4\ OTHER MALE 1.1625 29.5 24.6 8.6
REPRODUCTIVE SYSTEM O.R.
PROC EXCEPT FOR
MALIGNANCY.
346.................. \3\ MALIGNANCY, MALE 0.7819 23.9 19.9 9.6
REPRODUCTIVE SYSTEM, WCC.
347.................. \1\ MALIGNANCY, MALE 0.4175 17.0 14.2 4.2
REPRODUCTIVE SYSTEM, W/O
CC.
348.................. \2\ BENIGN PROSTATIC 0.5594 21.0 17.5 6.3
HYPERTROPHY W CC.
349.................. \6\ BENIGN PROSTATIC 0.7819 23.9 19.9 4.1
HYPERTROPHY W/O CC.
350.................. INFLAMMATION OF THE MALE 0.5606 21.0 17.5 7.0
REPRODUCTIVE SYSTEM.
351**................ \6\ STERILIZATION, MALE.. 0.7819 23.9 19.9 1.3
352.................. OTHER MALE REPRODUCTIVE 0.8209 27.5 22.9 6.7
SYSTEM DIAGNOSES.
353.................. \6\ PELVIC EVISCERATION, 1.1625 29.5 24.6 9.2
RADICAL HYSTERECTOMY &
RADICAL VULVECTOMY.
354.................. \6\ UTERINE,ADNEXA PROC 1.1625 29.5 24.6 8.2
FOR NON-OVARIAN/ADNEXAL
MALIG W CC.
355.................. \6\ UTERINE,ADNEXA PROC 1.1625 29.5 24.6 4.2
FOR NON-OVARIAN/ADNEXAL
MALIG W/O CC.
356.................. \6\ FEMALE REPRODUCTIVE 1.1625 29.5 24.6 2.7
SYSTEM RECONSTRUCTIVE
PROCEDURES.
357.................. \6\ UTERINE & ADNEXA PROC 1.1625 29.5 24.6 12.3
FOR OVARIAN OR ADNEXAL
MALIGNANCY.
358.................. \6\ UTERINE & ADNEXA PROC 1.1625 29.5 24.6 5.7
FOR NON-MALIGNANCY W CC.
359.................. \6\ UTERINE & ADNEXA PROC 1.1625 29.5 24.6 3.3
FOR NON-MALIGNANCY W/O
CC.
360.................. \6\ VAGINA, CERVIX & 1.1625 29.5 24.6 3.7
VULVA PROCEDURES.
361.................. \6\ LAPAROSCOPY & 0.4175 17.0 14.2 4.5
INCISIONAL TUBAL
INTERRUPTION.
362.................. \6\ ENDOSCOPIC TUBAL 0.4175 17.0 14.2 1.0
INTERRUPTION.
363.................. \6\ D&C, CONIZATION & 0.4175 17.0 14.2 6.5
RADIO-IMPLANT, FOR
MALIGNANCY.
364.................. \6\ D&C, CONIZATION 0.4175 17.0 14.2 6.1
EXCEPT FOR MALIGNANCY.
365.................. \4\ OTHER FEMALE 1.1625 29.5 24.6 13.0
REPRODUCTIVE SYSTEM O.R.
PROCEDURES.
366.................. MALIGNANCY, FEMALE 0.9106 21.6 18.0 10.2
REPRODUCTIVE SYSTEM W CC.
367.................. \1\ MALIGNANCY, FEMALE 0.4175 17.0 14.2 4.6
REPRODUCTIVE SYSTEM W/O
CC.
368.................. INFECTIONS, FEMALE 0.7846 21.3 17.8 10.2
REPRODUCTIVE SYSTEM.
369.................. \3\ MENSTRUAL & OTHER 0.7819 23.9 19.9 5.1
FEMALE REPRODUCTIVE
SYSTEM DISORDERS.
370.................. \6\ CESAREAN SECTION W CC 0.4175 17.0 14.2 7.0
371.................. \6\ CESAREAN SECTION W/O 0.4175 17.0 14.2 4.5
CC.
372.................. \6\ VAGINAL DELIVERY W 0.4175 17.0 14.2 4.7
COMPLICATING DIAGNOSES.
373.................. \6\ VAGINAL DELIVERY W/O 0.4175 17.0 14.2 3.0
COMPLICATING DIAGNOSES.
374.................. \6\ VAGINAL DELIVERY W 0.4175 17.0 14.2 4.1
STERILIZATION &/ORD&C.
375.................. \6\ VAGINAL DELIVERY W 0.4175 17.0 14.2 11.0
O.R. PROC EXCEPT STERIL
&/OR D&C.

[[Page 4880]]

