Federal Register, Volume 72 Issue 91 (Friday, May 11, 2007)

[Federal Register Volume 72, Number 91 (Friday, May 11, 2007)]
[Rules and Regulations]
[Pages 26870-27029]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-2206]

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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: Annual Payment Rate Updates, and Policy Changes; and
Hospital Direct and Indirect Graduate Medical Education Policy Changes;
Final Rule

Federal Register / Vol. 72, No. 91 / Friday, May 11, 2007 / Rules and
Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412 and 413

[CMS-1529-F]
RIN 0938-AO30

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

ACTION: Final Rule.

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SUMMARY: This final rule updates the annual payment rates for the
Medicare prospective payment system (PPS) for inpatient hospital
services provided by long-term care hospitals (LTCHs). The final
payment amounts and factors used to determine the updated Federal rates
that are described in this final 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
continue to be effective each October 1. The final outlier threshold
for July 1, 2007, through June 30, 2008, is derived from the LTCH PPS
rate year calculations. We are also finalizing policy changes which
include revisions to the GME and IME policies. In addition, we are
adding a technical amendment correcting the regulations text at Sec.
412.22.

EFFECTIVE DATE: These regulations are effective on July 1, 2007.

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).

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
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 the Provisions of the Final Rule
A. Summary of Major Contents of this Final Rule
B. Responses to Comments
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. Update of LTC-DRGs
1. Background
2. Method for Updating the LTC-DRG Relative Weights
3. 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
IV. 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. Market Basket Estimate for the 2008 LTCH PPS Rate Year
C. Standard Federal Rate for the 2008 LTCH PPS Rate Year
1. Background
2. Update to the Standard Federal Rate for the 2008 LTCH PPS
Rate Year
3. Standard Federal Rate for the 2008 LTCH PPS Rate Year
D. Calculation of LTCH Prospective Payments for the 2008 LTCH
PPS Rate Year
1. Adjustment for Area Wage Levels
a. Background
b. Geographic Classifications/Labor Market Area Definitions
c. Labor-Related Share
d. Wage Index Data
2. Adjustment for Cost-of-Living in Alaska and Hawaii
3. Adjustment for High-Cost Outliers (HCOs)
a. Background
b. Cost-to-charge ratios (CCRs)
c. Establishment of the 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. Budget Neutrality (BN) Offset to Account for the Transition
Methodology
6. One-time Prospective Adjustment to the Standard Federal Rate
V. Other Policy Changes for the 2008 LTCH PPS Rate Year
A. Short-Stay Outlier (SSO) Cases
1. Background
2. Additional Discussion of the SSO Payment Formula (Includes
Technical Correction)
3. Determination of Cost-to-Charge Ratios (CCRs)
4. Reconciliation of SSO Cases
B. Expansion of Special Payment Provisions for LTCH Hospitals
within Hospitals (HwHs) and LTCH Satellites: Expansion of the 25
Percent Rule to Certain Situations Not Currently Covered Under
Existing Sec. 412.534
VI. Computing the 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
D. Summary of Final Provisions
XIII. Technical Amendment
XIV. Collection of Information Requirements
XV. Regulatory Impact Analysis
A. Introduction
1. Executive Order 12866
2. Regulatory Flexibility Act (RFA)
3. Impact on Rural Hospitals
4. Unfunded Mandates
5. Federalism

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6. Alternatives Considered
B. Anticipated Effects of Payment Rate Changes
1. Budgetary Impact
2. Impact on Providers
3. Calculation of Prospective Payments
4. Results
5. Effects on the Medicare Program
C. Impact of Other Policy Changes
1. Effects of 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
2. Effects of Policy Change Relating to Payment for Direct
Graduate Medical Education (GME)
D. Accounting Statement
Addendum: Tables

Acronyms

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

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

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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 rate year). 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 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. In addition, 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,

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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
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

[[Page 26874]]

providers, to conduct the covered electronic transactions according to
the applicable transactions and code sets standards.

II. Summary of the Provisions of the Final Rule

A. Major Contents of This Final Rule

In this final rule, we are setting forth the annual update to the
payment rates for the Medicare LTCH PPS, as well as, other policy
changes. The following is a summary of the major areas that we have
addressed in this final 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 have established a BN
requirement for the annual update of the LTC-DRG classifications and
relative weights to reflect changes in relative LTCH resource use. This
requirement ensures that estimated aggregate LTCH PPS payments will not
decrease or increase as a result of the annual update to the LTC-DRG
classifications and relative weights based on the most recent available
data. In this section, we also summarize the proposed severity adjusted
MS-LTC-DRGs and the development of the proposed relative weights for FY
2008 presented in the FY 2008 IPPS proposed rule.
As discussed in section IV.C. of this preamble, we are implementing
a 0.71 percent update to the LTCH PPS Federal rate for the 2008 LTCH
PPS rate year based on an adjustment to account for changes in coding
practices. Also in section IV. of this preamble, we discuss the
prospective payment rate for RY 2008, and in section VI., we discuss
the applicable adjustments to the payment rates, including the
revisions to the wage index, the labor-related share, the cost-of-
living adjustment (COLA) factors, and the outlier threshold, for the
2008 LTCH PPS rate year.
In section V.A. of this preamble, we discuss our change to the
current payment formula for certain SSO cases. That is, those cases
with a LOS that is less than or equal to one standard deviation of the
ALOS of an IPPS discharge that was grouped into the same DRG. However,
in situations where the SSO cases would exceed the IPPS discharge that
was grouped in the same DRG, payment would continue to be paid under
the existing formula.
In section V.B. of this preamble, we discuss the expansion of the
present 25 percent admission policy at Sec. 412.534(c) to those
certain situations not already affected by the existing policy.
Previously, this policy only applied to co-located LTCHs and LTCH
satellites whose percentage of discharges exceeded the 25 percent
threshold (or the applicable percentage). This is extended to include
an adjusted payment to LTCH discharges that were admitted from
referring hospitals not co-located with the LTCH or the satellite of a
LTCH where those discharges exceed the 25 percent (or applicable
percentage) threshold. The final policy also applies to grandfathered
LTCHs and satellite facilities of LTCHs that have Medicare discharges
that were admitted from a hospital co-located with the LTCH or
satellite facility of the grandfathered LTCH.
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 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.
In section XII. of this preamble, we discuss our revisions 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 or substantially all'' of the costs for a
training program in a nonhospital setting in order to count FTE
residents training in the nonhospital setting for Medicare graduate
medical education (GME) payment purposes. We are revising 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 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 nonpatient care direct GME activities. In
addition, we are revising 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 XV. of this preamble, we analyze the impact of the
changes presented in this final rule on Medicare expenditures,
Medicare-participating LTCHs, and Medicare beneficiaries.

B. Responses to Comments

We received 270 comments on the RY 2007 LTCH PPS proposed rule.
Comments and responses follow the appropriate policy section in this
rule. The following is a comment we received regarding the schedule of
the LTCH PPS update.
Comment: One commenter urged CMS to consolidate the July 1 update
of the LTCH PPS rates and the October 1 development of the LTC-DRG
weights into one publication cycle, a step which the commenter states
would be very beneficial for the LTCH industry.
Response: We appreciate the commenter's suggestion and we will
evaluate whether such a consolidation is a workable alternative to our
present schedule.

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

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 resource
use 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. (As
discussed in greater detail below in this section, in the FY 2008 IPPS
proposed rule, we have proposed to adopt the severity-weighted patient
classification system, the proposed MS-LTC-DRGs, for the LTCH PPS
beginning in FY 2008, which is the same patient classification system
proposed for use under the IPPS for FY 2008.) 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.

[[Page 26875]]

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). A listing of the proposed composition of low volume quintiles
used in determining the proposed FY 2008 MS-LTC-DRG relative weights
appears in the FY 2008 IPPS proposed rule.) 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. Consistent with
our historical practice of having LTC-DRGs correspond to the DRGs
applicable under the IPPS, we will continue to model the LTCH-DRGs
after their predecessor CMS DRGs. In addition, we are proposing to use
the FY 2008 GROUPER Version 25.0 to be effective for discharges
occurring on or after October 1, 2007 through September 30, 2008.
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 (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/MACs 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, among others, 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.)
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/MAC 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 and added to existing CMS 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 on
October 1, nor will there be any impact on Medicare payments under the
LTCH PPS during the FY as a 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.
In the IPPS proposed rule, we proposed to create and implement MS-
DRGs for FY 2008; that is, the proposed MS-DRGs would be effective
beginning with discharges on or after October 1, 2007 through September
30, 2008. The proposed MS-DRGs are a severity-based system of DRGs in
which all existing CMS DRGs were refined to better recognize severity
of illness among patients. The details of this proposal can be reviewed
online at http://www.cms.hhs.gov/AcuteInpatientPPS/downloads/CMS-1533-P.pdf.
Under the broad authority of section 123(a) of the BBRA as modified
by section 307(b) of the BIPA, we intend to model the proposed MS-LTC-
DRGs on the corresponding CMS DRGs as described in the FY 2008 IPPS
proposed rule if this DRG system is implemented for the IPPS in FY
2008. In addition, as

[[Page 26876]]

stated above in this section, we intend to use the FY 2008 GROUPER
Version 25.0, effective for discharges occurring on or after October 1,
2007 through September 30, 2008 for the LTCH PPS if the IPPS system is
implemented for FY 2008.
To elaborate, if the proposed MS-DRGs are adopted for use by the
IPPS, the LTC-DRGs will use the same structure as the proposed MS-DRGs,
and will be referred to as the MS-LTC-DRGs. Cases will continue to be
classified into MS-LTC-DRGs using the six data elements listed above,
and will be subject to review by the MCE as they have in the past.
After screening through the MCE, claims will be classified into the
appropriate MS-LTC-DRG by the LTCH PPS GROUPER software. Following the
MS-LTC-DRG assignment, the Medicare FI/MAC determines the appropriate
payment using the Medicare PRICER program.

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). The proposed MS-DRGs, as defined
in the FY 2008 IPPS proposed rule, and the MS-LTC-DRGs contain base
DRGs that have been subdivided into one, two, or three severity levels.
The most severe level has at least one code that is a major CC,
referred to as ``with MCC''. The next lower severity level contains
cases with at least one CC, referred to as ``with CC''. Those DRGs
without an MCC or a CC are referred to as ``without CC/MCC''. When data
did not support the creation of three severity levels, the base DRG was
divided into either two levels or the base was not subdivided. The
proposed two-level subdivisions consist of one of the following
subdivisions:
With CC/MCC.
Without CC/MCC.
In this type of subdivision, cases with at least one code that is
on the CC or MCC list are assigned to the ``with CC/MCC'' DRG. Cases
without a CC or an MCC are assigned to the ``without CC/MCC'' DRG.
The other type of proposed two-level subdivision is as follows:
With MCC.
Without MCC.
In this type of subdivision, cases with at least one code that is
on the MCC list are assigned to the ``with MCC'' DRG. Cases that do not
have an MCC are assigned to the ``without MCC'' DRG. This type of
subdivision could include cases with a CC code, but no MCC.
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 MS-DRGs or MS-LTC-DRGs
recognize comorbid or complicating conditions in their definition. (For
example, proposed MS-DRG 069, Transient Ischemia (formerly CMS DRG 524,
Transient Ischemia), 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), we did
not adopt a new severity-adjusted patient classification system under
the IPPS, for FY 2007, but we did refine the CMS DRG patient
classification system for Version 24.0 of the GROUPER software to
improve the CMS DRG system's recognition of severity of illness for FY
2007. The updates to the CMS DRG patient classification system used
under the IPPS for FY 2007 (GROUPER Version 24.0), were also applied to
the LTC-DRGs used under the LTCH PPS for FY 2007.
In the FY 2008 IPPS proposed rule, we presented the changes to the
proposed MS-DRG patient classification system for FY 2008. In that
rule, we proposed the IPPS GROUPER Version 25.0 for FY 2008 to process
LTCH PPS claims for LTCH discharges occurring from October 1, 2007
through September 30, 2008. 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 in
Recommendation 1 of 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.

D. Update of LTC-DRGs

1. Background
We propose to modify the existing LTC-DRGs so that they reflect the
changes made to the CMS DRGs under the proposed IPPS notice. As
discussed in greater detail in the FY 2008 IPPS proposed rule, under
the LTCH PPS, relative weights for each proposed MS-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,
proposed MS-LTC-DRGs). To ensure that Medicare patients classified to
each proposed MS-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 proposed MS-
LTC-DRG that represents the resources needed by an average inpatient
LTCH case in that proposed MS-LTC-DRG. For example, cases in a proposed
MS-LTC-DRG with a relative weight of 2 will, on average, cost twice as
much as cases in a proposed MS-LTC-DRG with a relative weight of 1.
Under Sec. 412.517, the proposed MS-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 2008, the proposed MS-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 December 2006 update. The
proposed MS-LTC-DRG patient classification system is based upon 745 MS-
DRGs that formed the structure of the FY 2008

[[Page 26877]]

LTCH PPS GROUPER program. The FY 2008 proposed MS-LTC-DRGs continues to
include 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 proposed error MS-LTC-DRGs are MS-LTC-DRG 999 (Principal
Diagnosis Invalid as a Discharge Diagnosis) and MS-LTC-DRG 998
(Ungroupable). The other 743 proposed MS-LTC-DRGs are the same MS-DRGs
used in the IPPS GROUPER program for FY 2008 (Version 25.0).
For FY 2008, as discussed in greater detail in the FY 2008 IPPS
proposed rule, we proposed to adopt the MS-LTC-DRGs for the LTCH PPS
for RY 2008. (Additional information on the proposed MS-LTC-DRG
classifications and proposed MS-LTC-DRG relative weights can be found
in the FY 2008 IPPS proposed rule.)
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 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), the RY 2006 LTCH PPS final rule (70 FR
24172 through 24177), and the RY 2008 LTCH PPS proposed rule (72 FR
4783 through 4784).)
As discussed in the RY 2008 proposed rule (72 FR 4784), 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 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). As discussed above in this section, the next update to
the proposed MS-LTC-DRGs and relative weights for proposed FY 2008 will
be presented in the FY 2008 IPPS proposed rule. Furthermore, we will
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 established the use of Version 24.0 of the CMS GROUPER,
which is 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. 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. As we
have noted above, we are proposing to adopt the MS-LTC-DRGs for the
LTCH PPS for FY 2008. However, as discussed in the FY 2008 IPPS
proposed rule, this proposed change in the patient classification
system does not affect the basic principles of the development of
relative weights under a DRG-based PPS. For purposes of clarity, in the
general discussion below in which we describe the basic methodology of
the patient classification system in use since the start of the LTCH
PPS, we use the acronym ``MS-LTC-DRG'' to specify the proposed DRG
patient classification system to be used by the LTCH PPS in FY 2008.
Although the proposed adoption of the MS-LTC-DRGs would result in some
modifications of existing procedures for assigning weights (for
example, in cases of zero volume and/or nonmonotonicity, as discussed
below), the basic methodology for developing the proposed FY 2008 MS-
LTC-DRG relative weights presented in the FY 2008 IPPS proposed rule
continued to be determined in accordance with the general methodology
established in the August 30, 2002 LTCH PPS final rule (67 FR 55989
through 55991), which is discussed below. Therefore, in the discussion
below, the term ``LTC-DRGs'' will be used in descriptions of the basic
methodology established at the beginning of the LTCH PPS that will
remain unchanged if we adopt the proposed MS-LTC-DRGs. The use of the
term ``MS-LTC-DRGs'' in the following discussion will indicate a
discussion of specifics aspects of our proposed adoption of the
severity-weighted patient classification system for FY 2008 as
presented in the FY 2008 IPPS proposed rule.)
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 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 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

[[Page 26878]]

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 and their composition (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 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 section, 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 the Addendum to this final 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 effective October 1, 2007, will be presented in the IPPS FY 2008
proposed rule. Below we provide a summary of the development of the
proposed LTC-DRG relative weights for FY 2008 presented in that same
proposed rule. To calculate the proposed MS-LTC-DRG relative weights
for FY 2008 in the FY 2008 IPPS proposed rule, we obtained total
Medicare allowable charges from FY 2006 Medicare LTCH bill data from
the December 2006 update of the MedPAR file, which are the best
available data at this time, and we used the proposed Version 25.0 of
the CMS GROUPER used under the IPPS (as discussed in section II.B. of
the preamble of that proposed rule) to classify cases. To calculate the
final MS-LTC-DRG relative weights for FY 2008, we proposed that, if
more recent data are available (for example, data from the March 2007
update of the MedPAR file), we would use those data and the finalized
Version 25.0 of the CMS GROUPER used under the IPPS. We continued to
use total days and total charges in the calculation of the proposed MS-
LTC-DRG relative weights. We also continued to use the hospital-
specific relative value methodology, described above, for determining
the proposed MS-LTC-DRG relative weights for FY 2008.
As noted above in this section, although the proposed adoption of
the MS-LTC-DRGs would result in some modifications of existing
procedures discussed above for assigning relative weights under the
current system (as discussed in detail below), the basic methodology
for developing the proposed FY 2008 MS-LTC-DRG relative weights in the
FY 2008 IPPS proposed rule continue to be determined in accordance with
the general methodology established in the August 30, 2002 LTCH PPS
final rule (67 FR 55989 through 55991) summarized above. With the
implementation of the LTCH PPS for FY 2003, we established a procedure
to address setting relative weights for LTC-DRG ``pairs'' that were
differentiated on the presence or

[[Page 26879]]

absence of CCs (71 FR 47979). As discussed in the FY 2008 IPPS proposed
rule, our proposal to adopt a severity-based patient classification
system for the LTCH PPS, the MS-LTC-DRGs described above, required us
to adapt our existing approach for setting relative weights for the
severity levels within a specific base DRG. We are also proposed to
modify our existing methodology for maintaining monotonicity when
setting relative weights for the proposed MS-LTC-DRGs.
As under the existing procedure, under the proposed MS-LTC-DRGs,
for purposes of the annual setting of the relative weights, there
continue to be three different categories of DRGs based on volume of
cases within specific LTC-DRGs. LTC-DRGs with at least 25 cases are
each assigned a relative weight; low-volume proposed MS-LTC-DRGs (that
is, proposed MS-LTC-DRGs that contain between 1 and 24 cases annually)
are grouped into quintiles (described below) and assigned the weight of
the quintile. Cases with no-volume proposed MS-LTC-DRGs (that is, no
cases in the database were assigned to those proposed MS-LTC-DRGs) are
cross-walked to other proposed MS-LTC-DRGs based on the clinical
similarities and assigned the weight of the quintile that is closest to
the relative weight of the cross-walked proposed MS-LTC-DRG. (For in-
depth discussions of our proposals regarding proposed relative weight
setting for low-volume MS-LTC-DRGs and for no-volume MS-LTC-DRGs, see
the FY 2008 IPPS proposed rule.)
As noted above, for FY 2008, we are proposing to adopt the MS-DRGs
for use in both the LTCH PPS and the IPPS. While the LTCH PPS and the
IPPS use the same patient classification system, the methodology that
is used to set the DRG weights for use in each payment system differs
because the overall volume of cases in the LTCH PPS is much less than
in the IPPS. As a general rule, as described in the FY 2008 IPPS
proposed rule, we are proposing to set the weights for the proposed MS-
LTC-DRGs using the following steps: (1) If an MS-LTC-DRG has at least
25 cases, it is assigned its own relative weight; (2) if an MS-LTC-DRGs
has between 1 and 24 cases, it is assigned to a quintile to which we
will assign a relative weight; and (3) if an MS-LTC-DRG has no cases,
it is cross-walked to another DRG based upon clinical similarities and
assigned the appropriate relative weight. Theoretically, as with the
existing LTC-DRG system, cases under the proposed MS-LTC-DRG system
that are more severe require greater expenditure of medical care
resources and will result in higher average charges. Therefore, in the
three severity levels of the base MS-LTC-DRG, relative weights should
increase with severity, from lowest to highest. If the relative weights
do not increase (that is, if based on the relative weight calculation
using the most recent LTCH claims data, a proposed MS-LTC-DRG with MCC
would have a lower relative weight than one with CC, or the DRG without
CC/MCC would have a higher relative weight than either of the others),
there is a problem with monotonicity.
As discussed above in this section, to account for LTC-DRGs with
low volume (that is, with fewer than 25 LTCH cases), we group those
``low-volume LTC-DRGs'' (that is, DRGs that contained between 1 and 24
cases annually) into one of five categories (quintiles) based on
average charges, for the purposes of determining relative weights. As
discussed in the FY 2008 IPPS proposed rule, we proposed to continue to
employ this treatment of low-volume proposed MS-LTC-DRGs with a
modification to combine proposed MS-LTC-DRGs for the purpose of
computing a relative weight in cases where necessary to maintain
monotonicity in determining the proposed FY 2008 MS-LTC-DRG relative
weights using the best available LTCH data. In that proposed rule,
using LTCH cases from the December 2006 update of the FY 2006 MedPAR
file, we identified 307 proposed MS-LTC-DRGs that contained between 1
and 24 cases. This list of proposed MS-LTC-DRGs was then divided into
one of the 5 low-volume quintiles, each containing a minimum of 61
proposed MS-LTC-DRGs (307/5 = 61, with a remainder of 2 proposed MS-
LTC-DRGs). Consistent with our current methodology, we are proposing to
make an assignment to a specific low-volume quintile by sorting the
low-volume proposed MS-LTC-DRGs in ascending order by average charge.
(See the FY 2008 IPPS proposed rule for further explanation of the
development and composition of each of the 5 low volume quintiles for
FY 2007 and their proposed composition.)
As we noted previously, although the proposed adoption of the MS-
LTC-DRGs would result in some modifications of existing procedures for
assigning relative weights, the proposed FY 2008 MS-LTC-DRG relative
weights presented in Table 11 of the FY 2008 IPPS proposed rule are
based on the methodology established in the August 30, 2002 LTCH PPS
final rule (67 FR 55989 through 55991). In summary, as described in
greater detail in that same proposed rule, LTCH cases would be grouped
to the appropriate proposed MS-LTC-DRG, while taking into account the
low-volume proposed MS-LTC-DRGs as described above, before the proposed
FY 2008 MS-LTC-DRG relative weights can be determined. After grouping
the cases to the appropriate proposed MS-LTC-DRG, we proposed to
calculate the proposed relative weights for FY 2008 by first removing
statistical outliers and cases with a LOS of 7 days or less and to
adjust the number of cases in each proposed MS-LTC-DRG for the effect
of SSO cases under Sec. 412.529. The short-stay adjusted discharges
and corresponding charges are used to calculate ``relative adjusted
weights'' in each proposed MS-LTC-DRG using the HSRV method described
above.
Next we proposed to determine relative weights for the no-volume
proposed MS-LTC-DRGs. As discussed in the FY 2008 IPPS proposed rule,
of the 745 proposed MS-LTC-DRGs for FY 2008, we identified 124 proposed
MS-LTC-DRGs for which there were no LTCH cases in the database. That
is, no patients who would have been classified to those proposed MS-
LTC-DRGs were treated in LTCHs during FY 2006, and therefore, no charge
data were reported for those proposed MS-LTC-DRGs. Thus, in the process
of determining the proposed MS-LTC-DRG relative weights, we are unable
to determine weights for these 124 proposed MS-LTC-DRGs using the
methodology described above. However, because patients with a number of
the diagnoses under these proposed MS-LTC-DRGs may be treated at LTCHs
beginning in FY 2008, we are proposing to assign relative weights to
each of the 124 no-volume proposed MS-LTC-DRGs based on clinical
similarity and relative costliness to one of the remaining 621 (745-124
= 621) proposed MS-LTC-DRGs for which we are able to determine proposed
relative weights, based on FY 2006 LTCH claims data. In general, we
determined proposed relative weights for the 124 proposed MS-LTC-DRGs
with no LTCH cases in the FY 2006 MedPAR file used in this proposed
rule by cross-walking these proposed MS-LTC-DRGs to other proposed MS-
LTC-DRGs and then grouping them to the appropriate proposed low-volume
quintile. (A list of the proposed no-volume MS-LTC-DRGs and further
explanation of their proposed FY 2008 relative weight assignment can be
found in the FY 2008 IPPS proposed rule.) We also adjusted the proposed
MS-LTC-DRG relative weights to account for nonmonotonically increasing
relative weights, including any no volume

[[Page 26880]]

proposed MS-LTC-DRGs, where applicable, as described above.
Furthermore, for FY 2008 we proposed to establish proposed MS-LTC-
DRG relative weights of 0.0000 for the following transplant proposed
MS-LTC-DRGs: Heart transplant or implant of heart assist system w MCC
(proposed MS-LTC-DRG 1); Heart transplant or implant of heart assist
system w/o MCC (proposed MS-LTC-DRG 2); Liver transplant w MCC or
intestinal transplant (proposed MS-LTC-DRG 5); Liver transplant w/o MCC
(proposed MS-LTC-DRG 6); Lung transplant (proposed MS-LTC-DRG 7);
Simultaneous pancreas/kidney transplant (proposed MS-LTC-DRG 8); and
Pancreas transplant (proposed MS-LTC-DRG 10). As explained in the FY
2008 IPPS proposed rule, this is because Medicare will only cover these
procedures if they are performed at a hospital that has been certified
for the specific procedures by Medicare and presently no LTCH has been
so certified. If in the future a LTCH applies for certification as a
Medicare-approved transplant center, we believe that the application
and approval procedure would allow sufficient time for us to determine
appropriate weights for the proposed MS-LTC-DRGs affected. At the
present time, we would only include these seven proposed transplant MS-
LTC-DRGs in the GROUPER program for administrative purposes only.
Because we use the same GROUPER program for LTCHs as is used under the
IPPS, removing these proposed MS-LTC-DRGs would be administratively
burdensome. (See the FY 2008 IPPS proposed rule for further details on
the steps for calculating the proposed MS-LTC-DRG relative weights for
FY 2008.)
3. 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 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 discussed in the RY 2007 LTCH PPS proposed rule (72 FR 4784
through 4786), 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

[[Page 26881]]

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
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 noted in the RY 2008 LTCH PPS proposed rule (72 FR 4785) 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, as discussed in the RY 2008 LTCH PPS proposed
rule (72 FR 4785), 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 we believe changes in payment rates, including the LTC-
DRGs, should reflect such costs. Furthermore, in that same proposed
rule, we explained that 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.
Specifically, this LTCH CMI analysis shows that 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, showed 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

[[Page 26882]]

payments, as urged by past commenters, we stated in the RY 2008
proposed rule (72 FR 4785) that we had given further consideration to
the issue of establishing a BN requirement for annual LTC-DRG
reclassification and recalibration. Therefore, in that 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 proposed 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 would have been made without the LTC-DRG classification
and relative weight changes. Accordingly, we proposed to revise Sec.
412.517 to specify that annual changes to the LTC-DRG classifications
and the recalibration of the LTC-DRG relative weights would be made in
a budget neutral manner such that estimated aggregate LTCH PPS payments
are not affected.
Comment: Numerous commenters, including MedPAC, supported our
proposal to recalibrate the LTC-DRGs annually in a budget neutral
manner. Some commenters also recommended that we should monitor the
recalibration so that any reweighting of the LTC-DRGs is conducted in a
manner that does not result in a redistribution of payments from high
acuity DRGs to lower acuity DRGs, pending implementation of revised
certification criteria designed to screen out LTCH inappropriate
patients.
Response: We appreciate the commenters' support of our proposed BN
requirement for the annual LTC-DRG update. As discussed in the RY 2008
LTCH PPS proposed rule (72 FR 4785 through 4786), we explained that 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.
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 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 (as discussed
above in this section). 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).
In this final 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, beginning with the LTC-DRG update for
FY 2008 (discussed in greater detail below), the annual update to the
LTC-DRG classifications and relative weights will be done in a budget
neutral manner such that estimated aggregate LTCH PPS payments will be
unaffected, that is, will be neither greater than nor less than the
estimated aggregate LTCH PPS payments that would have been made without
the LTC-DRG classification and relative weight changes. Accordingly, we
are revising 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.
As discussed above, we believe that the most recent available LTCH
claims data reflects the intensity of resource use of the treatment of
Medicare patients based on current LTCH coding and treatment practices.
Accordingly, we believe that annually updating the LTC-DRG relative
weights using the most recent available LTCH claims data reflects more
or less resource use than the previous year's LTC-DRG relative weights
based on the current LTCH practices. Therefore, we believe that any
redistribution in payments as a result of the annual recalibration of
the LTC-DRG relative weights based on this updated LTCH claims data
appropriately reflects LTCH resource use in the treatment of their
Medicare patients. While we will continue to monitor LTCH data,
including any redistribution of payments upon the annual update of the
LTC DRGs, for the reasons discussed above, we are not adopting the
commenters' suggestion to establish a requirement that the annual
recalibration of the relative weights be done in a manner that would
adjust for redistribution of payments from high acuity LTC-DRGs to
lower acuity LTC-DRGs.
As we explained in the RY 2008 LTCH PPS proposed rule (72 FR 4786),
we intend to update the LTC-DRG classifications and relative weights
for FY 2008 based on the best available data

[[Page 26883]]

at the time to allow for changes in factors affecting hospital resource
use, including but not limited to, practice patterns and new
technology. This will 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 we will
continue to use the most recent available LTCH data, the updated LTC-
DRG relative weights will 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, the
updated LTC-DRG relative weights will need to be uniformly adjusted to
ensure that estimated aggregate LTCH PPS payments will not be affected.
That is, a BN factor will 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.
As discussed in the FY 2008 IPPS proposed rule, to accomplish BN
when annually updating the LTC-DRG classifications and relative weights
under revised Sec. 412.517, we proposed to use a method that is
similar to the methodology used under the IPPS. (Information on the
IPPS DRG BN adjustment can be found in the FY 2007 IPPS final rule (71
FR 47970).) As noted above, we proposed to adopt the MS-LTC-DRGs for
the LTCH PPS for FY 2008. Therefore, in the discussion that follows, we
will refer to the development of the proposed budget neutrality factor
in terms of the proposed MS-LTC-DRG severity-weighted patient
classification system. Specifically, after recalibrating the proposed
MS-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)), as described in greater detail in the FY 2008 IPPS
proposed rule, we would calculate and apply a normalization factor
(which will be published annually in the IPPS proposed and final rules
when we update the LTC-DRGs and relative weights) to the proposed MS-
LTC-DRG relative weights to ensure that estimated aggregate LTCH PPS
payments are not influenced by changes in the composition of case types
or changes made to the classification system. That is, the
normalization adjustment is intended to ensure that the recalibration
of the proposed MS-LTC-DRG relative weights (that is, the process
itself) neither increases nor decreases total estimated payments. To
calculate the normalization factor, we proposed to use the most recent
available claims data (FY 2006) and apply the proposed GROUPER (Version
25.0) to calculate the proposed MS-LTC-DRG relative weights. (We also
proposed to use the most recent available claims data in the analysis
for this final rule.) These weights were determined such that the
average CMI value is 1.0. Then, we proposed to group the same claims
data (FY 2006) using the current GROUPER (Version 24.0) and current
LTC-DRG relative weights. The average CMI was calculated for the claims
data using the current GROUPER and relative weights. Finally, the ratio
of the average CMI of the claims data set under the current GROUPER and
the proposed GROUPER was calculated as the proposed normalization
factor.
For FY 2008, based on the latest available data, the proposed
normalization factor is estimated as 1.020302, which was applied to
each proposed MS-LTC-DRG relative weight. (We also stated that if more
current data become available prior to publication of the final rule,
we will use those data to determine the normalization factor.) That is,
each proposed MS-LTC-DRG relative weight was multiplied by 1.020302 in
the first step of the BN process.
We are also proposed to ensure that estimated aggregate LTCH PPS
payments (based on the most recent available LTCH claims data) after
recalibration (the proposed relative weights) would be equal to
estimated aggregate LTCH PPS payments (for the same most recent
available LTCH claims data) before recalibration (the existing relative
weights). Therefore, we proposed to calculate the BN adjustment factor
by simulating estimated payments under both sets of GROUPERs and
relative weights. We proposed to simulate total estimated payments
under the current payment policies (RY 2007) using the most recent
available claims data (FY 2006) and using the proposed GROUPER (Version
25.0), and normalized relative weights. Then, we proposed to simulate
estimated payments using the most recent available claims data (FY
2006) and apply the proposed GROUPER (Version 25.0). We next calculated
payments using the same claims data (FY 2006) with the current GROUPER
(Version 24.0). The ratio of the estimated average payment under the
current GROUPER and the proposed GROUPER was calculated as the proposed
BN factor. Then each of the proposed normalized relative weights was
multiplied by the proposed BN factor to determine the proposed budget
neutral relative weight for each proposed MS-LTC-DRG. Accordingly,
based on the most recent available data, we proposed to apply a BN
factor of 1.003924 to the relative weights after normalizing. To
calculate the proposed MS-LTC-DRG relative weights for FY 2008, we
obtained total Medicare allowable charges from FY 2006 Medicare LTCH
bill data from the December 2006 update of the MedPAR file, which are
the best available data at that time. We also proposed that if more
current data become available prior to publication of the final rule,
we will use those data to determine the budget neutrality factor. The
proposed FY 2008 MS-LTC-DRG relative weights are presented in Table 11
in the Addendum of the FY 2008 IPPS proposed rule, which reflect the
budget neutral adjustment described above.
In the recently issued FY 2008 IPPS proposed rule, we proposed
significant refinements to the DRGs used under both the IPPS and LTCH
PPS to better recognize severity of illness among patients. The
proposed refinements would be effective October 1, 2007. The proposed
new MS-DRG and MS-LTC-DRG systems present opportunities to acute care
hospitals and LTCHs, respectively, to improve documentation and coding
to receive higher payments without a real increase in patient severity
of illness. The Office of the Actuary estimates an adjustment of -2.4
percent to the IPPS rates for each of FY 2008 and FY 2009 will be
necessary to account for the anticipated improvements in coding and
documentation. In the FY 2008 IPPS proposed rule, we proposed to apply
this -2.4 percent adjustment for case mix increase in FY 2008 and in FY
2009 in both the IPPS and LTCH PPS systems to address the proposed
change to the refined severity DRGs. It should be noted that this
adjustment is not related to the finalized budget neutrality adjustment
included in this LTCH final rule and discussed above. The budget
neutrality adjustment in this rule is an annual requirement that is
needed to assure that annual recalibration of the DRG weights based on
the most recent available claims data, results in no

[[Page 26884]]

changes (increase or decrease) in estimated payments that stem from
updating the DRG weights, while the proposed -2.4 percent adjustment
for FYs 2008 and 2009 is tied solely to the proposed change to the MS-
LTC-DRGs. Accordingly, each of the proposed MS-LTC-DRG relative weights
in Table 11 of the Addendum to the FY 2008 IPPS proposed rule reflects
this proposed adjustment. That is, each proposed MS-LTC-DRG relative
weight was multiplied by a factor of 0.976 to account for changes in
coding or classification of discharges resulting from the proposed
adoption of the new patient classification system. This proposed
adjustment is consistent with the proposed adjustment applied to the
proposed IPPS rates for FYs 2008 and 2009 to eliminate the effect of
changes in coding or classification of discharges that do not reflect
real change in case-mix because we believe that adoption of the
proposed MS-LTC-DRGs would create a risk of increased aggregate levels
of payment as a result of increased documentation and coding.

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 or the
proposed MS-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 coding scheme and the UHDDS, as recommended to the
Secretary by the National Committee on Vital and Health Statistics
(``Uniform Hospital Discharge Data: Minimum Data Set, National Center
for Health Statistics (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 or proposed MS-LTC-DRG assignment to request
review of that assignment of the discharge to an LTC-DRG or MS-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, which 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
CMS has 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

[[Page 26885]]

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 or proposed MS-LTC-DRG and produce inappropriate
weighting factors at the annual 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 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 will 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.

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

A. Overview of the Development of the Payment Rates

The LTCH PPS was effective beginning with 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 factors that will be used to update the
LTCH PPS standard Federal rate for the 2008 LTCH PPS rate year that
will 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 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).

[[Page 26886]]

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 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. 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 1st quarter 2007 forecast with history through the
4th 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 are finalizing
3.2 percent as the estimate of the RPL market basket for the 2008 LTCH
PPS rate year.
As discussed in greater detail in this section, for the 2008 LTCH
PPS rate year, we are updating the standard Federal rate by 0.71
percent. The 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.

C. 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

[[Page 26887]]

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. While we did not receive any comments regarding the update
framework during the public comment period for the RY 2008 LTCH PPS
proposed rule, 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
standard Federal rate for the 2008 LTCH PPS rate year. Specifically, we
explain our rationale, which is based on our ongoing monitoring
activities, for implementing 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.
2. 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 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 apply 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).
Comment: Many commenters urged us to provide the full market basket
update rather than finalize the proposed update factor of 0.71 percent.
Several commenters maintained that market basket is a measure of the
expected increase in price inputs for the upcoming year that raise the
cost of resources used in providing care to Medicare patients.
Furthermore, some commenters believed that an increase of less than the
market basket would not account for the costs of goods and services
required to deliver LTCH services and will result in rates below the
cost of care.
Response: As we have discussed previously in the RY 2007 final rule
(71 FR 27798), as well as throughout this section of the preamble of
this final rule, while we continue to believe that an update to the
2008 LTCH PPS rate year should be based on the most recent estimate of
the LTCH PPS market basket, we also believe it appropriate that the
rate be adjusted by an adjustment to account for changes in coding
practices. In essence, we updated the standard Federal rate for the
2008 LTCH PPS rate year by a factor (+3.2 percent) for the full market
basket in addition to applying a factor (-2.49 percent) to eliminate
the effect of coding or classification changes that do not reflect real
changes in LTCHs' case-mix during FY 2005. This adjustment is necessary
in order to account for payments that were made based on improved
coding (rather than increased patient severity) in a prior year.
We note that MedPAC had recommended a zero percent update for RY
2008 (March 2007 MedPAC Report to Congress, MedPAC Payment Policy,
Recommendation 3D, p. 221) and that the proposed update factor of 0.71
percent is higher than what MedPAC had believed appropriate at the
time. Therefore, we disagree with the comment that an increase of less
than the market basket would not account for the costs of goods and
services required

[[Page 26888]]

to deliver LTCH services and will result in rates below the cost of
care.
Comment: Several commenters noted that in addition to case mix,
other elements that would affect the price of inputs include wages,
drugs, products, and supplies; therefore, the commenters question our
use of ``case-mix as determinative of an appropriate market basket
increase.'' A commenter also noted that ``the market basket update is a
prospective measure of price inflation, and CMS provides no data
suggesting that prices will not increase by 3.2 percent over RY 2008.
CMS also does not provide any data showing that prices from 2004 to
2005 and from 2005 to 2006 (years included in the agency's case-mix
analysis) increased less than the market basket update amount for those
years.'' Consequently, the commenter believed that we have not
explained adequately how case mix changes are related to the market
basket to warrant a reduction in the full market basket.
Response: We believe these commenters misunderstood our approach in
applying the findings from our case mix analysis. First, we do not
disagree that the estimated market basket is a prediction of the
increase in the costs of goods and services in the coming year.
Accordingly, we have based the update to the standard Federal rate each
year since RY 2004 on the most recent estimate of the market basket.
For RY 2004 through RY 2006, the annual update to the LTCH PPS standard
Federal rate was equal to the most recent estimate of the market
basket. Beginning in RY 2007, our monitoring activities and CMI
analysis determined that a significant portion of the observed increase
in CMI between FY 2003 and FY 2004 is due to changes in coding
practices, rather than the treatment of more resource intensive
patients. Accordingly, we updated the standard Federal rate for RY 2007
based both on the full estimate of market basket and an adjustment to
account for the excessive payments that were made based on improved
coding (rather than increased patient severity) in a prior period
(between FY 2003 and FY 2004) which consequently resulted in a zero
percent update. This approach was replicated for RY 2008 which resulted
in a net update to the rate for RY 2008 of 0.71 percent.
Comment: Some commenters believed there is no regulatory basis for
CMS to adjust the market basket update to account for apparent case-mix
increase in a previous year. Specifically, a commenter wrote, ``Other
than the availability of data, CMS provides no logical explanation as
to why an estimation of the ``apparent'' increase in case-mix derived
from FY 2004 and FY 2005 claims should be applied to the market basket
increase in RY 2008.'' Furthermore, some commenters believed the
proposed update factor of 0.71 percent is not based on verifiable or
relevant data.
Response: Section 123 of the BBRA as amended by section 307(b) of
the BIPA conferred upon the Secretary broad discretion to determine the
standard rate and make appropriate adjustments to the system. We note
that while Sec. 412.523(c)(3) specifies the update to the standard
rate for each year since FY 2003, the regulations do not specifically
require that the Secretary automatically apply a market basket increase
to prospective years. On the contrary, the regulations are to be
updated each year to reflect any update to the standard rate as a
result of rulemaking. Furthermore, we consistently use the most recent
available data to determine the appropriate update factor. Accordingly,
for this final rule we used the most recent available data, including
the most recent estimate of the RPL market basket for July 1, 2007
through June 30, 2008, based on Global Insight's 1st quarter 2007
forecast with history through the 4th quarter of 2006, and the case-mix
data from FY 2004 compared to FY 2005, to establish the 0.71 percent
update factor.
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).
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 final rule, the CMI analysis performed in determining the
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 (FY 2005 LTCH claims data from
the March 2006 update of the MedPAR files) show 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. In the RY 2008 LTCH PPS proposed rule, we solicited 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. Although we did not
receive any comments suggesting alternative data sources that could be
used to determine a proxy for real LTCH PPS case-mix change, we did
receive comments pertaining to using 1.0 as the proxy for real case
mix.
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

[[Page 26889]]

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 utilize 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 are using 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).
Comment: Some commenters disagreed with our estimate of real case
mix increase which is based on a study of acute care hospitals
conducted by RAND using claims data from 1987 to 1988. The commenters
did not believe the old data from acute care hospitals is relevant to
LTCHs.
Response: As we have discussed numerous times in previous LTCH PPS
proposed and final rules, as well as in the previous section of this
preamble, we continue to believe that 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. The commenters did
not provide any alternative data sources to determine real case mix for
LTCHs. Accordingly, we continue to believe that it is appropriate to
utilize the same 1.0 percent factor to project real case mix for both,
the IPPS and the LTCH PPS.
Comment: Some commenters believed we proposed to use the more
conservative estimate of real case-mix increase (1.0 percent) rather
than the upper bound based on the RAND study (1.4 percent) without
sufficient justification. However, commenters agreed that we requested
comments on other data sources that could be used to determine a proxy
for real LTCH PPS case-mix changes. While we did not receive any
comments providing alternative data sources to determine real case-mix
increase, several commenters suggested that the best proxy for real
case-mix increase is the observed case-mix increase adjusted to
eliminate any provider with atypical case mix changes.
Response: We continue to believe that using the more conservative
1.0 percent (rather than the 1.4 percent) as a proxy for real CMI
increase is appropriate 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.
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 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 case-mix adjustment in determining the 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 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 to include appropriate adjustments,
including updates, in the establishment of the LTCH PPS, we are
revising 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 will be updated by 0.71 percent,
which is based on the most recent market basket estimate (3.2 percent)
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 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 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). In the RY
2008 LTCH PPS proposed rule, we solicited comments on a possible zero
percent update to the standard Federal rate for RY 2008. While most
commenters recommended a full market basket update, we did receive some
comments noting that in light of MedPAC's recommendation of a zero
percent update, the commenters were pleased that we did not propose to
implement a zero percent update and the commenters supported our
proposal of a 0.71 percent update.
Furthermore, since we are using 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 noted in
the proposed rule that at the time the analysis must be performed for
the final rule, we would 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 used in the
proposed rule. Therefore, we explained that the proposed update factor
applied to the standard Federal rate may change in the final rule.
At this time, the most recent estimate of the LTCH PPS market
basket remains at 3.2 percent, and based on FY 2005 LTCH claims data
from the March 2006 update of the MedPAR files, 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, also remains
at 2.49 percent. Additionally, since we did not receive any comments
suggesting alternative data sources to use in

[[Page 26890]]

determining a proxy for real case mix and for the reasons stated
previously, we are continuing to use 1.0 percent as the proxy for the
real case mix. Therefore, the RY 2008 update factor to the LTCH PPS
Federal rate will be 0.71 percent (3.2-2.49 = 0.71), which reflects the
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 specifying 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.
Comment: Numerous commenters stated that we have made changes to
the LTCH PPS in the last several years that have slowed the growth in
the number of new LTCHs and has controlled margins. The commenters
believe that the cumulative effect of these payment changes, including
the reweighting of the DRGs in October 2005 and October 2006, the
adoption of the original 25 percent rule, the adjustments to the SSO
policy, and a zero percent update for RY 2007, has been to bring LTCH
margins close to zero. With the addition of the proposed payment
changes for RY 2008, the commenters believe that payment to LTCHs will
be inadequate. Using our impact analysis table from the proposed rule
and MedPAC's estimated margins for FY 2007 as a base for comparison,
two commenters attempted to estimate LTCHs' margins for RY 2008. The
commenters asserted that, according to their analyses, estimated
margins for RY 2008 could be as low as -3.7 percent to -5.7 percent.
Numerous commenters expressed concern that the combined effect of
changes to the LTCH PPS (from the last 2 years, as well as the proposed
changes for RY 2008) would reduce reimbursement below the estimates of
costs. Furthermore, one commenter wrote, ``A fundamental premise of the
Medicare program and its payment systems is that Medicare should not
knowingly reimburse providers and suppliers below the cost of care.''
Response: We acknowledge that the changes to the payment system
implemented in the last several years have affected the LTCH industry.
In fact, we have observed that LTCHs adapt to our regulatory changes by
modifying their business model to maximize profitability while
operating under the new changes. For example, when we implemented the
25 percent (or applicable percentage) threshold payment adjustment in
FY 2005 for co-located LTCHs and satellites, we are aware that LTCHs
shifted emphasis from developing co-located facilities to developing
freestanding LTCHs. With the proposed expansion of the 25 percent (or
applicable percentage) threshold payment adjustment to apply to LTCH or
satellite patients that were admitted from referring hospitals not co-
located with the LTCH or the satellite of a LTCH, we anticipate that
LTCHs could adapt by increasing the number of admissions of patients
that are HCOs from referring hospitals (exempt from the 25 percent
rule). In addition, since LTCHs on average get 20 percent of their
discharges from sources other than acute care hospitals, it will be
possible for LTCHs to adapt by admitting more of those types of
patients, thus making it easier for a LTCH to stay within the
applicable threshold. We have also been informed by members of the LTCH
industry that in places where there are multiple acute care hospitals,
the LTCHs will be able to plan their discharges to assure that they do
not exceed the threshold.
Consequently, while the commenters have conducted margins analyses
based on current LTCH behaviors and assert that our changes may result
in negative margins, we do not believe this will prove to be the case.
Indeed, commenters made similar allegations in their objection to the
changes for RY 2007, and predicted that we would see many LTCHs put out
of business due to our drastically-changed policies. In actuality, we
did not see a drastic reduction in either the number of LTCHs or the
overall number of LTCH cases. Furthermore, reports in trade journals
suggest that certain members of the LTCH industry believe they are well
situated to expand in the future. Similarly, we believe LTCHs have the
ability to screen patients coming to a LTCH to assure that they are
truly LTC patients. However, in the case of the revised SSO policy, we
believe that a payment, for those patients that have a LOS comparable
to an IPPS patient for that DRG (that is, the IPPS comparable
threshold) at a level comparable to the IPPS payment, is an appropriate
payment.
3. 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 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, consistent with the proposed rule, we are
applying 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 update factor for
RY 2008 of 0.71 percent, the standard Federal rate for RY 2008 will be
$38,356.45. Since the 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 making any additional adjustments
in the standard Federal rate for these factors.

D. Calculation of 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.

[[Page 26891]]

In the final year of the 5-year transition period, which began 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. An 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 were 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. 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 an LTCH's cost reporting
period as shown in Table 1.

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

[[Page 26892]]

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.
In the RY 2008 LTCH PPS proposed rule (72 FR 4794), 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,
and consistent with our historical practice of using the best data
available, we proposed to update 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 3rd quarter of 2006. 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. We received no
comments on our proposal to update the LTCH PPS labor-related share.
Consistent with our historical practice of using the best data
available, we also proposed that if more recent data were available to
determine the labor-related share of the RPL market basket (used under
the LTCH PPS), we would use such data for determining the labor-related
share for the 2008 LTCH PPS rate year in the final rule. As discussed
above in section IV.B.2. of this preamble, we now have data from the
1st quarter of 2007 (with history through the 4th quarter of 2006).
Therefore, in this final rule, for RY 2008, we are using the FY 2002-
based RPL market basket costs based on data from the 1st quarter of
2007 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 will continue to be the sum of the relative importance of
each labor-related cost category, and will reflect the different rates
of price change for these cost categories between the base year (FY
2002) and the 2008 LTCH PPS rate year. Accordingly, 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 revising the LTCH PPS labor-related share from 75.665 percent to
75.788 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 1st quarter of
2007, as discussed below and shown below in Table 2.
Based on the most recent available data, 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) is 71.767, 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 is 8.742 percent of the FY 2002-based RPL market basket for the
2008 LTCH PPS rate year, we are multiplying the estimated portion of
capital influenced by the local labor market (46 percent) by the
relative importance for capital (8.742 percent) to determine the labor-
related share of capital for the 2008 LTCH PPS rate year. The result is
4.021 percent (0.46 x 8.742 percent), which we add to the 71.767
percent for the operating cost amount to determine the total labor-
related share for the 2008 LTCH PPS rate year. Thus, based on the
latest available data, we are establishing a labor-related share of
75.788 percent (71.767 percent + 4.021 percent) under the LTCH PPS for
the 2008 LTCH PPS rate year. As noted above in this section, this
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 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 RY 2008
Labor-Related Share Relative Importance of the FY 2002-Based RPL Market
Basket
------------------------------------------------------------------------
RY 2007 RY 2008
Cost category relative relative
importance* importance
------------------------------------------------------------------------
Wages and Salaries...................... 52.506 52.588
Employee Benefits....................... 14.042 14.127
Professional fees....................... 2.886 2.907
All other labor intensive services...... 2.152 2.145
-------------------------------
Subtotal............................ 71.586 71.767
Labor share of capital costs............ 4.079 4.021
-------------------------------
Total Labor-related share........... 75.665 75.788
------------------------------------------------------------------------
* 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.

[[Page 26893]]

d. 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 the RY 2008 proposed rule (72 FR 4795-4796), 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 proposed to use
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 to determine the
applicable wage index values under the LTCH PPS because these data (FY
2003) are the most recent complete data. We proposed to continue to use
IPPS wage data as a proxy to determine the 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 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 the RY 2008
proposed rule (72 FR 4849 through 4872).
We received no comments on the proposed LTCH wage index values that
would be applicable for discharges occurring on or after July 1, 2007
through June 30, 2008. Therefore, in this 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 determine appropriate adjustments
under the LTCH PPS, for the 2008 LTCH PPS rate year, we are using 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 to determine the
applicable wage index values under the LTCH PPS because these data (FY
2003) are the most recent complete data. We are continuing to use IPPS
wage data as a proxy to determine the LTCH wage index values for the
2008 LTCH PPS rate year for the reasons stated in the RY 2008 proposed
rule (as noted above). The LTCH wage index values that will 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 the Addendum to this final 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 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 the Addendum to this final 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 the
Addendum to this final 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 \1/5\\th\, \2/5\\ths\ and \3/5\\ths\
wage index values in Tables 1 and 2 in the Addendum to this final rule.
2. 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 the RY 2008 proposed rule (72 FR 4796), 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

[[Page 26894]]

LTCH PPS, for the 2008 LTCH PPS rate year we proposed to apply a COLA
to payments to LTCHs located in Alaska and Hawaii by multiplying the
proposed standard Federal payment rate by the factors listed in Table 3
of that proposed rule because those were the most recent available data
at that time. Those factors were obtained from the U.S. Office of
Personnel Management (OPM) and are currently used under the IPPS. In
addition, we proposed that if OPM released 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.
We received no comments on our proposed COLA factors for LTCHs
located in Alaska and Hawaii for RY 2008. However, we note that OPM
released revised COLA factors for certain areas in Alaska prior to
March 1, 2007. Specifically, OPM released revised COLA factors for the
city of Anchorage and 80-kilometer (50-mile) radius by road, the city
of Fairbanks and 80-kilometer (50-mile) radius by road, and the city of
Juneau and 80-kilometer (50-mile) radius by road. The COLA factors for
all other areas of Alaska were not revised from their current values.
(We note that currently there are no LTCHs located in Alaska.)
Therefore, in this final rule were are adopting the revised COLA
factors for those areas in Alaska, along with the proposed COLA factors
for the other areas of Alaska and Hawaii, for use under the LTCH PPS in
RY 2008. We note that the revised COLA factors for certain areas of
Alaska have been proposed for use under the IPPS for FY 2008, as
discussed in the FY 2008 IPPS proposed rule.
In this 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 determine appropriate adjustments under the LTCH PPS, for the
2008 LTCH PPS rate year we are applying a COLA to payments to LTCHs
located in Alaska and Hawaii by multiplying the standard Federal
payment rate by the factors listed below in Table 3 because these are
currently the most recent available data from OPM (as noted above).

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

------------------------------------------------------------------------
Alaska:
City of Anchorage and 80-kilometer (50-mile) radius by 1.24
road....................................................
City of Fairbanks and 80-kilometer (50-mile) radius by 1.24
road....................................................
City of Juneau and 80-kilometer (50-mile) radius by road. 1.24
All other areas of Alaska................................ 1.25
Hawaii:
Honolulu County.......................................... 1.25
Hawaii County............................................ 1.165
Kauai County............................................. 1.2325
Maui County.............................................. 1.2375
Kalawao County........................................... 1.2375
------------------------------------------------------------------------

3. 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 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

[[Page 26895]]

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 fiscal
intermediary (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. (We note that the proposed FY 2008 LTCH
PPS total CCR ceiling, that would be effective for discharges occurring
on or after October 1, 2007, was presented in the FY 2008 IPPS proposed
rule.)
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.) (We note that the proposed FY 2007 LTCH PPS Statewide
average total CCRs for urban and rural hospitals, that would be
effective for discharges occurring on or after October 1, 2007, were
presented in Table 8C of the FY 2008 IPPS proposed rule.)
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 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

[[Page 26896]]

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.
Comment: A commenter asked that we consider making an exception to
the outlier payment reconciliation requirements for the affected
hospitals by Hurricane Katrina because they would have experienced an
aberrant change in their CCR during the first and second cost reporting
periods that began on or after August 29, 2005.
Response: In order for a hospital to meet the requirements of
outlier reconciliation, a 10 percentage point change in a LTCHs CCRs
from the time of payment to the time of cost report settlement is
required in addition to SSO and HCO payment being greater then $500,000
for the cost reporting period being settled. Without further
explanation from the commenter, it is not clear what type of aberrant
changes to the CCR the commenter is referring. Changes to costs or
charges can either result in reducing or increasing a CCR in any given
cost reporting period. Based on the events of Katrina, we would
anticipate an increase in costs and a reduction in total charges as
effected hospitals probably experienced fewer discharges in the period
after Katrina. These types of changes would increase a hospital's CCR,
and therefore, a hospital would not owe CMS additional funds if a
hospital met the criteria for reconciliation. We also note that even if
a unique circumstance arose as a result of Hurricane Katrina and
resulted in a situation where a hospital would be required to pay CMS
as a result of a reconciliation, we believe the existing regulation may
allow us to consider the unique needs of this hospital, and no changes
to the existing regulations at Sec. 412.525(a)(4)(ii), Sec.
412.525(a)(4)(iv)(D), Sec. 412.529(c)(3)(ii), or Sec.
412.529(c)(3)(iv)(E).
c. Establishment of the 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

[[Page 26897]]

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 the RY 2008 LTCH PPS proposed rule (72 FR 4798 through 4799),
for the 2008 LTCH PPS rate year, we used the March 2006 update of the
FY 2005 MedPAR claims data to determine a 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 that
proposed rule, because those data are the most recent complete LTCH
data available. Consistent with our historical practice of using the
best data available, we also proposed that if more recent LTCH claims
data become available, we would to use it for determining the fixed-
loss amount for the 2008 LTCH PPS rate year in the final rule. In
addition, 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)).
In the RY 2008 LTCH PPS proposed rule (72 FR 4799), we proposed to
use 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, we also proposed
that if more recent CCR data are available, we would use it for
determining the fixed-loss amount for the 2008 LTCH PPS rate year in
the final rule. As we discussed in that same proposed rule, 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 noted that in determining the proposed fixed-loss
amount for the 2008 LTCH PPS rate year using the CCRs from the June
2006 update of 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).
Accordingly, based on the data and policies described in the RY
2008 LTCH PPS proposed rule, we proposed to apply a fixed-loss amount
of $18,774 for the 2008 LTCH PPS rate year. Thus, we proposed to 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).
In the RY 2008 LTCH PPS proposed rule (72 FR 4799 through 4800), we
noted that the fixed-loss amount for the 2008 LTCH PPS rate year is
higher than the current fixed-loss amount of $14,887. We also discussed
that we were not proposing to adjust the existing 8 percent outlier
target or 80 percent marginal cost factor under the current LTCH PPS
HCO policy at that time. However, we explained that 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.
Comment: While we received no comments in support of 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, some commenters expressed concern over the
impact of raising the fixed-loss threshold for HCOs to $18,774, an
increase of $3,887 over the RY 2007 threshold. According to one
commenter's analysis, the proposed fixed-loss threshold would mean that
26 percent of cases would no longer meet the HCO threshold for
receiving additional payments. Specifically, a commenter wrote,
``reducing access to HCO payments for this many cases is not
warranted.''
Response: As we explained in the RY 2008 LTCH PPS proposed rule (72
FR 4799), in addition to being based on the most recent available LTCH
data to estimate the cost of each LTCH case, the 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, in
conjunction with the proposed changes to the area wage adjustment and
the proposed changes to the LTC-DRG relative weights for FY 2007. In
that same proposed rule, we also explained that we believe that an
increase in the 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), because of the estimated
decrease in aggregate LTCH PPS payments for the 2008 LTCH PPS rate
year. Based on the regression analysis that was performed when we
implemented the LTCH PPS, 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 budget
neutrality.
Maintaining the fixed-loss amount at the current level would result
in HCO payments that exceed the current regulatory requirement that
estimated outlier payments would be projected to equal 8 percent of
estimated total LTCH PPS payments. In fact, our analysis shows that if
we were to keep the fixed-loss amount at the current amount of $14,887,
we project that estimated outlier payments would be over 10 percent of
total estimated LTCH PPS payments in RY 2008. As noted above, the
results of our regression analysis concluded that an outlier target in
excess of 8 percent would not allow us to achieve our stated goal of
the HCO policy of balancing the need to protect hospitals with costly
cases, while providing an incentive for hospitals to operate
efficiently.