376.................. \4\ POSTPARTUM & POST 1.1625 29.5 24.6 5.1
ABORTION DIAGNOSES W/O
O.R. PROCEDURE.
377.................. \6\ POSTPARTUM & POST 0.4175 17.0 14.2 7.2
ABORTION DIAGNOSES WO.R.
PROCEDURE.
378.................. \6\ ECTOPIC PREGNANCY.... 0.4175 17.0 14.2 3.2
379.................. \6\ THREATENED ABORTION.. 0.4175 17.0 14.2 4.8
380.................. \6\ ABORTION W/O D&C..... 0.4175 17.0 14.2 2.9
381.................. \6\ ABORTION W D&C, 0.4175 17.0 14.2 3.6
ASPIRATION CURETTAGE OR
HYSTEROTOMY.
382.................. \6\ FALSE LABOR.......... 0.4175 17.0 14.2 2.1
383.................. \1\ OTHER ANTEPARTUM 0.4175 17.0 14.2 5.6
DIAGNOSES W MEDICAL
COMPLICATIONS.
384.................. \6\ OTHER ANTEPARTUM 0.4175 17.0 14.2 3.6
DIAGNOSES W/O MEDICAL
COMPLICATIONS.
385**................ \6\ NEONATES, DIED OR 0.4175 17.0 14.2 1.8
TRANSFERRED TO ANOTHER
ACUTE CARE FACILITY.
386**................ \6\ EXTREME IMMATURITY OR 0.4175 17.0 14.2 17.9
RESPIRATORY DISTRESS
SYNDROME, NEONATE.
387**................ \6\ PREMATURITY W MAJOR 0.4175 17.0 14.2 13.3
PROBLEMS.
388**................ \6\ PREMATURITY W/O MAJOR 0.4175 17.0 14.2 8.6
PROBLEMS.
389.................. \6\ FULL TERM NEONATE W 0.4175 17.0 14.2 17.6
MAJOR PROBLEMS.
390**................ \6\ NEONATE W OTHER 0.4175 17.0 14.2 3.4
SIGNIFICANT PROBLEMS.
391**................ \6\ NORMAL NEWBORN....... 0.4175 17.0 14.2 3.1
392.................. \6\ SPLENECTOMY AGE >17.. 1.1625 29.5 24.6 14.5
393**................ \6\ SPLENECTOMY AGE 0-17. 1.1625 29.5 24.6 9.1
394.................. \4\ OTHER O.R. PROCEDURES 1.1625 29.5 24.6 12.1
OF THE BLOOD AND BLOOD
FORMING ORGANS.
395.................. RED BLOOD CELL DISORDERS 0.6651 21.9 18.3 6.5
AGE >17.
396.................. \6\ RED BLOOD CELL 0.4175 17.0 14.2 4.5
DISORDERS AGE 0-17.
397.................. COAGULATION DISORDERS.... 0.8276 20.4 17.0 8.2
398.................. RETICULOENDOTHELIAL & 0.6278 20.8 17.3 8.8
IMMUNITY DISORDERS W CC.
399.................. \1\ RETICULOENDOTHELIAL & 0.4175 17.0 14.2 5.1
IMMUNITY DISORDERS W/O
CC.
401.................. \4\ LYMPHOMA & NON-ACUTE 1.1625 29.5 24.6 18.9
LEUKEMIA W OTHER O.R.
PROC W CC.
402.................. \6\ LYMPHOMA & NON-ACUTE 0.5594 21.0 17.5 6.3
LEUKEMIA W OTHER O.R.
PROC W/O CC.
403.................. LYMPHOMA & NON-ACUTE 0.8846 23.9 19.9 13.2
LEUKEMIA W CC.
404.................. \3\ LYMPHOMA & NON-ACUTE 0.7819 23.9 19.9 6.6
LEUKEMIA W/O CC.
405**................ \6\ ACUTE LEUKEMIA W/O 0.7819 23.9 19.9 4.9
MAJOR O.R. PROCEDURE AGE
0-17.
406.................. \5\ MYELOPROLIF DISORD OR 1.6835 37.1 30.9 15.5
POORLY DIFF NEOPL W MAJ
O.R.PROC W CC.
407.................. \6\ MYELOPROLIF DISORD OR 1.1625 29.5 24.6 5.5
POORLY DIFF NEOPL W MAJ
O.R.PROC W/O CC.
408.................. \4\ MYELOPROLIF DISORD OR 1.1625 29.5 24.6 14.0
POORLY DIFF NEOPL W
OTHER O.R.PROC.
409.................. RADIOTHERAPY............. 0.8416 23.2 19.3 9.5
410.................. CHEMOTHERAPY W/O ACUTE 1.2527 28.7 23.9 5.8
LEUKEMIA AS SECONDARY
DIAGNOSIS.
411.................. \6\ HISTORY OF MALIGNANCY 0.5594 21.0 17.5 3.3
W/O ENDOSCOPY.
412.................. \6\ HISTORY OF MALIGNANCY 0.5594 21.0 17.5 2.1
W ENDOSCOPY.
413.................. OTHER MYELOPROLIF DIS OR 0.8429 21.4 17.8 11.0
POORLY DIFF NEOPL DIAG W
CC.
414.................. \3\ OTHER MYELOPROLIF DIS 0.7819 23.9 19.9 6.4
OR POORLY DIFF NEOPL
DIAG W/O CC.
417.................. \6\ SEPTICEMIA AGE 0-17.. 0.7819 23.9 19.9 10.5
418.................. POSTOPERATIVE & POST- 0.7961 24.1 20.1 9.6
TRAUMATIC INFECTIONS.
419.................. \2\ FEVER OF UNKNOWN 0.5594 21.0 17.5 6.8
ORIGIN AGE >17 W CC.
420.................. \2\ FEVER OF UNKNOWN 0.5594 21.0 17.5 4.9
ORIGIN AGE >17 W/O CC.
421.................. VIRAL ILLNESS AGE >17.... 0.7065 20.4 17.0 6.2
422.................. \6\ VIRAL ILLNESS & FEVER 0.4175 17.0 14.2 5.6
OF UNKNOWN ORIGIN AGE 0-
17.
423.................. OTHER INFECTIOUS & 1.0426 23.2 19.3 13.2
PARASITIC DISEASES
DIAGNOSES.
424.................. \5\ O.R. PROCEDURE W 1.6835 37.1 30.9 19.7
PRINCIPAL DIAGNOSES OF
MENTAL ILLNESS.

[[Page 4881]]

425.................. \1\ ACUTE ADJUSTMENT 0.4175 17.0 14.2 5.3
REACTION & PSYCHOSOCIAL
DYSFUNCTION.
426.................. DEPRESSIVE NEUROSES...... 0.4038 22.5 18.8 6.8
427.................. \2\ NEUROSES EXCEPT 0.5594 21.0 17.5 7.3
DEPRESSIVE.
428.................. DISORDERS OF PERSONALITY 0.5183 24.5 20.4 11.4
& IMPULSE CONTROL.
429.................. ORGANIC DISTURBANCES & 0.5326 24.0 20.0 8.5
MENTAL RETARDATION.
430.................. PSYCHOSES................ 0.4024 23.1 19.3 12.6
431.................. \2\ CHILDHOOD MENTAL 0.5594 21.0 17.5 10.1
DISORDERS.
432.................. \1\ OTHER MENTAL DISORDER 0.4175 17.0 14.2 6.1
DIAGNOSES.
433.................. \6\ ALCOHOL/DRUG ABUSE OR 0.4175 17.0 14.2 4.2
DEPENDENCE, LEFTAMA.
439.................. SKIN GRAFTS FOR INJURIES. 1.2203 36.0 30.0 13.6
440.................. WOUND DEBRIDEMENTS FOR 1.2248 34.4 28.7 13.4
INJURIES.
441.................. \2\ HAND PROCEDURES FOR 0.5594 21.0 17.5 5.2
INJURIES.
442.................. OTHER O.R. PROCEDURES FOR 1.3670 34.9 29.1 14.5
INJURIES W CC.
443.................. \6\ OTHER O.R. PROCEDURES 0.5594 21.0 17.5 5.6
FOR INJURIES W/O CC.
444.................. TRAUMATIC INJURY AGE >17 0.6598 23.2 19.3 6.4
W CC.
445.................. \2\ TRAUMATIC INJURY AGE 0.5594 21.0 17.5 4.4
>17 W/O CC.
446**................ \6\ TRAUMATIC INJURY AGE 0.5594 21.0 17.5 2.4
0-17.
447.................. \2\ ALLERGIC REACTIONS 0.5594 21.0 17.5 3.9
AGE >17.
448**................ \6\ ALLERGIC REACTIONS 0.5594 21.0 17.5 2.9
AGE 0-17.
449.................. \3\ POISONING & TOXIC 0.7819 23.9 19.9 5.8
EFFECTS OF DRUGS AGE >17
W CC.
450.................. \2\ POISONING & TOXIC 0.5594 21.0 17.5 2.9
EFFECTS OF DRUGS AGE >17
W/O CC.
451.................. \6\ POISONING & TOXIC 0.7819 23.9 19.9 14.4
EFFECTS OF DRUGS AGE 0-
17.
452.................. COMPLICATIONS OF 0.9275 25.7 21.4 7.8
TREATMENT W CC.
453.................. COMPLICATIONS OF 0.5790 21.6 18.0 4.2
TREATMENT W/O CC.
454.................. \3\ OTHER INJURY, 0.7819 23.9 19.9 6.5
POISONING & TOXIC EFFECT
DIAG W CC.
455.................. \6\ OTHER INJURY, 0.7819 23.9 19.9 3.4
POISONING & TOXIC EFFECT
DIAG W/O CC.
461.................. O.R. PROC W DIAGNOSES OF 1.1466 32.7 27.3 8.8
OTHER CONTACT W HEALTH
SERVICES.
462.................. REHABILITATION........... 0.5823 22.1 18.4 14.8
463.................. SIGNS & SYMPTOMS W CC.... 0.6082 22.9 19.1 6.1
464.................. SIGNS & SYMPTOMS W/O CC.. 0.5831 24.3 20.3 4.5
465.................. AFTERCARE W HISTORY OF 0.6877 21.2 17.7 5.5
MALIGNANCY AS SECONDARY
DIAGNOSIS.
466.................. AFTERCARE W/O HISTORY OF 0.6700 21.7 18.1 7.0
MALIGNANCY AS SECONDARY
DIAGNOSIS.
467.................. \3\ OTHER FACTORS 0.7819 23.9 19.9 4.0
INFLUENCING HEALTH
STATUS.
468.................. EXTENSIVE O.R. PROCEDURE 2.1478 40.5 33.8 21.4
UNRELATED TO PRINCIPAL
DIAGNOSIS.
469***............... \7\ PRINCIPAL DIAGNOSIS 0.0000 0.0 0.0 0.0
INVALID AS DISCHARGE
DIAGNOSIS.
470***............... \7\ UNGROUPABLE.......... 0.0000 0.0 0.0 0.0
471.................. \5\ BILATERAL OR MULTIPLE 1.6835 37.1 30.9 6.2
MAJOR JOINT PROCS OF
LOWER EXTREMITY.
473.................. ACUTE LEUKEMIA W/O MAJOR 0.9917 25.3 21.1 21.4
O.R. PROCEDURE AGE >17.
476.................. \5\ PROSTATIC O.R. 1.6835 37.1 30.9 17.7
PROCEDURE UNRELATED TO
PRINCIPAL DIAGNOSIS.
477.................. NON-EXTENSIVE O.R. 1.5119 35.9 29.9 14.8
PROCEDURE UNRELATED TO
PRINCIPAL DIAGNOSIS.
479.................. \2\ OTHER VASCULAR 0.5594 21.0 17.5 3.9
PROCEDURES W/O CC.
480***............... \7\ LIVER TRANSPLANT AND/ 0.0000 0.0 0.0 0.0
OR INTESTINAL TRANSPLANT.
481.................. \6\ BONE MARROW 1.1625 29.5 24.6 35.2
TRANSPLANT.
482.................. \5\ TRACHEOSTOMY FOR 1.6835 37.1 30.9 17.6
FACE,MOUTH & NECK
DIAGNOSES.
484.................. \6\ CRANIOTOMY FOR 1.6835 37.1 30.9 23.1
MULTIPLE SIGNIFICANT
TRAUMA.
485.................. \6\ LIMB REATTACHMENT, 1.1625 29.5 24.6 14.7
HIP & FEMUR PROC FOR
MULTIPLE SIGNIFICANT
TRAUMA.
486.................. \3\ OTHER O.R. PROCEDURES 0.7819 23.9 19.9 21.8
FOR MULTIPLE SIGNIFICANT
TRAUMA.
487.................. \4\ OTHER MULTIPLE 1.1625 29.5 24.6 11.5
SIGNIFICANT TRAUMA.
488.................. \4\ HIV W EXTENSIVE O.R. 1.1625 29.5 24.6 29.6
PROCEDURE.
489.................. HIV W MAJOR RELATED 0.9436 22.1 18.4 13.3
CONDITION.
490.................. HIV W OR W/O OTHER 0.6456 20.3 16.9 8.5
RELATED CONDITION.
491.................. \5\ MAJOR JOINT & LIMB 1.6835 37.1 30.9 4.5
REATTACHMENT PROCEDURES
OF UPPER EXTREMITY.

[[Page 4882]]