[[Page 26898]]

We also note that we received no comments in support of revisiting
the regression analysis to evaluate whether current LTCH data would
support a change in the current HCO policy, such as increasing (or
decreasing) the outlier target. While we understand the commenter's
concern that raising the fixed-loss threshold would mean that fewer
cases would qualify to receive additional payments for extraordinarily
high cost, as discussed above, we would have to reduce the standard
Federal rate to account for the additional estimated outlier payments
that exceed the current 8 percent outlier target since outlier payments
are budget neutral. This would reduce payments to all LTCH cases, not
just those that would receive a HCO payment based on the amount of the
current fixed-loss threshold, which could result in inappropriately low
payment amounts for typical LTCH cases (as shown by our analysis of
payment-to-cost ratios when we developed the existing HCO policy when
we implemented the LTCH PPS (67 FR 56022 through 56027)).
In the RY 2008 LTCH PPS proposed rule (72 FR 4799 through 4800) as
an alternative to the proposal to raise the fixed-loss amount, we
discussed 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 equal 8
percent of estimated total LTCH PPS payments. We explained that when we
initially established the 80 percent marginal cost factor, 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 (67 FR 56022
through 56027).
In that same proposed rule, we also discussed that although
proposing to raise the fixed-loss amount from $14,887 to $18,774 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, 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 did not propose to
adjust the existing 8 percent outlier target or 80 percent marginal
cost factor under the LTCH PPS HCO policy at this time. We also noted
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)).
In conclusion, for the reasons discussed above in this section, we
continue to believe a marginal cost factor of 80 percent and an outlier
target of 8 percent best identifies LTCH patients that are truly
unusually costly cases. Furthermore, we still believe 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. Therefore, we are not making any changes to the marginal cost
factor or outlier target in that final rule. Consequently, in order to
maintain that estimated outlier payments are projected to be equal to 8
percent of estimated total LTCH PPS payments, as required under Sec.
412.525(a), under the broad authority of section 123(a)(1) of the BBRA
and section 307(b)(1) of BIPA, we are establishing a fixed-loss amount
of $22,954 based on the best available LTCH data and the policies
presented in this final rule (as described in greater detail below).
For the reasons discussed above, we believe a fixed-loss amount of
$22,954 would appropriately identify unusually costly LTCH cases while
maintaining the integrity of the LTCH PPS. We note that, as discussed
in the RY 2008 proposed rule (72 FR 4800), we intend to revisit a
budget neutral policy change in the outlier policy (among other
things), which would affect future LTCH PPS payment rates, 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.
In this final rule, as we proposed and consistent with our
historical practice of using the best data available (as noted above),
for the 2008 LTCH PPS rate year, we used the December 2006 update of
the FY 2006 MedPAR claims data to determine a 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 final rule, because these data are the most recent complete LTCH
data available. Furthermore, as noted previously, we determined the
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)).
In addition, as we proposed and consistent with our historical
practice of using the best data available (as noted above), we used
CCRs from the December 2006 update of the PSF for determining the
fixed-loss amount for the 2008 LTCH PPS rate year as they are currently
the most recent complete available data. As we discussed above in this
section, 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, as proposed, in determining the 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 fixed-loss amount for the 2008 LTCH PPS rate year
using the CCRs from the December 2006 update of 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 final
rule, we are applying a fixed-loss amount of $22,954 for the 2008 LTCH
PPS rate year. Thus, we will 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 payment for the LTC-DRG
and the fixed-loss amount of $22,954). As discussed above, the fixed-

[[Page 26899]]

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 (as
discussed in detail below in this section), this change in the fixed-
loss amount is due to the projected decrease in estimated aggregate
LTCH PPS payments that is expected to result from the revision to the
SSO policy under Sec. 412.529 (discussed in greater detail in section
V.A.2. of this preamble), in conjunction with the 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)). Specifically, as discussed in greater detail in the impact
analysis presented in section XV.B.4. of this final rule, we are
projecting that the changes presented in this final rule will result in
an estimated 3.8 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 0.71 percent update to the Federal rate
(discussed in section IV.C. of this preamble) will result in an
increase in estimated payments per discharge in RY 2008 as compared to
RY 2007, this increase will be offset by the projected decrease in
estimated payments per discharge from RY 2007 to RY 2008 of 0.9 percent
due to the revision to the SSO policy and a projected decrease in
estimated payments per discharge from RY 2007 to RY 2008 of 1.0 percent
due to the changes to the area wage adjustment (including the
progression of the established phase-in of that adjustment). We also
project an estimated 2.5 percent decrease in estimated payments per
discharge from RY 2007 to RY 2008 due to the changes in the fixed-loss
amount resulting from the use of more recent LTCH data to estimate the
cost of each LTCH case.
We also note that the final fixed-loss amount for RY 2008 of
$22,954 is higher than the proposed fixed-loss amount for RY 2008 of
$18,778. This change in the fixed-loss amount is primarily due to the
updated LTCH data (that is, LTCH claims data and CCR data) used in
determining the fixed-loss amount. That is, to determine the proposed
fixed-loss amount for RY 2008, we used claims data from the March 2006
update of the FY 2005 MedPAR file and CCRs from the July 2006 update of
the PSF, as that was the best available data at that time.
However, to determine the fixed-loss amount for RY 2008 in this
final rule, the most recent available data are the December 2006 update
of the FY 2006 MedPAR claims data and the CCRs from the December 2006
update of the PSF. Our analysis of the data showed that, in general,
the average cost per case has increased in the FY 2006 claim data as
compared to the FY 2005 claims data, which if we had kept the fixed-
loss amount at $18,778 would have caused the HCO target to exceed 8
percent. In fact, our analysis shows that if we were to keep the
proposed fixed-loss amount of $18,774, we project that estimated
outlier payments would be over 10 percent of total estimated LTCH PPS
payments in RY 2008. As discussed at length above, when we implemented
the LTCH PPS, under the HCO policy we established the outlier target at
8 percent of estimated total LTCH PPS payments to allow us to achieve a
balance between the need to protect hospitals with costly cases, while
providing an incentive for hospitals to operate efficiently, and an
outlier target in excess of 8 percent would not allow us to achieve
this goal. In fact, our analysis shows that if we were to keep the
proposed fixed-loss amount of $18,774, we project that estimated
outlier payments would be over 10 percent of total estimated LTCH PPS
payments in RY 2008. As discussed at length above in this section, when
we implemented the LTCH PPS, under the HCO policy we established the
outlier target at 8 percent of estimated total LTCH PPS payments to
allow us to achieve a balance between the need to protect hospitals
with costly cases, while providing an incentive for hospitals to
operate efficiently, and an outlier target in excess of 8 percent would
not allow us to achieve this goal. Consequently, the fixed-loss amount
is increased to maintain the HCO target at 8 percent. Furthermore,
although in the past we have found LTCHs' CCRs have been relatively
stable, in establishing the fixed-loss amount for RY 2008, we noticed
that the CCRs used to estimate cost per case are more volatile in
recent years. This causes us concern, and therefore, we intend to
monitor LTCHs' CCRs in the future. As specified at Sec.
412.525(a)(4)(iv)(D), HCO payments are subject to the outlier
reconciliation process described below in this section.
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 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

[[Page 26900]]

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.
Comment: One commenter requested that we clarify how we interpret
the 10 percentage point criterion of the SSO and HCO reconciliation
policy.
Response: We did not propose any changes to the current
reconciliation policy. Therefore, we do not believe this final rule is
the appropriate vehicle to address this comment. As we have stated, we
intend to issue subregulatory guidance on LTCH reconciliation that
would be similar to the IPPS reconciliation process and would address
the commenters question at that time.
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 will be 80 percent of the difference between the
estimated cost of the case and the outlier threshold (the sum of the
fixed-loss amount of $22,954 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 the RY 2008 LTCH PPPS proposed rule (72
FR 4801), we did not propose to make any adjustments for geographic
reclassification, rural location, DSH, or IME. However, we noted that
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. We also reiterated our belief 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).
Therefore, in this final rule, we are not making any adjustments
for geographic reclassification, rural location, DSH, or IME under the
LTCH PPS for RY 2008. As noted above, 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. We
plan 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) after the conclusion of the 5-year transition to 100
percent of the Federal rate under the LTCH PPS.
5. 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 provided 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 and inflation factors, was based on our

[[Page 26901]]

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 LTCHs 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, as discussed in the
RY 2008 LTCH PPS proposed rule (72 FR 4802), based on the most recent
available data at that time 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, in that same proposed rule, we
explained that 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, we did not propose 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.
We received no comments on this proposal, and based on the most
recent available data from the December 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). 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 final rule, based on updated data and
using the same methodology established in the August 30, 2002 final
rule (67 FR 56034), we are not implementing 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

[[Page 26902]]

for the 2011 LTCH PPS rate year. In the RY 2008 LTCH PPS proposed rule
(72 FR 4802 through 4803), 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 $4.65 billion for
the 2008 LTCH PPS rate year; $4.84 billion for the 2009 LTCH PPS rate
year; $5.02 billion for the 2010 LTCH PPS rate year; $5.24 billion for
the 2011 LTCH PPS rate year; and $5.48 billion for the 2012 LTCH PPS
rate year.
In this final 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 payments ($ in
LTCH PPS rate year billions)
------------------------------------------------------------------------
2008...................................... $4.65
2009...................................... 4.85
2010...................................... 5.04
2011...................................... 5.25
2012...................................... 5.50
------------------------------------------------------------------------

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 forth at Sec. 412.533(a)). These
estimates are also based on our estimate of LTCH PPS rate year payments
to LTCHs using CMS's 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, 3.2 percent for the 2009 LTCH PPS rate year, 2.8 percent for
the 2010 LTCH PPS rate year, 3.1 percent for the 2011 LTCH PPS rate
year, and 3.2 percent for the 2012 LTCH PPS rate year. (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 -0.1 percent in the 2008 LTCH PPS rate year,
0.7 percent in the 2009 LTCH PPS rate year, 0.3 percent in the 2010
LTCH PPS rate year, 0.6 percent in the 2011 LTCH PPS rate year, and 1.1
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

[[Page 26903]]

adjustment will entail a thorough review of the actual Medicare costs
incurred by LTCHs during the first 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 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.
As we discussed in the RY 2008 LTCH PPS proposed rule (72 FR 4804),
we continue to believe that collecting and evaluating new data as it
becomes available will allow us to have the best data from the first
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 explained that the October 1, 2006 deadline established Sec.
412.523(d)(3) was 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, in the
RY 2008 LTCH PPS proposed rule, we did not propose to make a one-time
adjustment under Sec. 412.523(d)(3) since 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 (as discussed in greater
detail above in this section).
Comment: We received a few comments in support of waiting another
year (that is, until RY 2009) to make the one-time BN adjustment to
benefit from the availability of better data. However, some other
commenters noted that considering all of the payment adjustments we
have made to the LTCH PPS since it was implemented on October 1, 2002,
there is no need for a one-time BN adjustment to ensure that aggregate
payments under the LTCH PPS would equal approximately the amount that
would have been paid to LTCHs under TEFRA had the LTCH PPS not been
implemented.
Response: We agree with the commenters that any one-time adjustment
under Sec. 412.523(d)(3) should be based on the most complete and up-
to-date data available for a comprehensive analysis of the actual
Medicare costs incurred by LTCHs during the first year of the LTCH PPS.
As discussed in greater detail above, given the lag time required for
typical cost report settlement and the lag time in data availability,
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.
Specifically, we expect that we will 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
standard Federal base payment rate by July 2007, and any proposed
adjustment under Sec. 412.523(d)(3), if finalized could then be
implemented on July 1, 2008.
We recognize that there have been many changes to the payment rates
and policies under the LTCH PPS since its implementation over 5 years
ago. Many of these changes have been implemented as a result of our on-
going monitoring of LTCH data and changes in LTCHs' behavior in
response to the implementation of the LTCH PPS. As discussed above, the
purpose of the one-time adjustment under Sec. 412.523(d)(3) is to
prevent any significant difference between actual payments and
estimated payments from the first year of the LTCH PPS, when we
established the budget neutral Federal rate as required by the statute,
from being perpetuated in the PPS rates for future years. As discussed
above, our methodology for estimating payments for the purposes of BN
calculations when the LTCH PPS was implemented used the best available
data and necessarily reflects assumptions in estimating aggregate
payments that would be made if the LTCH PPS was not implemented. To the
extent that those assumptions significantly differ from actual
experience, the aggregate amount of actual payments may result in
significantly higher or lower payments than the estimates upon which
the BN calculations were based. Therefore, we established in
regulations at Sec. 412.523(d)(3) the possibility of a one-time
prospective adjustment to the LTCH PPS rates to prevent any significant
difference between actual payments and estimated payments from being
perpetuated in the LTCH PPS rates for future years (as described in
greater detail above in this section). Among the changes that have been
made to the LTCH PPS since its implementation include updates to the
standard Federal rate as set forth under Sec. 412.523(c)(3). We note
that we will take into consideration such changes

[[Page 26904]]

when we evaluate the most recent complete available data for the
purposes of determining whether to propose a one-time prospective
adjustment to the LTCH PPS rates under Sec. 412.523(d)(3) in the RY
2009 proposed rule.
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 final
rule, we are not making a one-time adjustment under Sec. 412.523(d)(3)
at this time.

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

A. Short Stay Outlier (SSO) Cases

1. Background
In the Prospective Payment System for LTCHs: Implementation and FY
2003 Rates final rule (67 FR 55954, August 30, 2002) (hereinafter
referred to as the FY 2003 LTCH PPS final rule), 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 in the FY 2003 LTCH PPS final rule 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 FY 2003 LTCH PPS final rule, we stated that when
we first described the policy, in the Prospective Payment System for
LTCHs: Implementation and FY 2003 Rates proposed rule (67 FR 55995,
March 27, 2002), ``* * * 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''. 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 FY 2003 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 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

[[Page 26905]]

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 LTCH
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 more appropriately be
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 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. 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

[[Page 26906]]

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. 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.
MedPAR data indicate 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.'' (71 FR 27857) 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.

Table 5.--HCO LOS, ICU/CCU LOS, and Post-ICU/CCU LOS for Selected Inpatient DRGs by Post-discharge Status
[Live discharges only]
----------------------------------------------------------------------------------------------------------------
Outlier
DRG Cases LOS ICU/CCU Post ICU/
days CCU 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 focused on those SSO cases
where a LTCH patient's covered LOS at the LTCH is less than or equal to
the ALOS 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.'' In the RY 2008 LTCH PPS proposed rule, we stated that an
alternative payment option would be appropriate for such a case. We
indicated that we were considering the following approach: in cases
where 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 noted that the RTI Report discussed in Section XI. of the RY
2008 LTCH PPS proposed rule (72 FR 4818) included 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 also included the Executive Summary of
the RTI Report as

[[Page 26907]]

Addendum B in the RY 2008 LTCH PPS proposed rule (72 FR 4884).)
Under the approach that we discussed in the RY 2008 LTCH PPS
proposed rule, SSO cases with covered lengths of stay exceeding 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).)
However, 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
payment formula at existing Sec. 412.529(c)(2)(iv). We indicated that
we believed this approach to be appropriate because it would 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.
However, we also indicated that, in considering this policy
direction, we did 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). Therefore, in the RY 2008 LTCH PPS
proposed rule (72 FR 4807), we indicated that 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 included a column in Table 3 of Addendum A of the RY 2008 LTCH PPS
proposed rule (72 FR 4872 through 4884), which set forth the IPPS-
comparable threshold for each LTC-DRG. We noted that to determine the
``IPPS Comparable Threshold'' for some DRGs it was sometimes 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 noted
that we could assign a value of zero for the ``IPPS Comparable
Threshold'' for these LTC-DRGs. This approach was 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 of
this final rule.
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.
In the RY 2008 LTCH PPS proposed rule, we solicited comments on the
approach described above, as well as suggestions as to alternative ways
in which to address our concerns.
We received many comments on the possible revision to the SSO
policy that we discussed in the proposed rule. The commenters expressed
the views of trade associations representing LTCHs, both for-profit and
not-for-profit LTCH groups, medical corporations that include LTCHs,
State medical societies, a Chamber of Commerce, legislators, physicians
and other hospital staff, and several interested citizens. In general,
commenters did not support the policy approach that we discussed and
the payment effects that would result for LTCHs if the policy were
adopted.
Comment: A number of commenters stated that the IPPS-comparable
option that we discussed for payment under the SSO policy would be a
violation of the express will of the Congress in establishing the
category of hospitals that were excluded from the IPPS under section
1886(d)(1)(B) of the Act. In addition, these commenters stated that
under that provision the Congress acknowledged that these excluded
hospitals (that is, LTCHs, IRFs, IPFs, childrens hospitals, and cancer
hospitals) could not reasonably be paid under a PPS system that had
been designed to pay for treatment in acute care hospitals. Further,
these commenters stated that the approach we discussed would violate
the intent of the Congress (that is, as expressed in the BBRA of 1999
and the BIPA of 2000) to establish a unique PPS that is specific to
LTCHs.
Some of these commenters claimed that the proposed IPPS-comparable
option to the SSO payment policy would be forbidden under the statute
because such a payment option would ignore the ``differences in patient
resource use and cost'' at LTCHs. Some commenters criticized our use of
the phrase ``a payment otherwise comparable to what would have been
paid under the IPPS'' as a disingenuous attempt to ``side-step'' the
Congressional mandate that the LTCHs not be paid based on the acute
care IPPS. Generally, commenters expressed the view that, if we adopted
the approach described in the RY 2008 LTCH PPS proposed rule, we would
be violating the statutory intent that LTCHs be excluded from the IPPS
in adopting the proposed IPPS-comparable payment adjustment under the
revised SSO policy.
Some commenters specifically cited the Court's two-prong test for
validity of a regulation established under Chevron U.S.A., Inc. v.
Natural Resources Defense Counsel, Inc. 467 U.S. 837, 842-843 (1984),
and asserted that the policy we discussed would fail to pass that test.
Under the ruling, the Court asks whether the Congress addressed, in
clear language, the issue in question and, if the answer is
affirmative, the effect is given to the ``unambiguously expressed
intent of the Congress.'' If the ``statute is silent or ambiguous with
respect to the specific issue,'' the Agency's interpretation is allowed
to stand as long as it is based on a permissible construction of the
statute.'' Id. at 843. Deference to the Agency's interpretation is
``only appropriate when the agency has exercised its own judgment'' and
is not based upon an erroneous view of the statute. Commenters asserted
that the adoption

[[Page 26908]]

of the revised SSO policy that we discussed would clearly violate the
statutory requirement to pay LTCHs under a PPS separate and distinct
from the IPPS.
Response: We disagree with commenters' contention that the LTCH PPS
SSO policy that we described in the RY 2008 LTCH PPS proposed rule,
based on an IPPS comparable payment amount, constitutes payment under
the IPPS. Rather, the policy that we discussed adapts methodologies and
approximate payment amounts from the IPPS to specific cases under the
LTCH PPS. We have adapted many different features originally developed
under the IPPS for use in the LTCH PPS, including the DRG structure,
wage index adjustments (and wage index values), outlier payments, and
many others. We believe that none of these adaptations constitute
establishment of payment under the IPPS for LTCH hospitals.
In addition, section 123 of the BBRA, as amended by section
307(b)(1) of the BIPA, confers broad discretionary authority on the
Secretary to develop and implement a PPS for LTCHs, specifically
mandating a few specific features of the new system including ``a per
discharge prospective payment system'' that includes an ``adequate
payment classification system'' based on diagnosis-related groups
(DRGS) that reflects the differences in patient resource use and costs,
and shall maintain budget neutrality.'' Section 307(b)(1) of the BIPA
further provides that the Secretary ``may provide for appropriate
adjustments to the long-term hospital payment system, including * * *
outliers * * * '' We believe that these statutory provisions provide
broad authority and allow the Secretary great 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 instant case, the SSO policy that we discussed in
the RY 2008 LTCH PPS proposed rule utilizes principles from the IPPS
payment methodology and builds upon those concepts to create a LTCH PPS
payment adjustment that results in an appropriate payment for those
inpatient stays that we believe do not necessarily belong in LTCHs but
could be treated in another setting. In this final rule, we are
adopting the approach we discussed to supplement our existing SSO
policy. Therefore, we disagree with commenters that the Secretary is
acting in contradiction of the statute and inconsistently with the
Chevron doctrine. On the contrary, we believe that this policy is
consistent with the direction given to the Secretary by the Congress in
the BBRA. The Congress specifically provided for the adoption of
appropriate adjustments to the LTCH PPS.
Comment: Several commenters similarly objected that adopting the
policy we discussed in the proposed rule would constitute a violation
of the Administrative Procedures Act (APA). Specifically, these
commenters objected that our discussion of the policy failed to satisfy
the APA's requirement that a notice of proposed rulemaking include
``the terms or substance of the proposed rule'' because we did not
provide ``specific regulatory language to implement'' the policy.
Commenters contended that, in the absence of this specific regulatory
language, interested parties are ``improperly limited in the degree to
which they are able to participate in the rulemaking process,'' even if
CMS receives comments on the policy discussed.
Response: We do not agree that adopting the policy approach
discussed in the proposed rule, in this final rule, would constitute a
violation of the APA. Specifically, we believe that we have complied
with all the applicable requirements in 5 U.S.C. 553. Among the
requirements of section 553, the notice shall include the terms or
substance of the proposed rule, or a description of the subjects or
issues involved. Our comprehensive discussion in the proposed rule set
forth the substance of the final SSO policy we are adopting in this
final rule and provided a complete description of the subject and
issues involved. Therefore, we believe we satisfied this and all other
applicable APA requirements. Our discussion of the policy in the RY
2008 LTCH PPS proposed rule that we are adopting in this final rule was
detailed and specific, and even detailed the impact the change would
have on payments to LTCHs, despite the absence of regulatory language.
We received 270 comments on the RY 2008 LTCH PPS proposed rule. As is
evident in our detailed discussion of these comments, commenters were
able to provide complex, specific, and pertinent discussion of ``the
terms or substance'' and ``description of the subjects and issues
involved'' of the policy that we discussed.
It may be worth noting that, despite the absence of proposed,
formal regulatory text, a number of commenters (including some who
raised this objection) referred to the revised SSO policy that we
discussed in the proposed rule with terms such as ``proposal,''
``proposed change,'' ``proposed SSO payment methodology,'' and
``proposed policy.'' We believe that commenters clearly understood both
the substance of the possible revised policy, and the fact that we
might adopt the revised policy in the final rule after review of the
comments.
Comment: Several commenters stated that adopting the policy
discussed in the RY 2008 LTCH PPS proposed rule would be premature,
since the existing SSO policy only became fully effective on October 1,
2006. Specifically, the commenters believe that there has not been
sufficient time to evaluate the impact and effectiveness of the policy
change adopted last year to provide for a blend of unadjusted LTCH
payment rates and IPPS-comparable LTCH PPS payment rates as one of the
formulas for determining payment of SSOs. Some commenters stated that,
as a result of last year's change, LTCHs no longer have an incentive to
knowingly admit these kinds of patients.
Response: While we understand the concerns of the commenters, we
believe that it is not premature to implement this revision to the SSO
policy. We have been studying these cases intensively since the
implementation of the LTCH PPS (which was fully effective for cost
reporting periods on or after October 1, 2002, contrary to the
implications of some commenters) and remain concerned that, in a
considerable number of cases, LTCHs may be receiving higher payment
than is warranted for cases that are also treated with similar lengths
of stay at IPPS hospitals. We have a responsibility to ensure that
Medicare trust fund is appropriately spent, and therefore, we do not
believe that we should delay adoption of a provision to preserve the
program's resources. However, if the commenters are indeed correct that
last year's policy change removed any incentive to admit these kinds of
SSO patients, the actual effect of the policy that we are now adopting
may be relatively small and we believe that it is the CMS's
responsibility to conserve the Medicare program's resources to the
maximum extent that is appropriate. Therefore, we are finalizing the
policy in this final rule.
Comment: Several commenters supported our goal of analyzing the
role of LTCHs as one of several treatment settings among post-acute
providers for Medicare beneficiaries. However, they urged us not to
finalize the SSO policy that we discussed in the proposed rule that
would include the alternative payment option for an SSO payment
comparable to the IPPS payment amount. These commenters believe that
finalizing this policy would result in drastic payment reductions and

[[Page 26909]]

consequential losses to the LTCHs. These commenters noted that our
discussion related to serious issues about the proper place for LTCHs
along the continuum of care for Medicare beneficiaries. The commenters
urged us not to address these issues through payment mechanisms, but to
arrive at ``clinically-based'' answers to these issues. Commenters also
recommended that we wait until Research Triangle Institute (RTI)
completes the next phase of its work, which includes a review of
proposed and existing criteria to restrict admission to LTCHs to
medically complex cases.
Response: The commenters are correct that the issue involves the
role of LTCHs in the continuum of beneficiary care. As a provider
category, LTCHs were created by section 1886(d)(1)(B)(iv)(I) of the Act
and defined by the statute as ``a hospital which has an average
inpatient length of stay (as determined by the Secretary) of greater
than 25 days.'' (Subclause (II) LTCHs, discussed below in these
responses, which were established under the BBA of 1997, qualify as
LTCHs under highly specific requirements.) As a ``prudent purchaser of
care,'' we believe that we have the mandate to pay appropriately for
the hospital-level services provided to Medicare beneficiaries. The RTI
study, as discussed in section XI. of the preamble to this final rule,
represents a highly significant step in evaluating the clinical role
for LTCHs. In addition to the RTI study, there is considerable
attention being focused by CMS on issues of substitution of services
among provider types, and the potential for the development of a
uniform assessment tool across post-acute providers. As RTI evaluates
the feasibility of identifying clinically-based criteria for LTCH
patients, we are concerned that patients with the same general medical
profile as the same types of patients that constitute some SSO cases in
the LTCH setting are also being treated at acute care hospitals, often
as HCO cases. Therefore, we are finalizing this specific revision to
the SSO policy, as discussed in the RY 2008 LTCH PPS proposed rule,
because we are concerned about the significant number of very short
stay patients currently receiving treatment at LTCHs. These are
patients with a LOS that is comparable to the LOS for many patients
(under the same DRG) treated in acute care hospitals and paid under the
IPPS. LTCHs in actuality are also acute care hospitals, they are a
provider type that is distinguished solely by its focus on long-stay
hospital-level care as compared to patients paid under the IPPS.
Comment: We received numerous comments that praised the quality
care given to Medicare beneficiaries by the LTCHs in their areas and
commenters urged us not to make significant cuts in Medicare payments
which they fear would result in reduced services. The commenters
asserted that the revision of the payment adjustment for SSO patients
as discussed in the RY 2008 LTCH PPS proposed rule will be detrimental
to the industry as costs of providing care will exceed payment.
Further, the commenters stated that underpayment to LTCHs will cause
patients with complex medical conditions to lose access to appropriate
care and increase costs to acute care hospitals which will be forced to
continue caring for these sicker patients. The commenters believed that
the proposed revisions to the SSO payment policy would have a profound
impact on the entire health care system of their communities since
their LTCHs are a critical component of the State health care delivery
system. They stated that since LTCHs offer specialized services not
available elsewhere, severe cutbacks for LTCHs could resonate
throughout the entire health care system.
One commenter noted that CMS made a statement that it does not
expect any changes in quality of care or access to services for
Medicare beneficiaries under the LTCH PPS based on proposed rule
policies. However, one of the commenters stated that a decrease in
payments will have pervasive effects on LTCHs. Moreover, the commenter
stated that the impact of changes in our payments to LTCHs because of
the proposed SSO policy revisions will not only affect services offered
to ``the most vulnerable patients,'' but also will have an impact on
the staff of the LTCHs. Several of the commenters specified that they
envision that acute care hospitals will be overtaxed and incur
additional costs without being able to provide ICU beds for patients
requiring short-term acute care services. They also stated that the
acute care hospitals in their communities may not be able to meet
patient needs for those needing LTCH services.
One commenter cited the experience of a local faith-based, not-for-
profit LTCH system that admits only very high acuity, long-term
patients and realizes exceptional quality, outcomes, and cost
effectiveness. But other LTCHs within the industry admit low acuity
patients. The commenter stated, ``* * * many LTCH providers seek to
admit chronically ill `slow-recovery' patients as a primary target
population. These patients have little difficulty meeting the 25-day
LTCH ALOS criteria, and while these patients may meet continued stay
criteria, we believe many could be cared for in a less acute setting.''
Response: We understand the serious concerns expressed by the
commenters and, although we are finalizing the SSO policy revisions as
were discussed in the RY 2008 LTCH PPS proposed rule, we want to assure
the commenters that we are aware of their concerns. We agree that if a
Medicare beneficiary is appropriately referred, and admitted, to one of
the approximately 400 LTCHs in the United States for a complex medical
condition, the beneficiary could receive excellent medical care from a
highly-trained and committed professional staff. However, we do not
believe that the revisions to the SSO policy that we are finalizing
will result in LTCHs going out of business or that significant services
would have to be curtailed with dire consequences for beneficiaries,
staff or the local medical care system. As noted elsewhere, our data
indicates the aggregate margins for LTCHs were 7.8 percent for FY 2003
and 12.7 percent for 2004. When we proposed the RY 2007 change to the
SSO policy, commenters also warned that the policy would result in the
closure of LTCHs with disastrous effects on the health care delivery
system in those areas of the country. However, after implementing the
proposed changes, we have not observed any significant reduction in the
number of available LTCH beds in the country. On the contrary, we
continue to observe that LTCHs are opening new LTCHs. Therefore, we
believe that even with decreased Medicare payments for SSO patients,
such as we are envisioning based on this finalized payment policy and
detailed in the Impact (see section XV. to this final rule), we believe
that LTCHs will generally be able to continue delivering high quality
medical care to their patients. However, we continue to believe that
acute care hospitals should not be discharging patients to LTCHs
without having provided a full episode of care and we also continue to
have concerns about LTCHs admitting those relatively short stay
patients who could otherwise be treated in acute care hospitals.
Comment: Many commenters stated that our proposed IPPS-comparable
payment option under the SSO policy could discourage physicians from
discharging patients from acute care hospitals and admitting them to
LTCHs. Thus, they charged that we were establishing a system in which
clinical judgment is trumped by determinations based solely on payment.
The commenters further stated that since

[[Page 26910]]

physicians discharge patients to LTCHs because it is in the patients'
best interests, we would be substituting our judgment for a physician,
setting a very dangerous precedent. The commenters also noted that
there is available data supporting the medical determination that
physicians are discharging patients to the LTCH setting because the
patient's needs are better served in the LTCH setting than in an acute
care hospital setting.
Response: Our objective for the revised SSO policy discussed in the
RY 2008 LTCH PPS proposed is to preclude LTCHs and physicians from
taking advantage of a system that significantly ``overpays'' (that is,
relative to what would be paid for the same DRG under the IPPS) for
patients that do not require the extensive resources that such high
payments are intended to support. As discussed subsequently in this
final rule, we recognize that some SSO cases are unavoidable due to
death or an unexpected clinical improvement and early discharge.
However, we have noted that in a community where both acute care and
LTCH beds are available, patients are routinely transferred from the
acute care hospital to the LTCH for the remainder of care because the
LTCH resource is available.
As we discuss below in this section, we further compared MedPAR
data on acute care hospitals regarding their LOS during CY 2003 to
their LOS during CY 2005 in markets where LTCHs opened in CY 2004. We
compared 304,650 acute care cases in CY 2004 to 316,816 cases in CY
2005. In CY 2003, there were 7,586 outliers, and in CY 2005, there were
5,858. The percentage of outliers in the acute care hospitals decreased
from 2.5 percent to 1.8 percent and the numbers of patients that were
admitted to LTCHs in those communities increased from 2,128 in CY 2003
to 6,597 in CY 2005. Furthermore, the percentage of acute care hospital
discharges to LTCHs increased from 0.7 percent in CY 2003 to 2.1
percent in CY 2005. The percentage decline in total outliers between
the CY 2003 and CY 2005 was -25.7 percent. The increase in LTCH
discharges from CY 2003 to CY 2005 was 198.1 percent.
We are concerned that this trend has increased exponentially
because it provides an acceptable disposition of the patient for the
physician, and because it is an expeditious means of lowering the acute
hospital's LOS and costs. We understand that the multidisciplinary
approach for certain complex patients (for example, ventilator weaning)
is appropriate. However, we are very concerned that the LTCH is
assuming the role of the acute care hospital for many patients, at a
far higher cost, which it is possible to do as long as the LTCH
continues to maintain an ALOS of 25 days for purposes of qualifying for
payments under the LTCH. Moreover, we do not believe that the payment
policy option that we are finalizing for SSO discharges will deter
physicians from delivering appropriate care to beneficiaries or from
making appropriate referrals in the interests of their patients to
LTCHs. Furthermore, LTCHs remain free to accept these patients. In
finalizing this payment policy, we are seeking to remove any financial
incentive that could encourage a LTCH to admit a patient from an acute
care hospital prior to that patient having received a full episode of
care at the acute care hospital.
Comment: Several commenters cited a study centered at Barlow
Respiratory Hospital that charted the course of ventilator weaning
treatment for 1419 medically unstable patients at 23 LTCHs from March
2002 through February 2003. The study reported that more than 50
percent of this group of patients were weaned from the ventilators and
showed improvement, both neurologically and functionally. The
commenters asserted that this study exemplifies the excellent level of
care for such patients at LTCHs.
Response: We agree with the commenters that the results of the
``Barlow'' study indicate a significant rate of very positive outcomes
for the very sick LTCH patients who were included in the study. In the
late 1990s, we sponsored a ventilator demonstration study which
included, among other acute care settings the Mayo Clinic and Temple
University Hospital that also reported impressive results. Furthermore,
we understand that the results of the Barlow study were used for the
establishment of national ventilator-weaning protocols issued by the
National Institutes of Health (NIH) and utilized by all acute care
hospitals. We also understand that input from the Temple University
program continues to be critical in formulating national standards. We
believe that these programs established a level of excellence that
should be emulated by all hospital-level facilities that treat
ventilator-dependent patients, including acute care hospitals, LTCHs,
and IRFs. Accordingly, we believe it is not simply the fact that the
patient is treated at a LTCH that is critical to predicting positive
results. Rather, it is the type of clinical intervention that is
furnished to the patient at the hospital. In many cases that
intervention is currently exemplified at acute care IPPS hospitals, as
well as at LTCHs.
Comment: Several commenters claimed that even for what we would
term ``appropriate'' admissions, our proposed payment option under the
SSO policy that could generate an IPPS-comparable payment will erect
barriers to the use of LTCHs. One commenter asserted that typical LTCH
patients (described by the commenter as elderly patients with
persistent multiple-system failures who are de-conditioned and
protocol-resistant) respond impressively to the aggressive blending of
therapeutic interventions, interdisciplinary teams, and medical
intervention that is not otherwise available in the community or
tertiary hospital setting. The commenter stated that from ``a case rate
reimbursement perspective,'' grouping such a ``treatment-resistant''
population with the rest of the general acute care population is highly
inappropriate. Some commenters asserted that even when adjusted for
HCOs, acute care hospitals are not designed or intended to provide
service to long-term care-type patients. The commenters emphasized that
acute care hospitals are not designed to provide extended care
services, unlike LTCHs, with their specially-trained expert staff and
clinicians and multi-disciplinary approaches. One commenter noted that
LTCHs are like acute care hospitals but must sustain a high level of
care for longer periods.
Response: We disagree with the contention that acute care hospitals
are not capable of providing extended hospital level care services such
as the care provided in LTCHs. Although there may be communities with
LTCHs where the acute care hospitals may have functionally
``restricted'' their services because of the presence of these LTCHs,
as well as because of the financial advantages and clinical niche that
they have sought to fill, acute care hospitals are equipped to provide
services to the same population, and the IPPS under which they are
paid, is calibrated based on the resources needed to treat those
patients. Moreover, because there are over 3,500 acute care hospitals
and approximately only 400 LTCHs, which are not distributed uniformly
throughout the U.S. (for example, few are located in California),
currently many acute care hospitals are providing care for the vast
majority of Medicare beneficiaries requiring the type of care described
by the these commenters. Our FY 2005 MedPAR files indicate that 20
percent of cases treated at acute care hospitals nationwide have
lengths of stay between 7 and 14 days (that is, 2,386,057 out of a
total of 11,855,205

[[Page 26911]]

cases). Additionally, 5.2 percent of acute care hospital cases
(617,219) or have LOS greater than 14 days. In those acute care
hospitals, we believe that during these longer periods those patients
are receiving the same high level of care in an acute care hospital
paid under the IPPS as they would receive as patients at a LTCH.
Comment: Several commenters claimed that we based our proposed
revision of the SSO policy that could have resulted in an IPPS-
comparable payment for a particular SSO case, on the incorrect
assumption that ``short stay'' LTCH patients are clinically similar to
short term acute care hospital patients. They stated that the SSO
thresholds (\5/6\ of the geometric ALOS for each LTC-DRG) were never
intended to be a measure of the appropriateness of a LTCH admission,
but rather, were mathematically-derived from the per diem payment
amounts, which were based on a methodology that would produce a
payment-to-cost ratio for SSO cases close to one. Furthermore, a
commenter stated the presence of a SSO patient does not indicate a
premature discharge from an acute care hospital, and cited that 11
percent of the patients had previously qualified as HCOs at the
referring acute care hospital.
Additionally, the commenters asserted that we are mistaken in our
claim that LTCHs can foresee the LOS for patients admitted to LTCHs or
predict likely deaths, where in actuality, upon admission, there is
generally no substantial clinical difference between long stay and
``short stay'' patients. Commenters found it to be incongruous that a
patient in LTC-DRG 475 (Respiratory System Diagnosis with Ventilator
Support) would still be an SSO patient (for example, 28 days for LTC-
DRG 475) and could be hospitalized in a LTCH for greater than 25 days
(the definition of a LTCH). A case such as this could be appropriately
treated in a LTCH. The commenters noted that physicians cannot and
should not be asked to predict the LOS or the likely death of severely
ill patients.
Commenters further asserted that we have made an erroneous
assumption that LOS equates to ``severity of illness'' (SOI) and is a
proxy for the appropriateness of an admission. However, the commenters
assert that this is not the case. They outlined another incorrect
belief in the proposed rule that LTCHs function like acute care
hospitals when they have patients for the same LOS. On the contrary,
the commenters asserted that SSO patients are being admitted because
they look just like ``inliers,'' and we have proposed that LTCHs absorb
payment rates that bear no relationship to the costs of furnishing
patient care at the LTCH level.
Furthermore, based on claims analysis, using the APR-DRGs, the
medical complexity and mortality rates of SSO patients, as measured by
the SOI and ``risk of mortality'' (ROM) standards are very similar to
that of the LTCH ``inlier'' patient population. The commenters further
presented comparisons between these measures for SSO patients and for
patients with the same DRGs in acute care hospitals, indicating that 52
percent of all patients admitted to LTCHs were in the highest APR-DRG
ROM categories, whereas only 24 percent of acute care patients are in
those same categories, resulting in a total percentage of APR-DRGs 3
and 4 at LTCHs among the SSO population that is approximately double
that of acute care hospitals. The commenters noted that higher patient
acuity correlates to higher utilization of facility resources, and
hence, higher costs, which argues against our proposed policy that
would significantly lower reimbursements for SSO cases. Several
commenters also provided a comparison of case mix indices (CMI) for
LTCH SSO cases and cases at acute care hospitals. The commenters
asserted that SSOs at LTCHs have a relative CMI that parallels the CMI
of LTCH ``inlier'' cases at LTCHs and which is 72 percent higher than
the comparable CMI at acute care hospitals.
Response: We understand that not every SSO patient can be so
identified at the time of admission to a LTCH. Further, we recognize
that many patients who will eventually be defined as SSO patients
because their LTCH stay is equal to or less than \5/6\ of the geometric
ALOS for their particular LTC-DRG, may, upon admission, present the
same severity of illness and risk of mortality as ``inlier'' LTCH
patients. As we discuss subsequently in this final rule, we selected
the threshold of one standard deviation above the average LOS of an
IPPS discharge as an appropriate measure to select the subset of SSO
cases that are typically treated in acute care hospitals. We agree that
the general SSO threshold (\5/6\ of the geometric ALOS for each LTC-
DRG) was never meant to be a measure of the appropriateness of a LTCH
admission, but rather, was mathematically-derived from the per diem
payment amounts. We believe this enabled us to arrive at a reasonable
payment policy at the outset of the LTCH PPS for cases that had lengths
of stay significantly shorter than those patients fitting the typical
profile of those who are treated at LTCHs. We recognize that a LTCH
admission could be a medically-complex admission (an appropriate LTCH
admission) with a relatively long LOS and still be considered an SSO
case. We also acknowledge that, in some cases, LTCH admissions could
also have qualified as HCOs at the referring acute care hospital.
However, we still have concerns that patients in LTC-DRGs with
significantly shorter stays than the ALOS for that particular DRG might
have been unnecessarily admitted to the LTCH rather than receiving
their care at an acute care hospital. In addition, we are adjusting the
LTCH PPS to appropriately pay for those SSO stays that have a LOS that
is comparable to the LOS for that DRG under the IPPS and consume far
less than a full array of services in the LTCH for the particular LTC-
DRG.
We believe this policy is appropriate since our data indicates a
correlation between the LOS at an acute care hospital for a patient
following treatment at the highest level of intensity (ICU or CCU),
that is, the number of ``recuperative'' days, and whether or not the
patient was admitted to a LTCH upon discharge from the acute care
hospital. An analysis of the CY 2004 MedPAR files revealed that for the
specified DRGs for acute care cases following ICU/CCU days, there were
significantly fewer ``recuperative'' days for acute care HCO patients
that were discharged and admitted to a LTCH than for those patients
that were discharged directly from the acute care hospital. For
example, for acute care cases in DRGs 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 followed by an admission to a LTCH.
We believe that this data confirms MedPAC's assertion in the June 2004
Report to Congress that ``patients who use LTCHs have shorter acute
hospital lengths of stay than similar patients'' (p. 125).
Furthermore, we agree that some SSO patients become so by virtue of
death or a faster than expected recovery and early discharge, and that
in certain LTC-DRGs, the SSO threshold still requires a relatively long
hospital stay (for example, DRG 475, Respiratory System Diagnosis with
Ventilator Support). However, in the absence of better admission
criteria, we are concerned that LTCHs are admitting some SSO patients
that could have received their full care at the acute care hospital or
SNF-level facility.

[[Page 26912]]

We disagree with comparisons made by some commenters concerning the
SOI and ROM of LTCH SSO patients to those of acute care patients based
on similar lengths of stay and case-mix indices. Generally, LTCH
patients that had been previously hospitalized in an acute care
hospital received the diagnostic work up and major interventional
treatment during that initial stay. Assuming that the patient continued
to need hospital-level care after being somewhat stabilized and was
discharged to a LTCH, the discharge to a LTCH could have been
determined as clinically appropriate. The clinical status of this
patient at this point cannot be reasonably compared to a typical
patient who is treated in the acute care hospital and who is grouped to
the same DRG. This is the case because the original patient has already
been treated at that initial level and has required additional
hospital-level care either by remaining at the acute care hospital,
which would be paid for under the IPPS (perhaps as a HCO), or by being
admitted to a LTCH where the stay could either be a SSO or an
``inlier.'' The only valid comparison of the SOIs and ROMs of two such
patients in the context of the commenter's concerns would be to
contrast the SOI and ROMs of the patient at the LTCH with the patient
who, following the same initial intervention at the acute care
hospital, continued treatment at the acute care hospital. In addition,
it is not appropriate to compare the average CMI at acute care
hospitals to the average CMI at LTCHs. The acute care hospital CMI is
affected by a broad range of cases, so that the only appropriate
comparison is between DRGs in acute care settings and DRGs in LTCHs,
which is the approach we have adopted in the revised SSO policy we are
finalizing in this final rule. In regions of the country where LTCHs
are scarce, acute care hospitals treat the same cases that are treated
in LTCHs where those facilities are available. In those areas, acute
care hospitals do indeed treat the most severe cases, and the
calibration of the DRG weights takes into account the resource
requirements for such cases. In the light of this fact, we do not
believe that it is necessary or appropriate to pay LTCHs more for cases
that can be successfully treated in acute care hospitals. We understand
that the option that we are finalizing, paying for some SSO stays based
on the IPPS-comparable amount, will result in significant payment
reductions to LTCHs for some SSO cases. However, we still believe that
this modification to the SSO policy is appropriate since it ensures
that payments to the LTCH are not greater than the program would pay in
a different setting of care, where these patients can also be
successfully treated. At the outset of the LTCH PPS, we established the
SSO payment adjustment to address this distinction which we continue to
believe is a valid and reasonable consideration for Medicare payments
to LTCHs (67 FR 55995, August 30, 2002).
Comment: Many commenters asked that we not finalize the proposed
SSO policy revisions, stating that the SSO payment option that could
pay the LTCH based on an amount comparable to what would otherwise have
been paid under the IPPS was not based on solid data analysis and
supportable conclusions. In fact, a number of commenters asserted that
the proposed policy was not based on data but rather on ``erroneous and
unsubstantiated assumptions'' that all SSO patients are inappropriately
admitted to LTCHs and inappropriately discharged from acute care
hospitals. The commenters noted that, because of the way in which the
policy was formulated, the percentage of LTCH cases that are paid under
the SSO payment policy was a function of the SSO threshold and the
dispersion of cases above and below the ALOS for the LTC-DRGs. That is,
statistically, the SSO definition at \5/6\ of the geometric ALOS would
necessarily produce approximately 37 percent of cases as SSOs.
Therefore, under the commenters belief that given the regulatory \5/6\
definition of SSOs, which we had not proposed to change, the percentage
of SSO cases was not amenable to change just based upon LTCHs admission
policies. One commenter noted that for a significant number of patients
to fall below \5/6\ ALOS for a LTC-DRG is expected in a LTCH.
Additionally, commenters noted that a case may qualify as a SSO because
the patient has run out of covered days, regardless of the actual LOS
in the LTCH and that in establishing our policy for qualifying as a
LTCH (that is, meeting the average greater than 25-day LOS for a
particular cost reporting period), we have recognized the
``appropriateness'' of including ``total'' rather than just ``covered''
days of a stay, since regardless of the payer, if the patient is still
receiving hospital-level care, the facility is functioning like a LTCH.
For this reason, these commenters urged us to remove such cases from
the calculations we used to develop a SSO payment policy. Some
commenters expressed concerns about the reliability of the data that
underlay our policy proposals and asserted that our proposals are based
on faulty assumptions, insufficient data, and a fundamental lack of
understanding of the valuable care LTCHs provide. Moreover, the
commenters asserted that LTCH patients are just not the same type of
patients as acute patients; they believe that our proposed policies
indicate that we are unaware of the distinction between acute care
patients and patients at LTCHs. They further stated that they did not
believe that the public was able to submit meaningful comments to our
proposed policies because of our data flaws, our biases, and the
resulting policies that we proposed.
Response: As we have stated previously, we are aware that the vast
majority of LTCH patients are admitted following treatment at acute
care hospitals. The patient's stay at the acute care hospital generated
a Medicare payment under the IPPS, and the subsequent admission to a
LTCH, an acute care hospital with an ALOS of greater than 25 days, will
generate an additional Medicare payment. To protect the Medicare Trust
Fund from what may be inappropriate and unnecessary payments, and to
ensure that the program is not paying twice for the same episode of
care, we believe it is essential that we evaluate those cases that are
admitted for an unusually short stay following an initial treatment at
another acute care hospital to acute care hospitals that specialize in
long-stay care, since that second stay will generate another Medicare
payment. In MedPAC's June 2004 Report to the Congress, the Commission
stated that, ``* * * Living near a LTCH increases a beneficiary's
probability of using such a facility. For example, living in a market
area with a LTCH quadruples the probability of LTCH use. Being
hospitalized in an acute hospital with a LTCH located within the
hospital also quadruples the probability that a beneficiary will use a
long-term care hospital'' (page 125).
Although we acknowledge that our establishment of the \5/6\th of
the geometric ALOS threshold, from a statistical standpoint, will
result in approximately 37 percent of LTCH cases being defined as SSOs,
we are extremely concerned with the number of cases that are being
treated in LTCHs that fall considerably below the geometric ALOS for
any given LTC-DRG. In fact, as stated previously, in the commenters'
specific suggestions for how to reasonably and fairly pay SSOs, the
commenters themselves drew a distinction between those cases that fall
within the definition of a SSO but are more in keeping with the LOS
generally

[[Page 26913]]

associated with a LTCH (for example, a case assigned to LTC-DRG 482
with SSO threshold of 32.1 days, would still be paid as a SSO if the
patient was treated in the LTCH for 25 days) and those cases that many
commenters referred to as ``very short stay outliers (VSSO)'' or ``very
short stay discharges (VSSD).'' In our revised SSO policy, the payment
formula particularly takes into account our very strong belief that
LTCHs are acute care hospitals that specialize in treating patients
requiring ``long-stay'' hospital-level care.
The LTCH PPS has been designed and calibrated to pay specifically
for that type of care. Since the inception of the LTCH PPS, when we
established the SSO adjustment (67 FR 5594 through 55995, August 30,
2002) at Sec. 412.529, we have provided that if a LTCH treats patients
not requiring a long stay for that DRG, Medicare pays the LTCH based on
the applicable payment adjustment option. Furthermore, as we revise the
payment options in this final rule for the SSO policy, we continue to
believe that such a payment adjustment is reasonable for all short stay
patients, including those that die shortly after their admission to the
LTCH. The FY 2004 MedPAR data indicates that 43 percent of all patients
that die in LTCHs are deaths that occur within the first 14 days of the
stay, with 35 percent of SSO deaths occurring within the first 7 days
following admission. As we have since the inception of the LTCH PPS, we
continue to believe that Medicare payments for those death cases
occurring within the SSO threshold should be determined under the SSO
policy since the length of the patient's treatment in the LTCH did not
utilize the full measure of hospital resources for which the full LTC-
DRG payment was calibrated.
Conversely, MedPAR data indicate that of all SSO cases,
approximately 60 percent of the discharges are 14 days or less and also
that acute care hospitals treat a significant percentage of patients
for longer than the 5-day ALOS. (In acute care hospitals, paid under
the IPPS, over 20 percent, in the aggregate, of patients that are
treated have a LOS of between 14 and 7 days.) Therefore, as described
below, we believe that the SSO policy that we are finalizing under the
LTCH PPS provides a fair and reasonable payment, in light of our stated
concerns that the short-term hospital-level care that LTCHs provide for
many SSO cases may be substituting for care that could otherwise be
delivered at acute care hospitals and for which at best, Medicare would
otherwise pay under the IPPS.
Under Sec. 412.507(b), Medicare will pay for inpatient care
delivered only on those days that the beneficiary has coverage until
the LOS exceeds the SSO threshold and becomes an inlier stay.
Therefore, since the inception of the LTCH PPS, we established the
distinction between ``covered days'' and ``total days'' of a LTCH stay.
At the point when a patient's benefits exhaust, the patient is
``discharged for payment purposes'' and even though the patient may
continue to be hospitalized at the LTCH, Medicare will pay only for the
covered days, with the patient (or the patient's secondary insurance)
being responsible for the remaining days' LTCH costs. For example, even
though a patient could have been treated in an LTCH for 40 days, if
upon admission, the patient only had 20 covered days remaining, for
Medicare payment purposes, the stay could qualify as a SSO, unless the
20 covered days exceeded the \5/6\th threshold for the LTC-DRG to which
the case was grouped, at which point, the stay would become an inlier
stay and a full LTC-DRG payment would be generated. Several commenters
urged us to remove SSO cases occurring as a result of such lapses of
Medicare coverage from our revised SSO policy but based on our data
analysis, we will not be excluding benefit exhausted cases from the
policy. According to FY 2005 MedPAR data, these cases constitute only
3.31 percent of SSO cases. It has been our policy since the beginning
of the LTCH PPS to count those stays during which benefits are
exhausted as SSOs if the covered portion of the stay is less than \5/
6\th of the geometric ALOS for the DRG. In this way, we appropriately
determine payment based on the part A-covered stay. At the same time,
we continue counting the total days of the stay for purposes of
qualification as a LTCH, because that calculation is intended to
reflect the length of care provided to Medicare beneficiaries. However,
our policy of including total days for Medicare patients to identify
hospitals qualifying (or continuing to qualify) as LTCHs indicates our
recognition that conceivably, a beneficiary may be appropriately
treated in a LTCH for example, for 40 days; and yet because the
beneficiary had only 5 remaining benefit days, would be reported in our
claims data as a 5-day SSO case. We may revisit this issue in the
future and, at that time, would solicit comments to that end. However,
at present, since a very small percentage of SSO cases are caused by
beneficiaries exhausting benefits, the ``short'' SSO cases discussed
above in this section, will continue to be governed by the SSO policy
finalized in this rule.
Comment: One commenter expressed concern that the SSO policy would
penalize LTCH providers in a situation where a patient developed a new
or unexpected complication during his or her LTCH stay and required
treatment that can only be provided by the referring acute care
hospital.
Response: The situation to which the commenter is referring is
possible and may result in a sudden discharge from a LTCH and a
readmission to the acute care hospital. In such a case, if the total
covered length of stay at the LTCH is less than \5/6\ of the LOS for
the LTC-DRG to which the case is assigned, payment would be made under
the SSO policy. Consequentially, the additional payment option that we
are finalizing could also be applicable if the covered LOS at the LTCH
fell within the IPPS-comparable threshold prior to discharge. Such
payment would be appropriate because the patient would have received
less than a full episode of care at the LTCH prior to being discharged
back to the acute care hospital. We note that should the patient
subsequently be discharged from the acute and readmitted to the LTCH to
continue treatment begun before the acute episode, Medicare payment to
the LTCH would be governed under our interrupted stay policy at Sec.
412.531. We would also note that this stay could also be subject to
adjustment under the SSO policy (including the payment option that we
are finalizing) depending upon the total covered length of stay (both
prior to and following the acute episode).
Comment: Many commenters stated that their objections to the policy
discussed in the proposed rule extended to the existing SSO payment
policy with which they have expressed disagreement in the past. Several
of these commenters asserted that the current SSO threshold (\5/6\ of
the geometric ALOS for each LTC-DRG) is not statistically justifiable.
These commenters recommended that, if we are going to employ LOS as the
only criterion for determining SSOs, we should logically select a
threshold that better identifies cases that are dissimilar to the
median or average, such as the 5th percentile through 10th percentile.
Response: We believe that the policy we are adopting in this final
rule is a consistent extension of the principles that we have employed
in developing the SSO payment policy. In this rulemaking cycle, we have
not introduced any discussion or proposals concerning the existing SSO
threshold, and therefore, we are not implementing

[[Page 26914]]

the commenters' recommendation that we establish a dramatically-revised
threshold level. However, we did provide an exhaustive discussion of
the reasons for adopting this threshold in the FY 2003 LTCH PPS final
rule (67 FR 55995), which included statistical analysis, various
simulations, regressions, and consideration of various options.
Comment: Several commenters stated that the objective of the SSO
policy that we discussed in the RY 2008 LTCH PPS proposed rule is to
establish a de facto exclusionary policy, prohibiting the admission of
these patients to LTCHs by means of a payment mechanism rather than
careful clinical review.
Response: We disagree that we are establishing an exclusionary
policy. On the basis of analysis that we presented in the RY 2008 LTCH
PPS proposed rule and previously in this final rule, we believe that
many of these cases may represent ``premature and inappropriate
discharge from the acute care hospital and inappropriate admission to
the LTCH'' (72 FR 4840). The intent of this policy is to establish an
appropriate payment level for this class of cases. Hospitals remain
free to accept these patients. As we stated in the RY 2008 LTCH PPS
proposed rule, * * * a short stay case at a LTCH most likely did not
receive a full course of medical treatment during the short stay and* *
* a full LTC-DRG payment would therefore, be inappropriate'' (72 FR
4804).
Comment: Several commenters objected that the policy we discussed
could apply to cases whose length of stay exceeds 25 days, the ALOS
required for a hospital to qualify as an LTCH. Commenters indicated
that at least 9 IPPS DRGs have an ALOS plus one standard deviation that
is greater than 25 days, and at least 26 other IPPS DRGs have an ALOS
plus one standard deviation that exceed 20 days. Commenters contended
that cases exceeding the 25-day threshold for qualifying as an LTCH
should not be considered short stay cases.
Response: We do not believe that it is inappropriate for individual
cases that exceed the ALOS threshold for LTCH status to be considered
SSOs. In fact, we have treated some such cases as SSOs since the
establishment of the SSO policy. For a number of LTC-DRGs, the SSO
threshold, \5/6\ of the geometric ALOS, significantly exceeds 25 days.
These include DRGs 498, 499, 520, and others. Similarly, a number of
IPPS DRGs have an ALOS plus one standard deviation that is greater than
25 days. As a result, many cases with lengths of stay shorter than 25
days receive payment under the SSO methodology, and a subset of those
cases will be paid specifically under the formula that we are adopting
in this final rule for certain cases: For SSO cases with a length of
stay less than ALOS plus one standard deviation of the IPPS DRG,
payment will be no greater than the IPPS comparable amount that we have
defined. These results are appropriate because the respective
thresholds serve different purposes. The 25-day threshold defines an
ALOS established by the statute to define a LTCH. The respective
outlier thresholds (the basic SSO threshold of \5/6\ of the geometric
LTC-DRG ALOS, and the threshold that we are now adopting to identify
every SSOs) serve to identify subsets of LTCH cases for appropriate
payment treatment, based on comparisons to relevantly similar cases. We
have explained the basis for adopting the SSO threshold in the FY 2003
LTCH PPS final rule (67 FR 55995). The threshold that we are adopting
in this final rule, the geometric ALOS plus one standard deviation of
the IPPS DRG, selects a subset of SSOs that are similar to cases
successfully treated in short-stay acute care hospitals. Since these
cases have received a course of treatment similar to the typical course
of treatment in an IPPS hospital, we are limiting payment for them to
an amount no greater than the comparable payment under the IPPS.
Comment: Several commenters stated that we had not presented any
conclusive financial or clinical evidence to support the policy
discussed in the RY 2008 LTCH PPS proposed rule, but that we instead
rely merely on statements such as: ``many LTCHs appear to be admitting
some SSO patients that could have received the care at the acute care
hospital.'' (72 FR 4806) (Emphasis supplied by commenter.) Furthermore,
a commenter stated that our own expert consultant, RTI, had failed to
find evidence conclusively illustrating that the typical LTCH SSO
patient could be treated as effectively in an acute care hospital. Some
of these commenters also maintained that, contrary to our suggestions,
the care received by patients at LTCHs is often unique and not
available at acute care hospitals. Commenters cited physicians who were
consulted on the clinical aspects of transfer from an acute care
hospital to a LTCH. These physicians provided numerous explanations and
scenarios detailing how LTCHs provide different kinds of services even
if the DRG for a case is nominally the same.
Response: As we have discussed elsewhere in this final rule, LTCHs
are certified as acute care hospitals and acute care hospitals paid
under the IPPS are throughout the country treating beneficiaries
requiring hospital-level care lengths of stay comparable to those that
are typical of LTCHs. We disagree with commenters who imply that there
is a clear distinction between the patients that are appropriate for
successful treatment at LTCHs and patients that are appropriately and
successfully treated at acute care hospitals. Across the United States,
the nearly 3,600 acute care hospitals that discharge approximately 12.7
million Medicare beneficiaries treat the full range of medical issues
that the commenters identify as LTCH cases. We do not question that
many LTCHs have highly regarded reputations for their success in
treating respiratory and ventilator cases (MS-LTC-DRGs 207 and 208).
However, as detailed in the RTI report, the 2004 MedPAR files indicate
that where LTCHs treated 13,394 cases assigned to DRG 475 in 2004,
acute care hospitals treated 18,727 Medicare patients with an
additional 7,072 HCOs in DRG 475. For DRG 88, Chronic obstructive
pulmonary disease (COPD), LTCHs treated 4,894 cases where acute care
hospitals treated 37,523 cases. Data on other common DRGs treated in
LTCHs as compared to the same DRGs treated in acute care hospitals
reflect a similar pattern, particularly among the DRGs that could fall
into the broad category of ``medically complex'' patients, which are
the majority of LTCH patients (Table 3-2, RTI report, p. 35. We
understand that MedPAC and RTI have noted that many LTCHs deliver a
high level of care to very sick Medicare beneficiaries, with fine
doctors, exemplary nursing care, and top-notch rehabilitation
therapists, but we also know that many acute care hospitals throughout
the nation are treating the same patients and similarly delivering
excellent care, especially where there are few LTCHs. We also know that
some LTCHs specialize in a particular subset of patients and achieve a
noteworthy success in their treatment (for example, of patients
requiring ventilator weaning or wound care). However, similar patients
are also receiving care in acute care hospitals. Therefore, we cannot
agree with commenters implying that acute care hospitals are incapable
of competently treating Medicare beneficiaries that happen to fall
within the DRGs that LTCH identify as their specialties and that any
patients falling into such categories would receive ``substandard''
care at an acute care hospital.