492.................. \2\ CHEMO W ACUTE 0.5594 21.0 17.5 23.1
LEUKEMIA AS SDX OR W USE
OF HIGH DOSE CHEMO AGENT.
493.................. \4\ LAPAROSCOPIC 1.1625 29.5 24.6 9.8
CHOLECYSTECTOMY W/O
C.D.E. W CC.
494.................. \6\ LAPAROSCOPIC 1.1625 29.5 24.6 4.2
CHOLECYSTECTOMY W/O
C.D.E. W/O CC.
495***............... \7\ LUNG TRANSPLANT...... 0.0000 0.0 0.0 0.0
496.................. \4\ COMBINED ANTERIOR/ 1.1625 29.5 24.6 13.8
POSTERIOR SPINAL FUSION.
497.................. \5\ SPINAL FUSION EXCEPT 1.6835 37.1 30.9 8.3
CERVICAL W CC.
498.................. \6\ SPINAL FUSION EXCEPT 1.6835 37.1 30.9 5.3
CERVICAL W/O CC.
499.................. \5\ BACK & NECK 1.6835 37.1 30.9 6.6
PROCEDURES EXCEPT SPINAL
FUSION W CC.
500.................. \4\ BACK & NECK 1.1625 29.5 24.6 3.3
PROCEDURES EXCEPT SPINAL
FUSION W/O CC.
501.................. KNEE PROCEDURES W PDX OF 1.2164 33.3 27.8 15.4
INFECTION W CC.
502.................. \3\ KNEE PROCEDURES W PDX 0.7819 23.9 19.9 8.7
OF INFECTION W/O CC.
503.................. \4\ KNEE PROCEDURES W/O 1.1625 29.5 24.6 6.1
PDX OF INFECTION.
504.................. \5\ EXTENSIVE BURNS OR 1.6835 37.1 30.9 48.4
FULL THICKNESS BURNS W
MV 96+ HRS W SKIN GRAFT.
505.................. \5\ EXTENSIVE BURNS OR 1.6835 37.1 30.9 9.4
FULL THICKNESS BURNS W
MV 96+ HRS W/O SKIN
GRAFT.
506.................. \4\ FULL THICKNESS BURN W 1.1625 29.5 24.6 26.1
SKIN GRAFT OR INHAL INJ
W CC OR SIG TRAUMA.
507.................. \6\ FULL THICKNESS BURN W 0.4175 17.0 14.2 13.2
SKIN GRFT OR INHAL INJ W/
O CC OR SIG TRAUMA.
508.................. FULL THICKNESS BURN W/O 0.7588 25.6 21.3 12.1
SKIN GRFT OR INHAL INJ W
CC OR SIG TRAUMA.
509.................. \1\ FULL THICKNESS BURN W/ 0.4175 17.0 14.2 8.6
O SKIN GRFT OR INH INJ W/
O CC OR SIG TRAUMA.
510.................. NON-EXTENSIVE BURNS W CC 0.6720 22.6 18.8 9.7
OR SIGNIFICANT TRAUMA.
511.................. \1\ NON-EXTENSIVE BURNS W/ 0.4175 17.0 14.2 5.7
O CC OR SIGNIFICANT
TRAUMA.
512***............... \7\ SIMULTANEOUS PANCREAS/ 0.0000 0.0 0.0 0.0
KIDNEY TRANSPLANT.
513***............... \7\ PANCREAS TRANSPLANT.. 0.0000 0.0 0.0 0.0
515.................. \4\ CARDIAC DEFIBRILLATOR 1.1625 29.5 24.6 5.9
IMPLANT W/O CARDIAC CATH.
518.................. \6\ PERCUTANEOUS 0.4175 17.0 14.2 3.7
CARDIOVASC PROC W/O
CORONARY ARTERY STENT OR
AMI.
519.................. \4\ CERVICAL SPINAL 1.1625 29.5 24.6 7.4
FUSION W CC.
520.................. \6\ CERVICAL SPINAL 1.6835 37.1 30.9 2.8
FUSION W/O CC.
521.................. \2\ ALCOHOL/DRUG ABUSE OR 0.5594 21.0 17.5 8.4
DEPENDENCE W CC.
522.................. \6\ ALCOHOL/DRUG ABUSE OR 0.5594 21.0 17.5 16.7
DEPENDENCE W
REHABILITATION THERAPY W/
O CC.
523.................. \1\ ALCOHOL/DRUG ABUSE OR 0.4175 17.0 14.2 5.8
DEPENDENCE W/O
REHABILITATION THERAPY W/
O CC.
524.................. \2\ TRANSIENT ISCHEMIA... 0.5594 21.0 17.5 4.8
525.................. \6\ OTHER HEART ASSIST 1.6835 37.1 30.9 24.1
SYSTEM IMPLANT.
528.................. \6\ INTRACRANIAL VASCULAR 1.6835 37.1 30.9 26.9
PROCEDURES W PDX
HEMORRHAGE.
529.................. \5\ VENTRICULAR SHUNT 1.6835 37.1 30.9 11.7
PROCEDURES W CC.
530.................. \6\ VENTRICULAR SHUNT 1.6835 37.1 30.9 4.5
PROCEDURES W/O CC.
531.................. \5\ SPINAL PROCEDURES W 1.6835 37.1 30.9 15.5
CC.
532.................. \3\ SPINAL PROCEDURES W/O 0.7819 23.9 19.9 5.9
CC.
533.................. \4\ EXTRACRANIAL 1.1625 29.5 24.6 5.7
PROCEDURES W CC.
534.................. \6\ EXTRACRANIAL 1.1625 29.5 24.6 2.5
PROCEDURES W/O CC.
535.................. \5\ CARDIAC DEFIB IMPLANT 1.6835 37.1 30.9 15.6
W CARDIAC CATH W AMI/HF/
SHOCK.
536.................. \6\ CARDIAC DEFIB IMPLANT 1.1625 29.5 24.6 11.7
W CARDIAC CATH W/O AMI/
HF/SHOCK.
537.................. LOCAL EXCISION & REMOVAL 1.4672 39.9 33.3 10.8
INT FIX DEVICES EXCEPT
HIP & FEMUR W CC.
538.................. \4\ LOCAL EXCISION & 1.1625 29.5 24.6 4.5
REMOVAL INT FIX DEVICES
EXCEPT HIP & FEMUR W/O
CC.
539.................. \4\ LYMPHOMA & LEUKEMIA W 1.1625 29.5 24.6 18.1
MAJOR O.R. PROCEDURE W
CC.
540.................. \6\ LYMPHOMA & LEUKEMIA W 0.4175 17.0 14.2 5.6
MAJOR O.R. PROCEDURE W/O
CC.
541.................. ECMO OR TRACH W MV 96+ 3.8893 58.1 48.4 65.8
HRS OR PDX EXC FACE,
MOUTH & NECK W MAJ O.R.