[[Page 26915]]

Comment: Several commenters stated that our proposed policy should
not apply to cases that were HCOs at an acute care hospital prior to
transfer to a LTCH. Since such cases received the full complement of
services at the acute care hospital, and the acute care hospital
actually incurred significant losses before receiving an outlier
payment from the Medicare program, it cannot be stated that any
discharge and transfer to a LTCH was premature and inappropriate.
Response: We agree that, in such cases, the transfer to a LTCH is
unlikely to be premature and inappropriate. In fact, typically, HCO
cases in the acute care setting represent a full course of treatment in
that setting. However, as our discussion in the RY 2008 LTCH PPS
proposed rule indicates, this is not the only, or even the primary,
factor that deserves consideration in determining an appropriate SSO
payment level. Regardless of whether a case had reached outlier status
in an acute care hospital prior to transfer to a LTCH, the course of
treatment at the LTCH could more closely resemble the normal course of
treatment at an acute care hospital than the normal course of treatment
for cases at a LTCH. We stated in the RY 2008 LTCH PPS proposed rule
that cases ``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'' and
``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'' (72 FR 4806 citing 71 FR 27847). For purposes of the SSO
policy discussed in the RY 2008 LTCH PPS proposed rule, the issue is
primarily the course of treatment actually received at the LTCH, rather
than the course of treatment at the acute care hospital prior to
transfer to a LTCH. Of course, one reason the course of treatment at a
LTCH may resemble the normal course of treatment at an acute care
hospital may be that an acute care hospital has prematurely and
inappropriately transferred a patient to a LTCH. However, in cases
where a patient has received a high level of treatment at an acute care
hospital, including levels of treatment that qualify for outlier
payments, a subsequent stay in an LTCH may still ``be comparable to
typical stays at acute care hospitals.'' (72 FR 4806) In these cases,
since we believe the Congress excluded LTCHs from the IPPS because
cases with longer lengths of stay (as compared to acute care hospitals
paid under the IPPS) tend to be costlier than cases with shorter stays,
we do not believe that it would be appropriate for the program to pay
an LTCH an unadjusted LTCH PPS payment for case with such an
abbreviated stay that it did not receive the full course of treatment
particularly when we would pay a much lower amount in to an acute care
hospital for a similar course of treatment.
Comment: Several commenters urged us not to apply the policy we
discussed to cases in which patients die in the hospital. These
commenters noted that physicians and hospitals are not able to predict
which patients will die subsequent to admission to an LTCH. In
addition, many of these patients are high cost, requiring significant
medical resources in the last days of life. One LTCH commenter
determined that about 50 percent of its extreme SSOs were discharged
due to death. The commenter notes that it may not be appropriate for
these cases to receive a full LTCH payment, but that it is equally
unfair for CMS to assume ``sinister intent'' and to financially
penalize LTCHs operating in good faith. Some commenters emphasized
generally that adoption of the revised SSO policy that we discussed
would be unfair to LTCHs because they cannot predict in advance who
will become SSO cases. There are several reasons why a patient could
become an SSO including the patient dying or leaving against medical
advice. Many of these commenters noted that if this policy is adopted,
LTCHs will only receive, at best, costs for SSO cases. Other commenters
recommended that, if we adopt this policy, it should incorporate
outlier payments when determining an equivalent IPPS payment amount in
the SSO payment methodology.
Response: We certainly acknowledge that hospitals and physicians
are not able to predict with certainty at admission which patients will
die during an inpatient stay in a LTCH, or whether a patient will leave
against medical advice. However, the issue with regard to these cases,
as with the cases discussed in the previous comment, is that ``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.'' The point is not to penalize
LTCHs, but rather, to pay appropriately for cases that receive less
than the full course of treatment at a LTCH. Even when a patient dies
in a LTCH, whether unexpectedly or not, cases with lengths of stay more
typical of an acute care hospital are not receiving the full course of
treatment in a LTCH, and resemble more the course of treatment in acute
care hospitals. It is therefore appropriate to limit the payment for
such cases accordingly. We would also like to note that where a LTCH is
finding that nearly half of its patients are discharged due to death,
if in fact many of these patients are SSO cases, the LTCH may need to
consider whether those patients were too fragile to be transferred from
the acute care hospital to the LTCH. Transfer trauma is a serious issue
that must be considered whenever a hospital considers transferring a
patient to another facility.
With respect to the recommendation that we take outlier payments
into account when determining the equivalent IPPS payment amount in the
SSO payment methodology, under existing LTCH PPS policy, a SSO case
that meets the criteria for a LTCH PPS HCO payment at Sec.
412.525(a)(1) (that is, if the estimated costs of the case exceed the
adjusted LTC-DRG SSO payment plus the fixed loss amount) would receive
an additional payment under the LTCH PPS HCO policy at Sec. 412.525(a)
(67 FR 56026, August 30, 2002). For purposes of HCOs under the proposed
SSO policy, we would continue to use a fixed-loss amount calculated
under Sec. 412.525(a), and not a fixed-loss amount based on Sec.
412.80(a). Medicare would pay the LTCH 80 percent of the costs of the
case that exceed the sum of the applicable option of the least of the
four proposed payment options, described above, and the fixed-loss
amount determined under Sec. 412.525(a).
Comment: Several commenters stated that the payment reductions
associated with the very short SSO policy discussed in the RY 2008 LTCH
PPS proposed rule violate the principles of a PPS in which some cases
are expected to cost less than others.
Response: We disagree that these policies violate the principles of
averaging found in a PPS. As we stated in the RY 2007 LTCH PPS final
rule, ``* * *we believe it is very important to evaluate the adjustment
in light of the fact that in a PPS there are numerous principles that
we try to balance simultaneously when making policy decisions. Among
these principles are appropriate payment, predictability, averaging,
beneficiary access to appropriate care, and equity so that while the
averaging principle is an important one in PPSs, it is not the only
principle that guides our policy decisions. For example, in the case of
SSOs and HCOs, we must determine how to appropriately to pay for
aberrant cases that are much shorter (that is, SSOs) and much costlier
(that is, HCOs) when compared to typical cases in the

[[Page 26916]]

relevant LTC-DRG. In the case of short stays, if we failed to adjust
the payment to reflect that the case did not receive the full resources
of a typical LTCH stay for the particular DRG, the PPS would be greatly
``overpaying'' for the stay, could serve as an incentive to game the
system, and would also waste valuable Medicare Trust Fund dollars.
Similarly, in the case of HCOs, if we did not adjust the payment to
reflect the extraordinary high costs that LTCH was incurring for
treating a particular patient when compared to a typical case in the
respective LTC-DRG, we would be ``underpaying'' significantly for the
case. We have stated that providing additional money for HCOs strongly
improves the accuracy of the payment system as well as reduces the
incentive to under serve these patients. Since we do not pay SSOs or
HCOs an amount paid to ``inliers'/cases that have length of stays or
costs commensurate with other cases in the respective but instead make
payment adjustments to reflect the unique circumstances of these cases,
the averaging principle is less heavily emphasized under these
circumstances to achieve equity, appropriate payments that accurately
reflect resource costs at the patient and hospital level, and
beneficiary access to medical care.''
We believe that, given that LTCHs are defined as acute care
hospitals that have an average inpatient LOS of greater than 25 days,
the payment policies under the LTCH PPS appropriately reflect the
averaging principle. That is, where some cases, within the ``inlier''
range will have generated relatively lower costs, other cases will
generate higher costs and Medicare will pay a LTCH the same for both
less and more costly cases. The SSO policy, along with the HCO policy
addresses payments for cases that fall outside of the normal types of
averaging in the inlier range in the PPS and ensures that payment for
SSO cases is not greatly in excess of the resources required to treat
those cases. (71 FR 27866 through 27867)
Comment: Some commenters asked that we comment on why the IPPS
post-acute transfer policy does not appropriately adjust for payment
when transferred cases ultimately become SSO discharges in the LTCH
setting. Another commenter suggested that, we provide policies under
the acute IPPS side to address inappropriate, or early discharges and
asked that post-acute transfer rules, readmission rules and DRGs for
acute care hospitals should be used to minimize the issue instead of
penalizing LTCHs.
Response: We note that we addressed the effect of the post-acute
transfer policy on SSOs previously in the RY 2003 LTCH PPS final rule,
but will reiterate that the IPPS post-acute transfer provision was
created to address cases in which the transferring acute hospital
provides less than the full spectrum of care for the qualified DRG and
to avoid providing an incentive for a hospital to transfer a patient to
another hospital early in the patient's stay to minimize costs while
still receiving the full DRG payment. The post-acute transfer policy
only addresses the appropriate level of payments for the course of
treatment received in an acute care hospital. It does not address the
appropriate level of payments at the facility to which the patients are
then transferred.
We note that the post-acute care transfer policy only affects DRGs
that meet the criteria at Sec. 412.4. Although we expect the post-
acute transfer policy to have some impact on the discharge behavior of
acute care hospitals because of the reduced payments that they will
receive for qualified discharges, the post-acute transfer policy does
not necessarily affect the issues being addressed by the SSO policy
change. Both the IPPS post-acute transfer policy and the revised SSO
policy being finalized in this rule are designed to ensure that
Medicare payments are appropriate given the types of treatment provided
in each setting; we note that in the instance of an acute transfer
(that is subject to the post-acute transfer policy) to an LTCH that
discharges the patient as an SSO, neither the acute nor the LTCH
facility provided the full episode of care to the patient and it would
not be appropriate to pay either facility a full DRG payment. We
believe that the revised payment formula for SSO patients that we are
finalizing will appropriately pay LTCHs for delivering services to
patients who do not otherwise require the lengths of stay that are
characteristic of LTCHs. The SSO policy will address payments to LTCHs
for patients discharged from the acute care hospital even after the
IPPS geometric ALOS, who are subsequently discharged from the LTCH as a
short SSO.
Comment: Two commenters suggested that rather than challenging the
cases that are admitted from acute care hospitals, we should be more
concerned about inappropriate admittances from nonhospital settings
such as SNFs or elsewhere.
Response: After analyzing recent data, we note that approximately
80 percent of the patients admitted to the LTCHs come from the short
term acute care hospitals and only 20 percent are admitted from other
nonhospital settings. Since SNFs do not offer hospital-level care but
are still serving patients with compromised health, we believe that a
decision to transport a SNF patient to a hospital would generally be
made because the patient appears to the medical professionals at the
SNF to be in need of a higher level of medical treatment or care than
is available at the SNF. (In fact, such patients would typically be
admitted to the acute care hospital rather than to a LTCH.) However,
both an acute care hospital and a LTCH offer acute hospital-level care.
As discussed previously in this final rule, we are very concerned about
the treatment of a short-stay patient who could reasonably and
effectively continue to be treated in an acute care hospital and paid
for under the IPPS, being admitted unnecessarily to a LTCH, which
specializes in treating patients requiring long-term hospital-level
care and paid for under a PPS which has been calibrated based upon the
high resource use associated with long patient stays. Furthermore,
admission of such a patient could also result in an unnecessary and
inappropriate LTCH hospitalization, which would also result in a second
Medicare payment under the LTCH PPS for what was essentially, one
episode of care.
Comment: Several commenters believe that we are incorrect that
LTCHs could be admitting patients not requiring long stays, noting that
LTCHs actually have a disincentive to admit short stay patients because
LTCH certification status can be at risk if the hospital does not
maintain an ALOS of more than 25 days.
Response: Under the TEFRA system, all inpatient days (whether
covered by Medicare or not) were included in the LOS computation, and
the mathematical determination was based upon the number of patient
days, during the cost reporting period when they occurred, divided by
discharges occurring during that same period of time (67 FR 55954,
55971). With the establishment of the per discharge LTCH PPS, we
restricted the patient count for purposes of qualifying as a LTCH
solely to Medicare patients (67 FR 55971), and we implemented the
policy of `days following the discharges,' under which, if a patient's
stay crosses two cost reporting periods, the total days of that stay
(both covered and non-covered days) would be included in the
computation during the cost-reporting period that the discharge
occurred (69 FR 25706).
LTCH cost report data reveal that the general ALOS of most LTCHs
varies only slightly. Generally, LTCHs maintain an ALOS that is just
over 25

[[Page 26917]]

days, meeting the statutory definition of a LTCH, that is, having an
ALOS of greater than 25 days. Furthermore, we understand that LTCHs
closely monitor their yearly ALOS and that one extremely long-stay case
can mathematically offset for a number of short-stay cases. After
studying the hospital-specific data, we believe that this is indeed the
case for many LTCHs. We also believe that the payment policy that has
been utilized since the start of the LTCH PPS for FY 2003 has not
operated as a financial disincentive for the admission of patients who
will not ultimately require long-stay hospital-level care. In fact, we
note that MedPAR data show approximately 27,000 SSO cases with a LOS of
14 days or less. This indicates that even with over 20 percent of their
discharges having such a short ALOS, LTCHs have maintained their
greater than 25-day statutory ALOS. Therefore, we believe that it is
both possible for a LTCH to maintain its designation and also admit
many very short stay cases.
Comment: Several commenters maintained that the SSO policy we
discussed would have unintended effect of lengthening patients stay.
Some of these commenters specifically noted that this effect could be
the result of a payment ``cliff'' where payments rise abruptly once the
threshold for the application of this policy (the ALOS of the IPPS DRG
plus one standard deviation) is reached. The commenters believe that
the proposed rule introduced ``backwards'' incentives associated with
the old ``cost-based'' system. Policies will result in encouraging a
profit for longer stays, which could raise costs to the Medicare
program.
Response: We acknowledge that there could be such a cliff effect in
some cases as a result of the policy that we are adopting. However, we
believe that the merits of adopting this limitation on outlier payments
in certain cases outweighs the risks of some possible, unintended
consequences. We will monitor experience under the new policy to detect
whether there is an inappropriate increase in lengths of stay that are
slightly greater than the ALOS plus one standard deviation of the
comparable IPPS DRGs. As part of our program integrity
responsibilities, we may ask the FIs to review the medical necessity of
the last few days of a LTCH stay that just exceeds the threshold, and
if some days are determined not to be ``medically necessary,'' then if
the remaining days result in a LOS lower than the threshold, the stay
may be paid at the IPPS comparable rate.
Comment: Some commenters contended that the concerns behind the
possible revision to the SSO policy could be more appropriately
addressed by establishing patient criteria and QIO review of medical
necessity for admissions, as has been recommended by MedPAC and RTI.
Response: Under our QIO program, QIOs review services to determine
whether services are reasonable and medically-necessary, whether the
quality of services meets professionally-recognized standards, and
whether services in an inpatient hospital or other inpatient health
care facility could, consistent with the provision of appropriate
medical care, be effectively provided more economically on an
outpatient basis or in an inpatient facility of a different type. We
have not historically interpreted any of these areas of review to
involve determinations of which kind of acute care facility would be
appropriate, and QIOs do not regard short term acute care hospitals and
LTCHs as facilities ``of a different type.'' A QIO uses criteria, based
on typical patterns of practice. The QIOs also consult with (a)
physician(s) and practitioner(s) actively engaged in practice in that
State and to the extent possible, in the same specialty, when making
the determination that care was or was not medically-necessary.
Although a QIO review can detect whether or not the patient requires an
acute level of care or whether care in a SNF would have been
appropriate, since both acute care hospitals and LTCHs are certified as
acute care hospitals, QIOs do not make the distinction between whether
a patient should be hospitalized at an acute care hospital or at a
LTCH, so long as the patient requires an acute level of care.
QIOs are authorized by statute to determine whether, in case such
services and items are proposed to be provided in a hospital or other
health care facility on an inpatient basis, such services and items
could, consistent with the provision of appropriate medical care, be
effectively provided more economically on an outpatient basis or in an
inpatient health care facility of a different type as specified in
section 1154(a)(1)(C) of the Act. Therefore, QIOs have authority to
determine the appropriate hospital-level setting in the face of
objective criteria. But there is no objective criteria distinguishing
between settings where acute care is delivered. Since the statute
states ``a facility of a different type,'' and because short term acute
care hospitals and LTCHs are very similar and provide the same level of
care, we have at no time interpreted ``a facility of a different type''
in section 1154(a)(1)(C) of the Act to mean that QIOs must distinguish
between them.
In a memorandum issued to the Regional Offices, Chief Executive
Officers, and all QIOs, from the Director of the Quality Improvement
Group of the CMS Office of Clinical Standards on October 28, 2004,
among other matters, the following policy was further clarified:

Note: there are different provider types that may offer the same
level of intensity of inpatient care. QIOs do not specify which
provider type should be used when the level of intensity is the
same. For example, a patient requires an acute level of care that
could be delivered in a short--term acute care PPS hospital, a long-
term care hospital or an acute rehabilitation hospital. The QIO
determines what intensity of care is appropriate (that is, the
patient requires an acute level of care) but would not specify as a
matter of admission necessity which provider type the patient should
be admitted to. If the QIO determines that there is a quality of
care concern implicated, that issue should be addressed through the
quality review process.

Under current contracts, QIOs review LTCH cases under the following
circumstances: When a claim is selected for purposes of determining or
lowering the payment error rate; if there is a QIO-identified need to
perform additional review based on their contractual responsibilities;
if there is an immediate appeal of certain beneficiary notices; as a
result of the referral of a case or cases; or when there is a
beneficiary complaint or other quality of care concern.
Since one of the recommendations made by MedPAC in their June 2004
Report to Congress was for an increased role for the QIOs in monitoring
criteria to assure that LTCHs are treating appropriate patients,
researchers from RTI have been in contact with several QIOs nationwide
in order to evaluate their role. However, involving QIOs in the on-
going determination of the appropriateness of admissions, continuing
stay or discharge for a significant proportion of LTCH patients was
never envisioned when the QIO program was established. There will not
be a reassignment of Medicare funds to QIOs from the LTCH PPS. However,
we are currently developing the next Quality Improvement Organization
Scope of Work. These comments will be considered in that process.
After consideration of the numerous comments submitted on this
issue, we are finalizing the policy that we discussed in the proposed
rule. That is, in SSO cases where the covered LOS is equal to or less
than the ``IPPS

[[Page 26918]]

comparable threshold'' (defined above in this section) of the same DRG
under the IPPS, the SSO payment methodology will be based upon the
least of the following: 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.

Technical Correction

We are making 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'' at Sec. 412.529(c)(2)(iv)(A), Sec.
412.529(d)(1) and Sec. 412.529(d)(4)(i)(B). We are making this
technical correction to conform all references 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 final 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 fiscal intermediary (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 of these revisions to our
methodology for determining a LTCH's CCR is

[[Page 26919]]

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).)
Comment: One commenter requested that we clarify how we interpret
the 10 percentage point criterion of the SSO and HCO reconciliation
policy.
Response: We did not propose any changes to the current
reconciliation policy. Therefore, we do not believe this final rule is
the appropriate vehicle to address this comment. As we have stated, we
intend to issue subregulatory guidance on LTCH reconciliation that
would be similar to the IPPS reconciliation process and would address
the commenter's question.

B. Expansion of Special Payment Provisions for LTCH Hospitals Within
Hospitals (HwHs) and LTCH Satellites: 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 that the payment adjustment for co-located LTCHs at Sec.
412.534 was also applicable to host hospitals other than acute care
hospitals that served as hosts to LTCH HwHs or satellites of LTCHs
since 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 our 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 Medicare making one payment to
the acute care hospital and another under LTCH PPS for what was
essentially one episode of care (69 FR 49191 through 49192, and 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 for the base
year. This is premised on the assumption that, on average, both high-
cost and low-cost patients are treated at hospitals. Although Medicare
may pay a hospital less than was expended by the hospital for a
particular costly case, the hospital could also receive more than it
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. Because the course of acute treatment had not been completed,
the hospital inappropriately would have incurred lower costs under the
IPPS. It did not incur 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 often would not have taken
place but for the availability of the LTCH (59 FR 45389 through 45393).
With the growth of satellites of excluded hospitals, another
category of co-located facilities, we established ``separateness and
control'' policies applicable to satellites, 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 and final rules 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 the
majority which were HwHs.) We considered whether our regulations
sufficiently protected the Medicare program from the problems that we
envisioned in the FY 1995 IPPS final rule. We also questioned the
effectiveness of the ``performance of basic hospital functions'' aspect
of the ``separateness

[[Page 26920]]

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 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 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 new payment adjustment at
Sec. 412.534 based upon annual threshold criteria for LTCH HwHs or
LTCH satellites 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.
We also finalized additional adjustments to the 25 percent policy
for specific circumstances. For an LTCH HwH or LTCH satellite 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 from the LTCH or satellite 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), a payment threshold was established 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 final rule, the ``applicable percentage''
refers to these special adjustments that we have provided for the
special circumstances of rural, urban-single, or MSA-dominant LTCHs 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 these LTCHs 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 first
year as a ``hold harmless'' year. However, even for 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, the hospital's cost reporting period during
FY 2004, the last cost reporting period prior to the implementation of
Sec. 412.534, is the ``base period'' for purposes of establishing the
gradual phase-in of the full payment threshold adjustment (69 FR
49196).)
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 cost
reporting periods beginning on or after October 1, 2005, but before
October

[[Page 26921]]

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 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 or 50 percent, and finally, 25 percent (or other
applicable percentage) beginning with 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. That is, 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.
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 be
inequitable; and if this policy approach applied the adjustment only to
HwHs and satellites it 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 freestanding LTCHs admit more than
25 percent of their patients from a single source acute-care hospital
(71 FR 27878).
Additionally, in comments received on the FY 2005 IPPS proposed
rule 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 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 primarily 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 the beneficiary's care but the
hospital would be able to avoid both losing the ``fixed loss'' amount
and absorbing 20 percent of the remaining costs for the outlier
patient's care, as established under the IPPS outlier policy at subpart
F of part 412. Medicare would also be responsible for a 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 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 LTCH PPS final
rule, 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, at that time we also
analyzed patient claims data from the FY 2004 MedPAR files for acute
care patients who are admitted to freestanding LTCHs. We have analyzed
the discharge and LOS information from this data to evaluate whether
there was a significant difference in patient shifting behavior between
co-located LTCHs and their host acute care hospitals and those
freestanding LTCHs that admit a majority of their patients from
particular referring acute care hospitals. (As stated previously, for
the

[[Page 26922]]

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,
freestanding 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 hospitals and LTCHs.)
We also analyzed more recent 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 73
of the then 200 freestanding LTCHs admitted 25 percent or less of their
Medicare discharges from an individual acute care hospital; for 82 of
those freestanding LTCHs, the percentage was between 25 and 50 percent;
for 33 it was between 50 and 75 percent, and for 6 percent of those
freestanding 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 60 percent of all freestanding LTCHs, over
25 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 freestanding LTCH. For example, when
we finalized the 25 percent threshold payment adjustment for co-located
LTCHs at Sec. 412.534, 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 freestanding 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 freestanding 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 freestanding LTCH. Even though we finalized the
percentage threshold payment adjustment only for co-located LTCH HwHs
and satellites at that time, we believed that this data indicates
considerable similarity between the patient-shifting behavior at acute
care hospitals with co-located LTCHs and acute care hospitals with
LTCHs with which they 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 under the LTCH PPS for, what is actually, 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
their comments on our FY 2005 IPPS proposed rule regarding the ``strong
relationships'' for referral purposes that exist between many acute
care hospitals and freestanding 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 freestanding
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 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 extending the existing payment policy
will also address the type of ``gaming,'' described above in this
section.
We first noted in the RY 2006 LTCH PPS final rule (71 FR 27878) our
concern that in many cases that the line of ``functional separateness''
between freestanding 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
proposed the extension of 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 policy, a ``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 Sec. 412.536, we proposed regulations that govern
payments under the LTCH PPS for LTCH and LTCH satellite Medicare
discharges admitted from referring hospitals not co-located with the
LTCH or the satellite of a LTCH.
The proposed policy provisions of the 25 percent (or applicable
percentage) payment adjustment 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 proposed to additionally
revise existing Sec. 412.534 to include a new provision at Sec.
412.534(h) that

[[Page 26923]]

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 or 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 proposed
adding Sec. 412.536 that applies a comparable payment adjustment
governing Medicare discharges from subclause (I) LTCHs and LTCH
satellites that were admitted from referring hospitals not co-located
with the LTCH or the satellite of a LTCH.
The proposed payment adjustment at Sec. 412.536 applies 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 policy
addresses 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 proposed amending existing Sec. 412.534 to
include subclause (I) grandfathered LTCH HwHs and LTCH satellite
facilities, as well as using 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
referring hospitals not co-located with the LTCH or the satellite of a
LTCH, under Sec. 412.536.
Specifically under the proposed policy, for cost reporting periods
beginning on or after July 1, 2007, as we specified in revised Sec.
412.534(h), this proposed payment adjustment would have included those
subclause (I) LTCH HwHs and satellites that had 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) would be
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 continued to
comply with applicable Medicare requirements. This inclusion of
grandfathered LTCH HwHs and LTCH satellites in the proposed 25 percent
(or applicable percentage) threshold policy would not effect their
ability to continue to be ``grandfathered'' and excluded from the IPPS.
Moreover, as noted above, the 25 percent (or the applicable percentage)
threshold policy governing discharges from subclause (I) LTCHs that had
been admitted from any individual referring hospital not co-located
with the LTCH or the satellite of a LTCH, at Sec. 412.536, would also
apply in determining payments under the LTCH PPS for Medicare
discharges from LTCH HwHs and LTCH satellites, including grandfathered
HwHs and LTCH satellites, that had been admitted from referring
hospitals not co-located with the LTCH or the satellite of a LTCH (that
is, referring hospitals other than their hosts).
Under the policies applicable to grandfathered subclause (I) LTCH
HwHs and LTCH satellites, we proposed to pay an adjusted amount for
those discharged Medicare patients that were admitted from their co-
located host, under Sec. 412.534(h) or from any other referring
hospital under 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 Sec.
412.534(h), or at the referring hospital not co-located with the LTCH
or the satellite of a LTCH, at Sec. 412.536, would not count towards
the applicable threshold.
We believed that since we proposed expanding the 25 percent policy
to all subclause (I) LTCHs and LTCH satellite facilities it was
appropriate to include LTCH HwHs and LTCH satellites grandfathered
respectively under Sec. 412.22(f) and Sec. 412.22(h)(3)(i). We
proposed that the provisions at 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 the referring
hospital not co-located with the LTCH or the satellite of a LTCH. As we
noted in our RY 2007 LTCH PPS 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 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).
As noted in the proposed rule, when we implemented the existing 25
percent (or applicable percentage) for cost reporting periods beginning
on or after October 1, 2004, we opted to implement 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 was 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 also proposed that for those co-located LTCHs already subject to
the 25 percent (or applicable percentage) payment adjustment at
existing Sec. 412.534, the policy expansion at 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, under the proposed policy, for cost reporting periods
beginning on or after July 1, 2007, a subclause (I) LTCH or LTCH
satellite that discharges more than 25 percent (or applicable
percentage) of Medicare patients admitted from any individual referring
hospital not co-located with the LTCH or the satellite of a LTCH. (that
had not already reached outlier status, as discussed above) would be
subject to the payment adjustment at 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
referring hospital not co-located with the LTCH or the satellite of a
LTCH., we are closing the ``location-specific loophole'' established by
the implementation of Sec. 412.534. The change would affect all LTCHs
or LTCH satellite Medicare discharges that were

[[Page 26924]]

admitted from hospitals that are located on a different campus.
We proposed that the payment adjustment at Sec. 412.534(h) for
grandfathered LTCH HwHs and LTCH satellite facilities, discussed above
in this section, would track the applicable provisions of the existing
payment adjustment at Sec. 412.534. Therefore, we proposed, at Sec.
412.534(h), for cost reporting periods beginning on or after July 1,
2007, the provisions of Sec. 412.534 will also apply to grandfathered
subclause (I) LTCH HwHs and LTCH satellite facilities. Accordingly,
under revised 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 the applicable
percentage of the LTCH's Medicare discharges for that cost reporting
period, an adjusted payment will be made for those discharges that were
admitted from that hospital beyond the applicable percent threshold, at
the lesser of the otherwise payable amount under 42 CFR part 412,
subpart O 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).) Furthermore, as with our initial payment adjustment at
Sec. 412.534, we proposed additional adjustments for LTCHs and LTCH
satellites that would be affected by the new regulations and that are
located in rural areas, or that admit Medicare patients from urban
single or MSA-dominant referring hospitals (discussed below).
We did not propose extending the 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 1886(d)(1)(B)(iv)(II) of the Act.
The policy for subclause (I) LTCHs and LTCH satellites would be 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 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 solely dependent upon
Medicare discharges (69 FR 49205). Therefore, we are not applying the
expansion of the 25 percent policy at 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 amended payment
threshold adjustments at Sec. 412.534 and at Sec. 412.536 for
subclause (I) LTCHs and LTCH satellites are based solely on percentages
of LTCH Medicare discharges. As stated above in this section, 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 Sec. 412.536, we have excluded subclause (II) LTCH
satellites in the application of the 25 percent payment adjustment for
co-located grandfathered LTCHs at Sec. 412.534(h).
We received 270 comments on the RY 2008 LTCH PPS proposed rule.
Several of these comments pertained to the extension of the expansion
of the 25 percent rule to certain situations not currently covered
under existing Sec. 412.534. The following is a summary of these
comments and our responses.
Comment: One commenter expressed concern about the President's
budget that has submitted to the Congress the savings to be affected by
this proposed rule are already ``scored'' and claimed as savings. In
light of this, the commenter questioned the legitimacy of the comment
process.
Response: We disagree with the commenter that the inclusion of
anticipated savings from the LTCH PPS in the President's Budget
invalidates the legitimacy of notice and comment rulemaking.
Projections for expenditures and savings are a necessary and expected
step in the budgetary process for the Federal Government. The budget
only represents the President's expectations or projections of what may
happen in the future. It may make assumptions as to policies that have
been proposed (or are being evaluated for this purpose) as a
representation of will happen. But at most, the Budget should not be
viewed as a final blueprint because the Administration cannot
anticipate policy modifications in response to public comments. We
fully consider all comments received during the comment period and
modify proposed policies in response to public comment. Furthermore, we
would urge the commenter to review the last several years of LTCH PPS
and IPPS proposed and final rules and focus on the differences between
the policies that we proposed and those that we finalized (for example,
the interrupted stay policy (67 FR 13416, 13455 through 13462, and 67
FR 55954, 56003 through 56006); qualifications for LTCH HwH status (69
FR 23306, 28323 through 28327, and 69 FR 48916, 49191 through 49214);
and revisions in the grandfathering of HwHs and satellites (71 FR
23996, 24124 through 24126 and 71 FR 47870, 48106 through 48117)) in
order to more clearly appreciate the impact that comments have on the
development of our final policies.
Comment: Several commenters questioned our authority in proposing a
payment adjustment for LTCHs that is based on an IPPS payment. These
commenters assert that the Congress excluded LTCHs from the IPPS in
1983 and enacted legislation that mandated a separate PPS for LTCHs
that specifically required that payments to LTCHs should reflect the
resource use and costs of treating LTCH patients. The commenters
believe we are violating the statutory requirement that payments to
LTCHs be on a per discharge basis ``that reflects the reasonable and
necessary cost of providing services in a hospital having an average
LOS of greater than 25 days.'' The commenters assert that a payment
``equivalent to'' or ``comparable to'' payments under the IPPS are
actually payments under the IPPS, violating Congressional intent.
Several commenters acknowledge our belief that the IPPS-equivalent is
not a

[[Page 26925]]

payment under the IPPS but the ``thrust of the rationale'' for imposing
the rule is that these cases still belong in the acute care hospital
and payment should mirror payment under the IPPS. One commenter stated
that the Congress ``established LTCHs as a distinct and separate level
of care.''
Several commenters believe we are violating section 1801 of the Act
(``Nothing in this title shall be construed to authorize any Federal
Officer or employee to exercise supervision or control over the
practice of medicine or the manner in which medical services are
provided'') and section 1802(a) of the Act (``Any individual entitled
to insurance benefits under [Medicare] * * * may obtain health services
from any institution, agency, or person qualified to participate * * *
[in the Medicare program] if such institution, agency, or person
undertakes to provide him such services''). These commenters stated
that we have no authority to pay for services provided at a LTCH under
the IPPS. Statutory authority for the establishment of the LTCH PPS
indicates the Congress believed that LTCH care is more costly than
acute because it requires the Secretary ``to account for different
resource use of LTCH patients.'' The commenters believe that the
policies in the RY 2008 LTCH PPS proposed rule would strip away the
special status given by the Congress to LTCHs, thus undermining the
purpose of the LTCH PPS because a significant portion of payments would
be reimbursed under the IPPS.
Response: Following further data and policy analysis, we believe
that the policies that we are finalizing in this rule fairly address
circumstances that we have become aware of as the LTCH PPS matures. We
do not believe that we violated Congressional intent in either the BBRA
of 1999 or the BIPA of 2000 in establishing a payment adjustment under
the LTCH PPS that addresses our concerns about paying for a substantial
number of short stay patients, particularly those with extremely short
stays, under a payment system designed to treat long stay patients.
As indicated previously, section 123 of the BBRA, as amended by
section 307(b)(1) of the BIPA, confers broad discretionary authority on
the Secretary to implement a PPS for LTCHs, including providing for
appropriate adjustments to the payment system. This broad authority
gives the Secretary great 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 instant case, our finalized policy utilizes, in large part,
principles from the IPPS payment methodology and builds upon those
concepts to create a LTCH PPS payment adjustment that results in an
appropriate payment under the LTCH PPS for those inpatient stays that
we believe could be more appropriately treated in another setting.
We disagree with commenters that our proposed expansion of the 25
percent policy that provides for a payment based on an ``IPPS
comparable payment amount'' is a payment under the IPPS. We want to
emphasize that such a payment is not an IPPS payment, but rather, given
the fact that these patients are comparable to patients treated in
acute care hospitals and that the statute precludes the existence of
LTCH units, it is an appropriate payment adjustment under the LTCH PPS
that is equivalent to a payment that would be derived from the IPPS
payment methodology. Moreover, the authority extended to the Secretary
by the BIPA included the discretion to ``provide for appropriate
adjustments to the long-term hospital payment system.'' Our final
policy is one such adjustment made within the authority conferred under
the statute. From the inception of the LTCH PPS for FY 2003, we have
interpreted the above cited statutory provision to authorize the
establishment of payment adjustment policies including short stay
outliers (Sec. 412.529), interrupted stays (Sec. 412.531), and
discharges from LTCHs. We also believe that the authority extended to
the Secretary by the BIPA includes the discretion to develop a payment
adjustment based upon establishing a percentage threshold for LTCH
discharges that we believe are comparable to discharges from acute care
hospitals under circumstances where we believe that a full episode of
care has not been delivered at the referring hospital and that the LTCH
is functioning like a step-down unit of the referring hospital.
We believe that further refining the 25 percent policy actually
captures Congressional intent since it addresses the situation of a
LTCH which by all appearances is serving as a unit of another hospital.
Comment: Some commenters maintain that we have no authority to
restrict admissions through payment reductions to LTCHs that have no
relationship to the referring acute care hospitals. One commenter
stated that in proposing the extension of the 25 percent policy to non-
co-located LTCHs, we have violated the Court's two-prong test for
validity of a regulation established under Chevron U.S.A., Inc. v.
Natural Resources Defense Counsel, Inc., 467 U.S. 837, 842-843 (1984).
Under the ruling, the Court asks whether the Congress addressed, in
clear language, the issue in question and, if the answer is
affirmative, the effect is given to the ``unambiguously expressed
intent of Congress.'' If the ``statute is silent or ambiguous with
respect to the specific issue,'' ``the Agency's interpretation is
allowed to stand as long as it is based on a permissible construction
of the statute.'' Id. at 843. Deference to the Agency's interpretation
is ``only appropriate when the agency has exercised its own judgment''
and is not based upon an erroneous view of the law. Id.
Response: We disagree that we have imposed criteria that would
restrict admissions through payment reductions to LTCHs that have no
relationship to the referring acute care hospitals. The payment
adjustment we are implementing is not the equivalent to setting
``admissions criteria'' for treatment at a LTCH. An LTCH may admit as
many hospital-level patients as it can safely treat and from whatever
source(s) it chooses. However, we believe that LTCHs that discharge
greater than the applicable percentage of patients admitted from a
particular source that had not reached high cost outlier status, may be
understood to be functioning similarly to a co-located LTCH (HwH or
satellite), and therefore, more like a step-down unit of the acute care
hospital. Under such a circumstance, we believe that the Medicare
program would be generating a second payment under the LTCH PPS for a
single episode of care for patient who, had not completed his or her
episode of care and, is discharged to a LTCH for the remaining portion
of the original episode of care. Thus, we believe that it is
appropriate to adjust the payment to be made to the LTCH under the LTCH
PPS.
Section 123 of the BBRA, as amended by section 307 (b) of the BIPA,
confers upon the Secretary tremendous discretion in creating the LTCH
PPS. We believe that the expansion of the 25 percent policy is in
accordance with the authority granted to the Secretary under 123 of the
BBRA as amended by section 307 of the BIPA to make adjustments under
the LTCH PPS and is consistent with the statute which precludes the
establishment of LTCH units at section 1886(d)(1)(B) of the Act and is
also consistent with the Secretary's authority under sections 1102 and
1871 of the Act. Therefore, we disagree with commenters that the
Secretary is acting in contradiction of the statute and inconsistently
with the Chevron doctrine.

[[Page 26926]]

As a result of our monitoring efforts, we have become increasingly
aware that the intent of our existing payment adjustment policy at
Sec. 412.534 aimed at combating LTCHs functioning as long-stay
``units'' of the referring hospitals is being circumvented by creative
patient-shifting and admission practices, in addition to, a spiked
increase in the number of freestanding LTCHs. We have been monitoring
the patient shifting patterns of LTCHs and referring hospitals that are
not co-located with one another and have detected behavior that is not
significantly different from that of co-located LTCHs and their host
hospitals. Therefore, we do not believe that co-location is a
prerequisite to inappropriate patient-shifting between an acute care
hospital and a LTCH.
We believe that the danger of LTCHs functioning as ``units''
appears to be occurring not only in LTCH HwHs and LTCH satellites, but
also with freestanding LTCHs, and that in many cases, these non-co-
located LTCHs and their referral sources may be functioning in ways
that appear to have erased the line of ``functional separateness''
between these LTCHs and their referring acute care hospitals. If
patient-shifting between the referring hospital and a LTCH exceeds a
specific threshold prior to the patient reaching outlier status at the
referring hospital (that is, prior to receiving a full episode of care)
the LTCH appears to be functioning as a de facto step down unit of the
acute care hospital, a configuration not permitted by section
1886(d)(1)(B) of the Act, which authorizes rehabilitation and
psychiatric units but not LTCH units of acute care hospitals. We
believe that if the patient is in effect, being treated in a ``unit''
of the acute care hospital, it is reasonable to revise the payment
methodology and take this into account.
Comment: We received several comments supporting our inclusion of
grandfathered LTCH HwHs in the 25 percent threshold payment adjustment.
These commenters stated that such inclusion would ``level the playing
field'' among LTCHs. A number of commenters disagreed with applying the
25 percent threshold payment adjustment for co-located LTCH HwHs and
satellites. Other commenters urged us to ``continue the grandfathering
exemption.'' Several commenters stated that including grandfathered
LTCH HwHs with other LTCHs ``evades the Congressional mandate for
grandfathering'' and also contradicts regulatory statements that we
have made since the start of the LTCH PPS. One commenter stated that
grandfathered LTCHs HwHs have ``operated in reasonable reliance on CMS
statements that it [would] not apply the HwH requirements to
[grandfathered LTCHs]'' and requested that we continue to exempt
grandfathered LTCHs from the proposed 25 percent rule. The commenter
noted that since grandfathered LTCH HwHs were exempt from the original
25 percent policy that had been codified at Sec. 412.22(e)(5)(iii) and
since Sec. 412.534 is based on that requirement, we should continue to
exempt grandfathered LTCH HwHs from this policy. One commenter noted
that grandfathered LTCH HwHs were protected against being paid under
the IPPS even though they did not comply with the ``separateness and
control'' regulations but if they are required to comply with the 25
percent threshold payment adjustment, the ``result will be the same''
because the grandfathered LTCH HwH would be paid under the IPPS.
Another commenter cited that LTCH HwHs are precluded from growing under
our regulations, and therefore, they should be exempted from the 25
percent policy. One commenter agreed that HwH, freestanding, and
grandfathered LTCHs should be subject to the extension of the 25
percent threshold rule, but believes that the threshold should be 35
percent for this group of LTCHs instead of 25 percent because it would
still allow CMS to achieve its stated goal and would also be more
realistic for LTCH providers that operate in small urban markets which
are very similar to rural areas.
Response: We appreciate those commenters who endorsed our inclusion
of grandfathered LTCH HwHs in the 25 percent threshold payment
adjustment. (We would also note that satellites of LTCHs at Sec.
412.22(h)(4) will also be affected by the policy change.) The payment
adjustment that we are finalizing, will affect all subpart (I) LTCHs,
including those LTCHs and LTCH HwHs and satellites that were already
regulated under Sec. 412.534 for discharges that had been admitted
from their co-located hosts. It addresses our concern regarding
Medicare patients who are discharged from referring hospitals prior to
the delivery of a full episode of care, to LTCHs. In keeping with our
fiduciary responsibility to protect the Medicare program against
duplicative and inappropriate payments, we are finalizing the proposed
policy at Sec. 412.534(h) under which all subclause (I) LTCHs,
including grandfathered LTCH HwHs and satellites, will be subject to
the 25 percent (or applicable percentage) threshold payment adjustment
with regard to Medicare discharges that they admit from their co-
located host. (We are also providing for conforming changes to Sec.
412.534(a), (c)(1), (c)(2), (d)(1), and (e)(1) to include grandfathered
HwHs and satellites, in existing provisions.) Furthermore, under new
Sec. 412.536, Medicare discharges from grandfathered LTCH HwHs and
satellites that were admitted from referring hospitals not co-located
with the LTCH or the satellite of a LTCH that exceed the applicable
threshold, will be subject to the payment adjustment described in
detail above in this section. (Elsewhere in these responses, we discuss
the 3-year transition period to the full threshold adjustment that we
are also providing for all LTCHs and LTCH satellites including
grandfathered LTCHs and satellites affected under Sec. 412.536.)
We disagree with commenters who stated that we are ``evading
Congress' mandate, and contradicting regulatory statements that we have
formerly made.'' Section 4417(a) of the BBA of 1997 amended
1886(d)(1)(B) of the Act to provide that ``[a] hospital that was
classified by the Secretary on or before September 30, 1995 as a
hospital described in clause (iv) [a LTCH] shall continue to be so
classified notwithstanding that it is located in the same building as
or on the same campus as another hospital.'' We believe this provision
was intended to prevent grandfathered LTCHs that were unable to satisfy
our HwH regulations from losing their LTCH status. By finalizing the 25
percent (or applicable percentage) payment threshold policy to include
grandfathered LTCHs HwHs, in no way are we countermanding their
exemption from the separateness and control regulations at Sec.
412.22(e). LTCHs that exceed the applicable threshold do not lose their
LTCH status. Rather, the new policy only affects the payment level for
all LTCHs that exceed the threshold. We further believe that including
grandfathered LTCH HwHs (and satellites) within the scope of the
percentage payment threshold that we have established to ensure that
Medicare is not generating two full payments one under the IPPS and
another under the LTCH PPS for one episode of care, is well within the
authority of section 123 of the BBRA, as amended by section 307(b)(1)
of the BIPA, which confers broad discretionary authority on the
Secretary to develop and implement a PPS for LTCHs and further provides
that the Secretary ``may provide for appropriate adjustments to the
long-term hospital payment system.''
We do not believe that it is reasonable to assume that by creating
a limited

[[Page 26927]]

exception for these hospitals that the Congress intended to immunize
these facilities from any further regulation by the Secretary as to
their growth and financial impact on the Medicare program. ``We do not
believe Congress was establishing a separate class of providers'' (71
FR 48109). Grandfathered LTCHs and LTCH satellite facilities are paid
under the LTCH PPS and the revised payment adjustment under Sec.
412.534 and new Sec. 412.536 is merely another feature of the LTCH
PPS.
One commenter believes we contradicted our own statements by
including a partial quote from the FY 2007 IPPS final rule about
grandfathered LTCH HwHs' ``reasonable reliance'' on the fact that we
would not apply the HwH requirements. In that final rule, we explained
that ``[t]he purposes of our grandfathering certain existing HwHs and
satellites was to reflect reliance interests and settled expectations
that existed on the part of these facilities at the time the
separateness and control requirements were created'' (71 FR 48107). We
believe this statement is consistent with our belief that including
grandfathered HwHs in the extension of the 25 percent (or applicable
percentage) payment threshold policy does not violate the Congress'
intent. The expansion of the 25 percent policy will not affect the
``reliance interests and settled expectations'' of grandfathered HwHs
(and also on LTCH satellites) since they will continue to be exempt
from meeting the separateness and control requirements that are
required by non-grandfathered co-located LTCHs. Moreover, the concerns
that we hold regarding premature patient shifting from host hospitals
or referring hospitals to LTCHs and the consequences of such patterns
for Medicare payment purpose, may even be more relevant with regards to
grandfathered LTCH HwHs because since they are exempted from the
separateness and control policies they may even more closely resemble
step-down units of their host hospitals.
Several commenters noted that the 25 percent threshold payment
adjustment originated as one of the three options (the 75/25 test) with
which HwHs could comply to meet the separateness and control
requirements at (then) Sec. 412.22(e)(v)(C). They stated that since
grandfathered LTCH HwHs were exempted from this requirement when it was
a ``certification issue,'' or ``control requirement,'' these facilities
should similarly be exempted from the policy when it is a payment
adjustment. We note that even though the percentages in these policies
are the same, there is a critical difference between them. Because the
effect of section 1886(d)(1)(B) is that grandfathered LTCH HwHs may
continue to be classified as LTCHs even if they fail to meet with the
``separateness and control'' requirements that we had established at
Sec. 412.22(e), among which was the 75/25 test as one of the three
options for indicating independent ``performance of basic hospital
functions'' between the host and the LTCH HwHs, grandfathered HwHs
continued to be excluded from the IPPS despite their unquestioned
organizational and functional linkage to their host hospitals. A non-
grandfathered LTCH HwH that was not in compliance with the separateness
and control requirements would have lost its IPPS exclusion. Therefore,
since loss of IPPS-excluded status is not a feature of the payment
adjustments that we are finalizing at revised Sec. 412.534 and Sec.
412.536, we would disagree with the commenter that the ``result will be
the same because the grandfathered LTCH HwH would be paid under the
IPPS.'' Under Sec. 412.534(h), which makes grandfathered LTCH HwHs
(and LTCH satellites) subject to revised Sec. 412.534(h) and to Sec.
412.536, for cost reporting periods beginning on or after July 1, 2007,
there is no risk of losing IPPS-excluded status. Grandfathered LTCHs
would continue to be paid under the LTCH PPS, albeit, an adjusted
payment amount, even if they exceed the applicable percentage threshold
under our finalized policy.
As with all other subclause (I) LTCHs, Medicare payments to
grandfathered LTCH HwHs (and satellites) for discharges in excess of
the applicable threshold that were admitted from an individual
referring hospital will be based on a payment under the LTCH PPS at the
lesser of the otherwise unadjusted amount under the LTCH PPS or a
payment equivalent to what would otherwise have been paid under the
IPPS. As with all LTCHs and LTCH satellites that are subject to this
payment policy, discharges that exceed the applicable threshold that
had reached outlier status at the referring (or host) hospital, will
not be subject to the payment adjustment and will therefore be eligible
for otherwise unadjusted payment under subpart O.
Since we are applying the 25 percent policy even to freestanding
LTCHs, it would be inconceivable to treat grandfathered HwHs as being
in a unique class that exempts them from the policy while applying the
policy to LTCHs that are totally separate from the referring hospital.
We believe that the Congress intended to allow grandfathered HwHs to
maintain their LTCH status but in no way intended for this group of
LTCHs to receive an exclusion from payment policies applicable to
freestanding LTCHs.
We further disagree with the commenters that since grandfathered
LTCH HwHs (and satellites) are precluded from ``growth'' under our
existing regulations, that they should not be subject to the 25 percent
(or applicable percentage) payment adjustment. We have allowed
grandfathered LTCH HwHs and satellites to modernize their facilities as
necessary and appropriate even if modernization required an increase in
square footage. Specifically, in the FY 2007 IPPS final rule, we
revisited previous policies that limited grandfathered LTCH HwHs (and
satellite facilities, including satellite units) from changing the
``terms and conditions'' under which they operated at the time of their
grandfathering and we revised Sec. 412.22((f)(3) (and Sec.
412.22(h)(4) for satellites), and finalized a policy which would allow
them to increase or decrease their square footage or decrease their
number of beds without risking their grandfathered status. In that same
final rule, we revised this policy for all HwHs, satellites, and
satellite units of all excluded hospitals, not only LTCHs, because we
were persuaded by comments received on our FY 2007 IPPS proposed rule
(71 FR 23996) that these facilities needed to be able to expand in
order to modernize (for example, to accommodate new medical equipment,
record requirements, and new Federal, State, and local safety
requirements). However, we did not allow grandfathered facilities to
increase their number of beds because we believed that all
grandfathered co-located facilities already held a significant
advantage over such facilities that were not grandfathered, because
they were not required to comply with separateness and control rules.
Therefore, we believed that not only would allowing them to increase
their bed count convey an additional unfair advantage to these
facilities, but also that such an increase would lead to additional
costs for the Medicare program (71 FR 48106 through 48115). We
similarly believe that continued exemption of grandfathered LTCH HwHs
and satellites from the payment threshold adjustment to which all other
subclause (I) LTCHs are subject is both fair and appropriate, and in
the words of our commenter, helps to ``level the playing field'' among
LTCHs.
Regarding the commenter's suggestion that even as we extend the 25
percent

[[Page 26928]]

threshold payment adjustment to all LTCHs including grandfathered HwHs,
we should raise the threshold to 35 percent as a more reasonable goal,
particularly for small urban and rural areas, we would call the
commenter's attention to the 3-year transition to the full threshold
adjustment that we are providing (described in greater detail in the
next response) which establishes a 75 percent threshold but not to
exceed the percentage in the base year at Sec. 412.536(f)(1) for all
impacted LTCHs and LTCH satellites for cost reporting periods beginning
on or after July 1, 2007, through June 30, 2008 and a 50 percent but
not to exceed the percentage in the base year threshold for all
impacted LTCHs and LTCH satellites for cost reporting periods beginning
on or after July 1, 2008, through June 30, 2009. For cost reporting
periods beginning on or after July 1, 2009, the threshold will be 25
percent (or the applicable percentage.) We have responded to comments
regarding single urban and rural LTCHs elsewhere in these responses. We
believe that establishing this policy will result in hospitalized
patients who continue to need acute care hospital treatment to not be
shifted to another acute care hospital setting before the end of a full
episode of care, but rather to complete appropriate treatment at the
referring hospital.
Comment: Several commenters contend that the relationship between a
referring hospital and a freestanding LTCH should not be subject to the
same regulatory standards as should a co-located LTCH and its host
hospital. Furthermore, the commenters assert that when we finalized the
25 percent payment threshold for co-located hospitals, we provided a 4-
year phase-in to the full 25 percent (or applicable percentage)
threshold but in our proposed rule, we have not proposed any such
phase-in for those LTCHs who would be affected under the proposed
policy at proposed Sec. 412.536. The commenters request that if we
finalized the proposed extension of the 25 percent payment adjustment
to non-co-located LTCHs and LTCH satellites, that we provide a similar
transition period to allow LTCHs the opportunity to adapt to the full
impact of the policy. In addition, commenters requested that we also
provide for implementation on a site-specific basis, as we had under
the existing Sec. 412.534 provision rather than based on admissions to
the provider in its entirety. One commenter stated that for purposes of
implementation, using a provider number definition on the LTCH side
would be simpler to track and control and would be less subject to
manipulation.
Response: We have expressed our concerns regarding patient-shifting
between host hospitals and co-located LTCHs (HwHs and satellites) since
we originally established the separateness and control requirements at
Sec. 412.22(e) for FY 2005 (59 FR 45389 through 45393). Upon
finalizing the 25 percent (or applicable percentage) threshold policy
for co-located LTCHs for FY 2005, we received comments indicating that
we should be aware of similar patient shifting patterns between non-co-
located LTCHs and their primary referring hospitals (69 FR 49211).
Specifically, MedPAC noted that ``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,
freestanding LTCHs receive 42 percent from their a primary referring
hospital * * * [that] there are some risks in our proposed 25 percent
policy; (a) the 25 percent rule that only applies to LTCH HwHs and not
to freestanding LTCHs and may therefore be inequitable; (b) it does not
ensure that patients go to the most appropriate post-acute setting; (c)
this approach may be circumvented by an increase in the number of
freestanding LTCHs instead of LTCH HwH.'' As we stated in the FY 2005
IPPS final rule, we believe that ``MedPAC shares our concern that the
LTCH payment system creates an incentive for unbundling of the IPPS in
addition to overpayment for the care provided by LTCHs and that this
concern is great, particularly, in the case of a LTCH HwH * * * '' (69
FR 49211). We also provided an in-depth discussion of our growing
concerns in the RY 2007 LTCH PPS final rule (71 FR 27874 through
27881). As we have stated, when we evaluate patient discharges from a
host or a referring hospital (typically, an acute care hospital) and
admission to a LTCH, we are particularly concerned that the acute care
hospital has not provided a full episode of care for a patient who
continues to need hospitalization, but instead, is discharging this
patient to another acute care hospital, one that is paid under the LTCH
PPS. Consequently, two Medicare claims are submitted; one from the
acute care hospital and the other for payment under the LTCH PPS for
what was essentially one episode of care.
In this final rule, while we continue to believe that the expansion
of the 25 percent payment threshold policy for at Sec. 412.536 and
revised Sec. 412.534 are appropriate, in response to the commenters,
we have revisited our original proposal and will provide for a 3-year
phase-in of the final payment threshold adjustment at Sec. 412.536 and
revised Sec. 412.534. Specifically, in this final rule, we have
established a 3-year transition period under Sec. 412.536 for LTCHs
that will be governed by the expansion of the 25 percent threshold
policy for LTCH discharges admitted from referring hospitals not co-
located with the LTCH or the satellite of a LTCH and also for those
grandfathered co-located LTCHs that we included under this policy at
revised Sec. 412.534(h).
Under the policy that we are finalizing for cost reporting periods
beginning on or after July 1, 2007 and before July 1, 2008, the
threshold will be no less than the lesser of 75 percent or the
percentage that the LTCH or LTCH satellite discharged from the
referring hospital during its RY 2005 cost reporting period. For cost
reporting periods on or after July 1, 2008 and before July 1, 2009, the
threshold will be no less than the lesser of 50 percent or the
percentage that the LTCH or LTCH satellite discharged from the
referring hospital, during its RY 2005 cost reporting period. For cost
reporting periods beginning on or after July 1, 2009, all LTCHs and
LTCH satellites under Sec. 412.536 and grandfathered LTCHs and LTCH
satellites under Sec. 412.534 will be subject to the applicable
percentage threshold. (We note that for cost reporting periods
beginning on or after October 1, 2007, non-grandfathered co-located
subclause (I) LTCHs, under Sec. 412.534, are fully phased-in to the
full 25 percent (or applicable percentage threshold) for discharges
admitted from their co-located hosts. However, payments for LTCH
discharges admitted from referring hospitals not co-located with the
LTCH or the satellite of a LTCH, are governed under Sec. 412.536.)
Furthermore, under our finalized policy, grandfathered LTCH HwHs
and satellites, under Sec. 412.534(h) and Sec. 412.536 will now be
subject to the 3-year transition that we are finalizing under this new
policy for all their discharges, both admitted from their co-located
host and from referring hospitals not co-located with the LTCH or the
satellite of a LTCH hospital.
We believe that a 3-year transition is sufficient time for those
affected LTCHs to adapt to this payment adjustment. Since the
implementation of the existing payment adjustment for co-located LTCHs
at Sec. 412.534 for FY 2005, we have clearly articulated our
continuing concerns about patient-shifting between non-co-located LTCHs
and referring hospitals (69 FR 49213, 71 FR 27878 through 27879).
Therefore, we believe

[[Page 26929]]

that we have provided ample notice to the LTCH industry of potential
impending regulation in this area and that therefore we believe that
the industry had time to adjust its behavior. We have also seen
articles in trade association newsletters over the past several years
indicating that the LTCH industry was well aware of our focus on this
issue. However, in response to comments, we have adopted a 3-year
transition policy that we believe will provide additional time for
LTCHs to adjust to the new regulations.
However, we also want to reiterate, that just as we provided under
Sec. 412.534, the payment adjustment specified at Sec. 412.536 will
not be applied to discharges (admitted to LTCHs or LTCH satellites from
referring hospitals not co-located with the LTCH or the satellite of a
LTCH) that reached HCO status at the referring hospital prior to
admission to the LTCH or LTCH satellite.
Regarding implementation of the new payment adjustments, we will be
implementing the percentage threshold at Sec. 412.536 on the provider
as a whole for multi-campus referring sources and also for multi-campus
LTCHs or LTCH satellites in contrast to our location-specific
implementation of the 25 percent payment adjustment for co-located
LTCHs under Sec. 412.534. We agree with the commenter that location-
specific implementation was consistent with our policy goals in
addressing patient movement between co-located LTCHs and LTCH
satellites and their hosts. However, we believe that our goals
regarding LTCH discharges admitted from referring hospitals not co-
located with the LTCH or the satellite of a LTCH are more logically
served by basing implementation on the provider as a whole (that is,
based on discharge data for the entire provider under its provider
number). Discharges from a co-located LTCH or LTCH satellite that were
admitted from remote locations of the host hospital not co-located with
the LTCH or the satellite of a LTCH would also be held to the expanded
25 percent policy by aggregating the discharges from those locations
and determining if they exceeded the applicable threshold. Patients
that are admitted from the hospital that is co-located with the LTCH or
LTCH satellite facility will continue to be governed by the location-
specific implementation of Sec. 412.534.
We have revised our proposed policy regarding transitioning to the
full 25 percent threshold adjustment and under our finalized policy,
for all subclause (I) co-located HwHs and satellites, including
grandfathered subclause (I) LTCH HwHs and LTCH satellites under the
extension of the 25 percent (or the applicable percentage) threshold
policy that we are finalizing, at revised Sec. 412.534(h) and Sec.
412.536, and we are providing for a 3-year transition period.
Accordingly, for cost reporting periods beginning on or after July 1,
2007, and before July 1, 2008, the percentage threshold applied would
be no less than the lesser of 75 percent of the total number of
Medicare discharges that were admitted from all referring hospitals not
co-located with the LTCH or the satellite of a LTCH during that cost
reporting period or the percentage of Medicare discharges that had been
admitted to the LTCH or LTCH satellite from that referring hospital
during the long-term care hospital's or satellite's RY 2005 cost
reporting period. Although we proposed to use FY 2005 as the base year
for this group of LTCHs in the RY 2008 LTCH PPS proposed rule (72 FR
4815), we will use RY 2005 rather than FY 2005 as the base year since
we have revised the transition period under Sec. 412.536 to be
effective and applicable for cost reporting periods on a rate year
cycle (That is, beginning on or after July 1. We originally chose 2005
because when we published our proposed rule, FY 2005 was our most
recent full year of MedPAR data. For cost reporting periods beginning
on or after July 1, 2008 and before July 1, 2009, the percentage
threshold applied would be no less than the lesser of 50 percent of the
total number of Medicare discharges that were admitted from all
referring hospitals not co-located with the LTCH or the satellite of a
LTCH during that cost reporting period or the percentage of Medicare
discharges that had been admitted to the LTCH or LTCH satellite from
that referring hospital during the long-term care hospital's or
satellite's RY 2005 cost reporting period. For cost reporting periods
beginning on or after July 1, 2009, the threshold will be 25 percent
(or the applicable percentage.) A 3-year transition period is
applicable for all subclause (I) LTCHs and LTCH satellites governed
under Sec. 412.536 and to grandfathered LTCHs and LTCH satellites now
subject to the threshold under Sec. 412.534. For co-located LTCHs
(that is, LTCH HwHs and LTCH satellites) it is important to note that
under existing Sec. 412.534(g)(4), for cost reporting periods
beginning on or after October 1, 2007, LTCH HwHs and LTCH satellites
being phased-in to the full adjustment would enter year 4 and be would
be required to meet the 25 percent (or applicable percentage) threshold
regarding their percentage of discharges from their co-located hosts.
However, these LTCH HwHs or LTCH satellites are governed by Sec.
412.536 regarding discharges that they admitted from any other referral
source (that is, other than its co-located host hospital) and would be
subject to the 3-year transition beginning with cost reporting periods
beginning on or after July 1, 2007.
We also believe that it is important that we note that the 3-year
transition to the full 25 percent threshold payment adjustment will
coincide with our continuing work on the MedPAC recommendations to
attempt to develop facility and patient level criteria for LTCHs. We
hope that the LTCH industry will work closely with CMS to pursue this
endeavor during the transition period.
Comment: Several commenters maintained that we did not present
convincing data-based evidence in the RY 2008 LTCH PPS proposed rule
and that in the absence of meaningful data no meaningful comments can
be made. Several commenters questioned why we are seeking to expand the
25 percent threshold policy to non-co-located LTCHs when we have not
yet evaluated data from the FY 2005 implementation of the same payment
adjustment for co-located LTCHs and LTCH satellites. Some commenters
included data analyses that they believe refutes the policies that we
proposed in the RY 2008 LTCH PPS proposed rule. The commenters urged
CMS to review the most current hard data from LTCHs and to base all
policy formulations on the conclusions that can reasonably be drawn
from such data. Several commenters contended that we proposed policy
based on anecdotes rather than on hard data and that we have accused
the LTCH industry based on this anecdotal evidence. The commenters
requested that we provide data, rather than anecdotal evidence of the
purported ``gaming'' that we believe is occurring between the acute
hospitals and LTCHs. The commenters further contended that the research
produced by RTI should be the foundation of future CMS rulemaking.
Commenters also maintained that rather than continuing to increase,
the absolute number of LTCHs has decreased by one during 2006, and
therefore, we should not continue to be concerned about industry
growth.
Response: We disagree with the commenters' assertions regarding
both our analyses and provision of the best available data evidence for
the policies that we proposed and that this lack resulted in LTCH
stakeholders being unable to submit ``meaningful comments.'' In fact,
we received 270 comments in response to the RY 2008

[[Page 26930]]

LTCH PPS proposed rule (some of which were very lengthy). We believe
that the concerns expressed in these comments, which we present in
appropriate sections of this final rule by topic, are indicative that
meaningful comments were made. In determining our final policy, we are
fully aware of the serious attention that our commenters invested in
their policy recommendations, as well as in the challenges that they
have articulated presented. Moreover, regarding assertions that we have
not provided data that indicates our policy rationale, we note that in
December 2006 we posted the RTI report in its entirety on the CMS Web
site at http://www.cms.hhs.gov/LongTermCareHospitalPPS/02a_RTIReports.asp#TopOfPage. This report contains detailed data analyses
which were the bases of RTI's findings and significantly impacted our
decisions to propose specific policies.
With regard to the data analyses that some commenters submitted
challenging the correlation that we proffered, between the discharges
to LTCHs and fewer high cost outlier cases at referring acute care
hospitals we would assert that our data analyses (described below)
support this theory.
An analysis of our MedPAR data from acute care hospitals regarding
their LOS during CY 2003 to their LOS during CY 2005 in markets where
LTCHs opened in CY 2004. Our data analysis focused on acute care
hospitals that had been the source of at least 25 percent of the LTCH
discharges. (Our data indicated that these communities already had some
LTCHs at the time when these additional LTCHs opened.) We compared
304,650 acute care cases in CY 2004 to 316,816 cases in CY 2005. In CY
2003, there were 7,586 outliers and in CY 2005, there were 5,858. The
percentage of outliers in the acute care hospitals decreased from 2.5
percent to 1.8 percent and the numbers of patients that were admitted
to LTCHs in those communities increased from 2,128 in CY 2003 to 6,597
in CY 2005. Furthermore, the percentage of acute care hospital
discharges to LTCHs increased from 0.7 percent in CY 2003 to 2.1
percent in CY 2005. The percentage decline in total outliers between
the CY 2003 and CY 2005 was -25.7 percent. The increase in LTCH
discharges from CY 2003 to CY 2005 was 198.1 percent.
We would also quote section 3.3 ``the RTI report which summarizes
its detailed data analyses (which are included in the Report) by noting
that LTCH admissions were less likely to have had an outlier payment
during the prior acute stay (8 percent compared to 12 percent for non-
LTCH admissions). The ALOS in the acute hospital [prior to discharge to
the LTCH] tended to be longer for the LTCH admissions, averaging 13.5
days compared to only 11 days for the other acute admissions.'' (p. 51)
This statement indicates that those patients that were admitted to the
LTCH before achieving outlier status at the acute care hospital were
``sicker'' than other patients in those DRGs, which is logical since
they continued to need acute hospital-level treatment. (Elsewhere in
these responses, we respond, in greater detail, to comments that we
received that challenge our benchmark assumption that reaching outlier
status signifies the delivery of a full episode of care. To briefly
summarize, it is our belief that a patient at an acute care hospital
who still is in need of acute hospital-level care upon discharge from
that setting, may not have completed the treatment for which the
Medicare is paying) and is using the LTCH as a unit to treat those
patients.
In particular, we suggest that commenters revisit Table 3-7 in the
RTI Report which indicates that while most patients constituting LTCH
admissions were previously hospitalized, only a small proportion of
those in the acute hospital generated an outlier payment (less than 20
percent) except for the DRG 452: Complications of Treatment with CC
(21.3 percent) and DRG 204: Disorders of the Pancreas Except Malignancy
(26.2 percent). About one-fourth of the top 50 LTCH conditions had 15
to 20 percent of their admissions qualifying for an acute outlier
payment before being admitted to the LTCH. These included many of the
medically complex conditions such as: DRG 475: Ventilator Support 16.9
percent); DRG 316: Renal Failure (19.3 percent); DRG 076: Other
Respiratory System OR Procedures with CC (19.2 percent); DRG 188: Other
Digestive System (19.5 percent); DRG 483: Tracheostomy (17.8 percent);
DRG 461: OR Procedures (17.8 percent); DRG 331: Other Kidney and
Urinary Tract Diagnoses with CC (17.1 percent); and DRG 440: Wound
Debridements for Injuries (19.4 percent). Still, the majority of LTCH
admissions were admitted before reaching outlier status in the acute
hospital'' (p. 48).
We believe that the above data supports our extension of the 25
percent threshold payment adjustment which distinguishes between
patients in need of further acute level care who were admitted to a
LTCH or satellite after receiving a full episode of care at the
referring acute (that is, they reached outlier status at that hospital)
and those needing further acute treatment that were admitted to the
LTCH following what appears to be a truncated stay at the acute care
hospital.
In response to the comments that suggested that our extension of
the 25 percent payment threshold policy was premature since as yet, we
had no data on the impact of the 25 percent policy on co-located LTCHs,
because the policy is not yet fully phased-in, we reiterate that
regulating inappropriate patient shifting to LTCH HwHs and satellites
from their co-located hosts does not negate the need to address the
same issue between LTCHs and referring hospitals with which they are
not co-located. We remain concerned about LTCHs with a pattern of
patients who need acute hospital-level care after having received
treatment for which Medicare has paid under the IPPS that are
immediately admitted for additional hospital-level treatment to other
acute care hospitals (LTCHs) for another Medicare payment under the
LTCH PPS.
In response to commenters who found fault with our attention to
anecdotal information regarding the behavior of some LTCHs, we note
that determinations are based on our policy on a variety of factors,
including information from our FIs, questions and comments from LTCH
consultants and attorneys, LTCH advertisements in both print media and
the internet that provided us with irrefutable information about LTCH
behavior. We believe that it is our fiduciary responsibility to guard
the Medicare Trust Fund from inappropriate and unnecessary
expenditures. Therefore, we believe that any and all information
regarding the LTCH industry is pertinent to our responsibility to be
proactive in the regulatory process. For example, we are aware of a
growing trend by some LTCHs to establish ``units dedicated to mental
health,'' identified as a ``Mental Health Unit'' or ``Medical-
Behavioral Unit.'' Assuming that the LTCH organization is cognizant of
the preclusion against the establishment of excluded units (for
example, psychiatric or rehabilitation) in a hospital that is excluded
from the IPPS (see Sec. 412.25((a)(1)(ii)) establishment of such
titular ``units'' would be reimbursed by Medicare under the LTCH PPS.
Clearly patients in any acute care hospital setting (and LTCHs are
acute care hospitals) may need psychiatric intervention, but given our
regulations governing excluded psychiatric units at Sec. 412.27 and
the specific COPs for psychiatric facilities at Sec. 482.62, we are
very interested in LTCHs that are advertising mental health care as a
primary patient service.

[[Page 26931]]

Regarding the comments that note an absolute decrease in the number
of LTCHs that were established in FY 2006, we note that we are well
aware of continuing growth in the LTCH industry, which in some part,
takes the form of large LTCH companies purchasing existing LTCHs and
expanding the facilities, as well as the shifting landscape of the LTCH
industry brought about by continuing corporate mergers. (Our
information in this regard comes to us from FIs, corporate press
releases from LTCHs, newsletters from LTCH trade associations,
corporate Web sites, and investment newsletters. For example, one Web
newsletter announced, ``Private Equity Firms Target Long-Term Acute
Care Hospitals.'' The article continued, ``Two operators of long-term
acute care hospitals, or LTACS, agreed to be bought by private equity
firms, but for very different reasons. Two notable deals were announced
this month targeting companies that manage long-term acute care
hospitals, or LTACs. In both cases, leveraged buyout firms initiated
transactions to buy out operators of multiple LTACs. The rationale for
each, however, is different, reflecting different business plans and
different stages in the growth cycles of the two companies.''
With respect to the commenter's suggestion that we have alluded to
gaming of the Medicare program by the LTCH industry and that we have
provided no substantiation for these beliefs, we would note that we
have participated in meetings, conference calls, correspondence,
evaluated currently-used patient criteria, arranged site visits with
LTCHs (and other providers that treat ``long-term care hospital-type''
patients), and participated in the Technical Expert Panel (TEP) that
was held in January 2007. While we have met and worked with highly
skilled physicians and administrators of a number of LTCHs and we are
aware that many LTCHs provide high quality services to their patients,
we are contemporaneously aware of activity by the LTCHs that appear to
be directed towards both evading the intent of Medicare policy and also
maximizing Medicare payments.
We are also aware that the dynamic of patient shifting from acute
care hospitals to LTCHs are well understood throughout the health care
industry. In the February 28, 2000 issue of Critical Care Medicine, an
abstract of an article entitled, ``The impact of long-term acute-care
facilities on the outcome and cost of care for patients undergoing
prolonged mechanical ventilation'' concluded that ``Patients undergoing
prolonged ventilation have high hospital and 6-month mortality rates,
and 6-month outcomes are not significantly different for those
transferred to long-term acute care facilities * * *. Acute care
hospitals can reduce the amount of uncompensated care by earlier
transfer of appropriate patients to a long-term acute care facility.''
(Seneff MG, Wagner D, Thompson D, Honeycutt, C, Silver MR, Department
of Anesthesiology and Critical Care Medicine, The George Washington
University Medical Center).
Lastly, we note that we believe that the policies that we are
finalizing in this final rule are built on solid data analysis,
reasonable interpretation of information that has come to our attention
from the TEPs and the LTCH industry, and our obligation to propose
proactive policy initiatives for the long-term benefit of the Medicare
program.
Comment: Several commenters offered data indicating that patients
admitted to LTCHs following an acute care hospital stay are generally
grouped into a different DRG at the LTCH from the one to which they
were grouped in the acute care hospital. The commenter used the example
of ventilator dependent patients, who typically fall into a
tracheostomy DRG (561/562) upon discharge from the acute care hospital
but fall under the respiratory failure DRG (475) upon discharge from
the LTCH, suggesting that therefore the two episodes of care are
distinct and separate. The commenters also claimed that even those
patients with the same DRG in each setting do not constitute a single
episode of care because of the nature of the institutions and the
differences between them. Therefore, the commenters asserted, there can
be no actual claim that there is double payment for the same services
for LTCH patients coming from IPPS hospitals. In focusing on the
appropriate lengths of stay at acute care hospitals preceding a LTCH
admission, many commenters quoted the RTI study that notes that,
``Understanding whether acute hospitals are already paid for these
services or whether LTCHs are providing specialized services not
available in the acute hospitals is poorly understood'' (p. 55). The
commenters believe that a CMS contractor has contradicted statements
that we made. Therefore, the commenters state that the extension of the
25 percent threshold payment adjustment to discharges of patients
admitted from referring hospital not co-located with the LTCH or the
satellite of a LTCH should not be finalized. Several commenters
suggested that if we did finalize this payment adjustment, it should be
limited only to those situations where the same DRGs were assigned to
both the acute care stay and the LTCH stay.
Response: Our data analysis of the 2005 MedPAR files indicates
that, generally, when a patient is admitted to a LTCH immediately upon
discharge from an acute care hospital, Medicare is paying for treatment
under different DRGs for each submitted claim. However, we disagree
with the commenters' assertions that there are clear distinctions
between ``episodes of care'' for a patient who is originally treated at
an acute care hospital and eventually admitted to a LTCH, whether or
not the same DRG is assigned to each stay. Patients being cared for in
both the acute care hospital and LTCH settings are very ill,
complicated patients with multiple comorbidities, and typically there
is not one clear or distinctive principle diagnosis that is the cause
of the patient's failure to get well, but rather a constellation of
problems that necessitate further treatment. Nor will one ``magic''
intervention or procedure necessarily cure the patient's problems. DRG
assignment is based on software that attempts to group patients
according to individual principal diagnoses and surgical procedures,
but the clinical reality is that, especially in the case of complex
patients with multiple medical problems, DRG assignment can be a
limited way of defining or characterizing the nature of a particular
episode of care for a given patient.
The example of respiratory failure that the commenter provides is
especially illustrative of this point. A patient who suffers from
respiratory failure in the acute care hospital, if it does not resolve,
will eventually require a tracheostomy, which will then group the
patient to the tracheostomy DRG. The tracheostomy itself is a procedure
that is usually done on a semi-elective basis when it becomes apparent
that the patient will require prolonged mechanical ventilation. If that
patient subsequently is admitted to an LTCH, that discharge will
necessarily group to the respiratory failure DRG, because the
tracheostomy has already been performed during the acute care
hospitalization. However, the clinical characteristics of the patient
and the type of care that is required, have not materially changed, and
the LTCH stay can hardly be viewed as a separate or unique clinical
episode from the immediately preceding acute care hospital stay. From a
clinical perspective, in the absence of a sharp line of distinction, or
a consistent characterization, of exactly which

[[Page 26932]]

patient is appropriate for admission to the LTCH, as well as when that
patient should be transferred from the acute care hospital setting to
the LTCH setting, we have difficulty understanding when, for example,
the patient with respiratory failure stops being appropriately cared
for in the acute care hospital and paid for under the IPPS and begins
to require care in the LTCH. Recognizing that both settings provide
acute hospital level care, and also noting that in areas where LTCHs
are not available this level of care is provided exclusively in the
acute care hospital until the time of discharge to a nonacute setting,
it is therefore appropriate to expand the 25 percent policy to all
instances in which a referring hospital is discharging so many patients
to the LTCH or satellite that it appears to have created a virtual unit
of the referring hospital at the LTCH or LTCH satellite.
To those commenters who quoted a sentence (out of context) from the
RTI report, we note that a thorough reading of that page indicates that
RTI's purpose does not contradict, but rather reinforces the above
stated concerns. RTI's full intent may be best understood from the
following paragraphs, which includes the quoted sentence:

``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 of
stay. Understanding whether acute hospitals are already paid for
these services or whether LTCHs are providing specialized services
not available in the acute hospital is poorly 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.'' (p. 55)

Therefore, we continue to believe that clinical insight offers a
significant challenge to the commenters' assertions regarding the
alleged existence of some ``bright line'' which clearly indicates when
it is no longer appropriate for a patient to continue treatment in an
acute care hospital. Particularly in the case of patients whose
conditions fall into the broad category of ``medically complex,''
clinicians from different provider settings from throughout the country
have evaluated existing instruments (that is, Interqual, or MassPRO)
and although there appears to be no difficulty in defining a
``hospital-level long-term care type patient'' there has been
considerable difficulty in determining the assignment of such patients
to particular provider settings (acute versus LTCH) for purposes of
Medicare payment policy.
Accordingly, we are finalizing the extension of the 25 percent (or
applicable percentage) threshold policy so that the payment adjustment
applies to all subclause (I) LTCHs. We believe it is our responsibility
to protect the Medicare Trust Fund from making excessive payments for a
single episode of care.
Comment: Many commenters suggested alternatives to specific aspects
of the proposed expansion of the proposed 25 percent threshold payment
adjustment in the event that we decided to finalize it. A number of
commenters suggested that we grandfather existing ``freestanding''
LTCHs from compliance with the policy because of the significant shift
in operation that our policy would mean to their on-going operations.
Similarly, these commenters also suggested grandfathering those LTCHs
that were already under development (that is, hospitals that were in
their 5 of 6 month qualification period for LTCH designation as set
forth in Sec. 412.23(e)(3)). Several commenters further suggested that
we set a 50 percent threshold for all existing LTCHs and those under
development and apply a 25 percent threshold for new LTCHs beginning on
July 1, 2007. Other commenters asked us to set the percentage threshold
permanently at 50 percent for non-co-located LTCHs in light of our
``lesser policy concerns'' than we have with LTCH HwHs and satellites.
Several commenters urged us to set the threshold for LTCHs in
``underserved areas'' at 75 percent because of the disparate impact
that could be anticipated from implementing this policy. Commenters
suggested that we establish a 50 percent threshold for urban LTCHs and
a 75 threshold for rural or market dominant LTCHs. We also were
requested to apply ``temporary, limited'' expansion of the threshold
while patient and facility level characteristics are being developed
and implemented for LTCHs over a 3-year period with the following
percentage thresholds: year 1-75 percent; year 2-62.5 percent; year 3-
50 percent. According to the commenter, this policy would sunset after
year 3 and be replaced by facility and patient criteria.
Response: We appreciate each of the recommendations made by the
commenters as to alternatives to extending the 25 percent threshold
payment adjustment policy to all subclause (I) LTCHs effective July 1,
2007. We have considered the commenters concerns as we noted earlier,
we are finalizing the payment adjustment policy but (as describe
elsewhere in these responses), we have provided for a 3-year transition
period for all LTCHs and LTCH satellites that will be affected by these
changes. Commenters suggested that we exempt currently existing and
``under development'' LTCHs from the policy because it would require a
substantial change in the way that these facilities currently operate.
In response to the commenter's question regarding ``under development''
LTCHs, we are applying the transition to these hospitals as applicable,
once they become LTCHs (for example, if a hospital has its first cost
reporting period as a LTCH beginning on July 1, 2008, it will be
subject to the 50 percent threshold.) We are aware that these new
regulations will impact on admission policies at LTCHs (as well as
discharge practices at acute care hospitals for patients that continue
to need hospital-level care) but such changes are our stated purpose in
establishing the original 25 percent threshold payment adjustment
policy for co-located LTCHs at Sec. 412.534 and it continues to be our
goal for all LTCHs and satellites as we finalize Sec. 412.536. We
believe that it is essential that LTCHs reevaluate their existing
practices for admittances from referring hospitals. As specified
elsewhere in these responses, our data indicates that referring
hospitals, primarily acute care hospitals, are discharging patients to
LTCHs for continued acute level care when many of these patients could
continue to be treated in the acute care hospital. This is particularly
true in cases where patient care falls into the broad category of
``medically complex.'' We believe that Medicare should not be
generating two full payments, one under the IPPS and one under the LTCH
PPS for what is essentially one episode of care. Although we have had
historic concerns with patient-shifting between co-located hospitals,
we also believe that it is appropriate to apply the 25 percent (or
applicable percentage) threshold payment adjustment to those LTCHs and
LTCH satellites that had previously been unaffected by Sec. 412.534,
but have similar behavior patterns as co-located HwHs and satellites.
(We have responded to concerns about rural, single urban, and

[[Page 26933]]

MSA dominant LTCHs elsewhere in these responses.) We would once again
remind commenters that the payment adjustment is only applicable for
Medicare discharges in excess of the applicable threshold from an
individual referring hospital for cases that have not reached outlier
status at the referring hospital. We believe that an appropriate and
judicious admission policy, on the part each LTCH, could still enable
it to admit a specific subset of patients from a referring hospital,
prior to the patients' reaching outlier status, and prior to exceeding
the applicable threshold. Therefore, even though we continue our work
with RTI in Phase 3 of their project to see if we can identify
appropriate patient and facility-level criteria for LTCHs, we do not
see the development of those criteria and the development of those
regulations as contradictory aspects of our fiduciary responsibility
for the Medicare program. We further believe that it may be appropriate
to establish policies under the LTCH PPS that guard the Medicare Trust
Fund from duplicative payments for one episode of patient care even if
we are able to develop criteria that identify LTCHs and LTCH-
appropriate patients.
Comment: Several commenters expressed concern that the proposed
expansion of the 25 percent policy would have a negative impact on
Medicare beneficiary access to care, physician choice and authority,
and on families of patients who would benefit from LTCH care.
Specifically, the commenters noted that LTCHs would be ``forced to use
a flat 25 percent for each referring hospital, thereby limiting access
for Medicare beneficiaries to the level of care deemed most appropriate
by their physician.'' Another commenter stated that the implementation
of the 25 percent rule would force acute care hospitals to keep
patients beyond the period for which is medically-appropriate because
LTCHs would not be able to accept patients once they met the 25 percent
threshold and that overcrowding of acute hospital beds would be the
result of the 25 percent policy. Another commenter stated that this
policy may result in some patients being transferred to skilled nursing
facilities (SNFs) instead of LTCHs, even in cases in which LTCH care
would be more appropriate.
Response: We do not believe that the 25 percent policy is
unnecessarily ``burdensome'' or ``onerous'' to LTCHs for several
reasons. The 25 percent policy does not preclude the transfer of any
patients from short term acute care hospitals to LTCHs when such
transfer is deemed medically necessary and appropriate by the treating
physician; rather, it adjusts the payment methodology that is applied
to the LTCH for discharges that exceed the applicable threshold. Also,
as we noted in the RY 2007 LTCH PPS proposed rule, the payment policy
linked to the 25 percent rule helps to remove the perverse incentive
that may exist between acute care hospital and LTCH facilities to evade
Sec. 412.534 and to prevent both the acute and LTCH from receiving two
full Medicare payments for what is essentially one episode of care.
Furthermore, this policy also helps to ensure that appropriate
transfers from acute to LTCH facilities are occurring based on medical
considerations, rather than on the basis of maximizing Medicare
payments. We believe that the preexisting relationship between LTCHs
and their referring hospitals can be utilized to maximize quality
patient care while also making it feasible for LTCHs to comply with the
25 percent policy.
With respect to the commenter's concern that the 25 percent policy
would result in transfers to SNFs when LTCH care would be more
appropriate, we note that since we are only dealing with patients who
require hospital level of care, it would not be appropriate for
physicians to transfer these patients to a SNF. However, we do note
that it may be appropriate for a subset of LTCH patients, after their
condition has stabilized to be transferred to a lower level of care,
such as a SNF.
Comment: One commenter noted that Michigan is a ``certificate of
need'' State and that the number of LTCH beds is determined and
approved by the State. The commenter further noted that Michigan FIs
require that Michigan LTCHs use InterQual admissions standards and
recommends that we exempt States who have programs similar to the
``certificate of need'' because they already adhere to InterQual
admissions standards, and therefore, are only treating appropriate
``LTCH'' patients.
Response: With respect to some LTCHs using InterQual criteria as
the standard for admitting a patient, we note that as we stated in the
RY 2007 LTCH PPS final rule, InterQual standards focus on the
distinction between acute care and sub-acute care, that is, SNF-level
of care, and determinations of ``medical necessity'' or ``inappropriate
admission'' are based only on whether the patient should be
hospitalized, rather than on whether the hospitalization should occur
at an LTCH or at a general acute care hospital'' (71 FR 27869).
Furthermore, we recognize and assume that all LTCHs should be using
some form of clinical assessment or screening tool to identify
appropriate admission candidates; the InterQual is just one model of
such a tool that LTCHs may choose to use if they determine that those
standards sufficiently identify appropriate patients for their
facility. However, we note that the choice of which screening tool an
LTCH chooses to use should have no bearing on the percentage of
patients being admitted from a particular referring hospital because
even under the expansion of the 25 percent policy, it is assumed that
all LTCH admissions are hospital-level patients. As explained
previously in this section, the expansion of the 25 percent policy is
intended to address the situation of an LTCH or satellite that is
treating hospital-level patients since it has exceeded the applicable
threshold for discharging patients that were admitted from any
individual referring hospital and is serving as a unit of the referring
hospital. Therefore, we are not exempting LTCHs in ``certificate of
need'' States from the 25 percent policy, but again note that they,
along with all other affected LTCH and LTCH satellites will be given a
3-year transition period with respect to implementation of this policy.
Comment: One commenter supported the proposed 25 percent rule and
believes that the SSO provision should not apply to subclause II and
satellite LTCHs.
Response: We are finalizing our proposal to exempt subclause II and
satellite LTCHs from both the 25 percent rule expansion and the SSO
policy that we are finalizing in this rule.
Comment: One commenter stated that implementation of the 25 percent
rule would result in the following: (1) The loss of local LTCH services
in all areas except large metropolitan areas; (2) Patients having to
endure long ambulance rides to access LTCH care and possibly being
driven past LTCHs with available beds; (3) Families having to drive
longer distances to visit their loved ones who may be in LTCHs for
extended periods of time; and (4) Some companies, who have already
invested in building new LTCHs, possibly being faced with bankruptcy
because of the reduced payment associated with the 25 percent rule.
Response: We disagree with the commenter and we do not expect that
the 25 percent policy will result in a loss of local LTCH services (in
all but large metropolitan areas). Instead, we expect that clinical
appropriateness will continue to be used as the standard for LTCH
admissions. Since we do not believe that access to LTCH services will
be negatively affected by this rule,

[[Page 26934]]

we do not believe that beneficiaries will need to endure long ambulance
rides to reach an LTCH, nor will families of Medicare beneficiaries
have to drive long distances to visit their loved ones. We also remind
the commenter that LTCHs will continue to be paid full LTC-DRG payments
as long as the 25 percent threshold is not exceeded by any one referral
source. In addition, any patients that reach HCO status prior to being
transferred to the LTCH would not count towards the 25 percent policy.
With regard to the commenter's concern about companies being faced with
a financial loss in light of the 25 percent policy expansion, we note
that we continue to believe that the LTCH industry can adapt their
admission practices to assure that payments will not be reduced, except
in rare circumstances. The LTCHs would do this by targeting those
patients at referring hospitals that had reached outlier status.
Comment: Some commenters expressed concern that the proposed 25
percent rule would override physician authority and limit physician
choice in deciding the most appropriate level of care for his or her
patients.
Response: We disagree that this policy overrides physician
authority and choice. Rather we believe that this policy appropriately
adjusts payments to LTCHs so that the payments reflect the amount of
care that is actually provided in the LTCH setting. Furthermore, this
policy does not require a change in physician clinical decision-making;
rather, it simply seeks to remove any financial incentive that could
encourage an LTCH to admit a patient from an acute care hospital prior
to that patient receiving a full episode of care at the acute care
hospital. Additionally, we would expect that physicians would continue
to use their clinical expertise in assessing the level and type of care
that is most appropriate for their patients and that the physicians'
clinical standards would not be affected by hospital payment policies.
We do not expect that the payment policies implemented in this
final rule will deter physicians from making referrals to LTCHs when it
is clinically appropriate to do so. We also believe that appropriate
clinical care, not payment, should drive physicians' decisions with
respect to patients' length of stay and level of care. Additionally, we
note that physicians' clinical decisions do not negate the fact that
payments should be aligned with the care and resource utilization given
in each provider setting.
Comment: Several commenters stated that the payment reductions
associated with the proposed 25 percent rule expansion and the proposed
``very SSO'' policy violate the principles of a PPS in which some cases
are expected to cost less than others.
Response: We disagree that these policies violate the principles of
averaging found in a PPS. We note that a fundamental premise of the PPS
system is that where the costs of some cases may exceed their payment,
the opposite is also likely to happen (that is that the costs of some
cases will be lower than their payment). As we stated in last year's
LTCH PPS final rule, ``* * * while some types of cases are always
expensive for a hospital to treat, others are, in general, less costly,
so it is assumed that hospitals under a DRG-based system, therefore,
can typically exercise some influence over their case-mix and their
services to achieve fiscal stability'' (71 FR 27863). The principles of
a PPS begin to break down when there are extreme outliers that are not
consistent with the averages calculated, especially when the extreme
outliers constitute a disproportionate amount of cases. Additionally,
we are attempting to maintain appropriate payment weights for the DRGs
by adjusting the LTC-DRG weights for SSO cases. (For a full description
of this process, see 71 FR 47978 through 47985). We note that the
effect of this adjustment allows the LTC-DRGs to be recalibrated at a
weight that is truly representative of average cases instead of at a
weight that is skewed towards shorter than average (and presumably,
less costly) cases. We also believe that applying the 25 percent (or
applicable percentage) threshold payment adjustment to discharges from
LTCHs that were admitted from any referring hospital is not a
contradiction of the averaging principle intrinsic to PPSs. In fact,
one of our rationales for establishing the percentage threshold payment
adjustment is to preserve the integrity of the averaging principle
under the IPPS because of our concern regarding premature discharges of
patients still requiring acute hospital-level care to another acute
care provider (and generating another Medicare payment) prior to that
case reaching outlier status. Moreover, if LTCHs adjust their
procedures so that patients beyond the applicable threshold that are
discharged from referring acute care hospitals prior to their LTCH
admission have received a full episode of care at the discharging acute
(that is, they reach outlier status), Medicare payment for LTCH
discharges will be based on the otherwise unadjusted LTCH PPS payment,
which has been developed based upon averaging principles.
Comment: Some commenters said that the proposed 25 percent rule
would be duplicative of the payment adjustment made under the IPPS
post-acute transfer policy. One commenter noted that ``* * * 85 percent
of DRGs applicable to short-term acute care hospital discharges to
LTCHs are subject to [the post-acute transfer] policy.'' Another
commenter asked CMS to comment on why the IPPS post-acute transfer
policy does not appropriately adjust for payment when cases transferred
from the acute care hospital ultimately become SSO discharges in the
LTCH setting.
Another commenter suggested that we provide policies under the
acute IPPS to address inappropriate or early discharges and requested
that we use post-acute transfer rules, re-admission rules, and DRGs for
acute care hospitals to address the issue of inappropriate transfers
instead of penalizing LTCHs.
Response: As we have discussed in the previous LTCH final rules,
the IPPS post-acute transfer lessens the incentive for an IPPS hospital
to transfer a patient to another hospital early in the patient's stay
to minimize its costs while still receiving the full DRG payment from
Medicare. Although the post-acute care transfer policy only affects
DRGs that meet the criteria specified under Sec. 412.4, we continue to
monitor trends in post-acute transfers. In addition, we may make
additional DRGs subject to the IPPS post-acute transfer policy if the
data demonstrate that it is appropriate to do so. Although we expect
the post-acute transfer policy to have an impact on the discharge
behavior of acute care hospitals because of the reduced payments that
they will receive for qualified discharges, the post-acute transfer
policy does not necessarily affect the issues being addressed by the
SSO policy change. Both, the IPPS post-acute transfer policy and the
proposed RY 2008 SSO policy, help to ensure that Medicare payments are
appropriate given the types of treatment provided in each setting.
We believe that the revised payment formula for SSO patients that
we are finalizing will appropriately pay LTCHs for delivering services
to patients who do not otherwise require the lengths of stay that are
characteristic of LTCHs. The SSO policy will address payments to LTCHs
for patients discharged from the acute care hospital even after the
geometric ALOS.
With respect to the comment about the 25 percent policy being
duplicative of the IPPS post-acute transfer provision, we would note
that the post

[[Page 26935]]

acute transfer policy focuses on a truncated length of stay at an acute
care hospital that will be paid for under the IPPS, prior to the case
reaching the geometric mean LOS for that DRG as specified in Sec.
412.4(c) and (f). The policy that we are finalizing focuses on
determining the appropriate payment to the LTCH, where the patient who
has already been treated at the acute care hospital (up to the
geometric mean LOS) has been ``transferred'' to the LTCH care prior to
receiving full treatment at the ``transferring'' hospital. We believe
such a stay is a continuation of the patient's original stay at the
first hospital, and therefore, that Medicare should pay for such care
based on a LTCH PPS payment adjusted to what would otherwise be
equivalent to what would have been paid under the IPPS.
Comment: Some commenters wrote in support of extending the comment
period from 60 days to 6 months to allow commenters additional time to
collaborate for the good of the industry.
Response: We do not believe that a 6-month comment period is
warranted or necessary. Consistent with section 1871 of the Act, we
provide for a 60-day comment period. This deadline is necessary in
order to implement and establish policy changes and payment updates
under the LTCH PPS for an effective date of July 1.
We received 270 comments during the comment period and we believe
that both the number and the nature of the comments received
demonstrate that the comment period was sufficient for commenters to
submit relevant and meaningful comments.
Comment: We received many comments that challenged the IPPS-
equivalent payment adjustment that we proposed to extend to LTCHs and
LTCH satellites for Medicare discharges in excess of the 25 percent (or
applicable percentage) threshold that had been admitted from referring
hospital not co-located with the LTCH or the satellite of a LTCH.
One commenter maintained that we have determined a payment penalty
for freestanding LTCHs for every patient over a 25 percent threshold
requiring long term care who is admitted from any single acute care
hospital referral source. Another commenter stated that an LTCH could
not have more than 25 percent of its patients referred from any one
general hospital. Many commenters claimed that our proposal to pay
``under the IPPS'' for LTCH cases ignores data indicating that LTCHs
sustain higher costs than IPPS hospitals in treating Medicare
inpatients that are grouped to the same DRG. The commenters stated that
costs are higher than they are at acute care hospitals because patients
are much sicker than at acute care hospitals. Several commenters
included data that indicated that they would sustain substantial
financial losses under this policy.
Response: We disagree with the commenters who asserted that under
Sec. 412.536 and also the revised Sec. 412.534 we have proposed to
pay all LTCHs ``under the IPPS'' for discharges in excess of 25 percent
or the applicable percentage) from an individual referring hospital. As
we have noted elsewhere in these responses, if a Medicare beneficiary
is treated at an acute care hospital and continues to need further
acute hospital-level care, the patient could remain at the acute care
hospital. A discharge from the acute care hospital and admission to a
LTCH (which is also certified as an acute care hospital) could be
appropriately seen as an extension of the stay at the discharging acute
care hospital and as such, should not require Medicare to pay for
``different resource use''. We further disagree with the commenters who
call the extension of the 25 percent threshold a ``payment penalty for
freestanding LTCHs for every patient over a 25 percent threshold who
comes from any single acute care hospital'' and the commenter that
stated that ``an LTCH could not have more than 25 percent of its
patients referred from any one general hospital.'' As we have noted
elsewhere in these responses, the 25 percent threshold is not a patient
quota system. By virtue of the fact that more than 25 percent of the
LTCH's discharges had been admitted from an individual referring
hospital, it is apparent that the LTCH has an ongoing, working
relationship with the referring hospital. This policy should lead LTCHs
to carefully determine which patients should be admitted from the
referring hospital. A patient who is hospitalized in an acute care
hospital continues to require acute hospital-level care, generally
should not be discharged before the referring hospital has provided the
patient with a full episode of care. As discussed elsewhere in these
responses, we believe that a patient stay that reaches the HCO
threshold at an acute care hospital would be considered to have
received a complete episode of care and for such a patient who has
received a full episode of care at an acute care hospital, should that
patient require further acute level care at a LTCH, Medicare will make
an unadjusted additional payment to the LTCH.
Our concern is that many patients that are admitted to LTCHs could
have completed this care at the referring hospital to which they were
originally admitted. As we have detailed previously in this preamble,
in the FY 2005 IPPS final rule (69 FR 48916) we finalized a payment
adjustment for co-located LTCHs (that is, HwHs and satellites at Sec.
412.534), which provides that if a LTCH's or satellite's discharges
admitted from its host hospital exceed 25 percent (or the applicable
percentage) of its discharges for the LTCH HwHs or satellite's cost
reporting period, an adjusted payment will be made at the lesser of the
otherwise full payment under the LTCH PPS and an adjusted amount under
the LTCH PPS that would be equivalent to what Medicare would otherwise
pay under the IPPS. In determining whether a hospital meets this
percent test, patients transferred from the host hospital that have
already qualified for outlier payments at the host would not count as
part of the host 25 percent (or the applicable percentage) and the
payment for those patients would also not be subject to the adjustment.
Those patients would be eligible for an unadjusted payment under the
LTCH PPS. (Discharges admitted from the host before the LTCH crosses
the 25 percent (or the applicable percentage) threshold would also be
paid without the adjustment under the LTCH PPS (69 FR 49213). MedPAC
submitted a comment that addressed its concerns with the 25 percent
threshold policy for co-located LTCHs in the FY 2005 IPPS final rule.
Specifically, the Commission noted that ``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, freestanding LTCHs receive 42 percent from their primary
referring hospital * * * [that] there are some risks in our proposed 25
percent policy; (a) the 25 percent rule that only applies to LTCH HwHs
and not to freestanding LTCHs and may therefore be inequitable; (b) it
does not ensure that patients go to the most appropriate post-acute
setting; (c) this approach may be circumvented by an increase in the
number of freestanding LTCHs instead of LTCH HwH.'' As we stated in the
FY 2005 IPPS final rule, ``MedPAC shares our concern that the LTCH
payment system creates an incentive for unbundling of the IPPS in
addition to overpayment for the care provided by LTCHs and that this
concern is great, particularly, in the case of a LTCH HwH * * *'' (69
FR 49211).
In establishing the concept of ``functional separateness,'' in the
FY 1995 IPPS final rule, we were identifying a broader phenomenon than
just the relationship between a host

[[Page 26936]]

acute care hospital and a LTCH HwH or satellite of a LTCH. We also
reviewed MedPAC's comment (discussed previously in this section) on
non-co-located LTCH referral patterns and noted that despite the fact
that we limited the payment adjustment established in FY 2005 to LTCH
HwHs and satellites, ``* * * [w]e took considerable note of these
comments and the specific information that they included'' (59 FR
45391).
We further stated that ``* * * [s]ince the October 1, 2004
implementation of the payment adjustment for LTCH HwHs and satellites
of LTCHs at Sec. 412.534, through our LTCH PPS monitoring initiative
(see section X. of this preamble), we have become aware that the growth
in the LTCH universe is now occurring through the development of
freestanding LTCHs'' and that [r]eviews of public documents posted at
the corporate Web site and analysis of the expected consequences of the
policy at other investor-oriented sites describe a focus on building
freestanding LTCHs, which we believe may imply a response to the
payment adjustment for co-located LTCHs established under Sec.
412.534.'' At that time, we noted data analyses from FY 2004 and FY
2005 MedPAR files of sole-source (for example, one hospital referring
to one LTCH) relationships between acute care hospitals and non-co-
located LTCHs and we stated that we believed that the danger of LTCHs
functioning as ``units'' appears to be occurring not only in LTCH HwHs
and LTCH satellites but also with freestanding LTCHs (71 FR 27877
through 27879).
We stated that, in many cases, these non-co-located LTCHs and their
sole referral source may be functioning in ways that appear to have
erased the line of ``functional separateness'' between these LTCHs and
their referring acute care hospitals ((71 FR 27877 through 27879, 59 FR
45391).
Many commenters noted that they would experience considerable
financial losses if we implemented the extension of the 25 percent
threshold policy. We believe that our finalized policy will result in a
behavioral change for LTCHs, and LTCHs will take steps to assure that
no more than 25 percent (or the applicable percentage) of the
hospital's discharges are patients that had not already reached outlier
status at the referring hospital, to assure that all Medicare payments
to LTCHs will be made, without adjustment under this policy.
In response to the commenters that asserted LTCH patients are much
sicker than acute care patients, we note that it is our understanding
from our own data analyses, as well as work done by RTI that costs at
LTCHs on a per diem basis are lower than costs for the same DRG at
acute care hospitals. For example, RTI performed an analysis of the
2005 MedPAR files and determined the per diem payment for the 20 most
common LTC-DRGs treated in LTCHs as outlined in Table 6.

Table 6.--Average Payment per Day for the Top 20 DRGs on LTCH Admissions, LTCH Versus Acute, 2005 MedPAR
----------------------------------------------------------------------------------------------------------------
LTCH Acute
-----------------------------------------------------------------
Top 20 LTCH DRGs Average Average Average Average
Average length of payment Average length of payment
payment stay per day payment stay per day
----------------------------------------------------------------------------------------------------------------
475: Respiratory System Diagnosis With $58,828 37.6 $1,815 $21,696 10.4 $4,187
Ventilator Support...........................
271: Skin Ulcers.............................. 26,652 28.8 1,009 5,525 6.6 1,298
087: Pulmonary Edema & Respiratory Failure.... 36,552 26.6 1,498 7,211 6.3 1,893
079: Respiratory Infections & Inflammations 26,545 23.7 1,235 8,654 8.0 1,690
Age >17 w CC.................................
088: Chronic Obstructive Pulmonary Disease.... 20,822 19.4 1,156 4,441 4.8 1,369
089: Simple Pneumonia & Pleurisy Age >17 w CC. 22,356 20.8 1,167 5,189 5.5 1,355
249: Aftercare, Musculoskeletal System & 21,601 25.2 914 3,816 3.9 1,701
Connective Tissue............................
416: Septicemia Age >17....................... 25,962 23.5 1,189 9,309 7.4 2,192
466: Aftercare w/o History of Malignancy as 20,962 22.3 1,018 4,637 4.7 1,919
Secondary Diagnosis..........................
012: Degenerative Nervous System Disorders.... 23,804 27.3 976 4,651 5.3 1,298
462: Rehabilitation........................... 19,149 22.6 903 9,621 9.3 1,125
263: Skin Graft &/or Debrid for Skin Ulcer or 41,006 42.0 1,054 11,929 10.3 1,930
Cellulitis w CC..............................
127: Heart Failure & Shock.................... 21,252 20.8 1,088 5,425 5.0 1,641
316: Renal Failure............................ 25,420 23.3 1,190 7,114 6.1 1,936
418: Postoperative & Post-Traumatic Infections 25,766 25.6 1,090 6,348 6.0 1,633
430: Psychoses................................ 15,019 27.0 651 3,955 7.6 869
238: Osteomyelitis............................ 27,639 30.4 973 7,934 7.7 1,584
277: Cellulitis Age >17 w CC.................. 20,005 21.7 980 4,464 5.3 1,182
144: Other Circulatory System Diagnoses w CC.. 22,990 22.3 1,112 7,282 5.7 2,290
320: Kidney & Urinary Tract Infections Age >17 21,491 22.5 1,027 4,369 4.9 1,266
w CC.........................................
----------------------------------------------------------------------------------------------------------------
Source: \\rtimas04\hser\Project\08686\006 IPPS\001 LTCH\common\jpotelle\programs\gage030.log.

Furthermore, LTCHs utilize such information regarding their lower
costs for treating patients in their advertising. We refer commenters
to the following question and answer from the Internet site of a large
LTCH chain: The question: ``How can a long term acute care hospital be
less expensive than a short term acute care hospital?'' The answer:
``Patients transferred to a long term acute care hospital are medically
stable and do not require the critical care resources found in short
term acute care hospitals, which are typically the most costly to a
patient.''
Comment: Many commenters challenged the basis of the proposed
payment adjustment that would result if we finalized our proposed
expansion of the 25 percent (or applicable percentage) payment
threshold to LTCH and LTCH satellite discharges that were admitted from
referring hospitals not co-located with the LTCH or the satellite of a
LTCH. According to these commenters, in section 123(a)(1) of the BBRA,
the Congress specified that the payment policies under the LTCH PPS
should ``reflect differences in patient resource use and cost.'' These
commenters asserted that payment adjustments under the LTCH PPS should
not be based upon referral sources but rather on the ``costs of
treatment'' and ``costs of care'' at LTCHs.

[[Page 26937]]

Response: There is considerable precedent regarding our concerns
with the financial implications to the Medicare Trust Fund from
patient-shifting between acute and post acute settings that could
result in two Medicare payments, one to the acute care hospital and
another under the LTCH PPS for one episode of care. As noted elsewhere
in these responses, this concern was first addressed by the Congress in
establishing the post-acute transfer policy at section 1886(d)(5)(J) of
the Act, which we subsequently implemented at Sec. 412.4. Furthermore,
in the FY 1995 IPPS final rule, we addressed the financial consequences
to the Medicare program of the patient-shifting that was occurring
between acute care hospitals and co-located LTCHs. At that time, we
noted that the ``effect of this process is to extend the [LTCH]
exclusion to what is for all practical purposes a [LTCH] unit'' (59 FR
45389).
We further stated that paying the co-located LTCH as a hospital
excluded from the IPPS ``may not be appropriate'' under these
circumstances because ``[e]xclusion of long-term care units could
inadvertently encourage hospitals to try to abuse the prospective
payment systems, by diverting all long-stay cases to the excluded unit,
leaving only the shorter, less costly cases to be paid for under the
prospective payment systems' (59 FR 45389). Therefore, in accordance
with sections 1102 and 1871 of the Act which ``confer authority on the
Secretary to establish rules and regulations as may be necessary to
administer the Medicare program'' (59 FR 45390), we established
separateness and control criteria at then Sec. 412.23(e)(3)(i) which a
co-located LTCH would have to meet to be paid as a hospital excluded
from the IPPS. We believed at that time that ``the extent to which a
facility accepts patients from outside sources can be an important
indicator of its status as a separate facility'' (59 FR 45392).
Therefore, at that time, among other indications of separateness, we
adopted a ``75 percent referral standard'' which required that no more
than 25 percent of the LTCHs discharges be admitted from its host to be
paid as a hospital excluded from the IPPS. Accordingly, the source of
an LTCH's patients as one potential variable since FY 2005 as to
whether or not a LTCH receives Medicare payment under the payment
system for hospitals excluded from the IPPS, has been a basis for
determining whether or not a LTCH was an independent hospital or
functioning as a unit of an acute care hospital.
In response to the commenters who maintained that the BBRA mandates
that payment under the LTCH PPS is to reflect the ``differences in
patient resource use and costs'' at LTCHs, we note that in general,
with respect to the development of the LTCH PPS, section 123(a)(1) of
the BBRA requires, among other things, that the Secretary shall develop
a PPS and that this PPS shall include an adequate classification system
that reflects the difference in resource use and costs. Section
307(b)(1) of the BIPA provides a modification of requirements with
respect to the implementation of the PPS. It provides that the
Secretary * * * shall examine the feasibility and the impact of basing
payments under such a system on the sue of existing (or refined)
hospital diagnosis-related groups (DRGs) that have been modified to
account for different resource use of long term care hospital patients.
The Secretary shall examine and may provide for appropriate adjustments
to the long-term care hospital payment system, including adjustments to
DRG weights, area wage adjustments, geographic reclassification,
outliers, update, and a disproportionate share adjustment * * *. We
believe that our payment system fully satisfies these requirements.
If a patient needing additional hospital-level acute care is
discharged to another acute care hospital prior to completing a full
episode of care at the first hospital, we believe that there is a
strong presumption that the second hospital (the LTCH) is behaving like
a step-down unit of the first acute care hospital and Medicare will be
generating two payments, one under the IPPS and another under the LTCH
PPS for one episode of care.
Therefore, we are finalizing our extension of the 25 percent (or
applicable percentage) threshold payment adjustment (after the 3-year
transition period described elsewhere in this section) for discharges
admitted from referring hospital not co-located with the LTCH or the
satellite of a LTCH at Sec. 412.536 and grandfathered LTCHs and
satellites at Sec. 412.534(h) under the authority of sections 123(a)
of the BBRA of 1999 as amended by section 307(b) of the BIPA of 2000
which authorize the Secretary to make adjustments under the LTCH PPS to
LTCH hospitals.
In addition, section 123 of the BBRA, as amended by section
307(b)(1) of the BIPA, confers broad discretionary authority on the
Secretary to develop and implement a PPS for LTCHs, specifically
mandating only ``a per discharge prospective payment system'' that
includes an ``adequate payment classification system * * * based on
diagnosis-related groups (DRGS) that reflects the differences in
patient resource use and costs, and shall maintain budget neutrality.''
Section 307 of the BIPA further provides that the Secretary ``may
provide for appropriate adjustments to the long-term hospital payment
system* * *''
As discussed previously, we are finalizing the expansion of the 25
percent (or applicable percentage) payment adjustment (after the 3-year
transition period described elsewhere in this section) originally
established for co-located LTCHs and satellites with regards to
patients admitted to the LTCH from a co-located hospital at Sec.
412.534 to govern the relationship between any referring hospital and
an LTCH or LTCH satellite not co-located with that referring hospital.
We believe that even in the absence of co-location, the same level of
scrutiny must be applied to patient-shifting between acute care
hospitals paid for under the IPPS and LTCHs to assure that Medicare is
not paying under the IPPS and then generating another unadjusted
payment under the LTCH PPS for one episode of care. As discussed
elsewhere in these responses, an LTCH is certified as an acute care
hospital and we believe that appropriate and responsible payment policy
under the Medicare program dictates that if a patient at an acute care
hospital paid under the IPPS continues to need treatment at an acute
care hospital-level, that patient should remain where he or she is
presently being treated until a full episode of care has been delivered
prior to being discharged to a LTCH for a different episode of care. We
continue to believe that our formulating a payment adjustment for
treatment at a second acute care hospital (which is in fact just paid
as a LTCH) is both appropriate and necessary for Medicare to be a
prudent purchaser of medical care for its beneficiaries. As described
above, under this payment adjustment, which we are finalizing at Sec.
412.536 and at revised Sec. 412.534, during a cost reporting period,
if an LTCH exceeds the 25 percent threshold of Medicare discharges from
any referring hospital (or the applicable adjustment if the referral
source is rural, MSA-dominant, or single urban) and the patient did not
achieve outlier status at the referring hospital prior to being
discharged to the LTCH, Medicare will make a payment adjustment for
those discharges under Subpart O for cases beyond the threshold, based
upon the lesser of the otherwise unadjusted payment or an adjusted LTCH
PPS payment that is

[[Page 26938]]

equivalent to the amount that would otherwise be paid under the IPPS.
Comment: Many commenters claimed that the proposed extension of the
25 percent payment threshold is a consequence of our ``incorrect
assertion'' that admission to an LTCH is only legitimate if the patient
reaches HCO status at an acute care hospital prior to being discharged
for admittance to a LTCH for additional treatment. The commenters
believe that under this policy the only way that a patient can receive
a full episode of care at an acute is by reaching HCO status. Several
commenters quoted data which stated that the percentage of discharges
from acute care hospitals which received full Medicare payment is
generally close to the percentage of discharges that were admitted to
LTCHs that also received a full payment at the acute. The commenters
believe that this suggests that a full episode of care is being
provided to all of these patients.
Another commenter stated that it is ``grossly inappropriate'' for
CMS to use outlier status as a statistical standard for whether a
hospital has furnished a ``full ``episode of care in a case. Several
commenters requested that if we object to two payments for a LTCH
patient (that is, one to the referring IPPS hospital and another for
payment under the LTCH PPS) we should address the fact that two
payments would be generated if the patient was admitted to any post-
acute provider such as an IRF or a SNF.
Response: The ultimate goal of our development of payment policy
under the LTCH PPS is to assure appropriate and cost-effective payments
under the Medicare program for services provided by LTCHs. We have
informed the LTCH community in several forums, including notices, that
although we were not challenging the high level of care delivered at
many LTCHs, it was manifestly unclear how we could identify the point
during an acute care hospitalization when a patient would cease to be
appropriately placed in that setting such that admission to and further
treatment in a LTCH would constitute a reasonable and fiscally
responsible standard of care. Our data reveals that approximately 80
percent of LTCH patients are admitted following care at an acute care
hospital, where Medicare would have would have paid for their care
under the IPPS. We maintain that if a hospitalized patient continues to
need acute-level care that such a patient could remain in the acute
care hospital for the purpose of receiving this care and not be
discharged to another acute care level hospital, like a LTCH until the
full episode of treatment has been delivered.
Accordingly, where an LTCH has exceeded the applicable threshold
and has thus demonstrated that it is in essence serving as a unit of
the referring hospital, it is appropriate to adjust the otherwise
payable LTCH PPS payment. We understand that some LTCHs specialize in
areas such as ventilator care and weaning or wound care and that some
of these facilities are highly respected across all provider settings.
However, these same types of patients are being treated by acute care
hospitals nationally with similar results. Furthermore, the largest
percentage of LTCH patients nationwide would typically fall into the
general category of ``medically complex.'' Nationwide, ``medically
complex'' patients are certainly being successfully treated by acute
care hospitals. We have thus far been unable to discover or establish a
``bright line'' for purposes of demarcating an appropriate discharge
from the referring hospital and then admission for appropriate and
necessary treatment at an LTCH, paid for under the LTCH PPS. However,
since patients who fit the ``LTCH profile'' are often HCO patients at
acute care hospitals (particularly in areas where there is not high
LTCH penetration), to determine if a hospital has exceeded its
threshold we believe that it is both functional and reasonable to use
reaching outlier status at an acute care hospital to determine the
delivery of a full episode of care. (RTI report, p. 32-48)
In response to the commenters who noted the comparability of the
percentage of all discharges from an acute care hospital that had
either reached or not reached outlier status (78 percent) with the
percentage of acute care hospital patients who were subsequently
admitted to LTCHs following their discharge from the acute care
hospital who had either reached or not reached outlier status (also 78
percent), stating that this proved that both had received a ``full
episode of care,'' we do not agree with this conclusion. Furthermore,
the commenters data is based on a universe of total discharges from
acute care hospitals which is approximately 13 million discharges. The
universe of discharges from acute care hospitals to LTCHs is less than
1 percent of those discharges (approximately 112,000). Since the LTCHs
are admitting such a small percentage of acute care hospitals' total
cases, it is likely that LTCHs are targeting a specific subset of these
patients that would have reached outlier status, if not for the
presence of the LTCH.
With regard to the comments on patients discharged from acute care
hospitals that are admitted to other post-acute providers such as an
IRF or a SNF, we would note that there is a distinction in the type of
care provided at these settings and at an LTCH. An IRF provides a
specialized post-acute service, that is, rehabilitation, for specific
medical conditions. A SNF does not even provide hospital-level care.
Since an LTCH is certified as an acute care hospital and in fact can
provide the same type of care as an acute care hospital that is paid
under the IPPS, it is necessary to address the possibility of an LTCH
acting as an a unit of an acute care hospital and to differentiate
between acute care patients being treated at an (short-term) acute care
hospital and those being treated at a LTCH.
We see no correlation between the fact that the commenter has
identified a common percentage number and their conclusion that this
proves that LTCH patients had received a full episode of care. The fact
that nearly 90 percent of LTCH patients had come to the LTCH without
achieving outlier status at the acute hospital, which had certainly
been providing acute level care to the patient prior to their admission
to the LTCH, indicates that for these ``medically complex'' cases, the
acute care hospital may be routinely looking to discharge those
patients to the LTCH, prior to their reaching outlier status and thus
not receiving a full episode of care at the acute care hospital.
Comment: Several commenters questioned whether the extension of the
25 percent payment threshold would apply to those patients who had been
admitted to an LTCH from some other provider setting than an acute care
hospital, such as a IRF or a SNF?
Response: The extension of the 25 percent threshold policy to
discharges admitted from referring hospitals not co-located with the
LTCH or the satellite of a LTCH at Sec. 412.536 is based on the policy
that we finalized for co-located LTCHs at Sec. 412.534 for FY 2005 in
the IPPS final rule (69 FR 48916). As we have stated above, we believe
that many of the concerns that we expressed in our analysis of co-
located LTCHs, regarding the financially-advantageous but clinically
unnecessary shifting of patients from acute care hospitals to LTCHs, is
also an issue when the LTCH is not co-located with the referring
hospital. Therefore, although the vast majority of host/LTCH HwH or
LTCH satellite arrangements are between acute care hospitals and LTCHs,
we specified in the FY 2005 final IPPS rule that under Sec. 412.22(e),
any inpatient

[[Page 26939]]

hospital-level provider could serve as a host to an excluded hospital.
Therefore, the policy adjustment that we were finalizing based upon the
percentage of patients from one hospital that upon discharge became
inpatients at a co-located LTCH, at Sec. 412.534, was also applicable
when the host hospital was not an acute care hospital (69 FR 49198).
Furthermore, we stated that applying the option of a discharge
payment based upon the lesser of the otherwise unadjusted payment
amount under Subpart O or payment under the LTCH PPS based upon an
IPPS-equivalent amount was appropriate when the host hospital was an
IRF, because ``[w]e 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'' (72 FR 4811; 71 FR 4704 through
4719).
We are finalizing the extension of the 25 percent threshold payment
adjustment to discharges from referring hospitals not co-located with
the LTCH or the satellite of a LTCH because we believe that our
concerns that patient stays are being inappropriately truncated at host
hospitals resulting in admissions to LTCH HwHs or satellites also occur
between LTCHs and LTCH satellites receiving patients from referring
hospitals not on the same campus. As noted elsewhere in this section,
we have concentrated on the relationships between referring 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. As we noted in the RY 2008 LTCH PPS proposed rule,
``[t]here 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 for payment under the LTCH PPS for a
single episode of beneficiary care'' (72 FR 4812). Although we
recognize that a patient could experience a medical crisis while an
inpatient at an IRF, we would reiterate that typically, the most
appropriate setting for such urgent care would be a general acute care
hospital, rather than a LTCH. The policy that we are finalizing would
not be applicable to a patient admitted to a LTCH from a SNF since a
SNF does not deliver hospital-level care and therefore duplication or
substitution of services by a LTCH is not a relevant issue.
Comment: One commenter believes that the extension of the 25
percent threshold payment adjustment deprives Medicare beneficiaries of
their right to receive medically-necessary services in a LTCH.
Therefore, if we finalize the extension of the 25 percent threshold
policy, we are violating beneficiary rights and we should provide a
notice of non-coverage to beneficiaries regarding this issue.
Furthermore, the commenter reminded us that beneficiaries would also be
entitled to appeal such a notification to the QIO operating in their
State. The commenter stated that the patient whose case would cause the
LTCH to exceed the 25 percent threshold referred from a particular
referring hospital (that is, the patient who would represent 26
percent) and all those that follow, are entitled to such a notice. The
commenter also provides a lengthy discussion of the statutes,
regulations, and case law that underlay beneficiary appeal rights.
Response: We would emphasize that we are finalizing a policy in
this regulation regarding the payment threshold that Medicare is
establishing to avoid generating two payments, one to the initial
referring hospital and another under the LTCH PPS, for a single episode
of care delivered to a beneficiary. We are not depriving Medicare
beneficiaries of their rights to receive treatment at a LTCH, but
rather, we have established a payment adjustment for such treatment
under particular conditions.
Since the inception of the Medicare program in 1966, policies have
been established to determine what the Federal government believes is
appropriate payment to hospitals for the delivery of medical services
to beneficiaries. Hospitals that elect to participate in the Medicare
program are required to comply with the policies established by the
program, including the establishment of payment rates and payment
adjustments. Therefore, we do not believe that issuing an adjustment
that could impact on a hospital's Medicare payments is a radical or
unique act. The establishment of a payment policy that may result in
payment adjustments for certain admissions is well within the existing
regulatory framework. Furthermore, the basis for the policy that we are
finalizing at this time, is an extension of a policy that has been in
effect since FY 2005, when we established the 25 percent (or applicable
percentage) payment threshold policy for co-located LTCHs at Sec.
412.534. At that time, we stated that we were ``* * * providing an
adjustment to the payment under the LTCH PPS in accordance with the
broad authority conferred on the Secretary by the Congress in section
123(a) of the BBRA of 2000 amended by section 307(b) of the BIPA of
2001 to include ``appropriate adjustments'' in the establishment of a
PPS for LTCHs' (69 FR 49204). We continue to believe that there is a
clear distinction between medical decision-making and payment policy,
particularly * * * when the patient is a Medicare beneficiary and the
medically necessary services are covered by Medicare'' (69 FR 49204).
LTCHs, for example, are required to meet the greater than 25-day
ALOS requirement to retain designation as a LTCH; therefore, LTCHs will
factor in that on-going requirement when making specific patient
admission decisions during a cost reporting period. The need to comply
with various compliance percentage requirements for treating certain
conditions in order to qualify for IRF designation, under Sec.
412.23(b), also impacts which patients are admitted to IRFs during a
cost reporting period. In these two examples, hospitals currently
evaluate admissions during a cost reporting period because a hospital's
noncompliance with Medicare requirements regarding LOS and percentage
of patients meeting the requirements at Sec. 412.23(b)(2),
respectively, could risk its designation as a hospital that is excluded
from the IPPS. Therefore, we believe that the circumstance of a LTCH
determining which, and under what circumstances, patients should be
admitted is an already established feature in the LTCH admission
process and should be based on medical criteria and not based on the
profitability of treating a specific patient.
Furthermore, the issuance of a Hospital-Issued Notices of
Noncoverage (HINNs) by the Medicare program is not applicable to the
above described circumstance. Specifically, a LTCH's decision not to
admit a specific patient is not a decision by the Medicare program to
not cover the service. Rather, it is a determination by the LTCH of the
type of service or patient that the facility has a level of expertise
in treating. (We specify the conditions under which the

[[Page 26940]]

Medicare program is required to issue a HINN on the CMS Web site at
http://www.cms.hhs.gov/BNI/05_HINNs.asp#TopOfPage.)
In response to the commenter's belief that a beneficiary who is not
admitted to a LTCH because of the payment policy that we are finalizing
should appeal the determination to the QIO operating in his or her
State, we would state that the decision to admit a patient is made by
the hospital. Specifically, section 1802(a) of the Act stipulates that
``Any individual entitled to insurance benefits under this title may
obtain health services from any institution, agency, or person
qualified to participate under this title, if such institution, agency
or person undertakes to provide him such services (emphasis added). We
emphatically reiterate that we are not preventing the admission of
patients to a LTCH; rather, we are establishing a methodology for
determining what are fair and reasonable payments based on the type of
patient treated by the LTCH. Moreover, it is our expectation that
extending the 25 percent (or applicable percentage) payment threshold
policy to discharges from referring hospitals not co-located with the
LTCH or the satellite of a LTCH will result in LTCHs focusing their
mission with respect to referrals from acute care hospitals, and on
treating patients that had a complete episode of care at the referring
hospital, before being admitted to the LTCH.
Comment: Many commenters stated that there were major differences
between the patients treated at LTCHs and at those referred to as
``short-term'' acute care hospitals. They also listed the significant
distinctions between the levels of care delivered by these two types of
hospitals. These commenters asserted that acute care hospitals paid
under the IPPS are ``just not capable'' of delivering the level of care
required by typical LTCH patients. The commenters noted that MedPAC,
RTI, and even CMS have stated that LTCHs effectively treat very sick
patients. One commenter stated that there was ``evidence that patients
who would become subject to the 25 percent rule are different from
patients in short term acute care hospitals, and therefore, there is no
empirical basis whatsoever for CMS' assumption that LTCHs
systematically engage in substitution of service.'' According to
commenters, LTCHs have specialized care that is not available in acute
care hospitals since the treatment model is entirely different. The
commenters maintained that acute care hospitals ``* * * are diagnosis
based where LTCHs provide specialized programs of whole-patients
recovery'' for patients who require an entire multidisciplinary team.
The commenters emphasized that LTCHs use a ``* * * team approach
towards healing the patient versus stabilizing an acute episode.'' They
also asserted that LTCHs and acute care hospitals do not treat
identical conditions and patients who are forced to remain in an acute
care setting could receive ``sub-standard care'' with the result being
poorer health outcomes, longer stays, and even higher costs. The
commenter believes that patients who are medically unstable, not
progressing, or have failed ventilator-weaning can often benefit from a
multidisciplinary program that LTCHs specialize in. In fact, some
commenters point to a level of care that is found nowhere else in the
medical care continuum but by staff with expertise and experience
unique to LTCHs.
Response: In response to the commenters, we would first state the
following axiom of hospital policy in the Medicare program: LTCHs,
while being unique based on maintaining an average LOS in excess of 25
days, are certified as acute care hospitals and provide hospital-level
services to patients. Acute care hospitals paid under the IPPS are
throughout the country treating patients requiring hospital-level care
often with lengths of stay comparable to those that are typical of
LTCHs. We believe the commenters are attempting to establish a clear
distinction between the patients that are appropriate for treatment at
LTCHs and patients that are appropriately treated at acute care
hospitals. Across the United States, the over 3,700 acute care
hospitals that discharge approximately 13 million Medicare
beneficiaries treat the full range of medical issues including those
that the commenters identify as LTCH cases. We do not question that
many LTCHs have highly regarded reputations for their success in
treating respiratory and ventilator cases (DRG 475), but, as detailed
in the RTI report, the 2004 MedPAR files indicate that where LTCHs
treated 13,394 cases assigned to DRG 475, acute care hospitals treated
18,727 Medicare patients with an additional 7,072 HCOs, in DRG 475. For
DRG 88, chronic obstructive pulmonary disease (COPD), LTCHs treated
4,894 cases where acute care hospitals treated 37,523 cases. Data on
other common DRGs treated in LTCHs as compared to the same DRG treated
in acute care hospitals reflect a similar pattern, particularly among
the DRGs that could fall into the broad category of ``medically
complex'' patients. (Table 3-2, RTI report, p. 35) We understand that
MedPAC and RTI noted that many LTCHs deliver a high level of care to
very sick Medicare beneficiaries, with fine doctors, exemplary nursing
care, and top-notch rehabilitation therapists, but we also know that
many acute care hospitals throughout the nation are treating the same
types of patients and similarly delivering excellent care. In addition,
we are aware that some LTCHs specialize in a particular subset of
patients and achieve noteworthy success in their treatment of, for
example, ventilator-weaning or wound care; however, similar patients
are also receiving care in acute care hospitals with similar results.
Therefore, we disagree that acute care hospitals are incapable of
competently treating Medicare beneficiaries that happen to fall within
the DRGs that LTCHs identify as their specialties and that any patients
falling into such categories would receive ``substandard'' care at an
acute care hospital.
Commenters also stated that the Congress established the
distinction between acute care hospitals and LTCHs by excluding LTCHs
from the IPPS in 1983. In the FY 2003 LTCH PPS final rule (67 FR
55954), which presented the initial payment policies that we
established for the LTCH PPS, we briefly reviewed the history of the
development of the distinction between hospitals that were to be paid
under the IPPS and those that would be excluded, among which were a
small group of hospitals that were called LTCHs. In that rule, we
stated that ``[t]he Congress excluded these hospitals from the acute
care hospital inpatient prospective payment system because they
typically treated cases that involved stays that were, on average,
longer or more costly than would be predicted by the DRG system.'' The
legislative history of the 1983 Social Security Amendments stated that,
``the DRG system was developed for short-term acute care general
hospitals and as currently constructed does not adequately take into
account 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. 98-25, at 141
(1983)) Therefore, these hospitals could be systemically underpaid if
the same DRG system were applied to them (67 FR 55957). Following
enactment of the Social Security Amendments of 1983, we implemented the
acute care hospital inpatient prospective payment system on October 1,
1983, including the initial publication in the Federal Register of the
rules and regulations for the hospital

[[Page 26941]]

inpatient prospective payment system--the September 1, 1983 interim
final rule'' (48 FR 39752, 67 FR 55957).
The 33 LTCHs in existence at the start of the IPPS in 1983 (that
were included on the HCFA exclusion list) were described in 1987, in a
presentation letter to President George H.W. Bush from then-Secretary
Otis R. Bowen, M.D., that preceded a Report to Congress produced by
Health Economics Research, Inc. on the ``Developing a Prospective
Payment System for Excluded Hospitals,'' (Department of Health and
Human Services, Health Care Financing Administration, Office of
Research and Demonstration, HCFA Pub. No. 03262), the Secretary notes
that ``Long-term Hospitals are a heterogeneous set of institutions
located on the Eastern Seaboard, whose mission is the treatment of
patients who are seriously or terminally ill with multiple diseases. In
other regions of the country, these same patients would be treated in
hospitals or skilled nursing facilities * * *''
As discussed in the 1984 Report to Congress, CMS (formerly HCFA)
listed 61 hospitals on the ``HCFA exclusion list'' throughout the
United States. (Medicare OSCAR files reveal that 31 of these original
facilities are still in existence in 2007.) The Report states that
``[t]here were 33 hospitals that both identified themselves as chronic
care hospitals * * * [that] are most representative of those primarily
providing chronic-disease hospital services. Perhaps of most interest
is the very long average LOS of patients in these institutions. With
one exception, all average length of stays are over 60 days and, with
three exceptions, all are over 100 days. There is probably no clear
differentiation between certain types of rehabilitative facilities and
LTCHs. The differentiation does seem clearer in the case of psychiatric
and children's hospitals, though because these eight psychiatric and
three children's hospitals had average lengths of stay greater than 25
days, they were placed under the long-term category of exclusions. The
28 remaining hospitals on the HCFA exclusion list are characterized by
a mixture of bed types. Many have a large percentage of psychiatric
beds and some a large percentage of rehabilitation beds. Some of those
hospitals are institutions with a large number of nursing home beds.
For example, one hospital examined houses a small number of acute care
beds available for patients routinely cared for in SNF and intermediate
care facility (ICF)-level beds. The acute care beds are exempted under
PPS. The State licenses beds in this facility as chronic disease
hospital beds, though the administrator conceded that these beds are
virtually indistinguishable from the SNF and ICF level Medicaid beds *
* *'' (p. 3-56). The Report identified an additional 25 hospitals that
fit the profile of LTCHs, most of which were included in a 1983 AHA
Annual Survey. ``Lastly, there were 25 hospitals that were not on the
exclusion list, but have either self-identified to the HA as chronic
care hospitals or have chronic care beds. Seven of these had mostly
acute care beds and a short average LOS, such that they would not
qualify for the HCFA exclusion. The remaining 18 all had average length
of stays greater than 60 days and 11 had average length of stays
greater than 100 days. Though several of these were institutions with
just chronic care beds, most also had a disproportionate number of
nursing home beds. Possibly, those 18 hospitals could qualify for an
exclusion at some future point'' (p. 3-57). ``These hospitals are
themselves a diverse, rather anomalous class. As suspected, they have
grown up in the interstices of acute, rehabilitation, and nursing home
care. Their diversity results from the fact that the role they fill
varies with individual State regulatory and financing policies, as well
as the surrounding configuration of acute, rehabilitation, and nursing
home beds'' (p. 3-59).
We quote this report because we believe that it is vital to
understand what the Congress was describing when it excluded 33 LTCHs
(in the HCFA list) from the IPPS, ``* * * because the DRG system was
developed for short-term acute care general hospitals and as currently
constructed does not adequately take into account special circumstances
of diagnoses requiring long stays'' and therefore, these hospitals
could be systemically underpaid if the same DRG system were applied to
them (67 FR 55957). We do not believe that the Congress was identifying
the LTCHs in existence in 1983, described above, as facilities expected
to deliver care at a level of medical sophistication equivalent to or
even surpassing that of a typical acute care hospital.
In 1983, there were 33 LTCHs (plus another 25 from the AHA list);
in 1993, there were 105; in 2003, there were 318; and in 2007, there
are nearly 400 LTCHs. We do not doubt that the nature and level of the
care delivered by most LTCHs has changed markedly since 1983 but we
believe that it is both highly inaccurate and misleading to state, as
some of our commenters have, that `` `short term' acute care hospitals
are ``just not capable'' of delivering the level of care required by
typical LTCH patients; that acute care hospitals ``are diagnosis based
where LTCHs provide specialized programs of whole-patients recovery;''
that acute care hospitals do not treat identical conditions and that
patients who are forced to remain in an acute care setting could
receive ``sub-standard care with the result being poorer health
outcomes, longer stays, and even higher costs.'' We do not believe that
the evidence detailed above indicates that in excluding LTCHs from the
IPPS and explaining this act by the above-quoted rationale in 1983,
that it was the Congress' intention to declare that henceforth, certain
patients could only reasonably be treated in LTCHs and that treatment
at an acute care hospitals for such patients would be ``sub-standard.''
Rather, we believe that the Congress was attempting to describe the
provider landscape as it existed at that time and that in so doing,
there was a small group of facilities that did not ``cleanly'' fit into
any other category, having ``grown up in the interstices of acute,
rehabilitation, and nursing home care.'' Report to Congress on the
``Developing a Prospective Payment System for Excluded Hospitals,''
HCFA Pub. No. 03262) (p. 3-59).
Since that time, there have been changes in the LTCH universe, with
over 58 percent of the nearly 400 LTCHs being run for-profit (the
majority by several large chains); approximately 33 percent run not for
profit, and only 8.3 percent now run by a government instrumentality.
Accordingly, we believe that the policy we proposed is appropriate to
deal with present payment issues that the Medicare program is facing
under the LTCH PPS.
Commenters further asserted that acute care hospitals do not and
even can not deal with the medical conditions in which LTCH specialize.
Even though the LTCH universe has grown to nearly 400, they continue to
not be evenly geographically dispersed and therefore, by far, most very
sick Medicare inpatients nationwide are treated in acute care
hospitals. In FY 2005, there were 130,000 LTCH discharges and 12.7
million discharges from acute care hospitals. A brief review of several
major LTCH Web sites contained the following list of conditions in
which they specialize:
Chronic cardiac disorders;
Neuuromuscular/neurovascular diseases
Methicillin-resistant staph aureus (MRSA)
Complex orthopedic conditions
Wound care complications
Multi-system organ failure