[[Page 4883]]

542.................. TRACH W MV 96+ HRS OR PDX 2.8689 45.1 37.6 49.1
EXC FACE, MOUTH & NECK W/
O MAJ O.R.
543.................. \5\ CRANIOTOMY W MAJOR 1.6835 37.1 30.9 20.4
DEVICE IMPLANT ORACUTE
COMPLEX CNS PDX.
544.................. \5\ MAJOR JOINT 1.6835 37.1 30.9 6.1
REPLACEMENT OR
REATTACHMENT OF LOWER
EXTREMITY.
545.................. \5\ REVISION OF HIP OR 1.6835 37.1 30.9 7.4
KNEE REPLACEMENT.
546.................. \6\ SPINAL FUSION EXC 1.6835 37.1 30.9 13.4
CERV WITH CURVATURE OF
THE SPINE OR MALIG.
547.................. \6\ CORONARY BYPASS W 1.1625 29.5 24.6 17.8
CARDIAC CATH W MAJOR CV
DX.
548.................. \6\ CORONARY BYPASS W 1.1625 29.5 24.6 12.0
CARDIAC CATH W/O MAJOR
CV DX.
549.................. \6\ CORONARY BYPASS W/O 1.1625 29.5 24.6 15.0
CARDIAC CATH W MAJOR CV
DX.
550.................. \6\ CORONARY BYPASS W/O 1.1625 29.5 24.6 9.3
CARDIAC CATH W/O MAJOR
CV DX.
551.................. PERMANENT CARDIAC 1.6035 29.5 24.6 10.3
PACEMAKER IMPL W MAJ CV
DX OR AICD LEAD OR GNRTR.
552.................. \4\ OTHER PERMANENT 1.1625 29.5 24.6 5.5
CARDIAC PACEMAKER
IMPLANT W/O MAJOR CV DX.
553.................. OTHER VASCULAR PROCEDURES 1.5837 32.5 27.1 15.8
W CC W MAJOR CV DX.
554.................. OTHER VASCULAR PROCEDURES 1.2817 31.6 26.3 9.3
W CC W/O MAJOR CV DX.
555.................. \3\ PERCUTANEOUS 0.7819 23.9 19.9 7.8
CARDIOVASCULAR PROC W
MAJOR CV DX.
556.................. \6\ PERCUTANEOUS 0.4175 17.0 14.2 2.9
CARDIOVASC PROC W NON-
DRUG-ELUTING STENT W/O
MAJ CV DX.
557.................. \4\ PERCUTANEOUS 1.1625 29.5 24.6 6.5
CARDIOVASCULAR PROC W
DRUG-ELUTING STENT W
MAJOR CV DX.
558.................. \6\ PERCUTANEOUS 0.4175 17.0 14.2 2.6
CARDIOVASCULAR PROC W
DRUG-ELUTING STENT W/O
MAJ CV DX.
559.................. \6\ ACUTE ISCHEMIC STROKE 0.7819 23.9 19.9 10.7
WITH USE OF THROMBOLYTIC
AGENT.
560.................. BACTERIAL & TUBERCULOUS 0.9308 25.5 21.3 16.9
INFECTIONS OF NERVOUS
SYSTEM.
561.................. NON-BACTERIAL INFECTIONS 0.8145 22.3 18.6 15.5
OF NERVOUS SYSTEM EXCEPT
VIRAL MENINGITIS.
562.................. SEIZURE AGE >17 W CC..... 0.6844 23.2 19.3 7.6
563.................. \2\ SEIZURE AGE >17 W/O 0.5594 21.0 17.5 4.9
CC.
564.................. HEADACHES AGE >17........ 0.7565 24.1 20.1 5.3
565.................. RESPIRATORY SYSTEM 2.0557 34.7 28.9 23.3
DIAGNOSIS WITH
VENTILATOR SUPPORT 96+
HOURS.
566.................. RESPIRATORY SYSTEM 1.5445 27.4 22.8 13.2
DIAGNOSIS WITH
VENTILATOR SUPPORT < 96
HOURS.
567.................. \5\ STOMACH, ESOPHAGEAL & 1.6835 37.1 30.9 25.4
DUODENAL PROC AGE >17 W
CC W MAJOR GI DX.
568.................. \5\ STOMACH, ESOPHAGEAL & 1.6835 37.1 30.9 19.2
DUODENAL PROC AGE >17 W
CC W/O MAJOR GI DX.
569.................. \5\ MAJOR SMALL & LARGE 1.6835 37.1 30.9 22.5
BOWEL PROCEDURES W CC W
MAJOR GI DX.
570.................. \5\ MAJOR SMALL & LARGE 1.6835 37.1 30.9 14.9
BOWEL PROCEDURES W CC W/
O MAJOR GI DX.
571.................. MAJOR ESOPHAGEAL 0.8214 21.9 18.3 7.5
DISORDERS.
572.................. MAJOR GASTROINTESTINAL 0.8505 23.3 19.4 11.0
DISORDERS AND PERITONEAL
INFECTIONS.
573.................. \5\ MAJOR BLADDER 1.6835 37.1 30.9 16.7
PROCEDURES.
574.................. MAJOR HEMATOLOGIC/ 0.8106 19.7 16.4 9.1
IMMUNOLOGIC DIAG EXC
SICKLE CELL CRISIS &
COAGUL.
575.................. SEPTICEMIA W MV 96+ HOURS 1.6583 27.8 23.2 24.4
AGE >17.
576.................. SEPTICEMIA W/O MV 96+ 0.7925 23.0 19.2 11.8
HOURS AGE >17.
577.................. \6\ CAROTID ARTERY STENT 1.1625 29.5 24.6 3.3
PROCEDURE.
578.................. O. R. PROCEDURE W PDX EXC 1.4849 35.7 29.8 26.5
POSTOPERATIVE OR POST-
TRAUMATIC INFECTION.

[[Page 4884]]

579.................. O. R. PROCEDURE W PDX OF 1.2978 35.2 29.3 18.0
POSTOPERATIVE OR POST-
TRAUMATIC INFECTION.
----------------------------------------------------------------------------------------------------------------
\1\ Relative weights for these LTC-DRGs were determined by assigning these cases to low-volume quintile 1.
\2\ Relative weights for these LTC-DRGs were determined by assigning these cases to low-volume quintile 2.
\3\ Relative weights for these LTC-DRGs were determined by assigning these cases to low-volume quintile 3.
\4\ Relative weights for these LTC-DRGs were determined by assigning these cases to low-volume quintile 4.
\5\ Relative weights for these LTC-DRGs were determined by assigning these cases to low-volume quintile 5.
\6\ Relative weights for these LTC-DRGs were determined by assigning these cases to the appropriate low volume
quintile because they had no LTCH cases in the FY 2005 MedPAR file.
\7\ Relative weights for these LTC-DRGs were assigned a value of 0.0000.
\8\ Relative weights for these LTC-DRGs were determined after adjusting to account for nonmonotonicity (see step
5 above).
* ``IPPS Comparable Threshold'' that could be used under the approach discussed for the short-stay outlier
policy, as discussed in section V.A.2. of the preamble of this proposed rule.
** IPPS hospital statistical data for these LTC-DRGs would be supplemented due to a low volume of IPPS cases.
*** Although IPPS hospital statistical data for these DRGs may be available, a value of zero for the ``IPPS
Comparable Threshold'' would be assigned for these LTC-DRGs since the relative weights for these LTC-DRGs were
assigned a value of 0.0000, as discussed in section III. of the preamble of this proposed rule.