[[Page 26942]]

Immuno-suppressed conditions
Respiratory failure
Dysphagia management
Post-operative complications
Multiple intravenous therapies
Chemotherapy
Pre- and post-operative organ transplant care
Chronic nutritional problems
Total parenteral nutrition (TPN) issues'
Intensive hemodynamic monitoring
Renal dialysis
Telemetry
EKG testing
Diagnostic bronchoscopy and endoscopy
Speech-language pathology
Surgery support
Nutritional therapy
Radiology services
Laboratory services
Respiratory therapy
Physical therapy
Occupational therapy
Pharmacy
Social services
Furthermore, the list of services noted above, are also hardly
unique to the LTCH setting.
Comment: One commenter cited several provisions of Federal and
State statutes that generally refer to patient transfers, services
furnished to a hospital's patients by others under arrangements made by
the hospital with them, or a hospital's responsibility to have services
available to meet the needs of patients it accepts for treatment. For
example, the commenter cites the provision of the Emergency Medical
Treatment and Active Labor Act (EMTALA) (specifically, section 1867(g)
of the Act) that requires hospitals with specialized capabilities to
accept appropriate transfers of unstabilized individuals protected by
EMTALA. The commenter also referred to Florida, Texas, and Illinois
legislation authorizing arranged-for services and referral and transfer
agreements, and The Joint Commission (formerly JCAHO) guidance
directing their surveyors to look closely at transfers. However, no
specific comment was made.
Response: We do not believe this discussion in any way calls into
question the need for the provisions relating to the policies we have
proposed. Though the provisions cited do include references to
transfers, they do not spell out conditions under which they are
acceptable or otherwise establish specific standards to ensure that
transfers and services under arrangements do not jeopardize patient
health and safety. More importantly, they do not address the key issue
of transfers that may not create clear risks for patients, but
nevertheless, increase costs in the health care system because they are
undertaken for financial rather than medical reasons. Therefore, even
though we reviewed this discussion carefully, we made no changes to our
proposals based on it.
Comment: Some commenters highlighted the current medical care
situation in New Orleans noting that the city is still trying to
recover from Hurricane Katrina. The commenters believed that the
proposed changes would result in the closure of LTCHs and this would
cause hardships on the limited number of physicians practicing in the
area. The commenters requested that affected hospitals should be
granted a time limited exemption from these rules for up to 5 years.
Response: We are certainly aware of the current state of medical
care in Louisiana in general, and specifically in the New Orleans area.
We have worked and continue to work closely with State officials and
the hospitals in Louisiana to address issues that are important to
helping the State rebuild its medical care infrastructure. As stated
previously in response to commenters who claimed that these revisions
would cause LTCHs to close, we believe that these changes are necessary
to assure that the Medicare program is making appropriate payments to
these hospitals in the specific situations addressed by these policies.
In the case of the expansion of the 25 percent policy to apply to LTCHs
and satellites that exceed the threshold on discharges that were
admitted from a referring hospital not co-located with the LTCH or LTCH
satellite, since a LTCH is certified as an acute care hospital, we
believe it is appropriate to pay the LTCH under the LTCH PPS a rate
that is comparable to the rate paid under the IPPS, where it is
demonstrating behavior that indicates that it is serving as a ``unit''
of the referring hospital. Similarly, the revised SSO policy also
provides for payments to the LTCH for those SSO cases that have a LOS
that is comparable to the LOS of a typical IPPS patient in the same
DRG, under the LTCH PPS at an adjusted rate that is comparable to the
IPPS rate. We do not believe these policies will cause widespread
closure of LTCHs nationally or in Louisiana.
We also note that while in general the threshold under the
expansion of the 25 percent policy as finalized in this rule will
ultimately be 25 percent, in response to comments requesting that we
transition the implementation of this policy, as discussed earlier we
are providing for a 3-year transition to allow hospitals additional
time to comply with the 25 percent threshold. Therefore, we are
establishing a 75 percent threshold for RY 2008 and a 50 percent
threshold for RY 2009. The threshold will be reduced to 25 percent
beginning with RY 2010. Furthermore, for hospitals in rural areas or
those admitting patients from a single hospital MSA effective with RY
2008, the threshold will be 75 percent for RY 2008 and will remain at
50 percent for subsequent rate years. In addition, for LTCHs admitting
patients from MSA-dominant hospitals, effective with RY 2009 the
threshold will be adjusted based on the referring hospital's percentage
of Medicare patients discharged in the MSA, and will be not less than
25 percent and not more than 50 percent.
Comment: Many commenters requested that we clarify how they would
be able to comply with the requirements of the 25 percent threshold
payment adjustment policy if it was finalized. In the particular
situation of a MSA-dominant or urban single hospital, where the
threshold depends upon the percentage of referring hospital discharges
in that MSA, it was requested that we clarify which year of data would
applicable.
Response: In establishing this payment provision, originally for
co-located LTCHs for FY 2005, we consulted with Medicare's FIs and we
were assured that LTCHs will be able to obtain the information that
they need in order to comply with this policy from the referring
hospital from which they would be admitting patients.
Further, we understand that typically, acute care hospitals have
the GROUPER software which enables them to determine the most likely
DRG assignment for their patients and additionally, programs that track
the costs being incurred by their patients on a daily basis. Therefore,
they are with a high degree of accuracy, able to predict when a
particular case crosses the outlier threshold. To facilitate such
practices by hospitals, we have provided PRICER software for Medicare
PPSs available for download on the CMS Web site. We understand that
hospitals, including LTCHs, generally also purchase GROUPER software to
track DRG assignments.
Therefore, it is our expectation that LTCHs and their referring
hospitals will build on their existing working relationship (since this
policy applies to situations where over 25 percent of a LTCH's patients
were admitted from an individual hospital) and will find it in their
mutual interests to share necessary information. We would also expect
LTCHs to monitor their admissions and

[[Page 26943]]

discharges from their referring hospitals, a process in which they
would typically engage as a component of sound business practice.
In response to the comment questioning the determination of the
applicable MSA-dominant or urban-single percentage for purposes of LTCH
calculations, we agree that it would be inappropriate for this
percentage to be based on data occurring during a cost reporting
period. Therefore, we would note that our policy is to base the
percentage on the latest available discharge data that is available
prior to the beginning of the LTCH's current fiscal year. We are
revising proposed Sec. 412.536(d)(2) to reflect this policy.
Furthermore, in response to this comment, at this time, we are also
revising the regulation text as it applies to co-located LTCHs.
Specifically, at Sec. 412.534(e)(2) where we describe the
determination of the percentage threshold for MSA-dominant hosts for
LTCH HwHs and LTCH satellites, we deleting the phrase, ``for the cost
reporting period for which the adjustment was made''.
Comment: One commenter stated that implementing the 25 percent
threshold payment adjustment policy, under which Medicare payments
would be reconciled, would ``violate a fundamental rule of PPSs that
payments will be prospectively set and known in advance by the
providers.'' This commenter also stated that the finalizing this
regulation would ``in a very real sense, would convert the LTCH PPS
into a retroactive system of recovery and settlement with related
disputes where CMS would be called upon to produce patient records from
hospitals that refer cases to LTCHs as well as individual patient
coding and referral hospital financial information to support recovery
claims.''
Response: In response to these concerns, we would note that the
cost report settlement process (governed by Subpart B of Part 413) is a
standard feature of all Medicare PPSs. For example, under the IPPS, a
hospital DRG payment may be subject to the DSH or IME adjustments. The
DSH adjustment is based on the percentage of Medicaid patients
discharged by the hospital during the fiscal year, while the IME
adjustment is based on the number of residents trained by the hospital
during the fiscal year. Both factors are subject to change based on
final settlement of the hospital's cost report. The procedures that we
have established for this process envision a reconciliation between
hospitals and the Medicare program based on claims submission, special
interim payments or periodic interim payments and the final amounts
due, as determined by the FI. Such reconciliations are both necessary
and expected. There are numerous provisions affecting LTCHs that could
result in subsequent redetermination of the payment amounts. For
example, involvement of a QIO review of a DRG assignment which may
result in a change in DRGs as specified in Sec. 412.513(c), as well as
any of the reconsiderations and appeals provided for under subparts G,
I, J, or R of Part 405. Moreover, since the start of the LTCH PPS, our
regulations on special payment provisions for patients who are
transferred to onsite providers and readmitted to a LTCH at Sec.
412.532, specified a 5 percent threshold for LTCH readmittances of
patients that had been discharged to an onsite acute care hospital.
Payments under this policy would be reconciled following cost report
settlement. Finally, the 25 percent threshold for co-located LTCHs,
which could result in a redetermination of the payment amount if the
threshold is exceeded, has been in effect since FY 2005.
Therefore, we do not believe that the principle of PPS issued by
the Medicare program is inconsistent with the extension of the 25
percent payment adjustment threshold under the LTCH PPS.
Comment: Several commenters stated that both of our policy
proposals, the extension of the 25 percent threshold policy adjustment
and the revision of the SSO policy, are effectively establishing
``admission criteria'' which usurp the exclusive role of QIOs in the
Medicare program.
Response: We reiterate that with the finalization of the extension
of the 25 percent threshold policy adjustment and the SSO policy, we
have not established ``admissions criteria'' for LTCHs. Rather, in
keeping with our fiduciary responsibility to oversee Medicare
expenditures, we have established payment policies that provide for
appropriate Medicare payments for beneficiary care. We describe each of
the policies in detail in this preamble. They are distinct policies but
they both focus on our goal of determining payment for Medicare
services delivered in LTCHs, under particular circumstances that we
believe should not significantly exceed payment for similar services
otherwise delivered in acute care hospitals.
Because the comments that we received regarding the QIO's role and
the implementation of the expansion of the 25 percent threshold policy
were fundamentally the same comments submitted regarding the QIOs role
and the SSO policy revision, we responded to comments in the SSOs
section of this final rule.
In summary, we are finalizing a new provision at Sec. 412.534(h)
that effective with discharges occurring during cost reporting periods
beginning on or after July 1, 2007, 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 their co-located host hospitals. We are also applying
those policies for Medicare discharges admitted from referring
hospitals not co-located with the LTCH or the satellite of a LTCH to
all subclause (I) LTCHs and LTCH satellites at Sec. 412.536, generally
tracking Sec. 412.534, where applicable. For example, in determining
whether a hospital meets the 25 percent criterion, Medicare discharges
that have already qualified for outlier payments at the referring
hospital would not be included in the count of Medicare discharges
admitted from the referring hospital. (We are entitling Sec. 412.536,
Special Payment Provisions for LTCHs and Satellites of LTCHs that
Discharged Medicare Patients Admitted From a Hospital Not Located in
the Same Building or on the Same Campus as the LTCH or Satellite of the
LTCH.)
We are also finalizing adjustments to the 25 percent policy at
Sec. 412.536 for specific circumstances consistent with the policy for
co-located hospitals under Sec. 412.534. At Sec. 412.536(c) for
Medicare discharges from subclause (I) LTCHs or LTCH satellites located
in rural areas, 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 referring hospital not co-located
with the LTCH or the satellite of the LTCH would be subject to the
payment adjustment specified at 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 the
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 Sec. 412.536, we are also providing that if the referring
hospital not co-located with the LTCH or satellite of the LTCH is the
only other hospital in the MSA or is an MSA-dominant hospital as
defined at Sec. 412.536(e)(4), we are allowing the subclause (I) LTCH
or LTCH satellite facility a threshold percentage equal to the non-co-
located referring hospital's percentage of total

[[Page 26944]]

Medicare discharges for hospitals in the MSA. Consistent with our
policy at existing Sec. 412.534(e), we are applying a floor of 25
percent and a ceiling of 50 percent to this threshold for these
hospitals. 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, 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 payment adjustment at Sec. 412.536 will be phased-in over 3
years for all LTCH discharges affected by the policies that we are
finalizing beginning for cost reporting periods beginning on or after
July 1, 2007. Under the phase in, the percentage threshold will be the
greater of the applicable threshold as specified at 412.536(b),(c), and
(d) or the following percentages: For cost reporting periods beginning
on or after July 1, 2007 and before July 1, 2008, under the policy that
we are finalizing at Sec. 412.536, the percentage of Medicare
discharges that may be admitted from a referring hospital not co-
located with the LTCH or the satellite of a LTCH with no payment
adjustment is the lesser of the percentage of Medicare discharges
admitted from the referring hospital during its RY 2005 cost reporting
period or 75 percent. For cost reporting periods beginning on or after
July 1, 2008 and before July 1, 2009, under the policy that we are
finalizing at Sec. 412.536, the percentage of Medicare discharges that
may be admitted from the referring hospital not co-located with the
LTCH or the satellite of a LTCH, with no payment adjustment, is the
lesser of the percentage of Medicare discharges admitted from the
referring hospital during its RY 2005 cost reporting period or 50
percent. For cost reporting periods beginning on or after July 1, 2009
(RY 2010), all subclause (I) LTCHs and LTCH satellites will be subject
to the 25 percent (or applicable percentage) threshold payment
adjustment for discharges during a cost reporting period that were
admitted from any referring hospital. In determining the percentage of
Medicare discharges admitted from the referring hospital, patients who
reached HCO status at the referring hospital before being admitted to
the LTCH or LTCH satellite will not count towards the applicable
threshold, as discussed above. A similar phase is provided for the
expansion at Sec. 412.534 to grandfathered subclause (I) LTCH HwHs and
LTCH satellites.
Finally, we believe that these payment adjustments address 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.
We also believe that it is important, once again, to note that the
3-year transition to the full 25 percent threshold payment adjustment
will coincide with our continuing work on the MedPAC recommendations to
attempt to develop facility and patient level criteria for LTCHs. We
hope that the LTCH industry will work closely with CMS to pursue this
endeavor during the transition period.

VI. Computing the 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 final 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 the Addendum to this final 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
final rule, as was proposed, based on the best available data and the
policies described in this final rule, the standard Federal rate for
the 2008 LTCH PPS rate year will be $38,356.45 as discussed in section
IV.C.3. of this preamble. We illustrate the methodology that will be
used to adjust the 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 full (that is, five-fifths)
wage index values are applicable. The full LTCH PPS wage index value
for CBSA 16974 is 1.0751 (see Table 1 in the Addendum to this final
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 the Addendum to this final rule).
To calculate the LTCH's total adjusted Federal prospective payment
for this Medicare patient, we compute the wage-adjusted Federal
prospective payment amount by multiplying the unadjusted standard
Federal rate ($38,356.45) by the labor-related share (75.788 percent)
and the wage index value (1.0751). This wage-adjusted amount is then
added to the nonlabor-related portion of the unadjusted standard
Federal rate (24.212 percent; adjusted for cost of living, if
applicable) to determine the adjusted Federal rate, which is then
multiplied by the LTC-DRG relative weight (1.0424) to calculate the
total adjusted Federal prospective payment for the 2008 LTCH PPS rate
year ($42,258.45). (As discussed in section IV.C.5. of this preamble,
for the 2008 LTCH PPS rate year, we are no longer applying a transition
period BN offset (to account for the costs of the transition
methodology) in determining the total adjusted Federal prospective
payment.) Table 7 illustrates the components of the calculations in
this example.

Table 7
------------------------------------------------------------------------

------------------------------------------------------------------------
Unadjusted Standard Federal Prospective Payment Rate... $38,356.45
Labor-Related Share.................................... x 0.75788
Labor-Related Portion of the Federal Rate.............. = $29,069.59
Full Wage Index (CBSA 16974)........................... x 1.0751
Wage-Adjusted Labor Share of Federal Rate.............. = $31,252.71
Nonlabor-Related Portion of the Federal Rate + $ 9,286.86
($38,356.45 x 0.24212)................................
Adjusted Federal Rate Amount........................... = $40,539.57
LTC-DRG 9 Relative Weight.............................. x 1.0424

[[Page 26945]]

Total Adjusted Federal Prospective Payment *........... = $42,258.45
------------------------------------------------------------------------
* We are no longer applying a transition period BN offset to account for
the costs of the transition methodology in determining the 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. 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).
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

[[Page 26946]]

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 revisited the payment adjustment methodology
established for SSOs (71 FR 27845) as a consequence of recent data
analysis and are finalizing a policy which revises one of the existing
four alternatives under the existing SSO payment methodology for
certain SSO cases to an amount under the LTCH PPS that is comparable to
an amount that would otherwise be paid under the IPPS.
As we discuss in section X. of this final rule, our monitoring of
discharges between acute care hospitals and LTCHs reveals that a
significant number of LTCHs that are ``freestanding'', 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 final rule, we are
expanding the existing payment adjustment at Sec. 412.534 and we
developed new Sec. 412.536 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.
RTI has completed its examination of the feasibility of
implementing MedPAC's recommendations in the June 2004 Report to
Congress, and as discussed in section XI. of the preamble to this final
rule. Both Phases I and II are posted on the CMS Web site (as noted
below). We also reproduced the Executive Summary of the report in
Addendum B of the RY 2008 LTCH PPS proposed rule (72 FR 4884 through
4886). At that time, we noted, ``[t]his material is being reproduced as
received from the contractors and does not represent out position or
policy'' (72 FR 48181).
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.
Comment: We received several letters from various Congressional
delegations that were critical of the proposed revision to the SSO
policy and the extension of the 25 percent threshold payment
adjustments. The commenters stated that these policies do not achieve
CMS' goal of identifying inappropriate LTCH admissions.
The commenters urged us to establish patient and facility-level
criteria for LTCHs to better define the appropriate patient setting and
medical conditions required for admission. A number of the commenters
further stated that LTCHs admit patients only after applying an
objective and rigorous set of admissions screening criteria and
Medicare QIOs conduct post-admission reviews of LTCH patients to ensure
that admissions are medically-necessary. These commenters further
stated that at our direction, QIOs have been reviewing a sample of LTCH
cases for admission appropriateness and that these reviews ``clearly''
show an immaterial number of LTCH claims denied as the result of QIO
reviews. Therefore, the commenters maintained that QIO review data does
not support our assumption that cases were inappropriately admitted to
LTCHs, but rather, QIOs are overwhelmingly finding that LTCH patients
have appropriately been admitted and treated in LTCHs.
Response: We reiterate that QIO review of Medicare cases, either
based upon the national sample or resulting from specific appeals,
presently determine, among other things, whether a patient required
hospital-level care. The QIO reviews presently do not distinguish
between acute care settings, such as acute care hospitals paid under
the IPPS or acute care hospitals paid under the LTCH PPS. Therefore,
although the QIO review process, as presently constituted, is a vital
component of the Medicare program, the role played by the QIOs does
not, at this time, provide a medium through which we can determine
appropriate payment policy for acute care hospital patients who are
admitted to an LTCH.
However, regarding the commenters' statement that the proposed rule
did not target cases that are likely the result of inappropriate
admission and that data available to CMS clearly showed an immaterial
number of LTCH claims denied as the result of QIO review of a sample of
LTCH cases, we would share the results of an LTCH review from FY 2005.
In that review, QIOs reviewed a statistically valid, representative
national sample of 1,392 LTCH claims annually for the past few years.
These samples were utilized for calculation of national payment error
rates and the sampling method has been determined to be statistically
sound by external audit. While the overall numbers of admission denials
is low due to the sample size, statistically-based projections have
revealed issues relative

[[Page 26947]]

to inappropriate admissions, especially admissions with short length of
stays. For discharges occurring during FY 2005, 7.9 percent of the
admissions were found to be inappropriate accounting for a projected
overpayment of $215,073,309 annually; this admission denial rate is
higher than the 4.7 percent found for acute care hospitals paid under
the IPPS during the same time period. Of note, 72.7 percent of
admission denials for LTCH discharges occurred in claims with a LOS of
25 days or less.
The commenters further asserted that QIO data does not support our
assumption that cases were inappropriately admitted to LTCHs as a
result of LTCHs acting as extension sites or units of other acute care
hospitals or patients receiving less than a full episode of care at the
acute care hospital. However, an internal analysis of LOS for FY 2005
LTCH discharges has revealed that over 50 percent of stays were 25 days
or less in length and many of those have an LOS comparable to an IPPS
LOS for that DRG.

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.
As noted above, 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 have been 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. RTI is proceeding with Phase III of their project and
as during Phases I and II, we have consistently encouraged meaningful
contact between RTI and industry stakeholders throughout this research
phase of the contract.
Comment: We received a comment from MedPAC that urged us to
continue working towards the development of patient and facility
criteria as the best way to determine appropriate LTCH patients
particularly in light of the RTI report which included recommendations
similar to those originally suggested by MedPAC in its June 1994 Report
to Congress. The Commission noted that approaches other than criteria,
such as the 25 percent rule, ``may be administratively less complex but
are more arbitrary and increase the risk for unintended consequences.''
The Commission further suggested that we evaluate patient criteria
currently in use by LTCHs and continue to work with LTCH associations
that have developed criteria. The commenter also reiterated the
Commission's support for severity-rated DRGs for use in the IPPS
hospitals and noted that their adoption could reduce necessity for
referrals to LTCHs. The Commission also endorsed a larger role for QIOs
in the oversight of determinations of medical necessity, as well as in
monitoring compliance with patient and facility level criteria.
Response: We thank the Commission for its thoughtful response to
our proposed rule. We are mindful of the importance of identifying
patient and facility-level criteria for LTCHs and believe that we have
contracted with RTI to continue moving in that direction as they begin
Phase 3 of their project. The reports on Phase I and Phase II of RTI's
work are posted on the CMS Web site. We believe that their analyses of
LTCHs and other provider categories that treat LTCH-type patients
provide the foundation for any future development of patient level
criteria.
We understand MedPAC's preference for patient criteria as opposed
to payment adjustments for the purpose of determining appropriate
patients for treatment at a LTCH. However, we would note that even with
the development of patient criteria, it continues to be our statutory
responsibility, under the BBA and BBRA to provide for appropriate
adjustments and to establish regulations as may be necessary to
effectively administer the Medicare program by way of implementing
appropriate payment policies and payment adjustments. Therefore, even
though we continue our work with RTI in Phase 3 of their project to see
if we can identify appropriate patient and facility-level criteria for
LTCHs, we do not see the development of those criteria as contradictory
aspects to efforts we have undertaken while performing our fiduciary
responsibility for the Medicare program. We further believe that it may
be appropriate to continue to maintain such policies under the LTCH PPS
that guard the Medicare Trust Fund from duplicative payments for what
is one episode of patient care, even if we are able to develop and
adopt facility and patient criteria for LTCHs and LTCH patients.
In the following comment and response, we discuss our evaluation of
existing patient criteria currently in use by LTCHs, including one that
was developed by one of the LTCH associations.
The Commission's support for the adoption of severity-rated DRGs
for use in acute care hospitals paid for under the IPPS is discussed in
the FY 2008 IPPS proposed rule. As discussed in that proposed rule, we
have also proposed adopting the same severity-based DRGs for the LTCH
PPS.
Finally, regarding an increasing role for QIOs in the LTCH PPS, we
are currently developing the next Quality Improvement Organization
Scope of Work. These comments will be considered in that process.
Comment: Many commenters took issue with the payment adjustments
that we proposed in the RY 2007 LTCH PPS proposed rule that would
revise the existing SSO policy and extend the

[[Page 26948]]

scope of the 25 percent threshold payment adjustment. The commenters
suggested that rather than issuing further regulations that do not
reasonably address our most significant concerns with LTCHs, that we
should instead focus on developing LTCH patient criteria as was
suggested by MedPAC in 2004 and discussed in the RTI report. Several
commenters further contended that we have been ``ignoring MedPAC and
RTI recommendations.'' One commenter stated, ``In 3 years, CMS has not
implemented MedPAC recommendations.'' Many commenters questioned why we
have not adopted existing patient criteria instruments that are
currently used by LTCHs, such as Interqual or the system developed by
MassPRO and the National Association of Long Term Hospitals (NALTH).
Response: In responses to comments in the sections of this final
rule that address the SSO policy and the extension of the 25 percent
(or applicable percentage) threshold payment adjustment to LTCH and
satellite discharges that were admitted from non-co-located hospitals,
we specifically address our rationale for issuing both of these
provisions. However, aside from objections to our policies, it also
appears as if the commenters are combining the production of patient
and facility level criteria by RTI with the end of further payment
adjustments under the LTCH PPS by CMS. Notwithstanding the future
development of appropriate patient and facility level criteria for
LTCHs, it will continue to be our statutory responsibility under
sections 1102 and 1871 of the Act to establish regulations as may be
necessary to adjust LTCH payments appropriately and to effectively
administer the Medicare program.
Furthermore, we strongly disagree with statements by the above
commenters that we have ``ignored'' the MedPAC recommendations, as well
as those recently resulting from RTI's final report. In awarding
contracts, as a Federal Agency, we are required to follow the protocols
of the Federal contracting process that are governed by the Office of
Federal Procurement Policy (OFPP) and Health and Human Services
Acquisition Regulation (HHSAR) (5 U.S.C. 301 and section 205(c) of the
Federal Property and Administrative Services Act of 1949 as amended (40
U.S.C. 486(c)) and regulations as follows: The Federal Acquisition
Regulation (48 CFR Ch. 1); FAR Supplements (48 CRFR Chs. 2-53); Labor
(29 CFR, 41 CFR Ch. 50, Small Business Administration (SBA) 13 CFR, and
OMB Circular No. A-130. Even after meeting all of the above
requirements, however, we would note that while the MedPAC
recommendations were originally published in June 2004, we were able to
award the contract to RTI to evaluate MedPAC's recommendations by the
start of FY 2005 (October 2004).
We have included an update of RTI's progress in each notice since
that time, and we believe that an objective evaluation of the Phase I
and II reports presently on the CMS Web site at http://www.cms.hhs.gov/LongTermCareHospitalPPS/02a_RTIReports.asp#TopOfPage indicates steady
progress but also demonstrates the thoughtful analysis resulting from
RTI's high level of professionalism in pursuit of our goal.
RTI's work over the past 2.5 years has resulted in an extensive and
careful analysis of the Medicare populations served by LTCHs, a
comparison of these populations with those treated in other acute
settings, including IPPS, IRFs, and Inpatient Psychiatric populations,
as well as those treated in less intensive settings such as SNFs. This
work included analysis of Medicare data to compare patient
characteristics and provider costs for certain types of patients;
regulatory requirements governing program conditions of participation
for these different types of facilities; interviews with private sector
developers of level of care determinations; and site visits and
interviews with physicians and hospitals treating these typical and
frequently overlapping populations.
The results suggested that, while there are distinctive populations
with very long acute care needs, there are also many patients whose LOS
at the LTCH may trigger a short stay outlier payment, suggesting their
LOS was not consistent with an LTCH level of care need as defined by
longer term acute level hospital care. While existing patient criteria
such as Interqual are useful for distinguishing between the need for
hospital-level treatment and a less intensive level, such as SNF care,
RTI's analysis has determined that, in fact, the private sector
criteria failed to distinguish between patients at LTCHs and patients
at acute care hospitals. The criteria proposed by the National
Association for Long Term Hospitals (NALTH) also had this shortcoming.
While they identified the intensive acute care patient, they failed to
identify differences between their admissions' clinical characteristics
and those treated in a general acute care hospital step-down unit.
At a recent Technical Expert Panel (TEP) comprised of physicians,
nurses, and hospital administrators representing, in addition to LTCHs,
acute care hospitals, IRFs, and SNFs, convened by RTI, all participants
agreed that LTCHs specialize in treating the types of patients they
admit, noting that having a high volume of these patients is one of the
reasons for their successful outcomes. However, it was also noted that
these services are also provided in general acute care hospitals,
particularly in ICU step-down units. So, while LTCHs may specialize in
a select group of patients (the more intensively ill), they are not the
only providers to successfully provide these treatments. The TEP
reached consensus that volume was important for successful treatment of
the complicated cases, regardless of site of care. TEP participants
continue to be involved in providing feedback to RTI and another TEP is
being planned based upon the earlier meeting and participant responses.
We continue to contract with RTI to work on these issues and RTI is
presently involved into the next phase (phase III) of their project
which will include the refinement of patient specific comparisons of
total episode treatment in areas with and without LTCHs. Furthermore,
RTI is also participating in the CMS-wide effort to better identify
patient-level differences across the various levels of care.

XII. Payment for Direct Graduate Medical Education (GME)

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 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

[[Page 26949]]

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.
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
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 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'

[[Page 26950]]

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 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 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
nonpatient care direct 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
nonpatient care direct 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 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, 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

[[Page 26951]]

to burdensome documentation requirements, we are establishing 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
revising 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. This revision 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 nonpatient care direct GME
activities, as suggested by industry 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 allowing
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 revision, a hospital will 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, 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, a hospital will be required to pay for 90
percent of the GME costs of a training program in a nonhospital site,
and will 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 defining ``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 ``all or 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 will create a 90 percent threshold that
hospitals must meet to count FTE resident time spent training at the
nonhospital setting for IME and direct GME payment purposes.
Additionally, under the new definition, hospitals will 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 will not include overhead
costs.
We solicited comments on our proposed effective date for purposes
of both direct GME and IME as to whether our 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,'' provides a more immediate response to concerns raised by
teaching hospitals, we had concerns that establishing new policies in
the middle of hospitals' cost reporting periods may present some
logistical challenges, both from an implementation and an audit
perspective. Therefore, we proposed 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.
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 would
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 revised policy, 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, 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), 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. Thus the
hospital has to incur only 90 percent of intern and resident salaries
to meet the new regulatory requirements. 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

[[Page 26952]]

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.
Under current regulations, 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. For example, several physicians
may work in the same office and share overhead expenses such as
electricity and rent, but there is no sharing of revenues from patient
care activities. Rather, 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, the
revised policy being adopted in this final rule would more likely be
applicable to members of group practices (or physicians in other
arrangements) 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 the revised policy, 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.
Comment: We received several comments noting the commenters'
appreciation of the efforts CMS has devoted towards the issue of
residency training at nonhospital sites and the belief that the
proposed rule is a good first step in further improving the regulations
regarding residency training at nonhospital sites. The commenters
believe that by not requiring hospitals to pay for 100 percent of the
costs of training at the nonhospital site and by allowing the use of
proxies, the proposed rule may provide for considerable administrative
relief.
Response: We appreciate the commenters' support of the proposed
rule. We agree with the commenters and believe that the final rule will
provide significant administrative relief and support the training of
residents at nonhospital sites.
Comment: Several commenters maintained that the FY 1998 IPPS final
rule (63 FR 40986 July 31, 1998), as well as a program transmittal A-
98-44 from December 1998 stated that whatever reasonable amount was
agreed upon by the nonhospital site and the hospital, that amount would
be accepted as reflecting the costs of the nonhospital site.
Response: Although some may have read our previous guidance to
suggest that the amount of payment for teaching physician costs in the
nonhospital setting could be decided based solely upon negotiations
between the hospital and nonhospital site that has not been our policy.
As we indicated in the Qs&As posted on the CMS Web site on April 8,
2005 at http://www.cms.hhs.gov/AcuteInpatientPPS/Downloads/nonhospQA.pdf, to the extent that there is a cost associated with
teaching physicians for the residency training program at the
nonhospital site, according to statute and regulations, the hospital
must pay ``all or substantially all'' of the cost.
Comment: Several commenters requested a return to the definition of
``all or substantially all'' that was in place prior to 1999, which did
not include costs associated with teaching physicians in the
nonhospital site. One commenter specifically stated that reversing the
unintended consequences of the previous definition change was difficult
and, likewise, ``Once in place, the costs of reversing this new rule
and definition would be similarly difficult.''
Response: As explained earlier, we believe that our current
definition of ``all or substantially all of the costs for the training
program in the nonhospital setting,'' which includes the GME portion of
the teaching physicians' salary, is most consistent with the statutory
language and legislative intent. Therefore, we are not returning to the
pre-1999 definition of that term.
Comment: We received many comments regarding the effective date for
our proposed policy revision. Some commenters believe that the policy
revision should be effective for portions of cost reporting periods
occurring on or after July 1, 2007 while others believe that the policy
revision should be effective for cost reporting periods beginning on or
after July 1, 2007. One commenter asked that hospitals be able to apply
the new method to any years where residents were disallowed. Other
commenters requested that the proposed policy revision be effective
retroactively to previous cost reporting periods.
Response: We solicited comments concerning the effective date of
the proposed policy revisions. After carefully considering these
comments, we have decided to finalize this policy revision to be
effective for cost reporting periods beginning on or after July 1,
2007. As we stated in the proposed rule, we are concerned that
establishing new policies in the middle of hospitals' cost reporting
periods would present burdensome technical and administrative
difficulties, both from an implementation and an audit perspective. In
addition, we do not believe that we have the authority to follow the
commenters' suggestions to implement this provision retroactively.
Section 1871(e)(1)(A) of the Act generally prohibits the Secretary from
making retroactive substantive changes in policy unless retroactive
application of the change is necessary to comply with statutory
requirements, or failure to apply the change retroactively would be
contrary to the public interest. Only in very rare cases do we apply a
rule retroactively (for example, in the wake of Hurricanes Katrina and
Rita in 2005 where a retroactive change was clearly in the public
interest). In those instances, we believed that the failure to apply
regulatory changes retroactively would be contrary to the public
interest because hospitals affected by the hurricanes could otherwise
face dramatic financial hardship, which would threaten the stability of
GME programs in the emergency area. In contrast, we do not believe that
there is a compelling argument that demonstrates a degree of public
interest that would justify applying this proposed policy revision
retroactively.
Comment: Several commenters stated that they do not believe the
proposed policy revision actually addresses the real concern that the
hospital industry has with our current policy. These commenters believe
the central issue is supervisory physician volunteerism in nonhospital
settings. The commenters stated that volunteerism is historically
endemic to physician education, and therefore, hospitals should not
need to pay the costs of the supervisory physician when a physician is
willing to volunteer as a supervisor. One commenter stated, ``We urge
CMS in the final rule to issue a clear policy statement that volunteer
status of faculty will be determined by the hospital and nonhospital
site and that even physicians in group practices who are compensated a
predetermined amount not based on patient billings may still be
volunteering their teaching services.'' The commenter further stated
that there is no cost for supervising residents in group practices
since the physicians are making the same amount per year regardless of
whether or not the teaching physicians are supervising residents. Some
commenters believe

[[Page 26953]]

that since physicians are ``exempt'' from wage and hourly rules under
labor law, there is no reason why the physician and the physician's
employer could not agree that the physician's teaching responsibilities
are undertaken voluntarily by the physician, do not lessen the
physician's duties to the employer, and involve time besides the time
that is necessary for the physician to meet fully his or her
responsibilities to the employer. The commenters noted that the rules
applicable to Federal government employers recognize that volunteer
time, even in the course of usual business hours, is not compensated by
the Federal government (http://www.opm.gov/oca/leave/html/volunteer2.asp).
Response: According to the statute, a hospital is required to incur
``all or substantially all'' of the costs for a training program at the
nonhospital setting in order to count the FTE residents training in the
nonhospital setting for GME payment. There is no reference in statute
to other labor laws that might apply to physicians. Accordingly, our
proposal only addresses the issue of determining costs of training
programs in nonhospital settings. With regards to supervisory physician
time, we address the issue of the costs to the nonhospital site for
supervising the resident training. Our policy has been that if there is
a cost, the hospital must reimburse the nonhospital site for those
costs. If there are no costs, then no payment for supervisory physician
time is required. Typically, there is a cost for teaching physician
time. For example, there is a cost to the nonhospital site when the
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. In contrast, there is typically no cost 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. The most obvious example of this
situation would be a solo practitioner that serves at a nonhospital
site. We note that the hospital is required to compensate the
nonhospital site for the costs of the teaching physicians' time spent
in activities in connection with an approved residency training program
other than the supervision of residents while furnishing billable
patient care services. That is, only the costs associated with teaching
time spent in activities within the scope of the GME program, but not
in billable patient care activities, would be considered direct GME
costs that would need to be incurred by the hospital.
Comment: Generally, commenters were pleased that CMS is moving away
from the requirement that hospitals need to pay 100 percent of the
costs of training at nonhospital sites in order to comply with the
statutory mandate of incurring ``all or substantially all'' of the
costs. However, many commenters feel that the threshold for ``all or
substantially all'' should be further reduced beyond 90 percent.
Commenters stated that the threshold should be reduced to 75 percent in
accordance with our interpretation of ``substantially all'' under the
``Stark'' provisions. One commenter stated that in addressing the
``Stark'' provisions, ``CMS requires `substantially all of the patient
care services of the physicians who are members of a group (that is, at
least 75 percent of the total patient care services of the group
practice members) must be furnished through the group * * *' '' In
reference to whether these provisions conflict with the requirements
under Stark, one commenter asked CMS to ``Please confirm in your
commentary that a reasonable attempt to comply with the requirements to
pay for the costs at nonhospital sites, whether it be under the written
agreement standard or under the concurrent payment standard, using
proxies or real costs, is considered by CMS to be in compliance with
Stark law.'' The commenter further stated that if the action taken in
the aforementioned sentence is not in full compliance with Stark law,
CMS should make an exception under Stark for payments to nonhospital
sites where the payments are made to referring physicians. Another
commenter stated that ``* * * none of the key organizations involved in
this issue have recommended such a [90 percent] standard. To be fair,
the community did raise the question of preceptors attesting to 90
percent of their time being spent with residents in patient care * * *
but we are unaware of any stakeholder group that has recommended
`substantially all' be defined as 90 percent of costs in the
nonhospital setting.'' Other commenters requested that the threshold
should be reduced to 75 percent because, as one commenter stated,
``Courts have also defined `substantially all' as being 75 percent or
greater in the context of corporate and securities law.'' Another
commenter requested that the threshold be reduced to 60 or 70 percent
because such a number would provide for increased flexibility at the
local level, while another commenter believed that a threshold of 70
percent was more appropriate because it was more reflective of the
reimbursement amounts hospitals receive from the government. A request
was also made that the threshold be reduced to 80 or 85 percent.
Response: The statute requires hospitals to pay for ``all or
substantially all,'' not just ``substantially all,'' of the cost of the
training program in the nonhospital setting. We believe that in using
the term ``all or substantially all,'' Congress' intention was that
hospitals pay close to 100 percent of the nonhospital site GME training
program costs (otherwise the ``all'' would add no meaning). As we
described in the proposed rule, prior to proposing to revise the
definition of ``all or substantially all'' to mean at least 90 percent
of the total of the costs of the residents' salaries and fringe
benefits (and travel and lodging if applicable) and supervisory
teaching costs associated with direct GME, we had received a suggestion
from industry representatives that hospitals should be considered by
CMS to meet the statutory mandate to pay ``all or substantially all''
of the costs if the teaching physician can attest that he or she is
spending at least 90 percent of his or her GME time in nonpatient care
direct GME activities at the nonhospital site. Since the issue is the
cost associated with that teaching time, we did not agree with this
suggestion. However, we continue to believe that a standard of 90
percent of the total costs is an appropriate interpretation of ``all or
substantially all.'' In response to whether a reasonable attempt to
comply with the regulations for residency training at nonhospital sites
is considered to be in compliance with the Stark law, we believe that
provided that the rate paid to the supervising physician is fair market
value for the supervisory duties, the arrangement should not be
inconsistent with the Stark law. Since both the use of proxies and
actual data would be consistent with fair market value, we believe that
this final policy conforms with the Stark law.
Comment: One commenter believes that we clearly stated in the
proposed regulations at Sec. 413.75(b)(2), Sec. 413.78(f)(2) and
Sec. 413.78(f)(3)(ii) that a hospital only has to incur 90 percent of
teaching costs. The commenter also believes that, although not restated
in proposed regulations, the 90 percent threshold also applies to the
requirements in Sec. 413.78(f)(3)(i).
Response: We agree with the commenter that the 90 percent threshold
also applies to Sec. 413.78(f)(3)(i).

[[Page 26954]]

Comment: Many commenters stated that members of a group practice
should be able to attest that they are volunteering and be viewed in
the same manner as CMS views solo practitioners. Commenters also stated
that it is more common for residents to train in group practice
settings than with solo practitioners. One commenter stated business
agreements vary among group practices and that, ``Compensation is based
on patient volume and, in effect, each physician is a solo
practitioner.'' Another commenter stated that for its specific
nonhospital site, there is no additional payment made to a physician
who teaches, nor is salary removed from a physician who does not teach.
One commenter stated that although the commenter believes the proposed
rule should not apply to solo practitioners, the commenter also
believes that our logic is incorrect in determining why there are
typically no teaching physician costs associated with solo
practitioners and group practitioners that function as solo
practitioners. The commenter stated, ``The fact that the physicians'
compensation is derived solely from patient care revenues is not
definitive in and of itself. Rather it demonstrates that the physician
received no compensation for supervisory activities.'' The commenter
further noted that, ``At a minimum, group practices should be permitted
to rebut the `implicit' compensation presumption by demonstrating that
no portion of physicians' salaries is linked to resident supervision.''
Another commenter stated that teaching hospitals and nonhospital sites
are in the best position to determine if there are any costs for
training residents at the nonhospital site, and if so, how the costs
should be compensated. The commenter stated that residents gain
clinical experience while training at nonhospital sites. Therefore, the
costs associated with their training are de minimus and if the group
practice decides collectively that it is volunteering as a practice, it
should be able to do so.
Response: As we have previously stated in the April 8, 2005 Qs&As
and in the RY 2008 LTCH PPS proposed rule ``* * * 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.'' Therefore, if a teaching physician in a group practice is
receiving a predetermined salary for his or her activities, and
included in his or her activities are supervisory GME activities at a
nonhospital site, then there is a cost associated with those
activities. If teaching physicians that are members of a group practice
can document that their circumstances are similar to solo practitioners
in that they receive no predetermined salary and receive income solely
from the patients they treat and the services for which they bill, the
hospital may supply this documentation to the Medicare contractor
during audit.
5. Implementation of a 90 Percent Cost Threshold
In revising the 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 of training program
costs 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, 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 final 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 direct GME activities, the hospital
industry has been concerned that determining this GME time could
require burdensome time studies. Therefore, we are adopting 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 are allowing
hospitals to use 3 hours per week as a presumptive standard number of
hours that a teaching physician spends in nonpatient care direct 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 direct GME
activities, a hospital would divide 3 hours by the number of hours the
nonhospital site is open each week. Next, the hospital would multiply
this percentage of time spent in nonpatient care direct 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). The hospital must pay at least 90 percent of these total
GME costs for the program at that nonhospital site 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

[[Page 26955]]

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 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 of the 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 fnl;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 nonpatient care
direct GME activities.]

The portion of the teaching physician's compensation attributable
to nonpatient care 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 resident to teaching physician limit, as explained
below in this section.

The following are two examples of the alternative methodology:

Example 1: Assume one teaching physician is supervising one FTE
resident in a nonhospital site for one 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 nonpatient
care direct 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 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
nonpatient care direct 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 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
methodology for determining the cost that a hospital must incur to
count FTE residents training in nonhospital sites, and explain our
rationale for employing each of these variables. As stated previously,
the 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 proposed 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

[[Page 26956]]

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 8. 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 8.

Table 8.--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
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 solicited 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 8, AMGA does provide some detail
of salaries by geographic area), we proposed to use the single national
average or median salary amount for each specialty, rather than
consider geographic variations, because we want to simplify and
streamline the methodology for determining the GME costs in nonhospital
sites as much as possible. We also solicited 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 noted 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.) In
addition, we solicited 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 proposed
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 the 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.
Comment: Numerous commenters suggested that in determining the
proxy amount for teaching physician supervisory costs, hospitals should
be able to use CMS's reasonable compensation equivalents (RCEs). One
commenter, specifically stated ``The RCEs have been relied upon by CMS
and its predecessor, the Health Care Financing Administration, for
nearly 24 years as its measure of the reasonableness of physician
compensation and, thus, those amounts should be used in this regulation
as well.'' Furthermore, many commenters stated that if we choose to use
AMGA data as its teaching physician salary proxy source, we would be
requiring the use of data with values that ``substantially exceed''
what it considers to be reasonable under the RCEs. Some commenters view
use of AMGA data, which produces physician salary amounts which are
higher than RCEs as being ``arbitrary and capricious.'' Several
commenters stated that if we choose not to use RCEs, we should use data
from the AAMC's Faculty Salary Survey, which has an excellent response
rate, can be made accessible to the public, and includes a ``broad
range of specialties'' and as reported by one commenter, the AAMC's
2005-2006 survey report ``* * * includes data provided by all 125
accredited allopathic medical schools in the United States.''
In addressing whether hospitals should be able to use mean or
median physician salary amounts in determining the proxy for teaching
physician supervisory costs, several commenters requested that median
salaries be used since medians are not affected by outlier data.
Another commenter stated that since the salary amounts in AMGA's survey
are not adjusted by the geographic area wage index, median physician
salary amounts

[[Page 26957]]

should be used. One commenter stated that mean salary amounts should be
used because using the mean salary would account for both range and
frequency, while using the median would only account for frequency.
Another commenter stated that for situations in which there is no
salary information available for a certain subspecialty, we should
consult with the AMA or AOA and encourage national data survey groups
to start tracking data for these subspecialties.
Some commenters suggested that when available, hospitals should be
able to use physician salary data that accounts for geographic
variations including variations between rural and urban areas, while
other commenters were opposed to using data that accounted for
geographic adjustments because of the potential for added complexity.
One commenter stated that hospitals should be allowed ``* * * to use a
comprehensive source of locality adjusted physician compensation
information as a proxy for actual compensation in determining non-
hospital training costs.'' Another commenter stated that if we do not
allow hospitals to account for geographic variations, we would be
requiring that hospitals rely on national salary data which is
inaccurate and make it necessary for hospitals to collect their own
hospital-specific data. One commenter stated that since the goal of
proxies was to simplify the process, there should not be more than one
national salary amount for each specialty. Another commenter stated,
that within specialties, the commenter ``* * * has not identified
significant regional variations, and any large variation that might
exist would be accounted for by simply using the median.'' Lastly, a
commenter stated that in states such as Utah, using a national salary
proxy amount would not account for the fact that physicians' wages are
lower than in other parts of the country and, therefore, if Utah used
the national salary proxy it would be paying more than 90 percent of
the total costs of training residents at the nonhospital site.
Response: In the RY 2008 LTCH PPS proposed rule, we solicited
comments on what specific survey should be used as a proxy source in
determining supervisory teaching physician costs. We also requested
comments on whether we should consider geographic adjustments and
whether we should use a mean or median salary amount. We appreciate the
commenters' suggestions regarding what survey data should be used and
whether we should use data adjusted for geographic variations, or use
the mean or median salary point as the proxy for physician salary
amounts.
In response to the commenters' suggestions that the proxy not be
based on the AMGA data but rather be based on salary data used to
establish Medicare's reasonable compensation equivalent (RCE) limits,
we disagree with the commenters that the RCE limits would be an
appropriate measure in the context of nonhospital site GME training
programs. Although RCEs are appropriate as they are currently used in
conjunction with other Medicare payment policies, we do not believe
they are appropriate for use in determining a proxy for supervisory
teaching physician costs in nonhospital sites. Currently, RCEs are only
applied in the determination of reasonable costs of physician
compensation in the few remaining types of facilities paid on a
reasonable cost basis, the vast majority of which are not teaching
hospitals. RCEs are not applied to the costs of any physician
compensation in teaching hospitals that are paid under the IPPS. Thus,
we do not believe RCE limits would represent an appropriate proxy to
account for supervisory GME teaching physician costs in nonhospital
settings. In addition, we note that under the RCE limits, exceptions
are made for providers, such as small or rural hospitals, that may have
difficulty recruiting or retaining physicians at the prescribed RCE
level. As stated in the August 1, 2003 Federal Register (68 FR 45459)
``* * * if a provider is able to demonstrate to the intermediary its
inability to recruit or maintain physicians at a compensation level
allowable under the RCE limits * * * the intermediary may grant an
exception to the RCE limits established under these rules.'' Since it
may be difficult to recruit and retain physicians in rural nonhospital
sites, we believe the use of RCEs as a proxy for the cost of teaching
physician time in rural nonhospital sites could underestimate those
costs since they are generally lower than market levels, or the AMGA
salary amounts.
The updated RCEs published in the August 1, 2003 Federal Register
(68 FR 45459), only include nine specialties. We do not believe the
RCEs would provide the best representation of specialties for purposes
of establishing proxies for supervisory teaching physician costs in
nonhospital settings. In the August 1, 2003 Federal Register, we also
stated, ``If no specialty category is appropriate (for example, in
determining the reasonable cost for an emergency room physician), the
intermediary will use the reasonable compensation equivalent level for
the `Total' category, which is based on income data for all
physicians'' (68 FR 45459). The goal in using the physician salary
proxy to determine supervisory teaching physician costs, for purposes
of determining whether a hospital has met the statutory requirement to
pay ``all or substantially all'' of the costs of the training at the
nonhospital site, is to allow the hospital to use a figure that
reflects the physician's actual salary without having the
administrative burden of determining the physician's actual salary.
Since the RCEs only exist for nine physician specialties, it would be
frequently necessary to use the ``Total'' category when salary
information for a specific specialty is not available. This would be
contrary to our goal of using a proxy which reflects the actual amount.
For the reasons cited above in this section, we do not believe RCEs are
the most appropriate source of physician salary data to use in the
context of policies regarding supervisory teaching physician salaries
in nonhospital settings; and therefore, we will not use them as proxies
for supervisory teaching physician costs.
In response to the request that we use the AAMC's Faculty Salary
Survey to establish proxies for supervisory teaching physician costs,
we question the appropriateness of using the AAMC's data in the
determination of a proxy since we note that several salary amounts in
the AAMC data are close in value to that of the RCE amounts which, as
we explained earlier, may not fully reflect total physician
compensation amounts. As we explained above, we believe AMGA's survey
data are extremely comprehensive and by making the necessary
information available on our Web site, AMGA data would be easily
accessible to the public. Therefore, we are finalizing our policy to
use survey data published by AMGA as a proxy for physician compensation
in nonhospital settings, and thus, in determining supervisory teaching
physician costs. However, we will continue to monitor the various
survey options and consider whether other data sources are appropriate
for this purpose.
Since some members of the teaching hospital community have claimed
that collection of actual data is burdensome, we are seeking, through
the use of proxies, to make the calculation of supervisory teaching
physician costs for GME training at the nonhospital site as
straightforward as possible. Therefore, we believe that for each
available specialty, only one national physician salary amount should
be used. Further, we agree with many commenters that this physician
salary amount should not be adjusted for geographic variation because
doing so would add an

[[Page 26958]]

additional layer of complexity. In cases where no subspecialty salary
amount is available in the AMGA data, hospitals should use the
physician salary amount for the closest less-specialized form of that
specialty. For example, as we proposed in the RY 2008 LTCH PPS proposed
rule (72 FR 4824), ``* * * 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 the hospital should instead use the national
average salary for the specialty of pathology to determine the cost of
that teaching physician.'' We also agree with the commenters'
suggestion that median salary amounts should be used as the proxy
physician salary amount since median salary amounts would not be
influenced by outlier data. Therefore, we are finalizing the policy to
require hospitals that choose to use the proxy method to calculate
supervisory teaching physician costs to use AMGA's median physician
salary amount for the required specialty.
Comment: One commenter stated that CMS should use average
compensation figures for dental faculty based on specialty and regional
variation. The commenter stated that the commenter would be happy to
work with CMS to develop compensation figures for dental programs.
Response: While we appreciate the point raised by the commenter
that the AMGA data does not apply to dental faculty, at this point we
are unaware of a comparable data source for dental faculty salaries. We
will work with the commenter to determine whether we can develop proxy
salary amounts for supervisory dentists.
Comment: One commenter suggested that for added administrative
simplicity in determining proxies, hospitals should be able to use ``*
* * two `blended' supervising physician salary amounts--`one for
primary care and one for non-primary care * * *.'' These ``blended''
salary amounts would be determined using the published data source. The
commenter stated that to determine which salaries should be included in
the blends, a periodic survey could be taken to determine the
composition of teaching physicians at each nonhospital site. Another
commenter stated, ``We would also like to recommend that the CMS
maintain as part of the final rule, the provision that allows providers
to use actual teaching physician salaries for the calculation of the
recommended cost threshold instead of the national average physician
salary data by specialty.''
Response: We appreciate the commenter's innovative suggestion to
use ``blended'' salary amounts in determining a proxy for supervisory
teaching physician costs. However, in choosing a proxy for national
physician salaries, in order to determine the teaching physician cost
at the nonhospital site, we believe the proxy should be as close to the
actual salary amount as possible. Therefore, we believe it is most
appropriate for hospitals to use the published AMGA specialty salary
amounts in determining the supervisory teaching physician costs at the
nonhospital site. In response to the commenter's request that we
maintain the option for hospitals to use actual physician salary
information, we note that the proposal was to add a proxy calculation
as an alternative to hospitals documenting that they have paid the
actual teaching physician costs at the nonhospital site. Hospitals
always have the option of using actual data instead of any of the
proxies. We also note that under our revised policy, hospitals that use
actual data are required to only pay 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 the
teaching physicians' salaries attributable to nonpatient care direct
GME activities.
Comment: Several commenters questioned the potential availability
of AMGA's survey data and requested that it be made available on our
Web site. One commenter stated that AMGA charges a fee to access its
data and if we are requiring hospitals to use AMGA data, the data, as
well as information on AMGA's methodology should be made available
without cost to the public on CMS' Web site. The commenter stated ``* *
* because the AMGA survey and its methods are not freely available,
providers may not easily be able to analyze and concur with AMGA's
methodology or the amounts set forth in Table 8 * * *'' One commenter
noted that since there is a fee to access AMGA data, using that data or
other similar data (which requires a fee) would be inappropriate
because we would be imposing additional costs on GME. The commenter
further noted (referring to AMGA's data), ``It is not clear how
representative of all practicing physicians these respondents are.''
Response: We will make available any physician specialty salary
survey data that is needed to compute teaching physician supervisory
costs available free of charge on our Web site. Additionally, we will
consider posting information on the AMGA's survey methodology. By
posting the AMGA data on our Web site, we are not imposing any
additional cost on GME training that occurs at nonhospital sites. Since
AMGA's survey data will be posted free of charge, we do not believe
there will be any costs associated with accessing the necessary data.
We disagree with the commenter regarding the level of physician
salary representation in AMGA's survey. AMGA's survey includes a range
of physician specialty salaries. In fact, because of the broad range of
specialties included in the survey we believe AMGA's survey data are
particularly appropriate for use to establish a proxy for teaching
physician salaries and well-suited to meet our goal to use salary
information that reflects physicians' actual salaries.
Comment: One commenter asked whether a provider could use an
alternative survey similar to AMGA if it can demonstrate that the
survey was compiled in a similar manner. Another commenter stated that
in determining the proxy salary amounts to be used, we should ``* * *
consider the approach used by the Department of Veterans Affairs in
setting salaries for its physicians, notably by employing multiple
surveys of physician compensation.''
Response: In response to the commenters' question of whether a
survey similar to AMGA's could be used as a proxy source or a
combination of surveys, in establishing the proxy, we are allowing a
hospital to base its determination on either AMGA survey data or actual
physician salary amounts. However, as previously mentioned, we will
continue to consider the appropriateness of using other options for
sources of physician salary data.

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,

[[Page 26959]]

we proposed 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 proposed 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 solicited
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
proposed 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 proposed 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 proposed that the question for the
hospital to ask is, why are the residents training with that physician?
If the answer is, ``to receive 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
final rule.
Comment: A commenter stated that the specialty of the resident and
not of the teaching physician should be used in determining the
specific salary proxy. The commenter provided the example that a
cardiologist will teach an internal medicine resident what he or she is
required to know regarding heart disease and the cardiovascular system
as an internist and not a cardiologist. The commenter further requested
that we ``* * * clearly state that proxy salaries for subspecialty
physicians originally trained in the specialty of the residents they
are teaching be set to the salary of specialists in the residents'
field regardless of the certification status of the faculty person.''
Response: In response to the commenter's request that the specialty
of the resident be used in determining the supervisory teaching
physician cost, we stated in the proposed rule * * * 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 a
resident happens to be supervised by a physician who is board certified
in internal medicine and cardiology, but the resident is training with
him or her specifically to learn general internal medicine, then we
proposed that the hospital should use the national average salary for
internal medicine, and not cardiology, to determine the teaching cost
of that physician. However, if the internal medicine resident is at the
nonhospital site to receive cardiology training as part of his or her
3-year internal medicine program, the salary for cardiologists should
be used. 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
proposed that the question for the hospital to ask is, why are the
residents training with that physician? If the answer is, ``to receive
training in 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 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. We believe the teaching
physician supervisory cost should reflect the value of the training
received as it relates to the training the resident is receiving.
Therefore, we are not adopting the commenter's suggestion to use the
physician salary of the specialty program of the resident regardless of
the specifics of the training received.

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
allowing 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 direct 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 assume that there are only 3
FTE residents being supervised by 3 teaching

[[Page 26960]]

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 direct 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, 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 direct 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 (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.
Comment: One commenter stated that in using a 1:1 ratio in
determining the 90 percent threshold, it is unlikely that a hospital
will meet the 90 percent threshold because physician salaries are quite
a bit higher than resident salaries and fringe benefits particularly
among specialties. Commenters also asked what documentation we are
requiring to show that only certain teaching physicians at nonhospital
sites are supervising residents. One commenter asked that we confirm
that this information should be provided after the resident rotation to
the nonhospital site has occurred.
Response: We proposed to adopt the 1:1 ratio so that there would be
an upper limit on the number of physicians that are supervising
residents in the nonhospital site. We believe that use of a 1:1 ratio
greatly reduces the cost a hospital would have to pay when there is
actually a higher teaching physician to resident ratio. For example, if
two teaching physicians were supervising one resident, in the absence
of the 1:1 ratio, the costs for both of those teaching physicians would
be included for purposes of making the ``all or substantially all''
calculation. Thus, hospitals could be required to pay significantly
more of the physician salaries if the teaching physician to resident
ratio is not capped at 1:1. The 1:1 cap does not apply to the number of
residents (and thus the resident salary and fringe benefit
calculation). Therefore, where there is one teaching physician training
three residents, the hospital would calculate teaching physician costs
using one teaching physician salary and all three of the residents'
salary and fringe benefit data. In response to the commenters' request
that we advise what type of documentation hospitals need to submit to
show that only certain teaching physicians are supervising residents,
the hospital should have the teaching physicians that were not involved
in the training submit documentation at the end of the rotation or by
the end of the applicable academic year (June 30) to indicate that they
were not involved, either directly, or indirectly, with the education
of residents in their practice. Alternatively, those physicians
involved in the training can be identified in the written agreement, or
the hospital may submit contemporaneous documentation from the GME
program director specifying which physicians were involved in
supervising the residents.
(2) Residents' Salaries and Fringe Benefits
The second variable in our 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 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

[[Page 26961]]

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.
Comment: Several commenters requested that we specify what is
included in resident salaries and fringe benefits. Several commenters
also requested that we specify that resident malpractice insurance is
included in resident fringe benefits.
Response: It is not our intent to cause hospitals to modify their
human resources policies regarding residents' salaries and fringe
benefits. Hospitals should maintain their definition of residents'
salaries and fringe benefits that was in place prior to the RY 2008
LTCH PPS proposed rule. Hospitals should not include resident
malpractice insurance or other costs in residents' fringe benefits
solely for the purpose of increasing the total cost of residents'
salaries and fringe benefits and minimizing the portion of teaching
physician costs they have to pay. Furthermore, we note that
historically, malpractice costs were not to be included in the intern
and resident cost center on the cost report. Accordingly, malpractice
costs should not be included as a fringe benefit in the calculation of
the 90 percent threshold.
Comment: One commenter was concerned about our requirement that a
hospital must use the actual costs of each FTE resident's salary and
fringe benefits as one of the variables under the proposed methodology
for determining the minimum amount that a hospital must pay to count
FTE residents training in a nonhospital site. The commenter stated that
under our current policy, a hospital only needs to know in general that
it incurred the costs of residents' salaries and fringe benefits, but
need not know the actual amounts paid; whereas under the proposed
methodology, a hospital would have the significant administrative
burden knowing the precise program year and corresponding salary and
fringe benefits amount for each resident that trains in the nonhospital
setting. The commenter suggested that we allow hospitals the option of
using an average salary plus fringe benefit amount as a means of
simplifying the proposed methodology and to provide administrative
relief for hospitals.
Response: In the RY 2008 LTCH PPS proposed rule, we stated that we
would allow a hospital to use physician compensation survey data as a
proxy to determine the teaching physician costs associated with a
program at a particular nonhospital site. We proposed to allow the
hospital to use a proxy amount because hospitals stated that the
existing regulation was administratively burdensome since many teaching
physicians in nonhospital sites are reluctant to disclose their
personal salary information. We proposed this policy because teaching
physicians in a nonhospital site may not be employed or paid by the
hospital, and hospitals indicated they had great difficulty
establishing the teaching physicians' salaries and the portion of the
cost attributable to the nonpatient care direct GME activities of the
teaching physicians.
In contrast, we believe resident salary and fringe benefits amounts
are more readily available to hospitals since they ordinarily pay these
costs directly. Because hospitals have ready access to this data, we
believe it is appropriate that hospitals use the actual costs of
resident salaries and fringe benefits for the calculation of the 90
percent threshold, rather than some sort of proxy.
The commenter is correct that to calculate the actual resident
salary and fringe benefits amounts, hospitals will have to take into
account the actual salary and fringe benefits for each FTE resident
that trains in the nonhospital site, which may vary by resident.
Comment: Several commenters inquired about which travel and lodging
expenses should be considered as applicable to direct GME in the
nonhospital site.
Response: Residents' fringe benefits (including travel and lodging
where applicable) are considered a part of ``all or substantially all
of the costs for the training program in the nonhospital setting.'' The
only travel and lodging costs that are applicable are the additional
travel and lodging costs that a hospital incurs due to the fact that a
resident is training at a nonhospital site. For example, if a resident
needs to travel long distance to another part of the state, and is
staying in a hotel for the duration of the nonhospital site training,
the costs of the traveling and accommodations would be costs that the
hospital must incur and include in the determination of the 90 percent
threshold. However, expenses that are normally incurred when the
resident trains at or nearby the hospital, such as commuting and living
expenses, would not be applicable.
(3) The Number of Hours Spent in Nonpatient Care Direct 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 direct 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
direct 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 direct 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 proposed 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 direct GME activities. This option is
an administrative shortcut or a proxy, 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 direct GME activities.
Under the proxy methodology, we would apply a presumed standard
number of hours spent by teaching physicians in nonpatient care direct

[[Page 26962]]

GME activities in every nonhospital site. Specifically, we proposed to
use a standard of 3 hours per week spent in nonpatient care direct GME
activities by teaching physicians. 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 direct 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 direct GME activities. We believe the standard of 3
hours of nonpatient care direct 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 direct GME 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 direct 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 direct 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 nonpatient care
direct 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 nonpatient care direct 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 proposed to use the standard of 3 hours of nonpatient care
direct GME 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 who is training at
the nonhospital site. Accordingly, the time spent by the teaching
physician in nonpatient care direct GME activities may increase only
slightly with each additional FTE resident being supervised.
While we proposed 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 introducing 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 salary is attributable to direct
GME activities, and that percentage is based on time he or she devotes
to activities related to non-billable direct GME activities at the
nonhospital site, we are determining this percentage by dividing the
standard number of hours spent in nonpatient care direct GME activities
by the number of hours the specific nonhospital site is open each week.
We proposed 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 direct 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 direct 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 direct 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 methodology eliminates the need for any
time studies and it is easy to gather the information needed.
We also acknowledge that the 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 direct 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 direct 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 revision to use the 3 hour
standard and the number of hours the nonhospital

[[Page 26963]]

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 solicited 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 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, 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 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 revised policy, 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 definition, and need not pay
an additional amount for teaching physician compensation 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 revised policy 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 revised policy, 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, it would only be required to pay at least 90
percent of the actual direct GME costs, consistent with our 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
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 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 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.
Comment: One commenter, the Association of American Medical
Colleges (AAMC), noted that in the proposed rule, we stated that ``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 our own informal surveys of
teaching physicians'' (72 FR 4826). The AAMC commented that they would
``like to clarify that the AAMC did not provide CMS with survey data.''
The AAMC indicated that we may have been confused on this issue because
the surveys were presented to CMS in a meeting in which representatives
of the AAMC were in attendance, and they noted that AAMC staff provided
some input to the survey questions. A commenter said that we were
correct to describe the surveys as ``informal'' (72 FR 4826), since
these surveys were developed and conducted by AOA and AFMAA policy
staff who, due to time constraints, did not consult with persons who
have expertise in survey development. Another commenter stated that any
data collected by CMS informally and used as the basis for a regulation
should be available to the public. A commenter referred to the
limitations to the data that the AFMAA

[[Page 26964]]

noted when it submitted its survey data to CMS, and questioned why CMS
would use such ``extremely flawed'' data, when anecdotal evidence
suggests that any time greater than one hour per week spent in didactic
training is ``way out of line with actual circumstances.'' Commenters
enlisted a professor from the Department of Economics at Hunter College
in New York, to analyze the survey data and opine as to whether the
survey responses provide a valid source for establishing a national
proxy. The professor expressed concerns about the data provided to CMS,
stated that the data are extremely limited and questionable and should
not form the basis of public policy, and suggested that CMS conduct its
own rigorous study to identify the best proxy. The professor's analysis
also recommended that in the meantime, if CMS wishes to make a decision
based on the AOA and AFMAA survey, a proxy that is better supported by
the current survey is 2 hours.
Some commenters also asked that CMS consider that the surveys were
conducted prior to the issuance of the FY 2007 IPPS final rule in which
CMS clarified that time spent in nonpatient care activities in
nonhospital sites cannot be counted by a hospital for direct GME and
IME purposes. Because of this clarification, hospitals may now be
conducting as much of their didactic activities as possible in the
hospital complex. Lastly, the commenters noted that to the extent that
a resident may spend only a half a day at a nonhospital site per week,
``the idea that [the] 2 or 3 hours of that time is spent in nonpatient
care activities defies conventional logic.''
Several commenters suggested that the 3 hour proxy should be
reduced to either 1 or 2 hours. One commenter stated that according to
the commenter's survey of 54 physicians, the average hours per week
spent on nonpatient care direct GME activities was 1.45, with a range
of 0 to 6 hours. Another commenter stated that teaching physicians
spend 1.2 to 1.5 hours a week in nonpatient care direct GME activities,
while one commenter mentioned that for family practice, a teaching
expectation of 20 minutes per half day would work best. Several
commenters stated that CMS should adjust the proxy according to a
resident's program year. For example, one commenter suggested that the
number of hours spent in nonpatient care direct GME activities per week
should be 1 hour for third year residents, 2 hours for second year
residents, and 3 hours for first year residents.
Response: We regret that we inadvertently misattributed the surveys
in part to the AAMC. The AAMC is correct that we believed they did have
a role in conducting the surveys, but based on their comments, we
understand that their role was limited to providing some input into the
survey questions. We acknowledged that the surveys conducted by CMS,
the AFMAA, and the AOA respectively were informal, and we understood
that persons with expertise in survey development were not necessarily
consulted due to time constraints. In light of these considerations, we
carefully reviewed the analysis of the surveys provided by the
professor from Hunter College. We agree that it is inappropriate to
apply a proxy of 3 hours to one nonhospital site if the residents only
rotate to that nonhospital site for a portion of the week. As we
explain further below in response to the comments we received about
prorating the teaching physician's cost, in this final rule, we are
allowing hospitals to prorate the teaching physician's costs to reflect
the FTE time spent by the residents in a program at each nonhospital
site. Since we have heard from the teaching hospital industry that it
is unlikely that a resident will spend an entire week at the same
nonhospital site, in those cases, the hospital would be applying a
prorated proxy, which would be less than 3 hours, and may even be less
than the 2 hours which the professor from Hunter College indicated
could be supported by the survey data. The suggestion from the
professor at Hunter College that we conduct a rigorous study is
sensible, and we will consider it.
In response to the commenters who request that the 3 hour proxy be
adjusted according to a resident's program year, we believe that
requiring a hospital to adjust the proxy for each of its residents who
are training at a nonhospital site would add unnecessary complexity.
Therefore, we are finalizing our policy to use 3 hours in the numerator
of the teaching physician cost ratio. We note that if a hospital
believes that 3 hours is greater than the actual amount of time spent
in nonpatient care direct GME activities in a particular nonhospital
site, the hospital always has the option to work with the teaching
physician to provide an actual amount of teaching time for use in
calculating the 90 percent cost threshold.
In response to the comment requesting that we consider that the
amount of time currently spent in nonpatient care direct GME activities
in the nonhospital site could be less than the amount shown in the
surveys (since the surveys were conducted prior to the issuance of our
clarification regarding didactic activities), we believe this might be
true. We acknowledge that the availability of Medicare GME funding is
certainly an important factor in a hospital's decision to rotate (or
not rotate) residents to nonhospital settings. However, we also
recognize there are other significant factors that hospitals must
consider in making residency rotation decisions, such as the
requirements of accrediting organizations (like the ACGME or the AOA),
and local health ``outreach'' initiatives. Thus, we are skeptical that
hospitals' longstanding rotational models would shift so dramatically
and in such a short period of time due to clarification of the agency's
policy regarding the time that residents spend in didactic activities.
Further, the commenter is raising a point that can be made about any
survey which captures data as of a certain period of time, and cannot
necessarily be used to predict future scenarios. However, we may re-
evaluate the use of the 3-hour per week standard, possibly in
conjunction with a new survey, in the future if appropriate.
Comment: Commenters suggested that since the goal of the proposed
rule was to reduce administrative burdens, instead of requiring that
hospitals determine the number of hours each nonhospital site is open,
we should consider using a national average proxy for total physician
work hours per week. A commenter mentioned that there are limited, but
still apparently reasonable, data that exist on national average
physician work hours. For example, in its 2006 physician workforce
report, the Health Resources and Services Administration (HRSA) used
the American Medical Association's (AMA) Socioeconomic Monitoring
System (SMS) from 1998 to estimate work hours by specialty. (The
commenter noted that this survey has been discontinued due to response
rates that were often too low for individual specialties and practice
settings.) The direct patient care hours reported by HRSA ranged from
47 to 58 hours per week. Another study conducted in 2005 by the AAMC's
Center for Workforce Studies of physicians over age 50 showed an
average of 55 hours worked per week based on over 9,000 respondents,
with work hours varying by specialty. For instance, pathologists worked
an average of 50 hours weekly on the lower range, while cardiologists
worked an average of 63 hours a week. Similarly, data from the Center
for Tracking Health System Change reported an average of

[[Page 26965]]

53 hours worked per week based on interviews with about 6,600
physicians in all specialties. The commenter asked that we adopt 55
hours as the proxy to use, but suggested that it might be best to use
specialty-specific proxies, since there is a range of work hours across
specialties. Another commenter suggested that physician work hours as
published in JAMA, 2003 be used in the denominator. Alternatively, if
we decide to adopt our proposal regarding the clinic hours of
operation, then the commenters requested that we confirm that this
means the ``posted'' hours, and not the actual hours (for example, the
hospital need not account for the closure of the site due to a
holiday). Another commenter asked that CMS include a definition of
``hours open'' in the final rule, and specify what documentation would
be required.
Other commenters suggested that instead of the clinic hours of
operation, the denominator of the ratio used to calculate the teaching
physician cost proxy should be the number of hours the teaching
physician is working since the physician's salary is relative to the
number of hours worked. One commenter requested that we allow
adjustments as appropriate when the teaching physician spends only a
portion of his or her time at the nonhospital site. Yet another
commenter stated that the denominator should be 51 hours, which is
derived from the CMS data that is the basis for the RCEs that are
currently in use. This commenter noted that if a proxy is being used
for both the numerator and denominator, then there is no need to use
hours at all. Instead, the formula can be simplified by using a single
percentage proxy of the time the physician spends teaching. The
commenter thought the formula should be:

Physician compensation proxy using RCEs
x Percentage of business days in year when resident is at site
x Percentage of presumed training time [number of proxy hours/51 hours
based on RCEs]
= Physician compensation attributable to training.
Response: We appreciate the commenters' proposals for alternatives
to use in the denominator of the ratio that represents the percentage
of time the teaching physician spends in nonpatient care direct GME
activities. The suggestion to use national average proxies for total
physician work hours per week is an interesting idea that we will
explore more fully and consider for future rulemaking. In particular,
we would like to evaluate thoroughly the alternative data sources that
are available, and the ramifications of using specialty-specific proxy
data. We expect to investigate this issue, and if appropriate, may
propose to use specialty-specific data for physician work hours in the
future. We are also not adopting the commenter's suggestion to make
adjustments to recognize the number of hours the specific teaching
physician works each week as the denominator in the ratio. We believe
the relevant figure for this purpose is the time the teaching physician
spends in the specific nonhospital site, not the time the physician
works elsewhere. Furthermore, if we were to allow for adjustments when
the teaching physician spends only a portion of his or her time at the
nonhospital site as the commenter recommended, the result might be a
physician salary percentage that is much higher than the percentage
that would result from use of the number of hours the nonhospital site
is open in the denominator. For example, if a teaching physician works
a total of 60 hours per week, spending 30 hours in the hospital and 30
hours in the nonhospital site, but the nonhospital site is open 40
hours a week, then the teaching physician cost ratio (to be applied to
the survey-based physician salary proxy) would be \3/30\, or 10 percent
under the commenter's suggestion, and \3/40\, or 7.5 percent under our
proposal. Accordingly, as we stated in the proposed rule, we believe
that deriving the true amount of time spent by each teaching physician
in each nonhospital site in nonpatient care direct 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. Therefore, we are finalizing our proposal to use the number
of hours a nonhospital site is open each week as the denominator in the
ratio for calculating the teaching physician cost ratio.
We are also confirming that in determining the number of hours a
clinic is open per week, we do not mean the actual hours the
nonhospital site is open per week, but instead, we mean ``posted'' or
advertised hours. Therefore, the fact that a nonhospital site might be
closed several days in a year on legal holidays, for example, would not
affect the denominator. That is, if a nonhospital site's posted hours
are 9 a.m. to 5 p.m. from Monday through Friday, then the denominator
would be 40 hours, even if that site was closed for a day(s) for a
holiday or some other reason. The hospital may obtain the nonhospital
site's posted or advertised hours of operation as documentation to
support the number of hours used in the denominator of the teaching
time proxy.
Comment: Commenters stated that a reasonable and easy way to
administer the supervisory teaching physician cost ratio would be to
use 2 hours in the numerator, as supported by the conclusions generated
by the professor from Hunter College, and 55 hours in the denominator,
which would result in a ``maximum fixed ratio'' of 3.6 percent.
Alternatively, if we reject that suggestion, the commenters urged CMS
to adopt a ratio ``cap''. The commenters noted that we solicited
comments on how to address situations in which that ratio ``could, in
some extreme instances, result in a determination of unusually high
teaching costs'' in instances where the nonhospital site is open very
few hours per week (72 FR 4827). One commenter suggested that this
ratio ``cap'' should be 5 percent, and would prevent any extreme or
atypical results in determining the portion of teaching physicians'
salaries attributable to direct GME. Another commenter recommended that
the proxy for determining teaching costs be capped at 3 percent, which
would be the result of using 2 hours in the numerator (as suggested by
the professor from Hunter College's analysis), and 60 hours in the
denominator, since 60 hours is the amount of time a typical teaching
physician works (in total, in all settings) per week.
Response: As we explained in response to other comments, we believe
it is appropriate at this time to finalize our proposals to use 3 hours
in the numerator and the number of hours the nonhospital site is open
each week in the denominator. However, the commenter is correct that we
solicited comments on how to address situations in which that ratio
``could, in some extreme instances, result in a determination of
unusually high teaching costs'' in instances where the nonhospital site
is open very few hours per week (72 FR 4827). We believe that in light
of these extreme circumstances, the commenters' suggestion to establish
a ``cap'' on the ratio is reasonable. We are not adopting the
commenters' suggested cap of 3 percent or 5 percent, since both of
these caps are based on using 2 hours in the numerator. Since we are
finalizing our proposal to use 3 hours in the numerator, we believe an
appropriate cap would be 7.5 percent, which would result from using 3
hours in the numerator and 40 hours in the denominator. We believe it
is

[[Page 26966]]

appropriate to use 40 hours in the denominator because 40 hours is an
established, universally recognized, typical work week. However, we may
reevaluate this cap in the context of other possible changes we may
consider making to the teaching physician cost ratio. Thus, in this
final rule, we are instituting a cap of 7.5 percent on the teaching
physician cost ratio, such that a hospital need not employ more than
7.5 percent of the teaching physician cost in calculating the amount of
payment necessary to meet the 90 percent threshold. However, in
adopting this policy, we note that application of the 7.5 percent cap
must always be after a hospital prorates the teaching physician cost to
reflect the amount of FTE time that the residents are in the particular
nonhospital site per year. Since half-day rotations appear to be a
common model of nonhospital training, which would already reduce the
ratio well below 7.5 percent, we anticipate that the cap will only be
applicable in the extreme circumstances we mentioned when soliciting
comments, and which were of concern to the commenters.
Comment: One commenter referred to a letter received from CMS in
which CMS stated that the cost of training a resident in a non-hospital
setting is based on the ``percentage of time'' the teaching physician
spends in GME activities. Therefore, the commenter asserted, if the
hospital is paying for all of the costs of the resident, and the
physician can attest that the percentage of time spent in nonpatient
care direct GME activities is only 10 percent or less (that is, the
remainder of the costs of the program), then the test of a hospital
incurring ``all or substantially all'' of the costs of training the
resident should be met.
Response: CMS's policy for determining the costs of nonpatient care
direct GME activities of the teaching physician is, indeed, based on
the ``percentage of time'' that the teaching physician spends in such
activities. We most recently explained this policy explicitly in the
April 2005 Qs&As. In response to Question 5, we stated ``Determination
of the teaching physician costs to the nonhospital site is dependent
upon the teaching physician's salary and the percentage of time he/she
devotes to activities related to non-billable direct GME activities at
the nonhospital site.'' [see http://www.cms.hhs.gov/AcuteInpatientPPS/Downloads/nonhospQA.pdf] As we have stated in those Qs&As, and in this
rule, the statutory test is tied to whether the hospital has paid ``all
or substantially all'' of the costs of the training program, and not to
how much time the teaching physician spends in nonpatient care direct
GME activities, although that time percentage is certainly necessary
for determining the amount of the cost that the hospital must pay.
Accordingly, the revised policy is consistent with the previous policy
in that the hospital must establish the percentage of time spent by the
teaching physician in nonpatient care direct GME activities in order to
determine the cost of the teaching physician's GME time. However, the
revised policy allows for the use of proxies in order to make those
calculations. That is, the ratio of 3 hours of nonpatient care direct
GME time per week to the number of hours that the nonhospital site is
open also represents the percentage of time the teaching physician
spends in nonpatient care direct GME activities, and when applied to
the physician's salary (as established using survey data), will result
in a proxy for the teaching physician cost. As mentioned in the
preceding summary of comments, commenters requested that CMS place a
cap on the percentage of the teaching physician's time spent in
nonpatient care direct GME activities, as determined using the ratio.
As explained above, in this final rule, we are instituting a cap of 7.5
percent on this teaching physician cost ratio, which is less than the
10 percent to which this commenter requested that physicians be allowed
to attest. Furthermore, we do not believe it is appropriate to say that
a hospital has met the test of incurring ``all or substantially all''
of the costs based simply on a physician's attestation that 10 percent
or less of his or her time is spent on nonpatient care direct GME
activities. Again, it is the cost that is important, not the amount of
the teaching physicians' time.
Comment: We received several comments relating to the method for
computing the teaching physician cost in instances where the residents
rotate to multiple nonhospital sites for varying periods of time, and
whether prorating is applicable. The commenters explained that
typically, nonhospital rotations consist of partial day rotations,
which can be either partial days or partial weeks, to 3 or 4 different
nonhospital sites per week. The commenters mentioned that continuity
clinics, which are required for internal medicine residents, are
generally rotations of one half-day per week to a specific nonhospital
site over the 3-year internal medicine program. The residents may also
rotate to other nonhospital sites during each week. The commenters
asserted that if hospitals were to assume 3 hours of supervisory
teaching physician time for each clinic during a week, the estimate of
teaching physician costs would be ``severely inflated,'' and the
hospital would be ``paying several times over for training costs
incurred during the same time period.''
One commenter noted that we mention the issue of prorating in
instances where the residents are not rotating to the nonhospital site
for a whole year. Specifically, the preamble states, ``If FTE residents
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 (72 FR 4822).'' In addition, the preamble
stated in the context of the teaching physician cost ratio, ``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 direct 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 direct GME activities at that site equals
(\3/40\ x 0.25 = 0.019 or 1.9 percent)'' (72 FR 4827). The commenter
continued that although the concept of prorating is supported by the
preamble, in discussions with CMS staff, it seems that we intended to
allow prorating ``selectively.'' The commenter stated that their
understanding of our position is that if a resident rotates to a
nonhospital site for several days each week over a period of time, the
resident's salary and fringe benefits would be prorated, but not the
physician's salary. The physician's salary would only be prorated if
the rotation occurred in a block situation, such as 3 months (in the
proposed rule example mentioned above).
The commenter included an addendum which contained examples to
illustrate what they believe to be the ``flaws'' in our position. In
the first example, a resident rotates to a nonhospital site for 6
consecutive months, and then spends the rest of the year in a hospital.
In the second example, the resident spends 2.5 days a

[[Page 26967]]

week at a nonhospital site throughout the entire year (an aggregate
time of 6 months), with the remaining time in a hospital setting. In
the first example, the commenter understands that we would prorate by
0.5 the resident's stipends and benefits, as well as the physician's
salary. In the second example, the commenter understands that we would
only prorate the resident's stipends and fringe benefits. The commenter
stated that the result is that even though ``in the aggregate'' the
resident spends the same amount of time in the nonhospital site, if he
or she rotates in increments of less than a week, the hospital will
incur more in supervisory costs. Another commenter believed that there
is no basis for distinguishing between these ``half-time'' rotations,
and teaching hospitals should not have to incur any additional costs if
the sum of the assignments for the resident on an FTE basis is the same
in either case. The former commenter concluded that as long as both the
resident and physician salaries are prorated to match the length of
time of the rotation, the supervisory cost amount will not be
overstated. Alternatively, the commenter noted that the three hour
presumption could be prorated, rather than the physician salary, as the
result would be the same either way.
Response: In responding to these comments on the issue of
prorating, it is important to first understand the context in which we
made the decision to propose that 3 hours be used as the proxy for the
amount of time a teaching physician spends per week in nonpatient care
direct GME activities. As we explained in the proposed rule, we derived
the 3 hour figure from informal surveys conducted by the AFMAA and the
AOA, which essentially showed ranges of 0 hours to 4.7 hours for the
time that physicians spend on nonpatient care direct GME activities (72
FR 4826). Although we acknowledge that the surveys were not rigorous,
we believed (and still believe) the survey data warrant the use of 3
hours, and not a lower number, as a proxy in determining the costs
hospitals must pay in accordance with the statute. This is especially
so since, as explained above, the 3 hour figure is subject to prorating
based upon the proportion of time residents are present in the
nonhospital site. If ``half day'' rotations to nonhospital sites are a
very common training model as the commenters suggest, then it is
reasonable to conclude that the amount of nonpatient care direct GME
hours reported in the survey results reflects this common mode of
training. Given that our motivation was to remove the burden on
teaching physicians in documenting their teaching time, we do not
believe it was unreasonable for us to propose that 3 hours be used as a
``one size fits all'' proxy. Given further that, as mentioned above and
explained below, our final policy will permit the 3 hour figure to vary
when residents are not rotating to the nonhospital site during the
entire year, we believe this policy allows sufficient flexibility to
recognize the circumstances under which most residency training occurs
in nonhospital settings. And finally, we recognize that proxies, by
definition, are not perfect. Therefore, we note again that hospitals
always have the option of working with the nonhospital site teaching
physician(s) to obtain actual data specific to the number of hours the
teaching physician spends per week on nonpatient care direct GME
activities in calculating the 90 percent threshold (72 FR 4826).
However, we do believe that the commenters raise a legitimate
concern in that if the 3 hour proxy were to be applied to each
nonhospital site, then, in cases where the residents rotate to multiple
nonhospital sites each week, the percentage of teaching physician costs
for each site would be considerably overstated. We agree with the
commenters that if both the resident and physician costs are prorated
to match the length of time of the rotation, the teaching physician
cost amount will not be overstated. We are also convinced by the
commenters that, for the amount of teaching physician costs, there
should be no distinction between part-time rotations that occur in
consecutive blocks as compared to part-time rotations that are not
consecutive over the course of a training year, but equate to the same
amount of time on an FTE basis. That is, we agree that just as the
residents' salary and fringe benefit portion is prorated to reflect the
actual FTE time spent in a particular nonhospital site, the teaching
physician cost should also be prorated to reflect that FTE time (that
is, either the physician's salary would be prorated, or the 3 hours
would be prorated by the FTE percentage; the result would be the same
either way). Accordingly, we are modifying our proposal to allow for
prorating in this final rule. Thus, in the example on page 4827 of the
proposed rule quoted by the commenter above, where the FTE residents
only rotate to the nonhospital site for 3 months of the year, the
percentage of time that the teaching physician(s) spends on nonpatient
care direct GME activities at that site would be multiplied by 0.25,
regardless of whether the rotation occurs in a 3-month consecutive
block, or in increments that equate to 3 months (or 0.25 FTE) over the
course of the entire training year.
Comment: Many commenters recommended that we allow physicians at
nonhospital sites to sign attestation forms estimating the average time
they spend supervising residents per week. Another commenter said that
since the primary reason for residents to rotate into nonhospital sites
is to perform patient care activities (as opposed to nonpatient care or
didactic activities), the amount of time that a supervising physician
spends teaching residents is ``typically very low.'' Therefore, CMS
should accept attestations stating that the only teaching time ``in a
resident's entire nonhospital rotation was for the resident evaluation
and that it took a half hour or less.'' One commenter asserted that
``it's a waste of money'' to have physicians attest to the amount of
money they earn, and that if CMS is going to make payment mandatory,
then a minimum of $60 per hour should be established. Several
commenters asked that we specify the type of actual documentation that
is acceptable in the case where a hospital chooses not to use the
proxies we specify in this final rule. (That is, the commenters
requested that we specify how they might use local surveys and sampling
techniques to obtain actual data to calculate nonhospital teaching
physician costs, rather than comprehensive time and motion studies).
Another commenter asked whether the teaching physician must keep
continuous time records or whether the hospital can use time studies.
This commenter further stated that if time studies are to be used, we
should indicate that they are to ``* * * be kept in accordance with CMS
Pub. 15-1, Section 2313.2.''
Response: In the cases where a hospital wishes to use the actual
amount of time a particular teaching physician is spending in
nonpatient care direct GME activities with or on behalf of the
residents, we do not believe that attestations from the teaching
physician without any supporting documentation is acceptable.
Furthermore, if a hospital chooses not to use the proxies specified in
this final rule, then we believe the hospital should use actual data
specific to the teaching physician in the particular nonhospital site,
and not an arbitrary amount such as $60 or information from local
surveys or broader samples. However, it would be acceptable for the
physician to provide to the hospital a signed document specifying,
based on actual records kept, the amount of such

[[Page 26968]]

time spent with the residents, whether this amount is greater than 3
hours, or, as one commenter indicated, a half hour or less. Similar to
the documentation that was historically required of hospitals to
allocate teaching physician costs between Part A and Part B and between
operating costs and direct medical education costs, if the physician is
supervising residents in the nonhospital site throughout the academic
year, the physician may complete a 2-week time study at two different
points during the academic year (that is, two separate 2-week time
studies). If a physician only supervises residents in the nonhospital
site for the equivalent of a month or less in an academic year, then
the physician may complete a 1 week time study. The percentage of time
a teaching physician spends with or on behalf of the residents in
nonpatient care direct GME activities over the course of the time study
may then be extrapolated to apply to the rest of the academic year.
Accordingly, we are not requiring that time studies completed by
teaching physicians in nonhospital sites for the purpose of determining
the 90 percent cost threshold meet the requirements in CMS Pub. 15-1,
Section 2313.2. For example, under CMS Pub. 15-1, Section 2313.2.E.2, a
minimally-acceptable time study must encompass at least 1 full week per
month of the cost reporting period, whereas for purposes of determining
the percentage of time the teaching physician spends in nonpatient care
direct GME activities in the nonhospital site, the teaching physician
may complete two separate 2-week time studies (or a 1 week time study
if the teaching physician supervises residents for the equivalent of a
month or less during the academic year). Since the teaching physician
may not know the percentage of time spent on nonpatient care direct GME
activities at the time the written agreement between the hospital and
the nonhospital site is being entered into (since the written agreement
must be in place before the rotation begins), the written agreement can
be made based upon either the 3-hour per week proxy or an estimated
percentage (based on the prior year's rotations, if applicable), and
the percentage may be modified during the academic year if necessary.
Further, the teaching physician (or the nonhospital site employer) and
the hospital should modify the calculation of the 90 percent cost
threshold and the written agreement in order to reflect the actual
percentage by June 30 of that academic year. The source documentation
used to determine the amount of teaching physician compensation should
be made available to the Medicare contractor upon request during audit.
Comment: One commenter asked CMS to ``* * * expressly clarify in
either the text of the regulation or in the preamble to the final rule
that the alternative proxies will not be used by CMS or fiscal
intermediaries as a way to disallow a hospital's computation and
payment using actual teaching time and teaching costs.'' The commenter
expressed concern ``* * * that the alternative proxies * * * will be
used against hospitals as some sort of floor in analyzing the
reasonableness of actual costs for those hospitals that choose not to
use these alternative proxies.'' The commenter believes that our
proxies would be viewed as a floor or a cap when taking into
consideration actual data. The commenter believes we should affirm that
the proxies are an option we have made available to providers because
of the difficulty of documenting actual teaching costs at the
nonhospital site. Another commenter urged CMS ``* * * to make a clear
statement to this effect, that is, that the intent of the parties is
the controlling factor, and that neither CMS nor its contractors will
substitute their judgment for [that] of the parties directing the
training program.'' The commenter noted that in the cases where there
is a cost, the commenter supports the use of a formula to calculate
faculty costs.
Response: We do not intend to use the proxies specified in this
final rule to establish a ``floor'' or ``cap.'' Rather, they represent
an option that hospitals may choose to use in making the calculations
to ensure they are incurring ``all or substantially all'' of the
training costs at the nonhospital site if it is too burdensome for them
to collect actual data. Furthermore, we would like to emphasize that
when there is a cost associated with the residency training program at
the nonhospital site, regardless of the ``intent of the parties,'' the
hospital must either pay the actual cost or the cost as determined
using the proxies.

C. Other Issues To Be Considered

Although we are revising the standard used for a hospital to incur
``all or substantially of the costs for the training program in the
nonhospital setting'' such that the hospital is permitted 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 proposed 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 the hospital must be able to document for audit purposes that the
concurrent payments it makes reflect ``all or substantially all'' of
the costs, in accordance with the new 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 residents begin training at a nonhospital site), 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. The written agreement
should specify the total compensation amount the hospital will incur 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

[[Page 26969]]

pay to meet the 90 percent threshold and incur ``all or substantially
all'' of the cost in accordance with our 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 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):
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 nonpatient care
direct GME activities].
The portion of the teaching physician's compensation attributable
to nonpatient care 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 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 teaching physician
attributable to nonpatient care direct 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 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 direct GME activities at each
nonhospital site, the Medicare contractor is unable to determine
whether the hospital has properly paid the costs of each specialty
training program at each nonhospital site in accordance with the
statutory and regulatory requirements. Likewise, under the new
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 finalized policy.
Similarly, as under current policy, if two (or more) hospitals 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 predetermined
methodology), as we do not believe this is consistent with the
statutory requirement at section 1886(h)(4)(E) of the Act which states
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 methodology described above separately for the
teaching physicians and residents involved in each specialty program,
and would apply the resident-to-teaching physician ratio limit if
applicable).
Comment: We received several comments on our existing policy as
reiterated in the proposed rule for ``global'' written agreements,
which are common with academic medical centers. According to the
commenters, global agreements are designed to provide an
administratively simple mechanism for teaching hospitals to compensate
the medical school for a variety of reasons, one of which may be for
supervisory physician costs--both in the hospital and in clinics owned
by the medical school, and for other purposes which may not be
specified in detail. The commenters believe that to the extent that
nonhospital supervisory costs are included in the global agreement, a
straightforward mechanism for documenting the costs should be devised,
so as not to complicate the process of entering into the agreements,
which are entered into only once a year. One commenter noted that we
stated in the proposed rule that ``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'' (72 FR page 4829).
The commenter argued that if our stated purpose in issuing the proposed
rule was to simplify and relieve administrative burdens, then the
proposed rule has not

[[Page 26970]]

achieved its goal ``at all in a large number of instances.'' A
commenter requested that we should issue an interim final rule with
comment period to solicit additional comments to ensure that global
agreements between teaching hospitals and medical schools can be used
to simplify the administrative complexity of this regulation while
addressing the intent of the statute as CMS sees it. One commenter
suggested that, at a minimum, hospitals should be allowed to make their
``best estimate'' of the number and length of each rotation and modify
them throughout the year as necessary. In addition, the commenter
stated that we should allow hospitals to use historical nonhospital
site rotation experiences to determine an aggregate nonhospital
supervisory amount that could be referenced in the global agreement for
the upcoming year. Another commenter asked that CMS suggest a standard
written agreement template for hospitals to use.
Response: In the preamble to the proposed rule, we mentioned
several existing issues that we believed were important to reiterate
and to discuss in the context of our new proposals. One such issue was
``global agreements.'' We believed it was necessary to remind the
public about the concerns we had with global agreements, precisely
because we understand that they are quite common among teaching
hospitals and related medical schools, but if lacking relevant details,
are not sufficient in a statutory and regulatory framework that
requires a hospital to ``incur all, or substantially all, of the costs
for the training program in that setting'' (that is, for each program
at each nonhospital site as specified in section 1886(h)(4)(E) of the
Act). In the proposed rule, we explained that global agreements often
do not break out 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 direct 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''
(72 FR 4829). Accordingly, while it was our intent in the proposed
rule, and in this final rule, to minimize hospitals' documentation
burdens for resident training in nonhospital sites, the issues to which
we were particularly sympathetic were those beyond the control of a
hospital, such as a teaching physician who refuses to disclose salary
information. Further, our proposals were intended to encourage more
transparency in those arrangements that are pertinent to Medicare
payments, so as to eliminate the ``deadlock'' that hospitals and
Medicare contractors have experienced, and to provide for an audit and
reimbursement process that is as smooth and as ``painless'' as
possible. As indicated by the commenters, these global agreements are
entered into to cover a variety of funding issues, and are not entered
into solely (if at all) for the purpose of meeting Medicare
regulations. Thus, these agreements often do not provide the level of
detail that is sufficient to comply with the Medicare regulations.
Since 1987, when hospitals were first allowed to count the time that
residents spent training in nonhospital sites for direct GME purposes,
we instituted the written agreement requirement precisely to provide an
administrative tool for use by the Medicare contractors to assist in
determining whether hospitals incurred the necessary training costs in
accordance with the statute and regulations. Similarly, that is why we
stated in the answer to Question 9 in the 2005 Qs&As on the CMS Web
site at http://www.cms.hhs.gov/AcuteInpatientPPS/Downloads/nonhospQA.pdf that, while it is permissible for a hospital to have an
agreement with a medical school on behalf of the clinics owned by the
medical school, in such a case the hospital also must ``have written
agreement(s) reflecting the compensation arrangements for each clinic''
(emphasis added). Thus, while we certainly would like to simplify
matters, we also want to ensure that hospitals receiving payment
relating to training occurring in nonhospital settings are properly
incurring the training program costs in accordance with the statute. If
hospitals wish to count residents training in nonhospital sites for
direct GME and IME purposes, they must be able to document that they
are paying for ``all, or substantially all'' of the training costs for
each program at each site. We believe that a written agreement
reflecting the amounts being paid by the hospital for each site is a
reasonable requirement for in such documentation. Alternatively, we
note that under Sec. 413.78(e) and new Sec. 413.78(f), hospitals are
not required to have written agreements with nonhospital sites but
instead may opt to pay for the nonhospital training program costs on a
concurrent basis, although the hospital certainly must still be able to
document that the concurrent payments reflect ``all or substantially
all'' of the cost, in accordance with the current and new definition at
Sec. 413.75(b). However, given that a hospital's residents may train
at hundreds of nonhospital sites, we do understand that it may be
difficult for hospitals to finalize the details of all of their written
agreements by the start of an academic year. Accordingly, in response
to the commenters' suggestions, we are modifying our policy with
respect to written agreements (for cost reporting periods beginning on
or after July 1, 2007). Current policy requires that the written
agreement be in place prior to the time that the residents begin
training in the nonhospital site (that is, signed by both the hospital
and the nonhospital site). Since residents rotate to various
nonhospital sites at different points in the residency year, a written
agreement may or may not have to be in place with a particular
nonhospital site by July 1. Rather, the agreement should be in place by
the day before the rotation is scheduled to begin. For example, if a
resident is scheduled to rotate to Clinic A on July 1, then the written
agreement between the hospital and Clinic A must be in place by June 30
(that is, the day before July 1, not the end of the following residency
year). However, if residents first rotate to Clinic B on December 1,
then the written agreement between the hospital and Clinic B would have
to be in place by November 30. In response to the commenters'
suggestions, we are changing our policy to allow hospitals to modify
the 90 percent threshold calculations in their written agreements by
the end of the academic year (that is, June 30) to reflect that the
hospital is meeting the requirement to incur at least 90 percent of the
costs associated with the actual training program rotations. This
policy would work in a fashion similar to our current policy on
Medicare GME affiliation agreements, but with some

[[Page 26971]]

differences. Under Sec. 413.79(f), Medicare GME affiliation agreements
must be entered into (and received by the Medicare contractor and CMS)
by July 1 of the applicable residency program year, but hospitals may
modify these agreements by June 30 of that residency year to reflect
changes in the rotations that may not have been anticipated. With
respect to nonhospital training, the hospital would have the option of
using either the proxies for teaching physician costs as finalized in
this final rule, or actual data for the physician salary and teaching
time spent in nonpatient care direct GME activities. If the hospital
opts to use actual data and not the proxies, the hospital may use the
prior year's cost amounts as a placeholder upon entering into the
written agreement, and must modify the agreements by June 30 of that
residency year to properly reflect the actual costs that the hospital
must incur in accordance with the 90 percent threshold for ``all or
substantially all'' of the costs of the training program in the
nonhospital setting. In addition, in the event that hospitals send
residents to unanticipated or originally unscheduled rotations in
nonhospital sites, the hospitals may make their ``best estimate'' by
the day before the rotations occur (the hospital may use the prior
year's rotation experiences as a model), and must make modifications by
the end of the academic year to ensure that they have properly met the
90 percent threshold. We are modifying the proposed regulations text at
Sec. 413.78(f)(3)(ii) to reflect this new policy change with respect
to modification of the written agreements by June 30 of the applicable
academic year.
With respect to the comment requesting that we create a standard
template for written agreements, we do not believe a template would
necessarily be helpful, considering that, even within one hospital, the
rotations can differ significantly across specialties. The formula for
determining the 90 percent threshold, which is the crux of the written
agreement, is clearly written in this final rule, and should be
followed for all programs.
Comment: One comment centered on the various arrangements teaching
hospitals have with affiliated medical schools for training residents
both inside and outside the hospital. The teaching physicians, as
medical school employees, are compensated in a ``variety of manners''
for various types of services, including patient care, administrative
duties, research, etc. The commenter asked that in the case where the
hospital is paying the medical school an amount that the medical school
determined ``in good faith'' to be the compensation for ``teaching
services'' both in the hospital and in nonhospital sites, CMS should
consider that the hospital has ``borne the full costs of teaching
services in nonhospital sites * * * even where there is no allocation
of those amounts between'' the training in the hospital and the
training in the nonhospital sites.
Response: Although the commenter does not specifically use the term
``global agreement'' in his comment, it appears that the scenario being
described has many of the same features as a global agreement. That is,
the hospital pays the medical school a lump sum for ``teaching
services,'' often occurring in the hospital and various nonhospital
sites, but there is no allocation as to the teaching costs particular
to each program at each nonhospital site. In the proposed rule, and in
response to a comment above, we explained that global agreements do not
break out 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 direct GME
activities at each nonhospital site, the Medicare contractor is unable
to determine whether the hospital has actually paid the costs of each
specialty program at each nonhospital site, in accordance with the
statutory and regulatory requirements. This scenario differs from one
described in Question 7 in the April 2005 Qs&As [see http://www.cms.hhs.gov/AcuteInpatientPPS/Downloads/nonhospQA.pdf]. In that
instance, the teaching physician receives a salary directly from the
hospital for teaching services inside the hospital and in nonhospital
sites, rather than the medical school, and when the physician is
supervising the residents in nonhospital sites, he/she is not receiving
any other type of salary payment from the nonhospital sites. Thus, to
the extent that there are teaching costs in those nonhospital sites,
the hospital is already paying for those costs. The situation described
in the Qs&As is different from the situation outlined by the commenter,
in which the teaching physician receives a salary from the medical
school covering a variety of activities, and, without a determination
as to the costs of each training program in each nonhospital site, the
Medicare contractor cannot determine if the hospital properly paid
``all or substantially all'' of the costs.
Comment: One commenter found our proposal to require hospitals to
specify the total amount the hospital will incur, and to specify what
costs are included in that amount, as ``quite surprising.'' The
commenter believes that this requirement will complicate the
preparation of the written agreements, and that it is not necessary to
specify the cost amount which will be used to determine if the hospital
meets a certain threshold for reimbursement within a contract between
two parties. The commenter recognized the need for this information to
be available upon audit, but strongly encouraged CMS not to require
that the cost information be included in the written agreements. Other
commenters also recommended that the regulation not require that the
details of the computation be included in the written agreement,
because the scheduled issuance of the final rule is so close to the
beginning of the upcoming academic year (July 1, 2007), and also
because the actual costs a hospital will incur cannot be accurately
determined until after the fact. For example, the residents' travel and
lodging costs may be higher or lower than the amount initially
estimated when the written agreement was made. Commenters questioned
whether our proposal to use proxies to reflect the time the time the
teaching physician spends in nonpatient care direct GME activities will
actually reduce the documentation burden on hospitals since hospitals
would be required to collect information on, in some cases, hundreds of
clinics. One commenter noted that the paperwork burden required by the
proposed rule is ``still massive,'' and disproportionately
disadvantages family medicine programs and perhaps other primary care
programs, threatening rural access to care. One commenter stated that
hospitals which meet the 90 percent threshold by incurring the resident
salaries and fringe benefits should not be required to state in the
written agreements that ``* * * the hospital will pay all or
substantially all of the cost for resident rotations to the nonhospital
site'' or ``* * * 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 non
hospital site.'' The commenter provided examples of how the regulation
text should be changed to conform to the commenter's suggestion and
further stated that hospitals which meet the 90 percent threshold by

[[Page 26972]]

incurring the resident salaries and fringe benefits should not be
required to identify the compensation paid to residents for their
salary and fringe benefits. Another commenter stated that documentation
burdens associated with written agreements can be eliminated if CMS
would permit a one time agreement with a ``major affiliated partner,''
and allow for multi-year agreements. Finally, one commenter argued that
in light of the limited time that hospitals would have to enter into
written agreements with all of their nonhospital sites in accordance
with the policies set forth in the final rule by July 1, CMS should
impose a one year transition or grace period in which a written
agreement can be amended or newly executed at any time prior to June
30, 2008, and still be effective for the applicable portions of the
academic year starting on July 1, 2007. If CMS does not agree with this
request, then the commenter suggested that alternatively, CMS should
allow a 180 day grace period through December 31, 2007. Under either
scenario, the commenter stated that the grace period would not ``impact
in any way the requirement that hospitals actually incur 90 percent of
the training costs,'' and would ``still afford intermediaries with
fully executed written agreements for use during their audits.'' If CMS
does not grant the commenter's request for a grace period, then the
commenter asked that CMS relax the requirement to specify the precise
teaching compensation amount in the written agreements for at least the
next academic year. The commenter also requested that in general, CMS
should allow the written agreements to be executed during or shortly
after rotations or to allow the written agreements to be more general
about the amounts to be paid. CMS should also indicate that the
ultimate amounts paid can vary from the amounts set forth in the
written agreements. Finally, CMS should provide a clarification or
preferably a detailed example demonstrating how to apply the various
proxies when a hospital sends residents in two or more specialty
programs to the same nonhospital site. The commenter was unclear how
separate computations should be made when different specialty programs
operate at the nonhospital site for a different number of hours per
week (for example, internal medicine for 15 hours per week and family
practice for 25 hours per week, while the nonhospital site is open for
40 hours a week).
Response: We do not believe the specification of the actual amounts
the hospital is to pay the nonhospital site will complicate the process
of the written agreements. The details of the 90 percent cost threshold
are the essence of the written agreement, and it is appropriate that
they be included at the time the written agreement is being entered
into. Considering that we are already allowing hospitals to use easily
accessible proxy data, we do not believe it would be appropriate to
allow for additional ``short cuts'' and imprecision in the development
of the written agreements. Additionally, we do not believe it is
advisable to encourage hospitals to delay the process of making the
cost calculations necessary to establish that a hospital meets the 90
percent threshold. Allowing hospitals to delay the process of ironing
out the details of the costs the hospital needs to incur in order to
meet the ``all or substantially all'' requirements could possibly lead
to unforeseen disallowances 2 or more years after the fact when the
applicable cost report is being audited. We believe it is better that
hospitals take the time to compute the correct payment amounts at the
beginning of (or modified during, as applicable) the academic year,
rather than scramble to provide the details during an audit.
(Similarly, hospitals that do not employ written agreements but instead
are paying for training program costs on a concurrent basis also need
to determine up front what they are paying to each nonhospital site to
ensure that they pay the proper amount every three months). However, we
are sympathetic to the comment regarding the limited time in which
hospitals have to enter into or modify existing contracts in accordance
with the policy set forth in this final rule. While we do not believe a
transition or grace period is necessary, in this final rule, as we
stated in response to a comment above, we are modifying our policy to
allow modifications of written agreements. Should hospitals, urban or
rural, find it difficult to calculate the exact amounts to be paid
under the 90 percent cost threshold at the time they are entering into
the agreements, our decision to allow modifications to the
determination of the 90 percent threshold by June 30 of the applicable
academic year should provide some relief. Additionally, we continue to
believe it is important for the written agreements to specify the
compensation amounts provided for resident salaries and fringe benefits
because doing so will be useful for hospitals in that they will have
greater assurance that they are meeting requirements to count FTE
residents training in nonhospital settings and for Medicare contractors
in that they will have available more of the information needed for the
audit process. Even in the instance where the hospital is paying at
least 90 percent of the total cost just by paying the residents'
salaries and fringe benefits, the Medicare contractor would still need
to know what the total costs are in order to verify that the residents'
portion is, in fact, 90 percent of the total costs. Thus, we are also
specifying in the regulations text of this final rule that the written
agreement should include the amount that represents the total cost of
the nonhospital site, in addition to including the amount that
represents 90 percent of the costs.
In instances where residents in more than one specialty program are
rotating to the same nonhospital site, the 90 percent threshold must be
determined separately for each program. In the example mentioned by the
commenter, where a nonhospital site is used for internal medicine for
15 hours per week and for family practice for 25 hours per week, and
the nonhospital site is open for 40 hours a week, the teaching time
ratio for internal medicine and family practice respectively would be
3/40. In the preamble above (and on page 4825 of the proposed rule), we
included an example of how the 1:1 resident to teaching physician ratio
would be applied in the instance where a nonhospital site is staffed by
physicians in different specialties. We stated that unless the hospital
can document that only certain physicians were involved in supervising
the residents, we would apply the 1:1 ratio to all of the physicians in
the nonhospital site. Then, an average national salary of the mix of
physician specialties in the practice would be computed, and would be
multiplied by 3/40 for use in the 90 percent threshold for internal
medicine and family practice respectively.
Lastly, we are requiring that hospitals have written agreements in
place with nonhospital sites regardless of the nonhospital site's
relationship to the hospital, and we do not believe an exception is
warranted for a ``major affiliated partner.'' While we do not believe
there is anything wrong per se with one time or multi-year agreements
with nonhospital sites with which a hospital has a long-standing
rotational relationship, we question whether such agreements would
properly reflect the true costs in the 90 percent threshold that must
be incurred from year to year, since, as so many commenters have
pointed out, rotations to nonhospital sites can be so dynamic.
Comment: Several commenters asserted that there is no legal

[[Page 26973]]

requirement that an agreement must be signed before nonhospital
training under an agreement begins. The commenters stated that if the
presence of an agreement can be established after the fact by
concurrent payments, CMS should not deny payment as long as there is an
agreement that is ratified by the signature of all parties at any time
during the agreement. At a minimum, CMS should recognize the presence
of a binding agreement as of the time that all parties execute the
agreement.
Response: With respect to GME policy concerning written agreements
relating to residency training in nonhospital sites, our policy has
always been that the written agreement must be in place prior to the
time the residents begin training at the nonhospital site. A written
agreement signed before the time the residents begin training at the
nonhospital site, stating that the hospital will incur the costs of the
training program at the nonhospital site, indicates the hospital's
ongoing commitment to incur those costs. Written agreements that are
retroactive to the time the residents began training at the nonhospital
site do not demonstrate that there was an ongoing commitment by the
hospital to incur the costs. In fact, we are taking this opportunity to
clarify the regulations text at Sec. 413.78(f)(3)(ii) to specify that
the written agreement must be in place between the hospital and the
nonhospital site before the training begins in that nonhospital site.
The commenters suggest that if the presence of an agreement can be
established after the fact by concurrent payments, CMS should not deny
payment when an agreement is not in place at the outset of the training
but is later ratified by the signature of all parties at any time.
However, we note that if the hospital can show that it made payments
representing all or substantially all of the costs of the training
program in the nonhospital setting on a concurrent basis, then under
the regulations at section 413.78(e) or (f), a written agreement is not
needed. This is because these regulations require either a written
agreement or concurrent payments. However, if, for whatever reason, the
Medicare contractor finds that a written agreement is not in accordance
with CMS policy, if the hospital can demonstrate that it paid for the
nonhospital training (and the payments represent all or substantially
all of the cost of the training program in accordance with our
regulations) by the end of the third month following the month in which
the training occurred, then, assuming the other requirements are met,
we would allow the hospital to count the FTE resident time spent
training in the nonhospital setting for purposes of direct GME and IME
payments.
Comment: One commenter asked if a hospital that first chooses one
methodology of meeting the 90 percent threshold (that is, the proxy
data or actual data), could later change to the other methodology to
elicit a more favorable outcome. The commenter further inquired as to
whether the hospital would be considered to have met the 90 percent
threshold if it changes its methodology.
Response: As we stated previously in this preamble, we 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. Further, we continue to
believe that the definition of ``all, or substantially all'' of the
costs which entails documentation of and payment for the costs of a
training program based on the actual costs of the program is truest to
the intent of the statute. Yet, as we explained, the alternative
methodology, which attempts to address the various administrative
difficulties that could occur in documenting actual costs and which
employs proxies in the place of actual data, is acceptable as well.
However, we certainly would not encourage hospitals to make a practice
of using one methodology during the applicable academic year, and
attempting to switch to the other methodology during audit to determine
if they met the 90 percent threshold under the latter methodology.
Nevertheless, if for example, during an audit, a Medicare contractor
determines that a hospital did not pay for the costs of a particular
program in accordance with the 90 percent threshold calculated using
one method, and the hospital requests that it be allowed to attempt to
demonstrate that it properly paid the costs had the other method been
used, the Medicare contractor should contact CMS to determine on
whether the hospital met the regulations under the other method.
However, we caution that, even if CMS does allow a hospital the
opportunity to demonstrate that it met the regulations under the other
method, this may not necessarily provide the escape from an impending
disallowance that a hospital is seeking. Payment for ``all or
substantially all'' of the costs must be made in a timely fashion in
accordance with the regulations at section 413.100(c)(2)(i) in either
case, and it could be difficult for the hospital to meet those
requirements if it did not initially determine and pay the actual costs
of the program. Moreover, it could be difficult for the hospital to
identify actual costs several years after the training occurred,
especially since the teaching physician probably would not have kept
records on the amount of time spent with the residents in nonpatient
care direct GME activities. For example, a hospital initially used
actual data to determine that 90 percent of the total costs of a
program in a particular nonhospital site is $70,000. The hospital
identified the costs as being $70,000 in the written agreement and
liquidated the costs in a timely fashion in accordance with the
regulations at section 413.100(c)(2)(i) (that is, within one year after
the end of the cost reporting period in which the liability is
incurred). However, during audit, the FI determined that the actual
costs of the program were $75,000, not $70,000, which means the
hospital did not pay 90 percent of the costs of the program. The
hospital requests that it be allowed to demonstrate that it paid at
least 90 percent of the costs of the program as calculated based upon
the proxies instead, and CMS permits the hospital to do so. If the
hospital shows that 90 percent of the cost of the program based on the
proxies was $70,000 or less, then it may be considered to have paid
``all or substantially all'' of the costs of the program. However, if
the hospital, as verified by the Medicare contractor, demonstrates that
90 percent of the costs using proxies was $73,000, then in either case,
the hospital would not have paid ``all or substantially all'' of the
costs. The hospital would not, in all likelihood, be able to resolve
the problem by paying the difference ($3,000) at the time of the audit
since the timeframe for liquidating the liabilities may have passed. If
the reverse situation had occurred, where the hospital first used
proxies, but then requested to demonstrate that it would meet the 90
percent threshold if actual data were used, as explained above, we
believe it would be quite difficult for the hospital to be able to
successfully identify the actual costs of the program several years
after the fact. In any case, the hospital would not be allowed to count
the FTE residents training in the nonhospital site unless it ultimately
demonstrates that it incurred all or substantially all of the costs for
the training program in the nonhospital site in accordance with the
definition at section 413.75(b) of the regulations (that

[[Page 26974]]

is, 90 percent). We would also apply this principle in determining
whether the hospital actually incurred 90 percent of the costs of the
training program in a nonhospital site in the instance where the amount
ultimately paid by the hospital differs from the amount specified in
the written agreement. If the amount paid by the hospital is at least
90 percent of the total of the costs of the residents' salaries and
fringe benefits (and travel and lodging where applicable) and the
portion of the cost of teaching physicians' salaries attributable to
nonpatient care direct GME activities, then, assuming all other
requirements are met, the hospital may count the FTE residents training
in the program at the nonhospital site.
Comment: A commenter noted that the requirement that a hospital
must liquidate the costs identified in the written agreement in
accordance with the regulations at section 413.100(c)(2)(i) only
applies in the case where a hospital enters into a written agreement
with the nonhospital site, but does not apply in the instance where a
hospital chooses to pay the nonhospital site on a concurrent basis. The
commenter recommended that the requirements for liquidation of
liabilities be consistent for both situations (that is, with or without
a written agreement).
Response: Under the Medicare payment rules at Sec. 413.100
concerning accrued costs, hospitals are required to liquidate their
short-term liabilities within one year after the end of the cost
reporting period in which the liability is incurred. With respect to
the payments that hospitals make to nonhospital sites, in the August
11, 2004 final rule (69 FR 49179), in an effort to provide more
flexibility to hospitals, we gave hospitals the option of either
entering into a written agreement, or paying for the costs on a
concurrent basis--that is, to pay for the costs of the 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. The latter
option (that is, concurrent payments) would require that payments be
made on a more frequent basis than the timeframe specified at Sec.
413.100(c)(2)(i). Alternatively, if a hospital opts to enter into
written agreements, since the hospital would be committing upfront to
incur the costs, the longer timeframe at Sec. 413.100(c)(2)(i) would
apply. Consequently, under the written agreement option, in order for
the accrued costs to be recognized by Medicare in the year of the
accrual, the costs incurred in a given cost reporting year for
nonhospital training must be liquidated within one year after the end
of that cost reporting period. For example, if a hospital has a
December 31, 2007 fiscal year end, costs that the hospital incurred for
nonhospital training occurring during July 2007 through December 2007
must be liquidated by December 31, 2008. Costs incurred by this
hospital for nonhospital training occurring during January 2008 through
June 2008 would accrue during the December 31, 2008 fiscal year end and
must be liquidated by December 31, 2009. We believe these two options
at Sec. 413.78(e) and (f) give hospitals additional flexibility in
paying for the costs of training occurring in nonhospital settings.
Therefore, we are not changing the regulations to require that the
liquidation of liabilities be consistent in both situations.
Comment: One commenter asked about our policy for nonhospital sites
that are owned by a hospital, as articulated in the April 2005 Qs & As
document. The document (under Answer 8) states that the
hospital must ``actually [pay] the nonhospital site through the
hospital's accounts payable system. (If the hospital and nonhospital
site share a single accounting system, the hospital could demonstrate
payment of the nonhospital site training program costs using journal
entries that expense these costs in the hospital's GME cost center and
credit the nonhospital site.)''
The commenter stated that we do not provide any rationale for this
position, which seems to impose an administrative burden on hospitals
(requiring the hospital to essentially pay itself). The commenter urged
CMS to state in the final rule that these teaching hospitals need not
specify the supervisory teaching physician costs in the written
agreement because the teaching hospitals either own the nonhospital
site or both institutions are owned by the same organization.
Response: We agree with the commenters that the proposal to require
hospitals to include the details of the 90 percent cost threshold in
the written agreement might be unnecessarily burdensome for hospitals
that own nonhospital sites in which residents are training. While the
hospital certainly must pay for the costs of training (in accordance
with the 90 percent threshold) occurring in the nonhospital sites that
it owns in order to be permitted to count the time residents spend
training there for direct GME and IME purposes, the written agreements
between the hospital and the nonhospital sites it owns need not specify
the total amount of costs the hospital will incur, and what costs are
included in that total amount. However, we note that there may be some
cases where the hospital is not automatically paying for the training
program costs in the nonhospital sites it owns, simply because it owns
those nonhospital sites. For example, there may be instances where a
hospital contracts with a third party to provide teaching physicians to
supervise its residents in the hospital-owned nonhospital sites. In
such a case, the teaching physicians are paid a salary by that third
party (for example, they are on the staff of a medical school).
Therefore, in this case, the written agreement would need to be between
the hospital on behalf of the clinics that it owns and the third party,
and the written agreement must specify the total cost at the
nonhospital site, and the amount the hospital will incur (at least 90
percent of the total), and must indicate the portion of the amount the
hospital will incur that reflects residents' salaries and fringe
benefits (and travel and lodging where applicable), and the portion of
this amount that reflects teaching physician compensation.
Comment: One commenter noted that the regulations concerning
written agreements at section 413.78(e)(3)(ii) state that the hospital
must provide ``reasonable compensation'' to the nonhospital site, while
the regulations concerning concurrent payments have no requirement
regarding the reasonableness of the compensation. The commenter
recommended that CMS make the regulations for written agreements and
concurrent payments consistent, by either inserting a requirement for
reasonableness of compensation for both circumstances, or excluding the
requirement under both circumstances.
Response: The commenter is referring to the regulations at section
413.78(e)(3) pertaining to the requirements for counting residents
training in nonhospital settings on or after October 1, 2004. However,
we believe the commenters point regarding the regulatory requirement
for ``reasonableness'' of compensation is not a concern under the new
regulation. Although the new section 413.78(f), effective for cost
reporting periods beginning on or after July 1, 2007, does not
specifically refer to reasonableness of compensation, it requires that
the costs of the training program be determined in accordance with the
90 percent threshold. Additionally, we note that the reference in the
regulation at Sec. 413.78(e)(3)(ii) to reasonable compensation was
intended as a guide for the content of the written agreement and as a
preface to the requirement to specify in the written agreement the

[[Page 26975]]

amount of compensation the hospital is providing for supervisory
teaching activities. Given that, and the fact that the regulation at
Sec. 413.78(e) will not apply to cost reporting periods beginning on
or after July 1, 2007, we do not believe it is necessary to modify this
section of the regulations.
Comment: One commenter believes that since residency training is
the final educational step before a resident is capable of independent
practice, residents are students and not employees, and therefore, CMS
should refer to resident stipends and not resident salaries.
Response: We acknowledge that there are multiple terms to refer to
the compensation a resident receives while participating in a residency
training program. For our purposes, we have always referred to the
compensation received by residents as salary and benefits, and will
continue to do so even though different terms may be used by other
organizations and entities.
Comment: Several commenters inquired about whether a hospital must
comply with the nonhospital site regulations for training residents in
a nonhospital setting with respect to FTE residents that are not
counted for purposes of Medicare IME or direct GME payments because
they are in excess of the hospital's FTE resident caps. These
commenters further inquired about whether such a hospital could still
include the FTEs in excess of its cap on its cost report even if the
hospital didn't comply with the regulations for training those FTE
residents in nonhospital settings. The commenters believe that
hospitals should be able to include those residents in their current
year FTE counts on their cost reports based on the reasoning that, in
the event the Congress makes a legislative change regarding FTE
resident caps, the cost reports would reflect an accurate count of the
residents that the hospital trained.
Response: The regulations specify what a hospital must do to count
residents that train at a nonhospital site for purposes of both direct
GME and IME. If the hospital fails to meet the regulatory requirements
at Sec. 412.105(f) and Sec. 413.78(f), it may not include those
residents in its FTE count, regardless of whether the hospital is
otherwise above or below its caps. However, a hospital may choose not
to pay for the costs relating to the training of residents in a
nonhospital setting if it is training FTE residents in excess of its
caps, and therefore, would also not include those FTE residents
training in nonhospital sites in its FTE count. With respect to FTE
residents that a hospital does count on its Medicare cost report (for
example, on line 3.05 on Worksheet E-3 Part IV, and on line 3.08 on
Worksheet E Part A), a hospital must have proper documentation to
demonstrate that the FTE residents are valid FTEs that, in the absence
of the FTE caps, would otherwise be permitted to be counted for direct
GME and IME payment purposes. Therefore, a hospital may only claim
residents training at nonhospital sites on its cost report if the
hospital would, in the absence of the FTE caps, be permitted to count
those FTE residents for direct GME and IME payment purposes, even if
those residents would be over its caps. We recognize the issues that
could arise if hospitals choose not to take the required steps under
our regulations to be permitted to count certain FTE residents, and if
the Congress should pass new legislation involving residency caps.
However, we believe it is more likely than not that new legislation
would be based on the premise that hospitals have properly complied
with the regulations and reported accurate data on their cost reports
regardless of whether it was to their particular benefit to do so at
the time. Thus, we would encourage hospitals to meet the regulatory
requirements and report FTE residents to the fullest possible extent.
Comment: Several commenters stated that our policy would continue
to be administratively burdensome. One commenter stated that for its
family medicine program, private physicians are used as preceptors and
in 1 week residents may work with 10 to 20 teaching physicians. The
commenter states that, ``It would be administratively impossible to
calculate all of their supposed teaching costs.'' Another commenter
noted that its teaching program relies on 20 to 30 private teaching
physicians who volunteer their time training residents in their
offices. The commenter stated that due to the flow of patient care,
without the use of burdensome time studies, it would be impossible to
accurately determine the amount of GME teaching time at the nonhospital
site. The commenter requested that we work more closely with program
directors to formulate a methodology which addresses the true costs of
GME.
Response: We believe that use of the proxies being adopted in this
final rule, coupled with the 1:1 resident to teaching physician ratio,
can greatly reduce the burdens associated with determining teaching
physician supervisory GME costs, even in the relatively complex
training arrangements described by the commenters. Although we
acknowledge that hospitals with multiple nonhospital sites may face a
larger task to comply with our regulations than hospitals with just a
few nonhospital sites, we continue to believe the statute mandates that
hospitals are required to pay for ``all or substantially all'' of the
costs of the training program at the nonhospital site, and that this
final policy conforms with the statutory requirement while providing
additional administrative flexibility.
Comment: One commenter noted that in the proposed rule, CMS used
the terms ``direct GME activities,'' ``nonpatient care activities,'' as
well as ``activities related to non-billable GME activities'' in
illustrating activities for which it is required that hospitals pay
supervisory costs. The commenter urged CMS to consider including a
definition in the final rule.
Response: We appreciate the commenter's suggestion to define terms
such as those included in the above paragraph. We did not propose to
define these terms since we did not believe it would be necessary to
include a definition in the rule. However, we do believe it is
important to be consistent in the way we reference those activities for
which the hospital is required to incur the costs in the nonhospital
site--that is, nonpatient care direct GME activities. While we do not
currently specifically define ``nonpatient care direct GME activities''
in the regulations, we note that the term ``patient care activities''
is currently defined at Sec. 413.75(b) as, ``the care and treatment of
particular patients, including services for which a physician or other
practitioner may bill.'' Therefore, the use of the term ``nonpatient
care'' would denote those activities which do not involve the care and
treatment of specific patients, including non-billable time. Further,
the term ``direct GME'' denotes those activities in which the physician
engages because of his/her involvement in supervising residents in an
approved GME program. We are also modifying our proposed definition of
``All or substantially all of the costs for the training program in the
nonhospital setting'' at Sec. 413.75(b) to specify the portion of the
cost of teaching physicians' salaries attributable to ``nonpatient
care'' direct GME ``activities.'' If we find that there are continuing
questions regarding these terms, we will consider proposing definitions
in future rulemaking so that the proposed definitions can be included
in the normal comment process.
Comment: One commenter maintained that CMS' interpretation of

[[Page 26976]]

Section 1886(h)(4)(E) of the Act is not correct. The commenter believes
that the statutory language does not prohibit payment to the ``main''
teaching hospital if it incurs ``all or substantially all'' of the
costs of the residency training in ``small, rural emergency
departments'' since the residents ``* * * are not serving in more than
one hospital `simultaneously.' '' The commenter further notes that few
small rural hospitals want to assume the burden of becoming teaching
hospitals, therefore, the main teaching hospital continues to bear the
costs of the resident rotations to the rural emergency departments. The
commenter urges CMS to change its policy with regard to ``emergency and
possibly other hospital-based physicians'' to allow for payment to the
``main'' teaching hospital for resident training time at rural
hospitals.
Response: We did not propose to make any changes to our regulations
concerning the counting of FTE residents training in more than one
hospital. Therefore, we believe the comments are out of the scope of
this rule and we will not be responding to them at this time.
Comment: One commenter stated ``CMS currently insists that the
three-month (90 day) timeframe for payment be based on a calendar month
without regard to programs such as ours that conduct rotations on a 4-
week basis (13 rotations per year) * * * We believe the written
agreement is reasonable but the 90 day time frame for payment to the
non-hospital physician should be relative to the last day of the block
rotation.''
Response: We did not propose making any changes to CMS' rules
regarding concurrent payment for training at nonhospital sites and,
therefore, we believe this comment is outside the scope of our proposed
rule and we will not be responding to it at this time.
Comment: One commenter asked ``How is CMS going to ensure
responsible and consistent application of these lengthy new rules?''
Response: CMS typically will instruct its contractors as to the
implementation of any new regulatory provisions. We intend to do the
same for these provisions. We urge any individuals, including both
members of the teaching hospital community and Medicare contractors, to
contact us when they have questions regarding application of this rule.
Comment: We received several comments on the IME formula and other
nonhospital site issues that were not included in the proposed rule.
Response: Since these comments are out of the scope of this rule,
we are not responding to them at this time.
Comment: Several commenters requested that hospitals have the
option of recalculating their PRA to include allowable GME costs.
Response: We did not propose any changes to the existing
methodology for calculating GME PRAs. Therefore, we believe this
comment is outside the scope of our proposed rule, and therefore, we
are not responding to it in this final rule.