Addendum B: Executive Summary of RTI's Report (See http://www.cms.hhs.gov/LongTermCareHospitalPPS/02a_RTIReports.asp#TopOfPage for a Copy of the Entire Report)

ES.1 Overview of the Project Purpose

This project, ``Long-Term Care Hospital (LTCH) Payment System
Refinement/ Evaluation,'' will assist the Centers for Medicare &
Medicaid Services (CMS) in developing criteria for assuring
appropriate and cost-effective use of LTCHs in the Medicare program.
The Medicare Payment Advisory Commission (MedPAC) recommended that
CMS examine patient and facility-level criteria to identify and
distinguish the role of these hospitals as a Medicare provider. This
project evaluated these criteria and scanned the environment to
identify feasible options for implementing these types of measures.
CMS has been particularly interested in the factors that distinguish
LTCHs from other acute care hospitals.

ES.2 The Project Approach

RTI completed this project in two phases. In Phase I, RTI
prepared a background report for CMS summarizing existing
information regarding LTCHs' current role in the Medicare system:
their history as Medicare participating providers, the types of
patients they treat, the criteria Quality Improvement Organizations
(QIO) currently use to review appropriateness of care in these
settings, and the types of regulations they face as Medicare
participating providers. This work reviewed prior analyses of these
issues and included discussions with MedPAC, other researchers, CMS,
the QIOs, and the hospital associations.
In Phase II, RTI collected additional information, including:
An examination of tools currently used by the QIOs and
the industry to assess patient appropriateness for admission;
Analysis of claims to understand variations in the LTCH
populations and differences between the LTCH populations and those
treated in other acute hospitals, particularly those that received
outlier payments for the longer stays;
Administration of site visits at eight LTCHs and 1
acute hospital to interview providers regarding the differences
between LTCH patients and those admitted to other hospitals or
treated in parts of the country lacking LTCHs.
In recognition of the heterogeneity of LTCHs, RTI worked with
each of the different associations, including the National
Association of Long Term Hospitals (NALTH), the Acute Long Term
Hospital Association (ALTHA), the American Hospital Association
(AHA), and the American Medical Rehabilitation Providers Association
(AMPRA), as well as several of the larger LTCH chains.
This report summarizes these efforts and makes recommendations
to CMS regarding the types of criteria needed to distinguish LTCHs
from other types of hospitals. These criteria will help define LTCH
patients on the basis of patient care needs or different levels of
care. They include both patient and facility-level measures. The
report is organized in six sections:
Section 1 summarizes the importance of, and the issues
in, defining criteria for LTCH payments.
Section 2 provides an overview of the industry growth
in recent years and an analysis of whether these changes are
occurring throughout all segments of the LTCH industry. Included
with these analyses are findings from past work on these issues.
Section 3 presents analyses of Medicare claims directed
at understanding the differences in resources, costs, and outcomes
for LTCH patients and similar cases treated in general acute
hospitals.
Section 4 focuses on existing level of care definitions
and summarizes the tools currently used to make level of care
determinations by QIOs, hospitals, and healthcare systems, including
those criteria applied in areas with and without local LTCHs.
Included are interviews with some of the Medicare QIOs as well as
analysis of existing tools, such as the InterQualTM level of care
determination tools.
Section 5 presents RTI's analysis of hospital margins,
both LTCH margins and general acute margins for certain types of
cases. DRG-specific analysis examines the relationship between
Medicare payments and hospital costs for certain types of cases.
Section 6 presents RTI's recommendations for
identifying cases that should qualify for LTCH payments. Fifteen
recommendations are included which focus on patient-level
characteristics, facility-level characteristics, issues related to
creating consistent standards across acute hospitals for these
medically complex patients, and additional administrative changes
that would improve CMS' ability to implement their payment policies.

ES.3 Section Summaries

Section 1: Introduction

This section presents the importance of defining LTCH criteria
to distinguish cases that qualify for the higher LTCH PPS payments.
Information is presented that compares the LTCH and IPPS rates, case
mix weights, and expected length of stay for each DRG. The two
hospitals are very similar in that LTCHs must meet acute hospital
certification requirements. However, LTCHs must have average
Medicare LOS of more than 25 days to qualify for the higher PPS
payment rate. The base LTCH payment rate is substantially higher
than the IPPS rate ($38,086 compared to $5,308 in 2007). While both
types of hospitals have payment factors to adjust for higher and
lower cost cases, such as short stay and high cost outliers, the
average cost episode is substantially higher when LTCHs are used as
part of the episode.
This section also compares the certification requirements of
LTCHs to other IPPS-

[[Page 4885]]

excluded hospitals. The Medicare conditions of participation set
staffing and patient management requirements for hospitals to ensure
that appropriate care is provided. For the IPPS-excluded hospitals,
these standards ensure that the provider can meet the specialized
needs of the populations they are treating, such as those required
by the acute physical rehabilitation or psychiatric populations.
Differences in expected patient severity, staff expertise, and
case mix measurement methods used for LTCHs, IPPS, IRFs, Psychiatric
hospitals, and SNFs are also presented. In general, the IPPS covers
the most severely ill cases in their ICU, the LTCHs admit cases that
are medically complex and equal to an ICU step-down unit in terms of
intensity and higher staffing needs, IRFs admit cases that are less
medically complex but highly acute in terms of their functional
impairments. Psychiatric hospitals and skilled nursing facilities
have the least medically complex admissions. The lines between each
group are poorly defined.

Section 2: LTCH Availability

This section presents information on the changing supply of
LTCHs. The number of LTCHs has grown markedly since the IPPS was
established in 1983. Much of the growth has occurred since 1993 when
the number of LTCHs exploded from 105 hospitals to the current
number of 383 hospitals as of December 2005. The states with the
highest number of facilities are also those with the highest number
of Medicare beneficiaries, including Texas, Louisiana, Ohio,
Pennsylvania, and Michigan to name a few. The number of states with
LTCHs has continued growing as well. Many of the new hospitals are
for-profit organizations which accounted for 58 percent of all
hospitals in December 2005, up from 45 percent in 1996. The greatest
growth was in the smaller hospitals with the opening of many
hospital in hospitals, although this may be changing in response to
Medicare co-location policies.
LTCH hospitals generally specialize in three types of
populations. The majority of cases are medically complex, many of
whom have respiratory conditions. A second, but smaller group are
those admitted for rehabilitation services. And a smaller group are
admitted for longer stay psychiatric services. Specialization in
different cases is notable by looking at the distributions of cases
admitted to each hospital. Respiratory-related, psychoses, and
ventilator cases accounted for the highest proportion of admissions
at most hospitals (averaging around 15 percent of all admissions/
facility). However, the medians were much lower except in the case
of ventilator admissions which accounted for 9.3 percent of
admissions at half the LTCHs in the US. Also notable are the small
proportion of hospitals that have a very high proportion of their
cases in certain DRGs. For example, DRG 430: Psychoses accounts for
62 percent of admissions in a few of the LTCHs.

Section 3: LTCH Populations, Potential Substitutes, and Patient
Differences Among Hospitals

This work has been useful for answering the questions identified
in Section 1, specifically whether there are differences between
LTCH cases and other inpatient cases in terms of the average program
payments, beneficiary use levels, and individual outcomes. The first
half of this section profiled the typical LTCH admission to examine
the types of cases treated in LTCHs, their associated program costs,
and this population's use of other services. The results showed that
many of the types of patients treated in LTCHs are also treated in
other acute care settings. While the most common LTCH admission is
DRG 475, the majority of these cases, nationally are treated in IPPS
settings, both as inlier and outlier populations. Similarly the
second most frequent LTCH admission, DRG 249 is admitted as a non-
outlier IRF patient or SNF patient almost as often as an LTCH
patient.
LTCH patients also use many services during an episode of care.
These cases are frequently readmitted to the general acute hospital
(about 40 percent of the time) and may have intervening stays at
IRFs or SNFs prior to readmission. Also included were comparisons of
the costs and use for patients in the same DRG groups who were
treated at other types of inpatient settings. Average costs per case
differed by type of setting.
The second part of this section examined the acute care
admissions to identify differences between the types of cases likely
to be admitted to an LTCH and other acute discharges in the same
diagnostic and severity group. The multivariate analysis of this
issue suggested that severity is an important predictor of LTCH use.
This supports past work suggesting that LTCH cases have a higher
severity level, although a large proportion are in APR-DRG group 3,
as well as group 4. Being located in a state with a large number of
LTCHs was the most important predictor of LTCH use, all else equal.
Examining the acute length of stay differences was also useful
for understanding the relative role of general acute and LTCHs in
treating these severely ill populations. The multivariate work
showed that LTCH users have a shorter acute inpatient length stay.
Understanding whether LTCH hospitals are substituting for services
already paid to IPPS hospitals or whether LTCHs are providing
specialized services is not well understood.
Better measures of acuity are needed to gauge the differences in
medical or functional impairments between patients using LTCHs and
those using other settings. Additional work in Phase 3 of this
project will examine the discharge transitions for acute hospital
discharges in areas that lack LTCHs. Using propensity score methods
to match patients on diagnosis, severity, and additional factors, as
well as control for differences in the availability of services will
be important for understanding the potential overlap between acute
and LTCH admissions.

Section 4: Determining Levels of Care

This section examines current standards in the Medicare program
and private sector for determining appropriate levels of care. We
explored three areas: 1) Current Medicare certification rules
governing acute, LTCH, IRF, and Psychiatric hospital conditions of
participation; 2) QIO and private sector definitions of populations
qualifying for different hospital and PAC sites of care; and 3)
QIO's current roles in reviewing appropriateness of hospital
admissions. This included interviewing 11 QIOs in states with both
LTCHs and other PAC providers.
The Medicare certification rules are important because they set
standards of practice to ensure appropriate quality of care is
provided to Medicare beneficiaries. While LTCHs must meet the acute
inpatient certification requirements, IRF and psychiatric hospitals
have additional requirements governing the management of their
patients and the types of staff they must employ. Both types of
IPPS-excluded hospitals are required to have a physician in charge
of an interdisciplinary team that includes professionals of varied
backgrounds, specific to the respective types of patients. Nursing
and therapy staff are expected to have relevant backgrounds in
psychiatric or rehabilitation services, respectively. They are to be
lead by a physician with ``appropriate training'' in the psychiatric
hospital or ``at least 2 years of rehabilitation training or
experience'' in the IRF.
They are also limited to admitting certain populations. All
psychiatric admissions must be admitted for psychiatric conditions
and must be actively treated or discharged. IRFs, on the other hand,
can admit a wide range of rehabilitation populations but 50-75
percent must be treated for one of 13 groups of conditions or the
IRF can lose its certification.
Patient level criteria were also examined. The Medicare program,
in general, does not specify patient level criteria for LTCHs. IRF
patients must be well enough to participate in 3 hours therapy/day,
in general. Psychiatric patients must be actively treated and not
just admitted for monitoring of a chronic condition. Both IRF and
psychiatric patients must be improving from treatment or be
discharged.
Primary responsibility for monitoring whether Medicare cases are
admitted to appropriate facilities rests with the Quality
Improvement Organizations (QIO). QIOs were interviewed regarding the
tools they use to assess appropriate admissions. Their formal charge
is to assess whether the services needed could be provided on a more
economical basis in an alternative setting. However, they do not
distinguish between types of acute settings.
The QIOS use several tools, although most use one developed by
the private sector and used by several other insurers, the InterQual
^TM tool. This tool is a set of clinical algorithms
intended to create mutually exclusive groups of cases for admission
to different types of hospitals (acute, LTCH, IRF, psychiatric), as
well as SNFs and ambulatory services, such as home health and less
intensive psychiatric services. These tools are guidelines for these
decisions with final decisions made by physicians or nurses,
depending on how complicated a case may be. In general, the
InterQual ^TM tool is a complex set of conditions and
treatment needs that identify ICU cases, less intensive hospital
cases, and other types of admissions. While this tool is widely used
by QIOs, they have not been using it to distinguish between

[[Page 4886]]