D. Summary of Final Provisions

In summary, we are revising 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 policy for cost
reporting periods beginning 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
nonpatient care direct GME activities.
In addition, we are revising Sec. 412.105(f)(1)(ii)(C) for IME and
adding 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. In this final rule, we are also clarifying the regulations text
at Sec. 413.78(f)(3)(ii) to specify that the written agreement must be
in place between the hospital and the nonhospital site before the
training begins in that nonhospital site. We are also specifying in the
regulations text of this final rule that the written agreement should
include the amount that represents the total cost of the training
program in the nonhospital site, in addition to including the amount
that the hospital will incur (at least 90 percent of the cost), and
must indicate the portion of the amount that reflects residents'
salaries and fringe benefits (and travel and lodging where applicable),
and the portion of the amount that reflects teaching physician
compensation. Lastly, we are revising the regulations text to indicate
that the amounts specified in the written agreement may be modified by
June 30 of the applicable academic year.

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 replacing Sec.
412.22(h)(3)(i) and (ii) in this final rule.

XIV. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, we are required to
provide 30-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 solicited public comments 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).

[[Page 26977]]

Section Sec. 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 a nonhospital setting. 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 that 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, where 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 final 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.

XV. Regulatory Impact Analysis

A. Introduction

We have examined the impacts of this final rule as required by
Executive Order 12866 (September 1993, Regulatory Planning and Review),
the Regulatory Flexibility Act (RFA) (September 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 rates, factors and policies presented in this
final rule, including updated wage index values, and the best available
claims and CCR data to estimate the change in payments for the 2008
LTCH PPS rate year. Based on the best available data for 377 LTCHs, we
estimate that the 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 final rule), in conjunction with the update to the Federal rate
for RY 2008 (discussed in section IV.C. of the preamble of this final
rule), the changes to the area wage adjustment (discussed in section
IV.D.1. of the preamble of this final rule), the revision to the SSO
policy and the increase in the outlier fixed-loss amount (discussed in
section IV.D.3.c. of the preamble of this final rule) for the 2008 LTCH
PPS rate year, will result in a decrease in estimated payments from the
2007 LTCH PPS rate year of approximately $156 million (or about 3.8
percent). (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 final rule. The impact of the policy change relating to payment
for Hospital Direct and Indirect Graduate Medical Education Payments
(GME) is discussed in section XV.C.2. of this regulatory impact
analysis.) The estimated impact of the provisions presented in this
final rule (as detailed above) for the 377 LTCHs in our database are in
Table 9.

Table 9.--Estimated Impact of the Provisions of this Final Rule \1\
------------------------------------------------------------------------
Estimated
percent change
in estimated
Policy aggregate LTCH
PPS payments
(percent)
------------------------------------------------------------------------
Payment Rate and Policy Changes:
Changes to the Federal Rate \2\................... 0.6
Changes to the Area Wage Adjustment............... -1.0
Revision of the SSO Policy........................ -0.9
Adjustment of the High Cost Outlier Threshold \3\. -2.5
-----------------
Subtotal \4\.................................. -3.8
-----------------
Expansion of the ``25 Percent'' Policy \5\............ 0
-----------------
Total \6\ (-3.8% + 0%)........................ -3.8
------------------------------------------------------------------------
\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 377 LTCHs.
\2\ As discussed in greater detail in section XV.B.4. of this regulatory
impact analysis, about 34 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 Federal rate). Therefore, the percent change in
estimated aggregate LTCH PPS payments due to the changes to the
Federal rate, 0.61 percent, is slightly less than the update to the
Federal rate of 0.71 percent.
\3\ This estimated 2.5 percent decrease in estimated payments per
discharge from RY 2007 to RY 2008 is due to the changes in the fixed-
loss amount resulting from the use of more recent LTCH data to
estimate the cost of each LTCH case.
\4\ We also note that the estimated percent change for all payment rate
and policy changes may not exactly equal the sum of the estimated
percent change for the changes to the Federal rate, the changes to the
area wage adjustment and the revision of the SSO policy due to the
effect of estimated changes in aggregate HCO payments, as well as
other interactive effects that cannot be isolated.

[[Page 26978]]

\5\ 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 final rule).
\6\ Total estimated impact of the provisions of this final rule (that
is, sum of the estimated impact of the payment rate and policy change,
including the revision of the SSO policy, and the estimated impact of
the expansion of the ``25 percent'' policy).

Because the combined distributional effects and estimated changes
to the Medicare program payments would be greater than $100 million,
this final rule would be considered a major economic rule, as defined
in this section. We note the $156 million (or 3.8 percent) decrease in
estimated aggregate LTCH PPS payments resulting from the provisions
presented in this final 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
$6.5 million to $31.5 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 70 FR 72577, December
6, 2003). 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 377 LTCHs includes the data for 83 non-
profit (voluntary ownership control) LTCHs and 254 proprietary LTCHs.
Of the remaining 40 LTCHs, 14 LTCHs are Government-owned and operated
and the ownership type of the other 26 LTCHs is unknown (as shown in
Table 11). The impact of the payment rate and policy changes for the
2008 LTCH PPS rate year (including the update to the Federal rate,
changes to the area wage adjustment, and the revision of the SSO
policy) is discussed in section XV.B.4.c. of this regulatory impact
analysis. The impact of other policy changes, such as the effects of
the expansion of the special payment provisions for LTCH HwHs and LTCH
satellites to certain situations not presently covered by Sec. 412.534
for subclause (I) LTCHs, is discussed in section XV.C. of this
regulatory impact analysis.
As we discuss in detail throughout the preamble of this final rule,
based on the most recent available LTCH data, we believe that although
the provisions of this final 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 final 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 final rule may be on small entities
since we expect many LTCHs to adjust their admission practices in
implementation of these provisions. 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
final 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 analysis under the
RFA.
As shown in Table 9, we estimate that the provisions of this final
rule could result in approximately a 3.8 percent (or $156 million)
decrease in estimated payments per discharge in the 2008 LTCH PPS rate
year, on average, to all LTCHs. Table 9 shows that the payment rate and
policy changes are projected to result in a 3.8 percent decrease in
estimated aggregate LTCH PPS payments, and the expansion of the ``25
percent'' policy is projected to result in neither an increase nor a
decrease in estimated aggregate LTCH PPS payments. Thus, while a
significant portion of the approximately 3.8 percent decrease in
estimated aggregate payments in the 2008 LTCH PPS rate year as compared
to the 2007 LTCH PPS rate year would not be due to the 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 final rule), this is due to our
adoption of a 3 year transition to this policy. However, as that policy
is fully implemented at 25 percent (or the applicable level) there will
be a significant impact in LTCH payments. We predict the 5 year impact
of this policy to be as shown in Table 10.

Table 10
------------------------------------------------------------------------
``25 Percent''
policy with 3
Rate year year transition
(expressed in
millions)*
------------------------------------------------------------------------
2008.................................................. 0
2009.................................................. 20
2010.................................................. 110
2011.................................................. 160
2012.................................................. 170
Total............................................. 460
------------------------------------------------------------------------
* Projected decrease in estimated aggregate payments in the LTCH PPS
rate years for 5 years due to the 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 final rule).

As discussed in greater detail in section XV.C.1. of this
regulatory impact analysis, because we believe that this policy would
discourage inappropriate patient shifting to LTCHs and would encourage
all subclause (I) LTCHs to engage in more appropriate admission
policies since, no payment adjustment would be made if the patient has
reached HCO status at the co-located host (under the revision to Sec.
412.534) or at the referring hospital (under 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 final rule) since patients
who achieved HCO status prior to admission to the LTCH will not be
counted toward the applicable threshold

[[Page 26979]]

under Sec. 412.536 or under the revision to Sec. 412.534 (although
the admission would still be counted toward the LTCH's total Medicare
discharges). Because we expect that such a 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
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 Sec. 412.536) or co-located referring hospital (under
the revision to Sec. 412.534). Thus, any change in admission practices
as a result of this policy would result in less of a decrease in
estimated aggregate LTCH PPS payments once this policy is fully
implemented at 25 percent (or the applicable level). Thus, the
projected decrease in estimated aggregate LTCH PPS payments resulting
from this policy change would only occur if there were no changes in
LTCH admission practices. Furthermore, we believe that this 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 this policy would result
in a decrease in estimated aggregate LTCH PPS payments beginning in the
second year of the transition, 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.
Additionally, as shown in Table 9, we project an estimated 2.5
percent decrease in estimated payments per discharge from RY 2007 to RY
2008 due to the changes in the fixed-loss amount resulting from the use
of more recent LTCH data to estimate the cost of each LTCH case. That
is, as discussed in detail previously in the preamble of this final
rule, to determine the proposed fixed-loss amount for RY 2008 of
$18,778, we used claims data from the March 2006 update of the FY 2005
MedPAR file and CCRs from the July 2006 update of the provider specific
file (PSF), as that was the best available data at that time. However,
to determine the fixed-loss amount for RY 2008 in this final rule, the
most recent available data are the December 2006 update of the FY 2006
MedPAR claims data and the CCRs from the December 2006 update of the
PSF. Our analysis of the FY 2006 claims data showed that, in general,
the average cost per case has increased as compared to the FY 2005
claims data. If we had kept the fixed loss amount at $18,778, it would
have caused the estimated aggregate high-cost outlier payments to
exceed the 8 percent regulatory limit. In fact, our analysis shows that
if we were to apply the proposed fixed-loss amount of $18,774, we
estimate that outlier payments would be over 9 percent of total
estimated LTCH PPS payments in RY 2008. Similarly, to determine the
fixed-loss amount for RY 2007 of $14,887, we used the December 2005
update of the FY 2005 MedPAR claims data and the CCRs from the December
2005 update of the PSF, as that was the best available data at that
time. Based on the most recent updated claims and CCR data available to
us at the time of this final rule, we estimate that the current fixed-
loss amount (RY 2007, $14,887) would result in an aggregate outlier
payment amount of 10.3 percent. As discussed in previously of this
rule, when we implemented the LTCH PPS, under the HCO policy we
established the aggregate outlier payment amount at 8 percent of
estimated total LTCH PPS payments to allow us to achieve a balance
between the need to protect hospitals with costly cases while providing
an incentive for hospitals to operate efficiently. An aggregate outlier
payment amount in excess of 8 percent would not allow us to achieve
this goal. Consequently, while increasing the fixed-loss amount to
$22,954 is projected to result in a decrease in estimated aggregate
LTCH PPS payments of 2.5 percent, we believe that this is necessary in
order to maintain the aggregate outlier payment amount at the
appropriate 8 percent. Furthermore, hospitals are aware of our
longstanding policy which limits high-cost outlier payments to 8
percent of estimated total LTCH PPS payments. For these reasons,
although we estimate that the change in the fixed-cost amount would
result in a decrease in estimated aggregate LTCH PPS payments, we do
not believe that such an impact on estimated aggregate LTCH PPS
payments 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 payment rate and policy changes in Table 11
shows that estimated payments per discharge are expected to decrease
approximately 3.8 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 finalizing a 3.8 percent decrease to the Federal rate for RY 2008
(as discussed in section IV.C. of this final 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
changes to the area wage adjustment (discussed in section IV.D.1. of
this final rule), the revision of the SSO policy discussed in section
V.A.2. of this final rule, as well as the increase to the HCO fixed-
loss amount (as discussed in section IV.D.3.c. of this final rule). (As
discussed in greater detail in section XV.B.4., the impact due to the
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 11. However, as noted above, the impact of that
policy is discussed in greater detail in section XV.C.1. of this
regulatory impact analysis.)
As the impact analysis in Table 11 shows, estimated changes to the
area wage adjustment from RY 2007 to RY 2008 (resulting from both
established policy and changes presented in section IV.D.1. of this
final rule, as discussed in greater detail below in 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 final rule, we are updating 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 updating 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 increasing the labor-related share from 75.665
percent to 75.788 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 final rule). We
believe that revising the labor-related share based on the most recent
available data would appropriately identify the portion of the LTCH PPS
Federal rate that is adjusted to account for geographic differences in
area wage levels by applying the applicable LTCH PPS wage index value.
As discussed in greater detail in section IV.D.1. of this

[[Page 26980]]

final rule, we believe that these 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 Federal rate that should be adjusted
to account for such differences in area wages.
We also note that, even though 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 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
1.0 percent decrease in estimated payments per discharge, on average,
for all LTCHs (see Table 11) is due to the existing 5-year phase-in of
the wage index adjustment, and is not due to policy changes presented
in this final 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 changes to the area wage adjustment (that is, the
use of update wage data and the 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 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 11, the revision of the SSO
policy discussed in section V.A.2. of this final rule would also
contribute to the estimated 3.8 percent decrease in estimated aggregate
LTCH PPS payments in RY 2008, on average, for all LTCHs. 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 final 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 revision of the SSO policy, we believe the
change would result in appropriate and adequate Medicare payments for
the treatment of Medicare beneficiaries with a LOS that is ``similar
to'' typical IPPS cases.
Furthermore, we believe that, the revision to the SSO policy 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 final rule). Therefore, we believe that in response to the
revision of the SSO policy, 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 would result in an
adjusted LTCH PPS payment that is appropriate.
For these reasons, although we estimate that the revision of the
SSO policy would result in a decrease in estimated 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 3.8 percent
(approximately $156 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 final rule could have a
significant impact on some small entities. However, we believe that the
provisions of this final 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 final rule. This analysis, in conjunction with the remainder of
this section, demonstrates that this final rule is consistent with the
regulatory philosophy and principles identified in the RFA. We believe
the provisions presented in this final rule would affect payments to
LTCHs, and the effects on some LTCHs, although they may be significant,
are appropriate.
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 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area and has fewer than 100

[[Page 26981]]

beds. As shown in Table 11, we are projecting a 6.2 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 payment rate changes, based on the data of the 23 rural LTCHs in
our database of 377 LTCHs for which complete data were available.
As shown in Table 11, a significant portion 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 payment rate and policy
changes for rural LTCHs is due to the change in the area wage
adjustment (as discussed in greater detail in section V.D.1. of the
preamble of this final rule). Specifically, 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 23 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 decrease in estimated
payments per discharge shown in Table 11 for rural LTCHs is due to the
existing 5-year phase-in of the wage index adjustment, and is not due
to policy changes presented in this final rule. 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 changes to the area wage adjustment presented in this final
rule (that is, the use of update wage data and the 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 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 changes to the area wage
adjustment on some rural LTCHs may be significant, most rural LTCHs
should not be adversely affected because those changes are expected to
result in appropriate LTCH PPS payments in RY 2008.
We also believe that the 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 policy, once it is fully implemented at 25 percent (or the
applicable level), is estimated to reduce estimated aggregate LTCH PPS
payments 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 final rule, in designing
features of the original ``25 percent policy'' for co-located LTCHs
(HwHs and LTCH satellites), which we proposed 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 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 policy, we will apply the
same 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 implemented for most urban LTCHs), for rural LTCHs, the payment
adjustment will only be applied to those LTCH's or LTCH satellite
facility's Medicare discharges that were admitted from a non-co-located
referring hospital under Sec. 412.536 or co-located host under the
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 revision, consistent with the existing
policy at Sec. 412.534, no payment adjustment will be made if the
patient has reached HCO status at the referring hospital (under Sec.
412.536) or at the co-located host (under the revision to Sec.
412.534) prior to being admitted for additional post-acute care at the
LTCH. That is, in calculating the 50 percent threshold (for rural
LTCHs), patients who achieved HCO status prior to admission to the LTCH
will not be counted toward the applicable threshold under Sec. 412.536
or under the 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 policy
will 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 policy will result
in less of a decrease in estimated aggregate LTCH PPS payments based on
current admission practices. Thus, the decrease in estimated aggregate
LTCH PPS payments to rural LTCHs resulting from this policy change will
only occur if there were no change in rural LTCH admission practices.
It is our intention, under this 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

[[Page 26982]]

additional long-stay hospital-level treatment following the provision
of a full episode of care at the referring hospital. For those
patients, under this policy Medicare would pay an unadjusted amount
under the LTCH PPS. We believe that this policy would result in more
appropriate admission policies by rural LTCHs. Therefore, we believe
that although the effects on some rural LTCHs of the 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 will not be adversely affected because
this policy change is expected to result in changes in admission
practices and appropriate payments for such cases, as explained above
in this section.
Additionally, according to our analysis, we project an estimated
2.8 percent decrease in estimated payments per discharge to rural LTCHs
from RY 2007 to RY 2008 due to the changes in the fixed-loss amount
resulting from the use of more recent LTCH data to estimate the cost of
each LTCH case. As discussed previously in this impact analysis
regarding small entities, based on the most recent updated claims and
CCR data, we increased the fixed-loss amount in order to maintain an
aggregate outlier payment amount of 8 percent of estimated total
payments. As discussed previously in this final rule, when we
implemented the LTCH PPS, under the HCO policy we established the
aggregate outlier payment amount at 8 percent of estimated total LTCH
PPS payments to allow us to achieve a balance between the need to
protect hospitals with costly cases while providing an incentive for
hospitals to operate efficiently. An aggregate outlier payment amount
in excess of 8 percent would not allow us to achieve this goal.
Consequently, while the increase in the fixed-loss amount to $22,954
for RY 2008 is projected to result in a decrease in estimated aggregate
LTCH PPS payments to rural hospitals by 2.8 percent, we believe that
this is necessary in order to maintain the aggregate outlier payment
amount at the appropriate 8 percent. Furthermore, hospitals are aware
of our longstanding policy which limits high-cost outlier payments to 8
percent of estimated total LTCH PPS payments. For these reasons,
although we estimate that the change in the fixed-loss amount would
result in a decrease in estimated aggregate LTCH PPS payments, we do
not believe that such an impact on estimated aggregate LTCH PPS
payments would adversely affect LTCHs' ability to deliver efficient
care to Medicare beneficiaries, nor would there be an adverse effect on
Medicare beneficiaries' access to care.
In addition, the revision of the SSO policy will also contribute to
the projected decrease in estimated payments to rural LTCHs for RY
2008. 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 the revision to the SSO policy 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 the revision of
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 6.2 percent decrease in estimated payments per
discharge shown in Table 11 for rural LTCHs represents 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 the revision
of the SSO policy, we believe that the actual decrease in rural LTCHs'
payments for RY 2008 would be less than the 6.2 percent decrease in
estimated payments for RY 2008 shown in Table 11.
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
revision of the SSO policy will 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 revision to
the SSO policy 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 the
revision 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 changes present in this
final 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, and the increased
fix-loss amount in order to maintain the aggregate outlier payment
amount of 8 percent, is not a result of a policy change, and may
already be accounted for in LTCHs' fiscal plans. Therefore, although we
believe this final 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 changes presented in
this final rule, would adversely affect rural LTCHs. However, because
we expect changes in admission practice and appropriate payments, (as
discussed above), we do not anticipate that the provisions of this
final 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 final rule
is 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 final
rule, refer to section XV.B.4.a. of this regulatory impact analysis.)
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 final
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

[[Page 26983]]

must meet when it publishes a final 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 final rule under the criteria set forth in
Executive Order 13132 and have determined that this final 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 14 State and local LTCHs in our database of 377
LTCHs for which data were available.
6. Alternatives Considered
In the preamble of this final rule, we are setting forth the 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 policies 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 Payment Rate Changes

We discuss the impact of the changes to the payment rates, factors,
and other payment rate policies presented in the preamble of this final
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 final rule, which do not directly affect the LTCH PPS
per discharge payment rates (for example, the 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 final rule and the policy change
relating to GME payments discussed in section XII. of this final rule),
are not included as part of the impact analysis shown in Table 11.
However, the impact of certain other policies are discussed separately
in section XV.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 final 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 final 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 final 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 changes to the LTCH PPS payment
rates and payment rate policy changes discussed in sections IV. and
V.A. of this final 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 payments per discharge that would be made under
the LTCH PPS rates, factors and policies for the 2008 LTCH PPS rate
year (as discussed in the preamble of this final rule). We also
evaluated the change in estimated 2007 LTCH PPS rate year payments to
estimated 2008 LTCH PPS rate year 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 payment rates and payment rate
policy changes among the various categories of existing providers, we
used LTCH cases from the FY 2006 MedPAR file to estimate payments for
RY 2007 and to estimate payments for RY 2008 for 377 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 2006 MedPAR data for the 377 LTCHs in our database, which
includes 254 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 final 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

[[Page 26984]]

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 LTCHs 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 final 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 final 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
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 payment rates
and payment rate policy changes presented in this final 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 2006 LTCH claims
data. Estimated prospective payments for the 2008 LTCH PPS rate year
would be based on the standard Federal rate of $38,356.45 (based on the
0.71 percent update discussed in section IV.C.3. of the preamble to
this final rule), the outlier fixed-loss amount of $22,954, and the
same FY 2006 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 (for RY 2008) adjustments for area wage differences (as
described in section IV.D.1. of the preamble of this final rule), and
the COLA for Alaska and Hawaii (as described in section IV.D.2. of the
preamble of this final rule). As discussed above, we also accounted for
the existing payment policy for SSOs in RY 2007 and the revision of the
SSO policy in RY 2008. Additional payments would also be made for HCOs
(as described in section IV.D.3. of this final rule). As noted in
section IV.D.4. of this final 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 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
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 four-fifths wage index value and 10 months
(September 2007 through June 2007) of payment under the (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 four-fifths wage
index value and 83.3 percent (10 months/12 months) of the (full) five-
fifths wage index value. The 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 final rule. We adjusted for area wage differences for estimated
2008 LTCH PPS rate year payments using the LTCH PPS labor-related share
of 75.511 percent (see section IV.D.1.c. of this final rule).
As noted previously in this final 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 LTCHs 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

[[Page 26985]]

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 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 final 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 11, 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 11 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 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 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 changes to the area wage adjustment at
Sec. 412.525(c) (as discussed in section IV.D.1. of the preamble of
this final 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 revision of the SSO policy at Sec. 412.529.
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 changes.

TABLE 11: Projected Impact of Payment Rate and Payment Rate Policy Changes to LTCH PPS Payments for RY 2008*
[Estimated 2007 LTCH PPS Rate Year Payments Compared to Estimated 2008 LTCH PPS Rate Year Payments*]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent
change \3\
Percent in Percent
change in estimated change in Percent
estimated payments estimated change in
Average RY Average RY payments per payments payments
2007 LTCH 2008 LTCH per discharge per per
Number Number of LTCH PPS rate PPS rate discharge from RY discharge discharge
LTCH Classification of LTCHs PPS cases year year from RY 2007 to RY from RY from RY
payment per payment per 2007 to RY 2008 for 2007 to RY 2007 to RV
case \1\ case \2\ 2008 for finalized 2008 for 2008 for
finalized changes to finalized all changes
changes to the area changes to \6\
the Federal wage the SSO
rate \3\ adjustment policy \5\
\4\
--------------------------------------------------------------------------------------------------------------------------------------------------------
ALL PROVIDERS 377 129,812 32,948.31 31,690.36 0.6 -1 -0.9 -3.8
By Location:
RURAL.................................... 23 5,300 26,996.15 25,311.01 0.7 -2.8 -0.9 -6.2
URBAN.................................... 354 124,512 33,201.67 31,961.90 0.6 -1 -0.9 -3.7
LARGE.................................... 182 75,064 34,569.39 33,479.26 0.6 -0.6 -0.9 -3.2
OTHER.................................... 172 49,448 31,125.41 29,658.50 0.6 -1.7 -0.9 -4.7
By Participation Date:
BEFORE OCT. 1983......................... 16 6,989 28,710.08 27,984.35 0.6 -0.4 -0.6 -2.5
OCT. 1983-SEPT. 1993..................... 44 20,751 34,144.47 32,974.16 0.6 -0.8 -0.9 -3.4
OCT. 1993-SEPT. 2002..................... 203 73,460 32,799.56 31,565.05 0.6 -1 -0.8 -3.8
AFTER OCTOBER 2002....................... 108 27,949 33,576.33 32,052.78 0.6 -1.5 -1.1 -4.5
UNKNOWN PARTICIPATION DATE............... 6 663 30,193.71 29,182.43 0.6 -0.7 -0.7 -3.3
By Ownership Type:
VOLUNTARY................................ 83 25,732 32,158.56 30,868.01 0.6 -1.2 -1 -4
PROPRIETARY.............................. 254 97,294 33,085.40 31,855.57 0.6 -1 -0.9 -3.7
GOVERNMENT............................... 14 2,694 36,386.88 34,739.92 0.6 -1.8 -0.9 4.5
UNKNOWN OWNERSHIP TYPE................... 23 4,027 32,383.98 30,918.43 0.6 -1.4 -1 -4.5
By Census Region:
NEW ENGLAND.............................. 16 9,634 27,868.81 27,195.59 0.6 -0.3 -0.7 -2.4

[[Page 26986]]

MIDDLE ATLANTIC.......................... 30 8,114 33,633.19 32,342.46 0.6 -1.1 -0.9 -3.8
SOUTH ATLANTIC........................... 47 13,402 36,618.12 35,064.93 0.6 -1.5 -1 -4.2
EAST NORTH CENTRAL....................... 69 19,477 35,727.90 34,565.61 0.6 -0.5 -0.9 -3.3
EAST SOUTH CENTRAL....................... 28 7,848 33,523.34 31,749.31 0.6 -2.3 -1 -5.3
WEST NORTH CENTRAL....................... 18 5,337 35,460.12 33,952.08 0.6 -1.4 -0.9 -4.3
WEST SOUTH CENTRAL....................... 129 50,983 29,548.10 28,136.94 0.6 -1.7 -0.9 -4.8
MOUNTAIN................................. 22 5,768 35,112.45 34,384.29 0.6 0.6 -1.1 -2.1
PACIFIC.................................. 18 9,249 41,923.26 41,407.75 0.6 0.8 -0.7 -1.2
By Bed Size:
BEDS: 0-24............................... 32 4,998 30,256.35 28,833.57 0.7 -1.4 -0.9 -4.7
BEDS: 25-49.............................. 196 45,487 33,211.07 31,783.23 0.6 -1.4 -1 -4.3
BEDS: 50-74.............................. 65 24,371 33,228.43 31,986.77 0.6 -0.9 -0.9 -3.7
BEDS: 75-124............................. 48 22,364 33,612.00 32,369.11 0.6 -1 -0.8 -3.7
BEDS: 125-199............................ 21 17,716 33,261.36 32,056.82 0.6 -0.9 -0.9 -3.6
BEDS: 200 +.............................. 15 14,876 31,219.79 30,423.78 0.6 -0.2 -0.7 -2.5
UNKNOWN BED SIZE......................... 0 0 0.00 0.00 0 0 0 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* We also note that, as discussed above in section XV.B.4. of this regulatory impact analysis, the 2.2 percent decrease in estimated aggregate LTCH PPS
payments due to the 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 final rule) is not reflected in this impact table. However, the impact of the
expansion of the ``25 percent'' policy is discussed in greater detail below in section XV.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 average estimated payment per case for the 12-month period of July 1, 2007 through June 30, 2008.
\3\ Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for the changes to the Federal
rate. (Note, as discussed in section XV.B.4. of this regulatory impact analysis, because about 34 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
Federal rate), the percent change in estimated payments per discharge due to the changes to the Federal rate for most of the categories of LTCHs, 0.6
percent, is slightly less than the update to the Federal rate of 0.71 percent.)
\4\ Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for changes to the area wage
adjustment policy at Sec. 412.525(c) (as discussed in section V.D.1. of the preamble of this final rule).
\5\ Percent change in estimated payments per discharge from the 2007 LTCH PPS rate year to the 2008 LTCH PPS rate year for the revision of the existing
SSO policy at Sec. 412.529 (presented in section V.A.1.a. of the preamble of this final rule).
\6\ 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 final rule) for all of the payment rate and policy provisions
presented in the preamble of this final rule. Note, this column, which shows the percent change in estimated payments per discharge for all changes,
may not exactly equal the sum of the percent changes in estimated payments per discharge for changes to the Federal rate (column 7), for 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 377 LTCHs), we have prepared the following summary of the impact
(as shown in Table 11) of the LTCH PPS payment rate and payment rate
policy changes presented in this final rule. (As noted above, the
impact of other policy changes presented in this final rule, which do
not directly affect the LTCH PPS per discharge payment rate, such as
the 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, are not included as part of the impact analysis
shown in Table 11. However, the impact of those other policies are
discussed separately in section XV.C. of this regulatory impact
analysis.)
The impact analysis in Table 11 shows that estimated payments per
discharge are expected to decrease approximately 3.8 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 payment rate and policy
changes presented in this final 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 11 (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 changes to the Federal
rate. The reason that this

[[Page 26987]]

column shows an estimated 0.6 percent increase rather than an estimated
0.7 percent increase (based on the 0.71 percent update to the Federal
rate) is because about 34 percent of all LTCH cases are projected to
receive a payment under the existing SSO policy. Under either the
existing SSO policy or revision of the SSO policy discussed in section
V.A.2. of this final 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
Federal rate. Therefore, because over 30 percent of all LTCH PPS cases
would receive a payment that is not based on the Federal rate, the
percent change in estimated payments per discharge due to the changes
to the Federal rate for most categories of LTCHs shown in Table 11 is
projected to be slightly less (0.6 percent) than the 0.71 percent
update to the Federal rate. Furthermore, 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 11 is due
to changes to the area wage adjustment (discussed in section IV.D.1. of
this final rule), in conjunction with the revision of the SSO policy
(discussed in section V.A.2. of this final rule) and the increase to
the HCO fixed-loss amount (as discussed in section IV.D.3.c. of this
final rule).
Specifically, as we discussed in greater detail in section IV.D.1.
of the preamble of this final rule, we are updating 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 increasing the
labor-related share from 75.665 percent to 75.788 percent under the
LTCH PPS beginning in RY 2008. Because this change to the labor-related
share would increase 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 RY
2008 wage index value that is greater than 1.0 would experience an
increase in estimated payments per discharge as a result of the
increase in the labor-related share. Conversely, LTCHs located in areas
with a RY 2008 wage index value that is less than 1.0 are expected to
experience a decrease in estimated payments per discharge as a result
of the increase in the labor-related share since a larger portion of
the Federal rate would be adjusted by the 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 results in a relatively more
significant decrease in estimated payments for LTCHs located in areas
with a RY 2008 wage index value that is less than 1.0, than the effect
on payments due to the increase in the labor-related share.
Consequently, the changes to the wage index adjustment presented in
this final rule for LTCHs located in areas with a 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 revision to the SSO policy, 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 are 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 revision of
the SSO policy is 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 revision of
the SSO policy will result in appropriate payments for short-stay cases
treated at LTCHs as discussed in greater detail in section V.A.2. of
this final rule.
Furthermore, as we discussed in greater detail in section IV.D.3.c.
of the preamble of this final rule, given the regulatory requirement at
Sec. 412.525(a) that estimated outlier payments not exceed 8 percent
of estimated total LTCH PPS payments, this decrease in estimated LTCH
PPS payments for RY 2008 resulting primarily from the changes to the
SSO policy and the changes to the area wage adjustment would require an
increase in the HCO fixed-loss amount to maintain estimated outlier
payments of no more than 8 percent of the estimated total LTCH PPS
payments (resulting from the payment rate and policy changes presented
in this rule). Thus, the 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 increase to the fixed-loss amount from the
2007 LTCH PPS rate year ($14,887) to the 2008 LTCH PPS rate year
($22,954), 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 from RY 2007 to RY
2008.
a. Location
Based on the most recent available data, the majority of LTCHs are
in urban areas. Approximately 6 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 11 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 6.2 percent for all
changes, and would be 3.7 percent for urban LTCHs for all changes.
The projected percent decrease in estimated payments to rural LTCHs
is greater than that for urban LTCHs because rural LTCHs are expected
to experience a larger decrease in estimated payments due to the
changes to the area wage adjustment because the wage index for all
rural LTCHs is less than 1.0, as explained above in this section.
Furthermore, the wage indices of all 23 rural LTCHs in our database
have decreased from RY 2007 to RY 2008.
Large urban LTCHs are projected to experience a 3.2 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 4.7 percent decrease in estimated
payments per discharge from the 2007 LTCH PPS rate year compared

[[Page 26988]]

to the 2008 LTCH PPS rate year, as shown in Table 11. Other urban LTCHs
are projected to experience a higher than average decrease in estimated
payments per discharge because of the changes to the area wage
adjustment. This is because the majority of other urban LTCHs (over 90
percent) are located in urban areas that have a 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 changes
to the wage index adjustment, as explained above.
Large urban LTCHs are projected to experience a lower than average
decrease in estimated payments per discharge for all changes because of
the changes to the area wage adjustment because the majority of large
urban LTCHs are located in urban areas that have a wage index value of
greater than 1.0, as explained above in this section.
Additionally, all rural and both large and other urban hospitals
are projected to experience a lower than average decrease in estimated
payments per discharge for all changes because of the increased HCO
fixed-loss amount as discussed previously.
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 54
percent) of the LTCH cases are in hospitals that began participating
between October 1993 and September 2002, and are projected to
experience a 3.8 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 11.
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 3.4 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 11. 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 (0.8 percent) in estimated payments per discharge due
to the 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 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 wage index value of
greater than 1.0, (as explained above).
LTCHs that began participating before October 1983 are projected to
experience a 2.5 percent decrease in estimated payments per discharge
from the 2007 LTCH PPS rate year compared to the 2008 LTCH PPS rate
year (see Table 11). We are projecting that LTCHs that began
participating in Medicare before October 1983 would experience a
decrease 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 decrease in estimated payments in RY
2008 as compared to RY 2007 due to the changes to the fixed-loss
amount. 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 revision of the SSO policy.
Approximately 29 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 4.5 percent
decrease in estimated payments per discharge from the 2007 LTCH PPS
rate year compared to the 2008 LTCH PPS rate year (see Table 11). 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 (1.5
percent) in estimated payments per discharge due to the 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 RY 2008 wage index value would be less than the RY 2007 wage
index value, and because the majority (over 96 percent) of these LTCHs
are located in areas that would have a RY 2008 wage index value of less
than 1.0, (as discussed above in this section).
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 4.5 percent in comparison to the 2007 LTCH
PPS rate year, as shown in Table 11. 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 due to the effect of the
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
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 22 percent of LTCHs, would decrease 4 percent in
comparison to estimated 2007 LTCH PPS rate year payments (see Table
11). 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 changes to the wage index adjustment
since over 60 percent (51 LTCHs) of the voluntary LTCHs are located in
areas where the 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 3.7 percent in
comparison to the 2007 LTCH PPS rate year (see Table 11).
d. Census Region
Estimated payments per discharge for the 2008 LTCH PPS rate year
are projected to decrease for LTCHs located in all regions in
comparison to the 2007 LTCH PPS rate year although five out of the nine
regions are projected to have a lower than average or average decrease
in payments as compared to the average decrease for all providers. 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 increase in the HCO fixed-loss amount (as
explained above).
Of the 9 census regions, we project that the decrease in 2008 LTCH
PPS rate year estimated payments per discharge in comparison to the
2007 LTCH PPS rate year would have the largest impact

[[Page 26989]]

on LTCHs in the East South Central and West South Central regions (5.3
percent and 4.8 percent, respectively; see Table 11). 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 changes in the area wage adjustment (2.3 percent for the East
South Central region, and 1.7 percent for the West South Central
region, as shown in Table 11). This is because over 80 percent of 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, these LTCHs are also
expected to experience a higher than average decrease in estimated
payments per discharge due to the revision of the SSO policy since many
of the LTCHs in these two regions have a larger than average percentage
of SSO cases (based on FY 2006 LTCH claims data).
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. As noted above, the projected percent decrease
in estimated payments per discharge from the 2007 LTCH PPS rate year to
the 2008 LTCH PPS rate year is largely attributable to the changes in
the area wage adjustment, and the increase in the outlier fixed-loss
amount (as explained above).
Of the six different bed size categories, the two categories with
the lowest bed count (0-24 beds and 25-49 beds) are projected to have
higher than average decreases in payment. 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 (4.7 percent; see Table 11), followed by LTCHs with 25-49 beds
(4.3 percent; see Table 11). 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 changes to the area wage adjustment and
the increase in the HCO fixed-loss amount (as explained above).
Specifically, the majority of LTCHs with 49 beds or less are located in
areas where the RY 2008 wage index value is less than the RY 2007 wage
index value. In addition, the majority (over 84 percent) of LTCHs with
49 beds or less are located in areas where the RY 2008 wage index is
less than 1.0. We project that LTCHs with greater than 200 beds would
have a less than average decrease in estimated 2008 LTCH PPS rate year
payments per discharge in comparison to the 2007 LTCH PPS rate year
(2.5 percent; see Table 11). This smaller decrease in estimated
payments per discharge for LTCHs with greater than 200 beds is
primarily due to the changes to the area wage adjustment. This is
because the majority of these LTCHs are located in areas where the 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 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 final rule. As noted, we project that the
provisions of this final rule, would result in a decrease in estimated
aggregate LTCH PPS payments in RY 2008 of about $156 million (or about
3.8 percent) for the 377 LTCHs in our database, as explained in greater
detail above in section XV.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 that 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 final 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 Policy Changes

1. Effects of 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 final rule, we have revised
Sec. 412.534 and added Sec. 412.536 to extend 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 2005, 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

[[Page 26990]]

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 final 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 about 73 percent of the then 200 free-
standing LTCHs admitted 25 percent or less of their Medicare discharges
from an individual acute care hospital; for 82 of those freestanding
LTCHs, the percentage was between 25 and 50 percent; for 33 of the
freestanding LTCHs, it was between 50 and 75 percent. For 6 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 63 percent of all LTCHs, more than 25 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
final rule, we have decided to expand this above 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 policy, if any subclause (I) LTCH's or satellite
facility's discharges that had been admitted from any referring
hospital that is not co-located with the LTCH or LTCH satellite (under
Sec. 412.536) or from a co-located host (under the 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. Grandfathered LTCH HwHs and LTCH
satellites will also be subject to the 25 percent (or applicable
percentage) threshold payment adjustment for Medicare discharges
admitted from their co-located host, under Sec. 412.534(g) and will
additionally be governed by Sec. 412.536 for discharges admitted from
non-co-located referring hospitals.
It is our intent that the revisions that we are finalizing 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 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 payment adjustment would not apply
to either those subclause (I) LTCH discharges admitted from referring
hospitals not co-located with the LTCH or LTCH satellite (under Sec.
412.536) or those subclause (I)LTCH HwH or satellite discharges
admitted from co-located host hospitals (under the 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 policy were
implemented, we estimate that the 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 not result in savings to the Medicare program in RY
2008 due to our adoption of a 3 year transition to this policy.
However, as that policy is fully implemented at 25 percent (or the
applicable level) there will be a significant impact in LTCH payments.
As discussed above in this section, we believe that this 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 policy would result in
appropriate Medicare payments under the LTCH PPS, and therefore, to the
extent that LTCHs alter their admission protocols, we do not believe
that there would be an adverse financial impact on LTCHs, nor would
there be an adverse impact on Medicare beneficiary's access to care.
2. Effects of Policy Change Relating to Payment for Direct Graduate
Medical Education (GME)
In section XII. of the preamble of this final 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 finalized our proposal to revise Sec.
413.75(b) revising the definition of ``all or substantially all of the
costs for the training program in the nonhospital setting.'' We also
finalized our proposal to revise Sec. 412.105(f)(1)(ii)(C) for IME and
add Sec. 413.78(f) to reflect the revised definition of ``all or
substantially all.'' The revised definition is effective for cost
reporting periods beginning on or after July 1, 2007 and states that
``all or substantially all of the costs for the training program in the
nonhospital setting'' means 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. This differs from the
prior definition of ``all or substantially all of the costs for the
training program in the nonhospital setting,'' which required that, to
count FTE residents training in a nonhospital setting, a hospital was
required to pay for 100 percent of the residents' salaries and fringe
benefits, as well as the portion of the actual cost of the teaching
physician's salary and fringe benefits attributable to direct GME
activities at the nonhospital site. In addition, under the revised
definition of ``all or substantially all'' of the costs, in response to
hospitals' concerns regarding the difficulty of obtaining actual salary
data from teaching physicians to document the actual cost of the
teaching physicians' time spent on GME activities, we are finalizing
our proposal 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 at the
nonhospital site.
We believe that much of the administrative burden on hospitals
related to calculating and documenting the amount they need to pay for
``all or substantially all'' of the costs of residency training at the
nonhospital

[[Page 26991]]

site will be significantly reduced, if not eliminated, under our final
rule. Had we not made the changes and continued to require that
hospitals provide extensive documentation that they are paying for the
costs of the training program in the nonhospital setting, we understand
the industry had expressed concern that hospitals may significantly
reduce the amount of training occurring in nonhospital settings and
caused residency training to be transferred to hospitals. We further
note that the Congress intended to encourage the shift of training to
nonhospital settings and we believe this policy change can facilitate
further shifts to nonhospital settings. Since we are not finalizing a
change that will impact the aggregate amount of residency training that
will occur, and Medicare will continue to pay for residency training
occurring in hospitals, overall Medicare payments for residency
training as a result of this finalized policy will remain constant.

D. Accounting Statement

As discussed in section XV.A.1. of this regulatory impact analysis,
the impact analysis of this final rule results in a decrease in
estimated aggregate payments of $156 million (or about 3.8 percent) for
the 377 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 12, we have prepared an accounting statement showing
the classification of the expenditures associated with the provisions
of this final rule. Table 12 provides our best estimate of the decrease
in Medicare payments under the LTCH PPS as a result of the provisions
presented in this final rule based on the data for the 377 LTCHs in our
database. All expenditures are classified as transfers to Medicare
providers (that is, LTCHs).

Table 12.--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:
$156.
From Whom To Whom? Federal Government to LTCH
Medicare Providers.
------------------------------------------------------------------------

In accordance with the provisions of Executive Order 12866, this
final 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.

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

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL
SERVICES

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

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

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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

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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

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4. Section 412.517 is amended by--
0
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.
0
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) of this section are made in a budget neutral manner such
that estimated aggregate LTCH PPS payments are not affected.

0
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.
* * * * *

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6. Section 412.529 is amended by--
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A. Revising paragraph (a).
0
B. Revising the introductory text for paragraph (c)(2).
0
C. Redesignating paragraph (c)(3) as paragraph (c)(4).

[[Page 26992]]

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D. Adding new paragraph (c)(3).
The revision and addition reads as follows:

Sec. 412.529 Special payment provision for short-stay outliers.

(a) Short-stay outlier defined. ``Short-stay outlier'' means a
discharge with a covered length of stay in a long-term care hospital
that is up to and including five-sixths of the geometric average length
of stay for each LTC-DRG.
* * * * *
(c) * * *
(2) Except as provided in paragraph (c)(3)(i) of this section, for
discharges occurring on or after July 1, 2006, from long-term care
hospitals described under Sec. 412.23(e)(2)(i), the LTCH prospective
payment system adjusted payment amount for a short-stay outlier case is
the least of the following amounts:
(i) * * *
(ii) * * *
(iii) * * *
(iv) * * *
(3) For discharges specified in paragraph (c)(3)(i) of this
section, occurring on or after July 1, 2007, from long-term care
hospitals described under Sec. 412.23(e)(2)(i), the LTCH prospective
payment system adjusted payment amount for a short-stay outlier case is
adjusted as follows:
(i) If the covered length of stay of the case assigned to a
particular LTC-DRG is less than or equal to one standard deviation from
the geometric ALOS of the same DRG under the inpatient prospective
payment system (the IPPS-comparable threshold), the LTCH prospective
payment system adjusted payment amount for such a case is the least of
the following amounts:
(A) 120 percent of the LTC-DRG specific per diem amount determined
under paragraph (d)(1) of this section;
(B) 100 percent of the estimated cost of the case determined under
paragraph (d)(2) of this section;
(C) The Federal prospective payment for the LTC-DRG as determined
under paragraph (d)(3) of this section; or
(D) An amount payable under subpart O comparable to the hospital
inpatient prospective payment system per diem amount determined under
paragraph (d)(4) of this section.
(ii) If the covered length of stay of the case assigned to a
particular LTC-DRG is greater than one standard deviation from the
geometric ALOS of the same DRG under the inpatient prospective payment
system (the IPPS-comparable threshold), the LTCH prospective payment
system adjusted payment amount for such a case is determined under
paragraph (c)(2) of this section.
* * * * *

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7. Section 412.534 is amended by--
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A. Revising paragraphs (a), (b), (c)(1), (c)(2), (d)(1), and (e)(1).
0
B. Revising the introductory text for paragraph (g).
0
C. 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.

(a) Scope. Except as provided in paragraph (h), the policies set
forth in this section apply to discharges occurring in cost reporting
periods beginning on or after October 1, 2004 from long-term care
hospitals as described in Sec. 412.23(e)(2)(i) meeting the criteria in
Sec. 412.22(e)(2), or satellite facilities of long-term care hospitals
that meet the criteria in Sec. 412.22(h).
(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 or 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 for
discharges of Medicare patients admitted to the LTCH hospital or LTCH
satellite facility of the long-term care hospital from another hospital
that is not the co-located hospital are subject to the provisions in
Sec. 412.536.
(c) * * *
(1) Except as provided in paragraphs (g) and (h) of this section,
for any cost reporting period beginning on or after October 1, 2004 in
which the long-term care hospital or its satellite facility has a
discharged Medicare inpatient population of whom no more than 25
percent were admitted to the hospital or its satellite facility from
the co-located hospital, payments 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 (d), (e), (g), or (h) of this
section, for any cost reporting period beginning on or after October 1,
2004 in which the long-term care hospital or satellite facility has a
discharged Medicare inpatient population of whom more than 25 percent
were admitted to the hospital or satellite facility from the co-located
hospital, payments for the patients who are admitted from the co-
located 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 the co-located hospital are 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 (f) 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 are made under the
rules in this subpart at Sec. 412.500 through Sec. 412.541 with no
adjustment under this section.
* * * * *
(d) * * *
(1) Subject to paragraphs (g) and (h) of this section, in the case
of a long-term care hospital or satellite facility that is located in a
rural area as defined in Sec. 412.64(b)(1)(ii)(C) and is co-located
with another hospital for any cost reporting period beginning on or
after October 1, 2004 in which the long-term care hospital or satellite
facility has a discharged Medicare inpatient population of whom more
than 50 percent were admitted to the long-term care hospital or
satellite facility from the co-located hospital, payments for the
patients who are admitted from the co-located hospital and who cause
the long-term care hospital or satellite facility to exceed the 50
percent threshold for discharged patients who were admitted from the
co-located hospital are 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 (f) of this section, to the
amount that were otherwise payable under subpart A, Sec. 412.1(a).
Payments for the remainder of the long-term care hospital's or
satellite facility's patients are made under the rules in this subpart
at Sec. 412.500 through Sec. 412.541 with no adjustment under this
section.
* * * * *
(e) Special treatment of urban single or MSA dominant hospitals.
(1) Subject to paragraphs (g) and (h) of this section, in the case of a
long-term care hospital or satellite facility that is co-located with
the only other hospital in the MSA or with a MSA dominant hospital as
defined in paragraph (e)(4) of this section, for any cost reporting
period beginning on or after October 1, 2004 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
(e)(2) of this section

[[Page 26993]]

were admitted to the hospital from the co-located hospital, payments
for the patients who are admitted from the co-located hospital and who
cause the long-term care hospital to exceed the applicable threshold
for discharged patients who have been admitted from the co-located
hospital are the lesser of the amount otherwise payable under this
subpart or the amount under this subpart that is equivalent, as set
forth in paragraph (f) 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
patients are made under the rules in this subpart with no adjustment
under this section.
* * * * *
(g) Transition period for long-term care hospitals and satellite
facilities paid under this subpart. Except as specified in paragraph
(h)(2), in the case of a long-term care hospital or a satellite
facility that is paid under the provisions of this subpart on October
1, 2004 or of a hospital that is paid under the provisions of this
subpart and whose qualifying period under Sec. 412.23(e) began on or
before October 1, 2004, the amount paid is calculated as specified
below:
* * * * *
(h) Effective date of policies in this section for certain co-
located LTCH hospitals and satellites of LTCHs.
(1) The policies set forth in this section apply to Medicare
patient discharges that were admitted from a hospital located in the
same building or on the same campus as a long-term care hospital
described in Sec. 412.23(e)(2)(i) that meets the criteria in Sec.
412.22(f) and a satellite facility of a long-term care hospital as
described at Sec. 412.22(h)(3)(i) for discharges occurring in cost
reporting periods beginning on or after July 1, 2007.
(2) In the case of a long-term care hospital or satellite of a
long-term care hospital that is described under paragraph (h)(1), the
thresholds applied at (c), (d), and (e) will not be less than the
percentages specified below:
(i) For cost reporting periods beginning on or after July 1, 2007
and before July 1, 2008, the lesser of 75 percent of the total number
of Medicare discharges that were admitted to the long-term care
hospital or satellite from its co-located hospital during the cost
reporting period or the percentage of Medicare discharges that had been
admitted to the long-term care hospital or satellite from that co-
located hospital during the long-term care hospital's or satellite's RY
2005 cost reporting period.
(ii) For cost reporting periods beginning on or after July 1, 2008
and before July 1, 2009, the lesser of 50 percent of the total number
of Medicare discharges that were admitted to the LTCH or the satellite
of an LTCH from its co-located hospital or the percentage of Medicare
discharges that had been admitted from that co-located hospital during
the long-term care hospital's or satellite's RY 2005 cost reporting
period.
(iii) For cost reporting periods beginning on or after July 1,
2009, 25 percent of the total number of Medicare discharges that were
admitted to the long-term care hospital or satellite from its co-
located hospital during the cost reporting period.
(3) In determining the percentage of Medicare discharges admitted
from the co-located hospital under this paragraph, patients on whose
behalf a Medicare high cost outlier payment was made at the co-located
referring hospital are not counted toward this threshold.
(4) For cost reporting periods beginning on or after July 1, 2007,
payments to long term care hospitals described in Sec. 412.23(e)(2)(i)
that meet the criteria in Sec. 412.22(f) and satellite facilities of
long-term care hospitals described at Sec. 412.22(h)(3)(i) are subject
to the provisions of Sec. 412.536 for discharges of Medicare patients
who are admitted from a hospital not located in the same building or on
the same campus as the LTCH or LTCH satellite facility.

0
8. Section 412.536 is added to read as follows:

Sec. 412.536 Special payment provisions for long-term care hospitals
and satellites of long-term care hospitals that discharged Medicare
patients admitted from a hospital not located in the same building or
on the same campus as the long-term care hospital or satellite of the
long-term care hospital.

(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 discharges of Medicare 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) and subject to
paragraph (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 long-term care hospital or the satellite facility from any
individual hospital not co-located with the long-term care hospital or
with the satellite of a long-term care 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) and (d) and subject to
paragraph (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
long-term care hospital or satellite facility from any individual
hospital not co-located with the long-term care hospital or with the
satellite of a long-term care hospital, payment for the Medicare
discharges 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 is 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 not co-located with the long-term
care hospital or with the satellite of a long-term care hospital, under
paragraphs (b)(1) and (b)(2) of this section, patients on whose behalf
a Medicare high cost 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

[[Page 26994]]

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 not co-located with the long-term
care hospital or with the satellite of a long-term car 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 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) 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 high cost 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 referring MSA dominant hospital as defined in paragraph (d)(4)
of this section, that are not co-located with the long-term care
hospital or with the satellite of a long-term care hospital 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
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 threshold is equal to the percentage of total Medicare
discharges in the Metropolitan Statistical Area (MSA) in which the
hospital is located that are from the referring hospital, 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 adjusted payment--(1) Calculation of adjusted
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 at Subpart A, Sec. 412.1(a). 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. 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 applicable fixed loss amount established for the
hospital inpatient prospective payment system.
(f) Transition period for long-term care hospitals and satellites
paid under this section. In the case of a long-term care hospital or
satellite of a long-term care hospital that is paid under the
provisions of this section, the thresholds applied under paragraphs
(b), (c) and (d) of this section will not be less than the percentages
specified below:
(1) For cost reporting periods beginning on or after July 1, 2007
and before July 1, 2008, the lesser of 75 percent of the total number
of Medicare discharges that were admitted to the long-term care
hospital or satellite facility of a long-term care hospital from all
referring hospitals not co-located with the long-term care hospital or
with the satellite facility of a long-term care hospital during the
cost reporting period or the percentage of Medicare discharges that had
been admitted to the long-term care hospital or satellite of a long-
term care hospital from that referring hospital during the long-term
care hospital's or satellite's RY 2005 cost reporting period.
(2) For cost reporting periods beginning on or after July 1, 2008
and before July 1, 2009, the lesser of 50 percent of the total number
of Medicare discharges that were admitted to the long-term care
hospital or to the satellite facility of a long-term care hospital from

[[Page 26995]]

all referring hospitals not co-located with the long-term care hospital
or with the satellite facility of a long-term care hospital during the
cost reporting period or the percentage of Medicare discharges that had
been admitted from that referring hospital during the long-term care
hospital's or satellite's RY 2005 cost reporting period.
(3) For cost reporting periods beginning on or after July 1, 2009,
25 percent of the total number of Medicare discharges that were
admitted to the long-term care hospital or to the satellite facility of
a long-term care hospital from all referring hospitals not co-located
with the long-term care hospital or with the satellite facility of a
long-term care hospital to the long-term care hospital during the cost
reporting period.
(4) In determining the percentage of Medicare discharges admitted
from the referring hospital under this paragraph, patients on whose
behalf a Medicare high cost outlier payment was made at the referring
hospital are not counted toward this threshold.

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

0
9. 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

0
10. 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 nonpatient care direct GME activities.
* * * * *

0
11. Section 413.78 is amended by--
0
A. Revising the introductory text of paragraph (e).
0
B. Adding new paragraph (f).
The revision and addition read as follows:

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

* * * * *
(e) For portions of cost reporting periods occurring on or after
October 1, 2004, and for cost reporting periods beginning before July
1, 2007, the time residents spend in nonprovider settings such as
freestanding clinics, nursing homes, and physicians' offices in
connection with approved programs may be included in determining the
number of FTE residents in the calculation of a hospital's resident
count if the following conditions are met:
* * * * *
(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 pay 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 in place between the hospital and
the nonhospital site before the training begins 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 nonpatient care direct GME activities. The written agreement must
specify the total cost of the training program at the nonhospital site,
and the amount the hospital will incur (at least 90 percent of the
total), and must indicate the portion of the amount the hospital will
incur that reflects residents' salaries and fringe benefits (and travel
and lodging where applicable), and the portion of this amount that
reflects teaching physician compensation. Hospitals may modify the
amounts specified in the written agreement by the end of the academic
year (that is, June 30) to reflect that at least 90 percent of the
costs of the training program in the nonhospital site has been
incurred.
(4) The hospital is subject to the principles of community support
and redistribution of costs as specified in Sec. 413.81.

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

Dated: April 24, 2007.
Leslie V. Norwalk,
Acting Administrator, Centers for Medicare & Medicaid Services.

Approved: April 30, 2007.
Michael O. Leavitt,
Secretary.

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

Addendum

Addendum A contains the tables referred to throughout the preamble
to this final rule. The tables presented below are as follows:
Table 1: Long-Term Care Hospital Wage Index for Urban Areas for
Discharges Occurring from July 1, 2007 through June 30, 2008.
Table 2: 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 (for the Short-Stay Outlier
policy). (Note: The first four

[[Page 26996]]

columns of this table are the same information provided in Table 11 of
the FY 2007 IPPS final rule (71 FR 48321 through 48331), which has been
reprinted here for convenience. The fifth column of this table was
added to provide information on the revision to the short-stay outlier
policy, discussed in section VI.A.2. of the preamble of this final
rule.)

Table 1.--Long-Term Care Hospital Wage Index for Urban Areas for
Discharges Occurring From July 1, 2007 Through June 30, 2008 \1\
------------------------------------------------------------------------
4/5ths
CBSA code Urban area (constituent Full 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
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......

[[Page 26997]]

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......
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

[[Page 26998]]

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
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.........

[[Page 26999]]

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......
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.........

[[Page 27000]]

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......
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.........

[[Page 27001]]

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....
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.........

[[Page 27002]]

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....
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...........

[[Page 27003]]

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
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........

[[Page 27004]]

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......
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........

[[Page 27005]]

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.........
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.........

[[Page 27006]]

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...........
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.........

[[Page 27007]]

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........
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.......

[[Page 27008]]

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.........
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

[[Page 27009]]

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....
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.......

[[Page 27010]]

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.....
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.....

[[Page 27011]]

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...........
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

[[Page 27012]]

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..........
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..........

[[Page 27013]]

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.
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...

[[Page 27014]]

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.........
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.....

[[Page 27015]]

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
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.......

[[Page 27016]]

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..........
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...

[[Page 27017]]

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.........
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

[[Page 27018]]

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 final
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 final 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 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 final
rule.

Table 2.--Long-Term Care Hospital Wage Index for Rural Areas for
Discharges Occurring From July 1, 2007 Through June 30, 2008 \1\
------------------------------------------------------------------------
4/5ths
CBSA code Nonurban area Full 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
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

[[Page 27019]]

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 final
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 final 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 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 final 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 the IPPS Average Length of Stay Plus One Standard Deviation
----------------------------------------------------------------------------------------------------------------
IPPS
5/6ths of average
Geometric the length of
LTC-DRG Description Relative average geometric stay plus
weight length of average one
stay length of standard
stay deviation*
----------------------------------------------------------------------------------------------------------------
1............................ \5\ CRANIOTOMY AGE >17 W CC......... 1.6835 37.1 30.9 16.1
2............................ \6\ CRANIOTOMY AGE >17 W/O CC....... 1.6835 37.1 30.9 7.1
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 & OTHER NERV 1.2052 36.1 30.1 15.8
SYST PROC W CC.
8............................ \2\ PERIPH & CRANIAL NERVE & OTHER 0.5594 21.0 17.5 4.2
NERV SYST PROC W/O CC.
9............................ SPINAL DISORDERS & INJURIES......... 1.0424 34.0 28.3 9.7
10........................... NERVOUS SYSTEM NEOPLASMS W CC....... 0.6971 22.1 18.4 9.6
11........................... \2\ NERVOUS SYSTEM NEOPLASMS W/O CC. 0.5594 21.0 17.5 5.7
12........................... DEGENERATIVE NERVOUS SYSTEM 0.6788 25.1 20.9 8.4
DISORDERS.
13........................... MULTIPLE SCLEROSIS & CEREBELLAR 0.6003 23.1 19.3 7.4
ATAXIA.
14........................... INTRACRANIAL HEMORRHAGE OR CEREBRAL 0.6772 24.9 20.8 8.6
INFARCTION.
15........................... NONSPECIFIC CVA & PRECEREBRAL 0.7705 26.1 21.8 6.4
OCCLUSION W/O INFARCT.
16........................... NONSPECIFIC CEREBROVASCULAR 0.6978 23.1 19.3 10.1
DISORDERS W CC.
17........................... \2\ NONSPECIFIC CEREBROVASCULAR 0.5594 21.0 17.5 4.7
DISORDERS W/O CC.