LTCH and general acute admissions nor do the criteria currently
distinguish between those two groups.
Some members of the LTCH industry have proposed criteria for
identifying their patients. However, these criteria lacked
specificity in several areas and like the InterQual ^TM
tool, failed to distinguish between general acute and LTCH
admissions. However, they suggested that all LTCH cases should be
medically complex, including any types of rehabilitation or
psychiatric cases.
Other parts of the industry suggested that LTCH admissions be
restricted to 8 types of cases commonly admitted to LTCHs. However,
these proposals failed to distinguish severity within these
conditions again, making no distinction between general acute and
LTCH severity.
Site visits at eight LTCHs and one acute hospital with a
respiratory ventilator unit were conducted to understand the
providers' perceptions of appropriate admissions to these settings.
Physicians at each site were interviewed regarding the differences
between the patients they treated and those treated in an acute
hospital ICU, medical/surgical floor, IRF, or SNF. The LTCH
physicians perceived themselves as specialists in treating these
very complicated patients. Many of the patients are having acute
exacerbations of chronic respiratory conditions, multi-system organ
failures, and other complications, including wounds and infections.
The hospitals provide interdisciplinary treatment teams with nurse
staffing levels that were lower than ICU but higher than general
units in acute hospitals. Many had ICUs, particularly the free-
standing facilities as patients often had emergent care needs,
particularly if they were being weaned from a ventilator. The LTCHs
consistently distinguished their admissions from ICU cases in that
they only admitted medically stable patients. They perceived the
acute hospitals' roles to be one of diagnosis and stabilization.
The acute hospital with a ventilator unit was very similar in
practice to an LTCH but was paid under the IPPS system. This unit
was a special unit where respiratory cases were admitted for higher
levels of monitoring than was available on the general floor and
interdisciplinary treatment teams cared for the patients. However,
anecdotal concerns were also raised about the cost of caring for
these difficult patients under the IPPS payment system.

Section 5: Medicare Margins Analysis

This section examined LTCH facility financial performance before
and after the introduction of PPS. We found that aggregate facility
total margins rose from 4.9% in FY 2002 to 8.9% in FY 2003, and
Medicare inpatient PPS margins rose from 1.9% to 8.3% in the same
period. In the first year of implementation, the inter-quartile
range on LTCH PPS margins was -0.2% to +17.1%. Facilities paid under
the phased-in rates and public LTCHs were disproportionately
represented at the lower end of the distribution. Many facilities
were able to improve their profitability by opting for 100% federal
rates in year 2, indicating that the base rate was set at a generous
level relative to average standardized cost per case.
Median facility PPS margins were highest among for-profits and
highest for those certified in recent years. Margins were lower for
those with a higher proportion of high-cost outliers. and--somewhat
surprisingly--lower for those with a higher proportion of very
short-stay outliers (stays less than one half the geometric mean
LOS).
Case-level margin analyses were conducted for claims in FY 2003
and 2004 that were paid under the 100% federal rate. Margins varied
substantially across DRGs, even after stratifying to remove the
effects of high-cost or short-stay outlier prevalence. Across the 10
most common reasons for admission, average margins were lowest for
those in Rehabilitation (-0.1%) and highest for those in Ventilator
Support (21.3%). Across all cases the aggregate margin was 12.4%,
but it was 17.4% for inlier cases, 13.8% for short-stay outlier
cases and -14.3% for high-cost outlier cases. The variation in
profitability across DRGs was even greater in multivariate models
that were able to control for fixed hospital-specific effects, as
well as outlier status.
In fiscal 2004, the median margin for LTCH Ventilator Support
cases was 23.1%. We found that in IPPS settings, the median for
cases in that same DRG 475 was 13.1%. The mean 1.4%, indicating some
cases had very large losses. There is an unusually large amount of
within-DRG variation in the IPPS setting; among the roughly half of
cases staying 10 days or less, the median margin was 42.6%, compared
to negative 27.1% for those staying 10 days or more. IPPS margins
were slightly lower for the Ventilator Support cases that
transferred to LTCHs than for those with other discharge
dispositions. Setting-specific profit differentials require further
study using a complete episode-of-care file, to adjust for changes
in DRGs across inpatient settings and to control adequately for
possible patient selection effects.
We conclude that underlying high LTCH profitability stems from a
generous base rate during the first two PPS years. However,
substantial variation in profitability across DRGs `` including the
unusually high margins that we found for Ventilator cases and other
respiratory-related DRGs `` stems from bias in the DRG weights that
causes systematic understatement of costs for cases using relatively
more ancillary services. This is a design problem within LTCH PPS
that can only be addressed with improved cost-based weights.

Section 6: Recommendations for Identifying Appropriate LTCH Cases

Based on the findings in this report, this Section provides
recommendations and discussions for developing patient level
criteria, facility level criteria, creating more consistency between
general acute and LTCH payment and certification rules, and several
administrative issues related to LTCH identification methods.
Complete discussions accompany each recommendation in Section 6.

A. Patient-Level Recommendations

Recommendation 1: Restrict LTCH admissions to cases that meet
certain medical conditions, including having a primary diagnosis
that is medical in nature, not function or psychiatric, and meeting
a certain level of medical complexity that reflects severely ill
populations.
Recommendation 2: Require LTCH Admissions to be discharged if
not having diagnostic procedures or improving with treatment, such
as those receiving long term ventilator management.
Recommendation 3: Develop a list of criteria to measure medical
severity for hospital admissions.
Recommendation 4: Establish a Technical Advisory Group.
Recommendation 5: Establish a data collection mechanism to
collect this information.
Recommendation 6: Require LTCHs to collect functional measures
as well as physiologic measures on all patients receiving physical,
occupational, or speech and language pathology services.

B. Facility Level Recommendations

Recommendation 7: Standardize conditions of participation and
set staffing requirements to ensure appropriate staff for treating
medically complex cases.
Recommendation 8: Keep the 25 day average length stay
requirement in place to limit LTCH's incentives to unbundle and
clearly delineate between general and long term acute patients.

C. Recommendations To Improve Consistency Between General Acute and
Long Term Acute Hospital Payment and Certification Policies

Recommendation 9: Allow LTCHs, like general acute hospitals, to
open certified, distinct-part rehabilitation and psychiatric units
if CMS finds that restricting LTCH admissions to the medically
complex cases results in access problems for IRF or psychiatric
patient populations.
Recommendation 10: Require LTCHs to meet the same regulatory
restrictions as general acute hospitals by limiting their allowance
to only one of each type of distinct-part unit.
Recommendation 11: Establish payment rules that provide a
disincentive for LTCHs to transfer cases early to other post acute
settings.
Recommendation 12: Conduct additional research to examine costs
associated with different segments of an acute episode for medically
complex patients. This should also include an examination of the
IPPS margins for common types of LTCH cases.

D. Administrative Recommendations

Recommendation 13: Establish a provider identification code for
satellite facilities and hospitals in hospitals (HIH).
Recommendation 14: Strengthen the requirement for parent
facilities to report satellite locations by requiring them to be
identified on the cost report.
Recommendation 15: Clarify QIO roles in overseeing
appropriateness of admissions of LTCHs.

[FR Doc. 07-392 Filed 1-25-07; 4:30 pm]
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