[[Page 27020]]

18........................... CRANIAL & PERIPHERAL NERVE DISORDERS 0.7503 25.4 21.2 8.2
W CC.
19........................... CRANIAL & PERIPHERAL NERVE DISORDERS 0.4512 19.5 16.3 5.3
W/O CC.
21........................... \3\ VIRAL MENINGITIS................ 0.7819 23.9 19.9 9.9
22........................... \3\ HYPERTENSIVE ENCEPHALOPATHY..... 0.7819 23.9 19.9 7.9
23........................... NONTRAUMATIC STUPOR & COMA.......... 1.0118 29.4 24.5 6.1
26........................... \6\ SEIZURE & HEADACHE AGE 0-17..... 0.5594 21.0 17.5 6.2
27........................... TRAUMATIC STUPOR & COMA, COMA >1 HR. 0.9978 30.6 25.5 7.6
28........................... TRAUMATIC STUPOR & COMA, COMA <1 HR 0.7983 25.8 21.5 9.1
AGE >17 W CC.
29........................... \1\ TRAUMATIC STUPOR & COMA, COMA <1 0.4175 17.0 14.2 5.0
HR AGE >17 W/O CC.
30**......................... \6\ TRAUMATIC STUPOR & COMA, COMA <1 0.4175 17.0 14.2 2.0
HR AGE 0-17.
31........................... \1\ CONCUSSION AGE >17 W CC......... 0.4175 17.0 14.2 6.2
32........................... \6\ CONCUSSION AGE >17 W/O CC....... 0.4175 17.0 14.2 3.4
33**......................... \6\ CONCUSSION AGE 0-17............. 0.4175 17.0 14.2 1.6
34........................... OTHER DISORDERS OF NERVOUS SYSTEM W 0.7029 23.4 19.5 7.4
CC.
35........................... OTHER DISORDERS OF NERVOUS SYSTEM W/ 0.5080 21.1 17.6 4.7
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 PROCEDURES......... 0.5594 21.0 17.5 4.3
39........................... \6\ LENS PROCEDURES WITH OR WITHOUT 0.5594 21.0 17.5 3.1
VITRECTOMY.
40........................... \6\ EXTRAOCULAR PROCEDURES EXCEPT 0.5594 21.0 17.5 6.7
ORBIT AGE >17.
41**......................... \6\ EXTRAOCULAR PROCEDURES EXCEPT 0.5594 21.0 17.5 1.6
ORBIT AGE 0-17.
42........................... \6\ INTRAOCULAR PROCEDURES EXCEPT 0.5594 21.0 17.5 3.7
RETINA, IRIS & LENS.
43........................... \6\ HYPHEMA......................... 0.4175 17.0 14.2 4.6
44........................... \3\ ACUTE MAJOR EYE INFECTIONS...... 0.7819 23.9 19.9 7.4
45........................... \1\ NEUROLOGICAL EYE DISORDERS...... 0.4175 17.0 14.2 4.6
46........................... \2\ OTHER DISORDERS OF THE EYE AGE 0.5594 21.0 17.5 6.6
>17 W CC.
47........................... \6\ OTHER DISORDERS OF THE EYE AGE 0.4175 17.0 14.2 4.7
>17 W/O CC.
48**......................... \6\ OTHER DISORDERS OF THE EYE AGE 0- 0.4175 17.0 14.2 2.9
17.
49........................... \6\ MAJOR HEAD & NECK PROCEDURES.... 1.1625 29.5 24.6 7.1
50........................... \6\ SIALOADENECTOMY................. 1.1625 29.5 24.6 2.6
51........................... \6\ SALIVARY GLAND PROCEDURES EXCEPT 1.1625 29.5 24.6 4.0
SIALOADENECTOMY.
52........................... \6\ CLEFT LIP & PALATE REPAIR....... 1.1625 29.5 24.6 2.1
53........................... \6\ SINUS & MASTOID PROCEDURES AGE 1.1625 29.5 24.6 6.2
>17.
54**......................... \6\ SINUS & MASTOID PROCEDURES AGE 0- 1.1625 29.5 24.6 3.2
17.
55........................... \4\ MISCELLANEOUS EAR, NOSE, MOUTH & 1.1625 29.5 24.6 4.3
THROAT PROCEDURES.
56........................... \6\ RHINOPLASTY..................... 1.1625 29.5 24.6 4.1
57........................... \6\ T&A PROC, EXCEPT TONSILLECTOMY &/ 0.4175 17.0 14.2 4.9
OR ADENOIDECTOMY ONLY, AGE >17.
58**......................... \6\ T&A PROC, EXCEPT TONSILLECTOMY &/ 0.4175 17.0 14.2 1.5
OR ADENOIDECTOMY ONLY, AGE 0-17.
59........................... \6\ TONSILLECTOMY &/OR ADENOIDECTOMY 0.4175 17.0 14.2 3.6
ONLY, AGE >17.
60........................... \6\ TONSILLECTOMY &/OR ADENOIDECTOMY 0.4175 17.0 14.2 2.7
ONLY, AGE 0-17.
61........................... \6\ MYRINGOTOMY W TUBE INSERTION AGE 0.4175 17.0 14.2 10.2
>17.
62........................... \6\ MYRINGOTOMY W TUBE INSERTION AGE 0.4175 17.0 14.2 2.3
0-17.
63........................... \4\ OTHER EAR, NOSE, MOUTH & THROAT 1.1625 29.5 24.6 7.2
O.R. PROCEDURES.
64........................... EAR, NOSE, MOUTH & THROAT MALIGNANCY 1.1797 26.2 21.8 10.2
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 &>17 W CC.... 0.6211 20.3 16.9 5.9
69........................... \1\ OTITIS MEDIA & URI AGE &>17 W/O 0.4175 17.0 14.2 4.5
CC.
70........................... \6\ OTITIS MEDIA & URI AGE 0-17..... 0.4175 17.0 14.2 3.6
71........................... \6\ LARYNGOTRACHEITIS............... 0.5594 21.0 17.5 6.7
72........................... \3\ NASAL TRAUMA & DEFORMITY........ 0.7819 23.9 19.9 5.2
73........................... OTHER EAR, NOSE, MOUTH & THROAT 0.7745 22.9 19.1 6.9
DIAGNOSES AGE >17.
74........................... \6\ OTHER EAR, NOSE, MOUTH & THROAT 0.4175 17.0 14.2 3.9
DIAGNOSES AGE 0-17.
75........................... MAJOR CHEST PROCEDURES.............. 1.9944 33.5 27.9 15.4
76........................... OTHER RESP SYSTEM O.R. PROCEDURES W 2.3982 42.5 35.4 17.2
CC.
77........................... \2\ OTHER RESP SYSTEM O.R. 0.5594 21.0 17.5 7.4
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
INFLAMMATIONS AGE >17 W/O CC.
81........................... \6\ RESPIRATORY INFECTIONS & 0.4175 17.0 14.2 10.1
INFLAMMATIONS AGE 0-17.
82........................... RESPIRATORY NEOPLASMS............... 0.8242 21.4 17.8 11.0

[[Page 27021]]

83........................... \1\ MAJOR CHEST TRAUMA W CC......... 0.4175 17.0 14.2 8.2
84........................... \6\ MAJOR CHEST TRAUMA W/O CC....... 0.4175 17.0 14.2 4.8
85........................... PLEURAL EFFUSION W CC............... 0.6956 21.4 17.8 9.9
86........................... \6\ PLEURAL EFFUSION W/O CC......... 0.4175 17.0 14.2 5.5
87........................... PULMONARY EDEMA & RESPIRATORY 1.0295 24.8 20.7 10.3
FAILURE.
88........................... CHRONIC OBSTRUCTIVE PULMONARY 0.6411 19.3 16.1 7.5
DISEASE.
89........................... SIMPLE PNEUMONIA & PLEURISY AGE >17 0.6802 20.6 17.2 8.6
W CC.
90........................... SIMPLE PNEUMONIA & PLEURISY AGE >17 0.4958 17.8 14.8 5.6
W/O CC.
91........................... \6\ SIMPLE PNEUMONIA & PLEURISY AGE 0.5594 21.0 17.5 5.3
0-17.
92........................... INTERSTITIAL LUNG DISEASE W CC...... 0.6638 19.6 16.3 9.4
93........................... \1\ INTERSTITIAL LUNG DISEASE W/O CC 0.4175 17.0 14.2 5.9
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 >17 W CC.... 0.6230 18.9 15.8 6.7
97........................... \8\ BRONCHITIS & ASTHMA AGE >17 W/O 0.6230 18.9 15.8 5.2
CC.
98........................... \6\ BRONCHITIS & ASTHMA AGE 0-17.... 0.5594 21.0 17.5 4.4
99........................... RESPIRATORY SIGNS & SYMPTOMS W CC... 0.9381 24.6 20.5 4.8
100.......................... 3RESPIRATORY SIGNS & SYMPTOMS W/O 0.7819 23.9 19.9 3.1
CC.
101.......................... OTHER RESPIRATORY SYSTEM DIAGNOSES W 0.8147 22.2 18.5 6.7
CC.
102.......................... \1\ OTHER RESPIRATORY SYSTEM 0.4175 17.0 14.2 3.9
DIAGNOSES W/O CC.
103***....................... \7\ HEART TRANSPLANT OR IMPLANT OF 0.0000 0.0 0.0 0.0
HEART ASSIST SYSTEM.
104.......................... \6\ CARDIAC VALVE & OTHER MAJOR 1.1625 29.5 24.6 22.3
CARDIOTHORACIC PROC W CARDIAC CATH.
105.......................... \6\ CARDIAC VALVE & OTHER MAJOR 1.1625 29.5 24.6 15.0
CARDIOTHORACIC PROC W/O CARDIAC
CATH.
106.......................... \6\ CORONARY BYPASS W PTCA.......... 1.1625 29.5 24.6 16.6
108.......................... \6\ OTHER CARDIOTHORACIC PROCEDURES. 1.1625 29.5 24.6 17.1
110.......................... \4\ MAJOR CARDIOVASCULAR PROCEDURES 1.1625 29.5 24.6 13.8
W CC.
111.......................... \6\ MAJOR CARDIOVASCULAR PROCEDURES 1.1625 29.5 24.6 4.9
W/O CC.
113.......................... AMPUTATION FOR CIRC SYSTEM DISORDERS 1.3942 36.1 30.1 20.5
EXCEPT UPPER LIMB & TOE.
114.......................... UPPER LIMB & TOE AMPUTATION FOR CIRC 1.2425 33.0 27.5 14.0
SYSTEM DISORDERS.
117.......................... \2\ CARDIAC PACEMAKER REVISION 0.5594 21.0 17.5 6.7
EXCEPT DEVICE REPLACEMENT.
118.......................... \3\ CARDIAC PACEMAKER DEVICE 0.7819 23.9 19.9 4.6
REPLACEMENT.
119.......................... \3\ VEIN LIGATION & STRIPPING....... 0.7819 23.9 19.9 8.8
120.......................... OTHER CIRCULATORY SYSTEM O.R. 1.0893 31.4 26.2 15.5
PROCEDURES.
121.......................... CIRCULATORY DISORDERS W AMI & MAJOR 0.7451 22.4 18.7 10.1
COMP, DISCHARGED ALIVE.
122.......................... \2\ CIRCULATORY DISORDERS W AMI W/O 0.5594 21.0 17.5 5.3
MAJOR COMP, DISCHARGED ALIVE.
123.......................... CIRCULATORY DISORDERS W AMI, EXPIRED 0.7858 17.0 14.2 7.6
124.......................... \4\ CIRCULATORY DISORDERS EXCEPT 1.1625 29.5 24.6 7.0
AMI, W CARD CATH & COMPLEX DIAG.
125.......................... \1\ CIRCULATORY DISORDERS EXCEPT 0.4175 17.0 14.2 4.1
AMI, W CARD CATH W/O COMPLEX DIAG.
126.......................... ACUTE & SUBACUTE ENDOCARDITIS....... 0.8867 26.3 21.9 17.5
127.......................... HEART FAILURE & SHOCK............... 0.6832 21.2 17.7 8.0
128.......................... \2\ DEEP VEIN THROMBOPHLEBITIS...... 0.5594 21.0 17.5 8.0
129.......................... \1\ CARDIAC ARREST, UNEXPLAINED..... 0.4175 17.0 14.2 3.5
130.......................... PERIPHERAL VASCULAR DISORDERS W CC.. 0.6484 22.8 19.0 8.6
131.......................... PERIPHERAL VASCULAR DISORDERS W/O CC 0.5267 21.0 17.5 5.9
132.......................... ATHEROSCLEROSIS W CC................ 0.6621 20.7 17.3 4.3
133.......................... \2\ ATHEROSCLEROSIS W/O CC.......... 0.5594 21.0 17.5 3.2
134.......................... HYPERTENSION........................ 0.4909 21.7 18.1 4.8
135.......................... CARDIAC CONGENITAL & VALVULAR 0.8014 23.8 19.8 6.8
DISORDERS AGE >17 W CC.
136.......................... \1\ CARDIAC CONGENITAL & VALVULAR 0.4175 17.0 14.2 4.1
DISORDERS AGE >17 W/O CC.
137**........................ \6\ CARDIAC CONGENITAL & VALVULAR 0.4175 17.0 14.2 3.3
DISORDERS AGE 0-17.
138.......................... CARDIAC ARRHYTHMIA & CONDUCTION 0.6618 21.9 18.3 6.1
DISORDERS W CC.
139.......................... \2\ CARDIAC ARRHYTHMIA & CONDUCTION 0.5594 21.0 17.5 3.7
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/O CC....... 0.5891 22.1 18.4 3.8
143.......................... \1\ CHEST PAIN...................... 0.4175 17.0 14.2 3.1
144.......................... OTHER CIRCULATORY SYSTEM DIAGNOSES W 0.7715 22.1 18.4 9.6
CC.
145.......................... OTHER CIRCULATORY SYSTEM DIAGNOSES W/ 0.4292 17.0 14.2 3.9
O CC.
146.......................... \5\ RECTAL RESECTION W CC........... 1.6835 37.1 30.9 14.6

[[Page 27022]]

147.......................... \6\ RECTAL RESECTION W/O CC......... 0.7819 23.9 19.9 8.5
149.......................... \6\ MAJOR SMALL & LARGE BOWEL 0.7819 23.9 19.9 8.1
PROCEDURES W/O CC.
150.......................... \5\ PERITONEAL ADHESIOLYSIS W CC.... 1.6835 37.1 30.9 17.3
151.......................... \6\ PERITONEAL ADHESIOLYSIS W/O CC.. 0.4175 17.0 14.2 8.2
152.......................... \5\ MINOR SMALL & LARGE BOWEL 1.6835 37.1 30.9 12.0
PROCEDURES W CC.
153.......................... \6\ MINOR SMALL & LARGE BOWEL 1.6835 37.1 30.9 7.1
PROCEDURES W/O CC.
155.......................... \6\ STOMACH, ESOPHAGEAL & DUODENAL 1.6835 37.1 30.9 6.4
PROCEDURES AGE >17 W/O CC.
156.......................... \6\ STOMACH, ESOPHAGEAL & DUODENAL 1.6835 37.1 30.9 12.1
PROCEDURES AGE 0-17.
157.......................... \3\ ANAL & STOMAL PROCEDURES W CC... 0.7819 23.9 19.9 9.3
158.......................... \6\ ANAL & STOMAL PROCEDURES W/O CC. 0.7819 23.9 19.9 4.1
159.......................... \5\ HERNIA PROCEDURES EXCEPT 1.6835 37.1 30.9 8.2
INGUINAL & FEMORAL AGE >17 W CC.
160.......................... \1\ HERNIA PROCEDURES EXCEPT 0.4175 17.0 14.2 4.1
INGUINAL & FEMORAL AGE >17 W/O CC.
161.......................... \6\ INGUINAL & FEMORAL HERNIA 0.4175 17.0 14.2 7.3
PROCEDURES AGE >17 W CC.
162.......................... \6\ INGUINAL & FEMORAL HERNIA 0.4175 17.0 14.2 3.1
PROCEDURES AGE >17 W/O CC.
163.......................... \6\ HERNIA PROCEDURES AGE 0-17...... 0.4175 17.0 14.2 4.0
164.......................... \6\ APPENDECTOMY W COMPLICATED 0.7819 23.9 19.9 11.9
PRINCIPAL DIAG W CC.
165.......................... \6\ APPENDECTOMY W COMPLICATED 0.7819 23.9 19.9 6.1
PRINCIPAL DIAG W/O CC.
166.......................... \6\ APPENDECTOMY W/O COMPLICATED 0.7819 23.9 19.9 6.8
PRINCIPAL DIAG W CC.
167.......................... \6\ APPENDECTOMY W/O COMPLICATED 0.7819 23.9 19.9 3.1
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 CC......... 0.5594 21.0 17.5 3.5
170.......................... OTHER DIGESTIVE SYSTEM O.R. 1.6163 35.8 29.8 18.0
PROCEDURES W CC.
171.......................... \3\ OTHER DIGESTIVE SYSTEM O.R. 0.7819 23.9 19.9 6.7
PROCEDURES W/O CC.
172.......................... DIGESTIVE MALIGNANCY W CC........... 0.8497 21.8 18.2 11.1
173.......................... \2\ DIGESTIVE MALIGNANCY W/O CC..... 0.5594 21.0 17.5 5.6
174.......................... G.I. HEMORRHAGE W CC................ 0.7149 22.9 19.1 7.2
175.......................... \2\ G.I. HEMORRHAGE W/O CC.......... 0.5594 21.0 17.5 4.3
176.......................... COMPLICATED PEPTIC ULCER............ 0.9514 24.8 20.7 8.0
177.......................... \2\ UNCOMPLICATED PEPTIC ULCER W CC. 0.5594 21.0 17.5 6.8
178.......................... \6\ UNCOMPLICATED PEPTIC ULCER W/O 0.4175 17.0 14.2 4.7
CC.
179.......................... INFLAMMATORY BOWEL DISEASE.......... 0.8157 23.3 19.4 9.1
180.......................... G.I. OBSTRUCTION W CC............... 0.9126 22.8 19.0 8.3
181.......................... \1\ G.I. OBSTRUCTION W/O CC......... 0.4175 17.0 14.2 5.1
182.......................... ESOPHAGITIS, GASTROENT & MISC DIGEST 0.7866 21.8 18.2 6.4
DISORDERS AGE >17 W CC.
183.......................... \1\ ESOPHAGITIS, GASTROENT & MISC 0.4175 17.0 14.2 4.4
DIGEST DISORDERS AGE >17 W/O CC.
184.......................... \6\ ESOPHAGITIS, GASTROENT & MISC 0.4175 17.0 14.2 5.6
DIGEST DISORDERS AGE 0-17.
185.......................... DENTAL & ORAL DIS EXCEPT EXTRACTIONS 0.6634 23.2 19.3 7.2
& RESTORATIONS, AGE >17.
186.......................... \6\ DENTAL & ORAL DIS EXCEPT 0.5594 21.0 17.5 5.0
EXTRACTIONS & RESTORATIONS, AGE 0-
17.
187.......................... \6\ DENTAL EXTRACTIONS & 0.5594 21.0 17.5 6.8
RESTORATIONS.
188.......................... OTHER DIGESTIVE SYSTEM DIAGNOSES AGE 0.9596 24.4 20.3 8.5
>17 W CC.
189.......................... \2\ OTHER DIGESTIVE SYSTEM DIAGNOSES 0.5594 21.0 17.5 4.6
AGE >17 W/O CC.
190.......................... \6\ OTHER DIGESTIVE SYSTEM DIAGNOSES 0.5594 21.0 17.5 5.1
AGE 0-17.
191.......................... \5\ PANCREAS, LIVER & SHUNT 1.6835 37.1 30.9 21.1
PROCEDURES W CC.
192.......................... \6\ PANCREAS, LIVER & SHUNT 1.6835 37.1 30.9 9.3
PROCEDURES W/O CC.
193.......................... \4\ BILIARY TRACT PROC EXCEPT ONLY 1.1625 29.5 24.6 19.7
CHOLECYST W OR W/O C.D.E. W CC.
194.......................... \6\ BILIARY TRACT PROC EXCEPT ONLY 1.1625 29.5 24.6 9.9
CHOLECYST W OR W/O C.D.E. W/O CC.
195.......................... \5\ CHOLECYSTECTOMY W C.D.E. W CC... 1.6835 37.1 30.9 16.2
196.......................... \6\ CHOLECYSTECTOMY W C.D.E. W/O CC. 1.1625 29.5 24.6 8.3
197.......................... \4\ CHOLECYSTECTOMY EXCEPT BY 1.1625 29.5 24.6 14.0
LAPAROSCOPE W/O C.D.E. W CC.
198.......................... \6\ CHOLECYSTECTOMY EXCEPT BY 1.1625 29.5 24.6 6.6
LAPAROSCOPE W/O C.D.E. W/O CC.
199.......................... \3\ HEPATOBILIARY DIAGNOSTIC 0.7819 23.9 19.9 15.2
PROCEDURE FOR MALIGNANCY.
200.......................... \5\ HEPATOBILIARY DIAGNOSTIC 1.6835 37.1 30.9 17.5
PROCEDURE FOR NON-MALIGNANCY.
201.......................... OTHER HEPATOBILIARY OR PANCREAS O.R. 1.5802 28.8 24.0 22.6
PROCEDURES.
202.......................... CIRRHOSIS & ALCOHOLIC HEPATITIS..... 0.6011 20.2 16.8 9.9
203.......................... MALIGNANCY OF HEPATOBILIARY SYSTEM 0.7466 19.6 16.3 10.6
OR PANCREAS.
204.......................... DISORDERS OF PANCREAS EXCEPT 0.8853 22.1 18.4 8.5
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 EXCEPT 0.6933 23.1 19.3 6.0
MALIG,CIRR,ALC HEPA W/O CC.
207.......................... DISORDERS OF THE BILIARY TRACT W CC. 0.7295 21.5 17.9 8.4
208.......................... \1\ DISORDERS OF THE BILIARY TRACT W/ 0.4175 17.0 14.2 4.6
O CC.

[[Page 27023]]

210.......................... HIP & FEMUR PROCEDURES EXCEPT MAJOR 1.4826 41.9 34.9 9.5
JOINT AGE >17 W CC.
211.......................... \6\ HIP & FEMUR PROCEDURES EXCEPT 1.6835 37.1 30.9 6.3
MAJOR JOINT AGE >17 W/O CC.
212.......................... \6\ HIP & FEMUR PROCEDURES EXCEPT 1.6835 37.1 30.9 3.8
MAJOR JOINT AGE 0-17.
213.......................... AMPUTATION FOR MUSCULOSKELETAL 1.1871 33.5 27.9 15.2
SYSTEM & CONN TISSUE DISORDERS.
216.......................... BIOPSIES OF MUSCULOSKELETAL SYSTEM & 1.2147 37.6 31.3 8.8
CONNECTIVE TISSUE.
217.......................... WND DEBRID & SKN GRFT EXCEPT 1.2414 36.5 30.4 20.4
HAND,FOR MUSCSKELET & CONN TISS DIS.
218.......................... \5\ LOWER EXTREM & HUMER PROC EXCEPT 1.6835 37.1 30.9 8.4
HIP,FOOT,FEMUR AGE >17 W CC.
219.......................... \6\ LOWER EXTREM & HUMER PROC EXCEPT 1.6835 37.1 30.9 4.8
HIP,FOOT,FEMUR AGE >17 W/O CC.
220.......................... \6\ LOWER EXTREM & HUMER PROC EXCEPT 1.6835 37.1 30.9 10.5
HIP,FOOT,FEMUR AGE 0-17.
223.......................... \4\ MAJOR SHOULDER/ELBOW PROC, OR 1.1625 29.5 24.6 5.1
OTHER UPPER EXTREMITY PROC W CC.
224.......................... \1\ SHOULDER,ELBOW OR FOREARM 0.4175 17.0 14.2 2.8
PROC,EXC MAJOR JOINT PROC, W/O CC.
225.......................... FOOT PROCEDURES..................... 0.9550 30.6 25.5 8.7
226.......................... SOFT TISSUE PROCEDURES W CC......... 1.0626 34.3 28.6 10.6
227.......................... \3\ SOFT TISSUE PROCEDURES W/O CC... 0.7819 23.9 19.9 4.0
228.......................... \3\ MAJOR THUMB OR JOINT PROC,OR OTH 0.7819 23.9 19.9 6.7
HAND OR WRIST PROC W CC.
229.......................... \6\ HAND OR WRIST PROC, EXCEPT MAJOR 0.4175 17.0 14.2 3.8
JOINT PROC, W/O CC.
230.......................... \5\ LOCAL EXCISION & REMOVAL OF INT 1.6835 37.1 30.9 8.8
FIX DEVICES OF HIP & FEMUR.
232.......................... \5\ ARTHROSCOPY..................... 1.6835 37.1 30.9 4.1
233.......................... OTHER MUSCULOSKELET SYS & CONN TISS 1.1724 32.4 27.0 10.8
O.R. PROC W CC.
234.......................... \6\ OTHER MUSCULOSKELET SYS & CONN 0.4175 17.0 14.2 4.1
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, & DISLOCATIONS 0.4175 17.0 14.2 5.9
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 DISORDERS W CC.... 0.7134 22.4 18.7 10.3
241.......................... \1\ CONNECTIVE TISSUE DISORDERS W/O 0.4175 17.0 14.2 5.6
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 ARTHROPATHIES...... 0.5594 21.0 17.5 5.6
247.......................... SIGNS & SYMPTOMS OF MUSCULOSKELETAL 0.4582 17.6 14.7 5.1
SYSTEM & CONN TISSUE.
248.......................... TENDONITIS, MYOSITIS & BURSITIS..... 0.7328 23.2 19.3 7.5
249.......................... AFTERCARE, MUSCULOSKELETAL SYSTEM & 0.6370 24.0 20.0 6.2
CONNECTIVE TISSUE.
250.......................... \1\ FX, SPRN, STRN & DISL OF 0.4175 17.0 14.2 6.0
FOREARM, HAND, FOOT AGE >17 W CC.
251.......................... \6\ FX, SPRN, STRN & DISL OF 0.4175 17.0 14.2 4.3
FOREARM, HAND, FOOT AGE >17 W/O CC.
252**........................ \6\ FX, SPRN, STRN & DISL OF 0.5594 21.0 17.5 1.8
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 OF 0.4175 17.0 14.2 4.7
UPARM,LOWLEG EX FOOT AGE >17 W/O CC.
255**........................ \6\ FX, SPRN, STRN & DISL OF 0.5594 21.0 17.5 2.9
UPARM,LOWLEG EX FOOT AGE 0-17.
256.......................... OTHER MUSCULOSKELETAL SYSTEM & 0.7132 23.6 19.7 7.9
CONNECTIVE TISSUE DIAGNOSES.
257.......................... \5\ TOTAL MASTECTOMY FOR MALIGNANCY 1.6835 37.1 30.9 3.8
W CC.
258.......................... \6\ TOTAL MASTECTOMY FOR MALIGNANCY 0.7819 23.9 19.9 2.4
W/O CC.
259.......................... \3\ SUBTOTAL MASTECTOMY FOR 0.7819 23.9 19.9 4.1
MALIGNANCY W CC.
260.......................... \6\ SUBTOTAL MASTECTOMY FOR 0.7819 23.9 19.9 1.9
MALIGNANCY W/O CC.
261.......................... \2\ BREAST PROC FOR NON-MALIGNANCY 0.5594 21.0 17.5 3.2
EXCEPT BIOPSY & LOCAL EXCISION.
262.......................... \4\ BREAST BIOPSY & LOCAL EXCISION 1.1625 29.5 24.6 7.7
FOR NON-MALIGNANCY.
263.......................... SKIN GRAFT &/OR DEBRID FOR SKN ULCER 1.2748 38.0 31.7 16.9
OR CELLULITIS W CC.
264.......................... SKIN GRAFT &/OR DEBRID FOR SKN ULCER 0.8507 29.9 24.9 9.9
OR CELLULITIS W/O CC.
265.......................... SKIN GRAFT &/OR DEBRID EXCEPT FOR 1.1019 30.2 25.2 10.7
SKIN ULCER OR CELLULITIS W CC.
266.......................... \3\ SKIN GRAFT &/OR DEBRID EXCEPT 0.7819 23.9 19.9 4.7
FOR SKIN ULCER OR CELLULITIS W/O CC.
267.......................... \6\ PERIANAL & PILONIDAL PROCEDURES. 0.7819 23.9 19.9 6.8
268.......................... \4\ SKIN, SUBCUTANEOUS TISSUE & 1.1625 29.5 24.6 5.4
BREAST PLASTIC PROCEDURES.

[[Page 27024]]

269.......................... OTHER SKIN, SUBCUT TISS & BREAST 1.2075 34.7 28.9 13.4
PROC W CC.
270.......................... \3\ OTHER SKIN, SUBCUT TISS & BREAST 0.7819 23.9 19.9 5.7
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 W/O CC..... 0.4175 17.0 14.2 5.9
274.......................... MALIGNANT BREAST DISORDERS W CC..... 0.7231 21.8 18.2 10.1
275.......................... \6\ MALIGNANT BREAST DISORDERS W/O 0.7819 23.9 19.9 5.2
CC.
276.......................... \2\ NON-MALIGNANT BREAST DISORDERS.. 0.5594 21.0 17.5 7.3
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, SUBCUT TISS & 0.7148 24.1 20.1 6.3
BREAST AGE >17 W CC.
281.......................... \2\ TRAUMA TO THE SKIN, SUBCUT TISS 0.5594 21.0 17.5 4.3
& BREAST AGE >17 W/O CC.
282**........................ \6\ TRAUMA TO THE SKIN, SUBCUT TISS 0.5594 21.0 17.5 2.2
& BREAST AGE 0-17.
283.......................... MINOR SKIN DISORDERS W CC........... 0.6876 23.1 19.3 7.2
284.......................... \2\ MINOR SKIN DISORDERS W/O CC..... 0.5594 21.0 17.5 4.6
285.......................... AMPUTAT OF LOWER LIMB FOR 1.2418 31.6 26.3 16.0
ENDOCRINE,NUTRIT,& METABOL
DISORDERS.
286.......................... \6\ ADRENAL & PITUITARY PROCEDURES.. 1.1625 29.5 24.6 8.0
287.......................... SKIN GRAFTS & WOUND DEBRID FOR 1.0402 33.0 27.5 15.2
ENDOC, NUTRIT & METAB DISORDERS.
288.......................... \4\ O.R. PROCEDURES FOR OBESITY..... 1.1625 29.5 24.6 5.4
289.......................... \6\ PARATHYROID PROCEDURES.......... 1.1625 29.5 24.6 3.3
290.......................... \6\ THYROID PROCEDURES.............. 1.1625 29.5 24.6 2.8
291.......................... \6\ THYROGLOSSAL PROCEDURES......... 1.1625 29.5 24.6 2.1
292.......................... OTHER ENDOCRINE, NUTRIT & METAB O.R. 1.1549 32.0 26.7 16.9
PROC W CC.
293.......................... \8\ OTHER ENDOCRINE, NUTRIT & METAB 1.1549 32.0 26.7 7.8
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 METABOLIC 0.7092 22.3 18.6 7.3
DISORDERS AGE >17 W CC.
297.......................... NUTRITIONAL & MISC METABOLIC 0.4596 19.3 16.1 4.6
DISORDERS AGE >17 W/O CC.
298.......................... \6\ NUTRITIONAL & MISC METABOLIC 0.4175 17.0 14.2 5.3
DISORDERS AGE 0-17.
299.......................... \3\ INBORN ERRORS OF METABOLISM..... 0.7819 23.9 19.9 8.2
300.......................... ENDOCRINE DISORDERS W CC............ 0.7004 23.7 19.8 9.3
301.......................... \2\ ENDOCRINE DISORDERS W/O CC...... 0.5594 21.0 17.5 5.2
302***....................... \7\ KIDNEY TRANSPLANT............... 0.0000 0.0 0.00.0
303.......................... \6\ KIDNEY AND URETER PROCEDURES FOR 0.7819 23.9 19.9 9.7
NEOPLASM.
304.......................... \4\ KIDNEY AND URETER PROCEDURES FOR 1.1625 29.5 24.6 13.4
NON-NEOPLASM W CC.
305.......................... \6\ KIDNEY AND URETER PROCEDURES FOR 0.7819 23.9 19.9 4.7
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 PROCEDURES W CC... 1.1625 29.5 24.6 8.6
309.......................... \6\ MINOR BLADDER PROCEDURES W/O CC. 1.1625 29.5 24.6 2.4
310.......................... \4\ TRANSURETHRAL PROCEDURES W CC... 1.1625 29.5 24.6 7.2
311.......................... \6\ TRANSURETHRAL PROCEDURES W/O CC. 1.1625 29.5 24.6 2.7
312.......................... \3\ URETHRAL PROCEDURES, AGE >17 W 0.7819 23.9 19.9 8.0
CC.
313.......................... \6\ URETHRAL PROCEDURES, AGE >17 W/O 0.7819 23.9 19.9 3.6
CC.
314.......................... \6\ URETHRAL PROCEDURES, AGE 0-17... 0.7819 23.9 19.9 360.4
315.......................... OTHER KIDNEY & URINARY TRACT 1.4016 33.9 28.3 11.1
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 NEOPLASMS W 0.7565 21.0 17.5 9.8
CC.
319.......................... \6\ KIDNEY & URINARY TRACT NEOPLASMS 0.7819 23.9 19.9 3.9
W/O CC.
320.......................... KIDNEY & URINARY TRACT INFECTIONS 0.6200 21.7 18.1 7.7
AGE >17 W CC.
321.......................... KIDNEY & URINARY TRACT INFECTIONS 0.4450 18.5 15.4 5.4
AGE >17 W/O CC.
322.......................... \6\ KIDNEY & URINARY TRACT 0.4175 17.0 14.2 5.2
INFECTIONS AGE 0-17.
323.......................... \1\ URINARY STONES W CC, &/OR ESW 0.4175 17.0 14.2 4.8
LITHOTRIPSY.
324.......................... \1\ URINARY STONES W/O CC........... 0.4175 17.0 14.2 2.7
325.......................... \2\ KIDNEY & URINARY TRACT SIGNS & 0.5594 21.0 17.5 5.8
SYMPTOMS AGE >17 W CC.
326.......................... \6\ KIDNEY & URINARY TRACT SIGNS & 0.4175 17.0 14.2 3.9
SYMPTOMS AGE >17 W/O CC.
327.......................... \6\ KIDNEY & URINARY TRACT SIGNS & 0.4175 17.0 14.2 2.8
SYMPTOMS AGE 0-17.
328.......................... \6\ URETHRAL STRICTURE AGE >17 W CC. 0.5594 21.0 17.5 5.4
329.......................... \6\ URETHRAL STRICTURE AGE >17 W/O 0.5594 21.0 17.5 2.4
CC.
330**........................ \6\ URETHRAL STRICTURE AGE 0-17..... 0.5594 21.0 17.5 1.6

[[Page 27025]]

331.......................... OTHER KIDNEY & URINARY TRACT 0.7773 22.5 18.8 8.7
DIAGNOSES AGE >17 W CC.
332.......................... \1\ OTHER KIDNEY & URINARY TRACT 0.4175 17.0 14.2 4.8
DIAGNOSES AGE >17 W/O CC.
333.......................... \6\ OTHER KIDNEY & URINARY TRACT 0.4175 17.0 14.2 8.4
DIAGNOSES AGE 0-17.
334.......................... \6\ MAJOR MALE PELVIC PROCEDURES W 0.4175 17.0 14.2 6.1
CC.
335.......................... \1\ MAJOR MALE PELVIC PROCEDURES W/O 0.4175 17.0 14.2 3.7
CC.
336.......................... \4\ TRANSURETHRAL PROSTATECTOMY W CC 1.1625 29.5 24.6 4.9
337.......................... \6\ TRANSURETHRAL PROSTATECTOMY W/O 1.1625 29.5 24.6 2.6
CC.
338.......................... \3\ TESTES PROCEDURES, FOR 0.7819 23.9 19.9 9.7
MALIGNANCY.
339.......................... \3\ TESTES PROCEDURES, NON- 0.7819 23.9 19.9 8.4
MALIGNANCY AGE >17.
340**........................ \6\ TESTES PROCEDURES, NON- 0.7819 23.9 19.9 2.4
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 REPRODUCTIVE SYSTEM 0.7819 23.9 19.9 3.9
O.R. PROCEDURES FOR MALIGNANCY.
345.......................... \4\ OTHER MALE REPRODUCTIVE SYSTEM 1.1625 29.5 24.6 8.6
O.R. PROC EXCEPT FOR MALIGNANCY.
346.......................... \3\ MALIGNANCY, MALE REPRODUCTIVE 0.7819 23.9 19.9 9.6
SYSTEM, W CC.
347.......................... \1\ MALIGNANCY, MALE REPRODUCTIVE 0.4175 17.0 14.2 4.2
SYSTEM, W/O CC.
348.......................... \2\ BENIGN PROSTATIC HYPERTROPHY W 0.5594 21.0 17.5 6.3
CC.
349.......................... \6\ BENIGN PROSTATIC HYPERTROPHY W/O 0.7819 23.9 19.9 4.1
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 SYSTEM 0.8209 27.5 22.9 6.7
DIAGNOSES.
353.......................... \6\ PELVIC EVISCERATION, RADICAL 1.1625 29.5 24.6 9.2
HYSTERECTOMY & RADICAL VULVECTOMY.
354.......................... \6\ UTERINE,ADNEXA PROC FOR NON- 1.1625 29.5 24.6 8.2
OVARIAN/ADNEXAL MALIG W CC.
355.......................... \6\ UTERINE,ADNEXA PROC FOR NON- 1.1625 29.5 24.6 4.2
OVARIAN/ADNEXAL MALIG W/O CC.
356.......................... \6\ FEMALE REPRODUCTIVE SYSTEM 1.1625 29.5 24.6 2.7
RECONSTRUCTIVE PROCEDURES.
357.......................... \6\ UTERINE & ADNEXA PROC FOR 1.1625 29.5 24.6 12.3
OVARIAN OR ADNEXAL MALIGNANCY.
358.......................... \6\ UTERINE & ADNEXA PROC FOR NON- 1.1625 29.5 24.6 5.7
MALIGNANCY W CC.
359.......................... \6\ UTERINE & ADNEXA PROC FOR NON- 1.1625 29.5 24.6 3.3
MALIGNANCY W/O CC.
360.......................... \6\ VAGINA, CERVIX & VULVA 1.1625 29.5 24.6 3.7
PROCEDURES.
361.......................... \6\ LAPAROSCOPY & INCISIONAL TUBAL 0.4175 17.0 14.2 4.5
INTERRUPTION.
362.......................... \6\ ENDOSCOPIC TUBAL INTERRUPTION... 0.4175 17.0 14.2 1.0
363.......................... \6\ D&C, CONIZATION & RADIO-IMPLANT, 0.4175 17.0 14.2 6.5
FOR MALIGNANCY.
364.......................... \6\ D&C, CONIZATION EXCEPT FOR 0.4175 17.0 14.2 6.1
MALIGNANCY.
365.......................... \4\ OTHER FEMALE REPRODUCTIVE SYSTEM 1.1625 29.5 24.6 13.0
O.R. PROCEDURES.
366.......................... MALIGNANCY, FEMALE REPRODUCTIVE 0.9106 21.6 18.0 10.2
SYSTEM W CC.
367.......................... \1\ MALIGNANCY, FEMALE REPRODUCTIVE 0.4175 17.0 14.2 4.6
SYSTEM W/O CC.
368.......................... INFECTIONS, FEMALE REPRODUCTIVE 0.7846 21.3 17.8 10.2
SYSTEM.
369.......................... \3\ MENSTRUAL & OTHER FEMALE 0.7819 23.9 19.9 5.1
REPRODUCTIVE SYSTEM DISORDERS.
370.......................... \6\ CESAREAN SECTION W CC........... 0.4175 17.0 14.2 7.0
371.......................... \6\ CESAREAN SECTION W/O CC......... 0.4175 17.0 14.2 4.5
372.......................... \6\ VAGINAL DELIVERY W COMPLICATING 0.4175 17.0 14.2 4.7
DIAGNOSES.
373.......................... \6\ VAGINAL DELIVERY W/O 0.4175 17.0 14.2 3.0
COMPLICATING DIAGNOSES.
374.......................... \6\ VAGINAL DELIVERY W STERILIZATION 0.4175 17.0 14.2 4.1
&/OR D&C.
375.......................... \6\ VAGINAL DELIVERY W O.R. PROC 0.4175 17.0 14.2 11.0
EXCEPT STERIL &/OR D&C.
376.......................... \4\ POSTPARTUM & POST ABORTION 1.1625 29.5 24.6 5.1
DIAGNOSES W/O O.R. PROCEDURE.
377.......................... \6\ POSTPARTUM & POST ABORTION 0.4175 17.0 14.2 7.2
DIAGNOSES W O.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, ASPIRATION 0.4175 17.0 14.2 3.6
CURETTAGE OR HYSTEROTOMY.
382.......................... \6\ FALSE LABOR..................... 0.4175 17.0 14.2 2.1
383.......................... \1\ OTHER ANTEPARTUM DIAGNOSES W 0.4175 17.0 14.2 5.6
MEDICAL COMPLICATIONS.
384.......................... \6\ OTHER ANTEPARTUM DIAGNOSES W/O 0.4175 17.0 14.2 3.6
MEDICAL COMPLICATIONS.
385**........................ \6\ NEONATES, DIED OR TRANSFERRED TO 0.4175 17.0 14.2 1.8
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 PROBLEMS.... 0.4175 17.0 14.2 13.3
388**........................ \6\ PREMATURITY W/O MAJOR PROBLEMS.. 0.4175 17.0 14.2 8.6
389.......................... \6\ FULL TERM NEONATE W MAJOR 0.4175 17.0 14.2 17.6
PROBLEMS.

[[Page 27026]]

390**........................ \6\ NEONATE W OTHER SIGNIFICANT 0.4175 17.0 14.2 3.4
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 OF THE 1.1625 29.5 24.6 12.1
BLOOD AND BLOOD FORMING ORGANS.
395.......................... RED BLOOD CELL DISORDERS AGE >17.... 0.6651 21.9 18.3 6.5
396.......................... \6\ RED BLOOD CELL DISORDERS AGE 0- 0.4175 17.0 14.2 4.5
17.
397.......................... COAGULATION DISORDERS............... 0.8276 20.4 17.0 8.2
398.......................... RETICULOENDOTHELIAL & IMMUNITY 0.6278 20.8 17.3 8.8
DISORDERS W CC.
399.......................... \1\ RETICULOENDOTHELIAL & IMMUNITY 0.4175 17.0 14.2 5.1
DISORDERS W/O CC.
401.......................... \4\ LYMPHOMA & NON-ACUTE LEUKEMIA W 1.1625 29.5 24.6 18.9
OTHER O.R. PROC W CC.
402.......................... \6\ LYMPHOMA & NON-ACUTE LEUKEMIA W 0.5594 21.0 17.5 6.3
OTHER O.R. PROC W/O CC.
403.......................... LYMPHOMA & NON-ACUTE LEUKEMIA W CC.. 0.8846 23.9 19.9 13.2
404.......................... \3\ LYMPHOMA & NON-ACUTE LEUKEMIA W/ 0.7819 23.9 19.9 6.6
O CC.
405**........................ \6\ ACUTE LEUKEMIA W/O MAJOR O.R. 0.7819 23.9 19.9 4.9
PROCEDURE AGE 0-17.
406.......................... \5\ MYELOPROLIF DISORD OR POORLY 1.6835 37.1 30.9 15.5
DIFF NEOPL W MAJ O.R.PROC W CC.
407.......................... \6\ MYELOPROLIF DISORD OR POORLY 1.1625 29.5 24.6 5.5
DIFF NEOPL W MAJ O.R.PROC W/O CC.
408.......................... \4\ MYELOPROLIF DISORD OR POORLY 1.1625 29.5 24.6 14.0
DIFF NEOPL W OTHER O.R.PROC.
409.......................... RADIOTHERAPY........................ 0.8416 23.2 19.3 9.5
410.......................... CHEMOTHERAPY W/O ACUTE LEUKEMIA AS 1.2527 28.7 23.9 5.8
SECONDARY DIAGNOSIS.
411.......................... \6\ HISTORY OF MALIGNANCY W/O 0.5594 21.0 17.5 3.3
ENDOSCOPY.
412.......................... \6\ HISTORY OF MALIGNANCY W 0.5594 21.0 17.5 2.1
ENDOSCOPY.
413.......................... OTHER MYELOPROLIF DIS OR POORLY DIFF 0.8429 21.4 17.8 11.0
NEOPL DIAG W CC.
414.......................... \3\ OTHER MYELOPROLIF DIS OR POORLY 0.7819 23.9 19.9 6.4
DIFF NEOPL DIAG W/O CC.
417.......................... \6\ SEPTICEMIA AGE 0-17............. 0.7819 23.9 19.9 10.5
418.......................... POSTOPERATIVE & POST-TRAUMATIC 0.7961 24.1 20.1 9.6
INFECTIONS.
419.......................... \2\ FEVER OF UNKNOWN ORIGIN AGE >17 0.5594 21.0 17.5 6.8
W CC.
420.......................... \2\ FEVER OF UNKNOWN ORIGIN AGE >17 0.5594 21.0 17.5 4.9
W/O CC.
421.......................... VIRAL ILLNESS AGE >17............... 0.7065 20.4 17.0 6.2
422.......................... \6\ VIRAL ILLNESS & FEVER OF UNKNOWN 0.4175 17.0 14.2 5.6
ORIGIN AGE 0-17.
423.......................... OTHER INFECTIOUS & PARASITIC 1.0426 23.2 19.3 13.2
DISEASES DIAGNOSES.
424.......................... \5\ O.R. PROCEDURE W PRINCIPAL 1.6835 37.1 30.9 19.7
DIAGNOSES OF MENTAL ILLNESS.
425.......................... \1\ ACUTE ADJUSTMENT REACTION & 0.4175 17.0 14.2 5.3
PSYCHOSOCIAL DYSFUNCTION.
426.......................... DEPRESSIVE NEUROSES................. 0.4038 22.5 18.8 6.8
427.......................... \2\ NEUROSES EXCEPT DEPRESSIVE...... 0.5594 21.0 17.5 7.3
428.......................... DISORDERS OF PERSONALITY & IMPULSE 0.5183 24.5 20.4 11.4
CONTROL.
429.......................... ORGANIC DISTURBANCES & MENTAL 0.5326 24.0 20.0 8.5
RETARDATION.
430.......................... PSYCHOSES........................... 0.4024 23.1 19.3 12.6
431.......................... \2\ CHILDHOOD MENTAL DISORDERS...... 0.5594 21.0 17.5 10.1
432.......................... \1\ OTHER MENTAL DISORDER DIAGNOSES. 0.4175 17.0 14.2 6.1
433.......................... \6\ ALCOHOL/DRUG ABUSE OR 0.4175 17.0 14.2 4.2
DEPENDENCE, LEFT AMA.
439.......................... SKIN GRAFTS FOR INJURIES............ 1.2203 36.0 30.0 13.6
440.......................... WOUND DEBRIDEMENTS FOR INJURIES..... 1.2248 34.4 28.7 13.4
441.......................... \2\ HAND PROCEDURES FOR INJURIES.... 0.5594 21.0 17.5 5.2
442.......................... OTHER O.R. PROCEDURES FOR INJURIES W 1.3670 34.9 29.1 14.5
CC.
443.......................... \6\ OTHER O.R. PROCEDURES FOR 0.5594 21.0 17.5 5.6
INJURIES W/O CC.
444.......................... TRAUMATIC INJURY AGE >17 W CC....... 0.6598 23.2 19.3 6.4
445.......................... \2\ TRAUMATIC INJURY AGE >17 W/O CC. 0.5594 21.0 17.5 4.4
446**........................ \6\ TRAUMATIC INJURY AGE 0-17....... 0.5594 21.0 17.5 2.4
447.......................... \2\ ALLERGIC REACTIONS AGE >17...... 0.5594 21.0 17.5 3.9
448**........................ \6\ ALLERGIC REACTIONS AGE 0-17..... 0.5594 21.0 17.5 2.9
449.......................... \3\ POISONING & TOXIC EFFECTS OF 0.7819 23.9 19.9 5.8
DRUGS AGE >17 W CC.
450.......................... \2\ POISONING & TOXIC EFFECTS OF 0.5594 21.0 17.5 2.9
DRUGS AGE >17 W/O CC.
451.......................... \6\ POISONING & TOXIC EFFECTS OF 0.7819 23.9 19.9 14.4
DRUGS AGE 0-17.
452.......................... COMPLICATIONS OF TREATMENT W CC..... 0.9275 25.7 21.4 7.8
453.......................... COMPLICATIONS OF TREATMENT W/O CC... 0.5790 21.6 18.0 4.2
454.......................... \3\ OTHER INJURY, POISONING & TOXIC 0.7819 23.9 19.9 6.5
EFFECT DIAG W CC.
455.......................... \6\ OTHER INJURY, POISONING & TOXIC 0.7819 23.9 19.9 3.4
EFFECT DIAG W/O CC.
461.......................... O.R. PROC W DIAGNOSES OF OTHER 1.1466 32.7 27.3 8.8
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

[[Page 27027]]

465.......................... AFTERCARE W HISTORY OF MALIGNANCY AS 0.6877 21.2 17.7 5.5
SECONDARY DIAGNOSIS.
466.......................... AFTERCARE W/O HISTORY OF MALIGNANCY 0.6700 21.7 18.1 7.0
AS SECONDARY DIAGNOSIS.
467.......................... \3\ OTHER FACTORS INFLUENCING HEALTH 0.7819 23.9 19.9 4.0
STATUS.
468.......................... EXTENSIVE O.R. PROCEDURE UNRELATED 2.1478 40.5 33.8 21.4
TO PRINCIPAL DIAGNOSIS.
469***....................... \7\ PRINCIPAL DIAGNOSIS INVALID AS 0.0000 0.0 0.0 0.0
DISCHARGE DIAGNOSIS.
470***....................... \7\ UNGROUPABLE..................... 0.0000 0.0 0.0 0.0
471.......................... \5\ BILATERAL OR MULTIPLE MAJOR 1.6835 37.1 30.9 6.2
JOINT PROCS OF LOWER EXTREMITY.
473.......................... ACUTE LEUKEMIA W/O MAJOR O.R. 0.9917 25.3 21.1 21.4
PROCEDURE AGE >17.
476.......................... \5\ PROSTATIC O.R. PROCEDURE 1.6835 37.1 30.9 17.7
UNRELATED TO PRINCIPAL DIAGNOSIS.
477.......................... NON-EXTENSIVE O.R. PROCEDURE 1.5119 35.9 29.9 14.8
UNRELATED TO PRINCIPAL DIAGNOSIS.
479.......................... \2\ OTHER VASCULAR PROCEDURES W/O CC 0.5594 21.0 17.5 3.9
480***....................... \7\ LIVER TRANSPLANT AND/OR 0.0000 0.0 0.0 0.0
INTESTINAL TRANSPLANT.
481.......................... \6\ BONE MARROW TRANSPLANT.......... 1.1625 29.5 24.6 35.2
482.......................... \5\ TRACHEOSTOMY FOR FACE,MOUTH & 1.6835 37.1 30.9 17.6
NECK DIAGNOSES.
484.......................... \6\ CRANIOTOMY FOR MULTIPLE 1.6835 37.1 30.9 23.1
SIGNIFICANT TRAUMA.
485.......................... \6\ LIMB REATTACHMENT, HIP & FEMUR 1.1625 29.5 24.6 14.7
PROC FOR MULTIPLE SIGNIFICANT
TRAUMA.
486.......................... \3\ OTHER O.R. PROCEDURES FOR 0.7819 23.9 19.9 21.8
MULTIPLE SIGNIFICANT TRAUMA.
487.......................... \4\ OTHER MULTIPLE SIGNIFICANT 1.1625 29.5 24.6 11.5
TRAUMA.
488.......................... \4\ HIV W EXTENSIVE O.R. PROCEDURE.. 1.1625 29.5 24.6 29.6
489.......................... HIV W MAJOR RELATED CONDITION....... 0.9436 22.1 18.4 13.3
490.......................... HIV W OR W/O OTHER RELATED CONDITION 0.6456 20.3 16.9 8.5
491.......................... \5\ MAJOR JOINT & LIMB REATTACHMENT 1.6835 37.1 30.9 4.5
PROCEDURES OF UPPER EXTREMITY.
492.......................... \2\ CHEMO W ACUTE LEUKEMIA AS SDX OR 0.5594 21.0 17.5 23.1
W USE OF HIGH DOSE CHEMO AGENT.
493.......................... \4\ LAPAROSCOPIC CHOLECYSTECTOMY W/O 1.1625 29.5 24.6 9.8
C.D.E. W CC.
494.......................... \6\ LAPAROSCOPIC CHOLECYSTECTOMY W/O 1.1625 29.5 24.6 4.2
C.D.E. W/O CC.
495***....................... \7\ LUNG TRANSPLANT................. 0.0000 0.0 0.0 0.0
496.......................... \4\ COMBINED ANTERIOR/POSTERIOR 1.1625 29.5 24.6 13.8
SPINAL FUSION.
497.......................... \5\ SPINAL FUSION EXCEPT CERVICAL W 1.6835 37.1 30.9 8.3
CC.
498.......................... \6\ SPINAL FUSION EXCEPT CERVICAL W/ 1.6835 37.1 30.9 5.3
O CC.
499.......................... \5\ BACK & NECK PROCEDURES EXCEPT 1.6835 37.1 30.9 6.6
SPINAL FUSION W CC.
500.......................... \4\ BACK & NECK PROCEDURES EXCEPT 1.1625 29.5 24.6 3.3
SPINAL FUSION W/O CC.
501.......................... KNEE PROCEDURES W PDX OF INFECTION W 1.2164 33.3 27.8 15.4
CC.
502.......................... \3\ KNEE PROCEDURES W PDX OF 0.7819 23.9 19.9 8.7
INFECTION W/O CC.
503.......................... \4\ KNEE PROCEDURES W/O PDX OF 1.1625 29.5 24.6 6.1
INFECTION.
504.......................... \5\ EXTENSIVE BURNS OR FULL 1.6835 37.1 30.9 48.4
THICKNESS BURNS W MV 96+ HRS W SKIN
GRAFT.
505.......................... \5\ EXTENSIVE BURNS OR FULL 1.6835 37.1 30.9 9.4
THICKNESS BURNS W MV 96+ HRS W/O
SKIN GRAFT.
506.......................... \4\ FULL THICKNESS BURN W SKIN GRAFT 1.1625 29.5 24.6 26.1
OR INHAL INJ W CC OR SIG TRAUMA.
507.......................... \6\ FULL THICKNESS BURN W SKIN GRFT 0.4175 17.0 14.2 13.2
OR INHAL INJ W/O CC OR SIG TRAUMA.
508.......................... FULL THICKNESS BURN W/O SKIN GRFT OR 0.7588 25.6 21.3 12.1
INHAL INJ W CC OR SIG TRAUMA.
509.......................... \1\ FULL THICKNESS BURN W/O SKIN 0.4175 17.0 14.2 8.6
GRFT OR INH INJ W/O CC OR SIG
TRAUMA.
510.......................... NON-EXTENSIVE BURNS W CC OR 0.6720 22.6 18.8 9.7
SIGNIFICANT TRAUMA.
511.......................... \1\ NON-EXTENSIVE BURNS W/O CC OR 0.4175 17.0 14.2 5.7
SIGNIFICANT TRAUMA.
512***....................... \7\ SIMULTANEOUS PANCREAS/KIDNEY 0.0000 0.0 0.0 0.0
TRANSPLANT.
513***....................... \7\ PANCREAS TRANSPLANT............. 0.0000 0.0 0.0 0.0
515.......................... \4\ CARDIAC DEFIBRILLATOR IMPLANT W/ 1.1625 29.5 24.6 5.9
O CARDIAC CATH.
518.......................... \6\ PERCUTANEOUS CARDIOVASC PROC W/O 0.4175 17.0 14.2 3.7
CORONARY ARTERY STENT OR AMI.
519.......................... \4\ CERVICAL SPINAL FUSION W CC..... 1.1625 29.5 24.6 7.4
520.......................... \6\ CERVICAL SPINAL FUSION W/O CC... 1.6835 37.1 30.9 2.8
521.......................... \2\ ALCOHOL/DRUG ABUSE OR DEPENDENCE 0.5594 21.0 17.5 8.4
W CC.
522.......................... \6\ ALCOHOL/DRUG ABUSE OR DEPENDENCE 0.5594 21.0 17.5 16.7
W REHABILITATION THERAPY W/O CC.
523.......................... \1\ ALCOHOL/DRUG ABUSE OR DEPENDENCE 0.4175 17.0 14.2 5.8
W/O REHABILITATION THERAPY W/O CC.

[[Page 27028]]

524.......................... \2\ TRANSIENT ISCHEMIA.............. 0.5594 21.0 17.5 4.8
525.......................... \6\ OTHER HEART ASSIST SYSTEM 1.6835 37.1 30.9 24.1
IMPLANT.
528.......................... \6\ INTRACRANIAL VASCULAR PROCEDURES 1.6835 37.1 30.9 26.9
W PDX HEMORRHAGE.
529.......................... \5\ VENTRICULAR SHUNT PROCEDURES W 1.6835 37.1 30.9 11.7
CC.
530.......................... \6\ VENTRICULAR SHUNT PROCEDURES W/O 1.6835 37.1 30.9 4.5
CC.
531.......................... \5\ SPINAL PROCEDURES W CC.......... 1.6835 37.1 30.9 15.5
532.......................... \3\ SPINAL PROCEDURES W/O CC........ 0.7819 23.9 19.9 5.9
533.......................... \4\ EXTRACRANIAL PROCEDURES W CC.... 1.1625 29.5 24.6 5.7
534.......................... \6\ EXTRACRANIAL PROCEDURES W/O CC.. 1.1625 29.5 24.6 2.5
535.......................... \5\ CARDIAC DEFIB IMPLANT W CARDIAC 1.6835 37.1 30.9 15.6
CATH W AMI/HF/SHOCK.
536.......................... \6\ CARDIAC DEFIB IMPLANT W CARDIAC 1.1625 29.5 24.6 11.7
CATH W/O AMI/HF/SHOCK.
537.......................... LOCAL EXCISION & REMOVAL INT FIX 1.4672 39.9 33.3 10.8
DEVICES EXCEPT HIP & FEMUR W CC.
538.......................... \4\ LOCAL EXCISION & REMOVAL INT FIX 1.1625 29.5 24.6 4.5
DEVICES EXCEPT HIP & FEMUR W/O CC.
539.......................... \4\ LYMPHOMA & LEUKEMIA W MAJOR O.R. 1.1625 29.5 24.6 18.1
PROCEDURE W CC.
540.......................... \6\ LYMPHOMA & LEUKEMIA W MAJOR O.R. 0.4175 17.0 14.2 5.6
PROCEDURE W/O CC.
541.......................... ECMO OR TRACH W MV 96+ HRS OR PDX 3.8893 58.1 48.4 65.8
EXC FACE, MOUTH & NECK W MAJ O.R..
542.......................... TRACH W MV 96+ HRS OR PDX EXC FACE, 2.8689 45.1 37.6 49.1
MOUTH & NECK W/O MAJ O.R..
543.......................... \5\ CRANIOTOMY W MAJOR DEVICE 1.6835 37.1 30.9 20.4
IMPLANT OR ACUTE COMPLEX CNS PDX.
544.......................... \5\ MAJOR JOINT REPLACEMENT OR 1.6835 37.1 30.9 6.1
REATTACHMENT OF LOWER EXTREMITY.
545.......................... \5\ REVISION OF HIP OR KNEE 1.6835 37.1 30.9 7.4
REPLACEMENT.
546.......................... \6\ SPINAL FUSION EXC CERV WITH 1.6835 37.1 30.9 13.4
CURVATURE OF THE SPINE OR MALIG.
547.......................... \6\ CORONARY BYPASS W CARDIAC CATH W 1.1625 29.5 24.6 17.8
MAJOR CV DX.
548.......................... \6\ CORONARY BYPASS W CARDIAC CATH W/ 1.1625 29.5 24.6 12.0
O MAJOR CV DX.
549.......................... \6\ CORONARY BYPASS W/O CARDIAC CATH 1.1625 29.5 24.6 15.0
W MAJOR CV DX.
550.......................... \6\ CORONARY BYPASS W/O CARDIAC CATH 1.1625 29.5 24.6 9.3
W/O MAJOR CV DX.
551.......................... PERMANENT CARDIAC PACEMAKER IMPL W 1.6035 29.5 24.6 10.3
MAJ CV DX OR AICD LEAD OR GNRTR.
552.......................... \4\ OTHER PERMANENT CARDIAC 1.1625 29.5 24.6 5.5
PACEMAKER IMPLANT W/O MAJOR CV DX.
553.......................... OTHER VASCULAR PROCEDURES W CC W 1.5837 32.5 27.1 15.8
MAJOR CV DX.
554.......................... OTHER VASCULAR PROCEDURES W CC W/O 1.2817 31.6 26.3 9.3
MAJOR CV DX.
555.......................... \3\ PERCUTANEOUS CARDIOVASCULAR PROC 0.7819 23.9 19.9 7.8
W MAJOR CV DX.
556.......................... \6\ PERCUTANEOUS CARDIOVASC PROC W 0.4175 17.0 14.2 2.9
NON-DRUG-ELUTING STENT W/O MAJ CV
DX.
557.......................... \4\ PERCUTANEOUS CARDIOVASCULAR PROC 1.1625 29.5 24.6 6.5
W DRUG-ELUTING STENT W MAJOR CV DX.
558.......................... \6\ PERCUTANEOUS CARDIOVASCULAR PROC 0.4175 17.0 14.2 2.6
W DRUG-ELUTING STENT W/O MAJ CV DX.
559.......................... \6\ ACUTE ISCHEMIC STROKE WITH USE 0.7819 23.9 19.9 10.7
OF THROMBOLYTIC AGENT.
560.......................... BACTERIAL & TUBERCULOUS INFECTIONS 0.9308 25.5 21.3 16.9
OF NERVOUS SYSTEM.
561.......................... NON-BACTERIAL INFECTIONS OF NERVOUS 0.8145 22.3 18.6 15.5
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 CC.......... 0.5594 21.0 17.5 4.9
564.......................... HEADACHES AGE >17................... 0.7565 24.1 20.1 5.3
565.......................... RESPIRATORY SYSTEM DIAGNOSIS WITH 2.0557 34.7 28.9 23.3
VENTILATOR SUPPORT 96+ HOURS.
566.......................... RESPIRATORY SYSTEM DIAGNOSIS WITH 1.5445 27.4 22.8 13.2
VENTILATOR SUPPORT < 96 HOURS.
567.......................... \5\ STOMACH, ESOPHAGEAL & DUODENAL 1.6835 37.1 30.9 25.4
PROC AGE >17 W CC W MAJOR GI DX.
568.......................... \5\ STOMACH, ESOPHAGEAL & DUODENAL 1.6835 37.1 30.9 19.2
PROC AGE >17 W CC W/O MAJOR GI DX.
569.......................... \5\ MAJOR SMALL & LARGE BOWEL 1.6835 37.1 30.9 22.5
PROCEDURES W CC W MAJOR GI DX.
570.......................... \5\ MAJOR SMALL & LARGE BOWEL 1.6835 37.1 30.9 14.9
PROCEDURES W CC W/O MAJOR GI DX.
571.......................... MAJOR ESOPHAGEAL DISORDERS.......... 0.8214 21.9 18.3 7.5
572.......................... MAJOR GASTROINTESTINAL DISORDERS AND 0.8505 23.3 19.4 11.0
PERITONEAL INFECTIONS.
573.......................... \5\ MAJOR BLADDER PROCEDURES........ 1.6835 37.1 30.9 16.7
574.......................... MAJOR HEMATOLOGIC/IMMUNOLOGIC DIAG 0.8106 19.7 16.4 9.1
EXC SICKLE CELL CRISIS & COAGUL.
575.......................... SEPTICEMIA W MV 96+ HOURS AGE >17... 1.6583 27.8 23.2 24.4

[[Page 27029]]

576.......................... SEPTICEMIA W/O MV 96+ HOURS AGE >17. 0.7925 23.0 19.2 11.8
577.......................... \6\ CAROTID ARTERY STENT PROCEDURE.. 1.1625 29.5 24.6 3.3
578.......................... O. R. PROCEDURE W PDX EXC 1.4849 35.7 29.8 26.5
POSTOPERATIVE OR POST-TRAUMATIC
INFECTION.
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.
* ``IPPS Comparable Threshold'' for the revision to the short-stay outlier policy, as discussed in section
V.A.2. of the preamble of this final rule.
** IPPS hospital statistical data for these LTC-DRGs was 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'' was 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 final rule.

[FR Doc. 07-2206 Filed 5-1-07; 4:00 pm]
BILLING CODE 4120-01-P