[Federal Register Volume 73, Number 88 (Tuesday, May 6, 2008)]
[Rules and Regulations]
[Pages 24871-24881]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 08-1217]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1493-IFC]
RIN 0938-AP33


Medicare Program; Changes for Long-Term Care Hospitals Required 
by Certain Provisions of the Medicare, Medicaid, SCHIP Extension Act of 
2007: 3-Year Delay in the Application of Payment Adjustments for Short 
Stay Outliers and Changes to the Standard Federal Rate

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

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule with comment period implements certain 
provisions of section 114 of the Medicare, Medicaid, and SCHIP 
Extension Act of 2007 relating to long term care hospitals (LTCHs). 
These provisions include a 3-year delay in the application of certain 
provisions of the payment adjustment for short-stay outliers and 
revisions to the RY 2008 standard Federal rate.

DATES: Effective date: The provisions of Sec.  412.1 and Sec.  412.500 
are effective June 5, 2008. The provisions of Sec.  412.529(c)(1) 
through (c)(3) are effective on December 29, 2007. In accordance with 
section 1871(e)(1)(A)(i) and (ii) of the Social Security Act (the Act), 
the Secretary has determined that retroactive application of the 
provisions of Sec.  412.529(c)(1) through (c)(3) is necessary to comply 
with the statute and that failure to apply the changes retroactively 
would be contrary to public interest. Also, in accordance with section 
1871(e)(1)(A)(ii) of the Act, the technical corrections to Sec.  
412.529(f)

[[Page 24872]]

(redesignated from Sec.  412.529(c)(4)) are effective on December 29, 
2007. In accordance with section 1871(e)(1)(A)(ii) of the Act, the 
Secretary has determined that failure to apply the technical 
corrections in Sec.  412.529(f) retroactively would be contrary to 
public interest. Additionally, in accordance with section 
1871(e)(1)(A)(i) and (ii) of the Act, the provisions of Sec.  412.523 
are effective April 1, 2008. Also, in accordance with section 
1871(e)(1)(A)(ii) of the Act, the fixed loss-amount provision in 
section II.D.2. of this preamble which revises the fixed-loss amount 
for discharge occurring on or after April 1, 2008, and through June 30, 
2008, is effective April 1, 2008.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on June 30, 2008.

ADDRESSES: In commenting, please refer to file code CMS-1493-IFC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the instructions for 
``Comment or Submission'' and enter the filecode to find the document 
accepting comments.
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-1493-IFC, P.O. Box 8013, Baltimore, MD 21244-8013.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address ONLY: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-1493-IFC, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to either of the following addresses:
    a. Room 445-G, Hubert H. Humphrey Building, 200 Independence 
Avenue, SW., Washington, DC 20201.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Tzvi Hefter, (410) 786-4487, General 
information. Michele Hudson, (410) 786-5490, General information. 
Elizabeth Truong, (410) 786-6005, Federal rate update and short stay 
outlier.

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on the Web site to 
view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

I. Background

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 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 diagnosis related 
group (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.

[[Page 24873]]

    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 (short-
stay outliers), and the budget neutrality 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 (RY)). In addition, we changed 
the publication schedule for the annual update to allow for an 
effective date of July 1. The payment amounts and factors used to 
determine the annual update of the LTCH PPS Federal rate are based on a 
LTCH PPS rate year. While the LTCH payment rate update is effective 
July 1, the annual update of the DRG classifications and relative 
weights for LTCHs are linked to the annual adjustments of the acute 
care hospital inpatient DRGs and are effective each October 1.
    The most recent annual update to the LTCH PPS was presented in the 
RY 2008 LTCH PPS final rule (72 FR 26870 through 27029). In that final 
rule, among other things, we established a 0.71 percent update to the 
Federal rate for RY 2008, as well as revising the existing payment 
formula for certain short-stay outlier (SSO) cases and the 
establishment of a payment adjustment policy applicable to LTCH and 
LTCH satellite facility discharges that were admitted from hospitals 
that are not co-located with the LTCH or LTCH satellite facility and 
that exceed a certain percentage threshold. In addition, in the January 
29, 2008 Federal Register, we presented the annual proposed rule for RY 
2009. Among other things, this proposed rule presented a proposed 
update for RY 2009 and other proposed payment rate and policy changes.
    On December 29, 2007 the Medicare, Medicaid, and SCHIP Extension 
Act (MMSEA) (Pub. L. 110-173) was enacted. Specifically, section 114 of 
MMSEA, entitled ``Long-term care hospitals,'' made a number of changes 
affecting payments to LTCHs for inpatient services. Several of the 
provisions of section 114 of MMSEA are discussed in this interim final 
rule with comment period.

B. Criteria for 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) currently 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; that is, days where the inpatient is not occupying a bed but has 
not been discharged) by the number of total Medicare discharges for the 
hospital's most recent complete cost reporting period. Currently, Sec.  
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. The fiscal intermediaries (FIs) or Medicare Administrative 
Contractors (MACs) verify that LTCHs meet the average LOS 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 1 remaining-benefit day. (For a more detailed 
explanation, see the June 6, 2003 final rule (68 FR 34123).)
    The FI's or MAC'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 average LOS requirement as specified in 
Sec.  412.23(e)(2)(i) and (ii), the hospital may provide the FI or MAC 
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 existing Sec.  412.23(e)(3) is 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.

II. Provisions of This Interim Final Rule With Comment Period

    Section 114 of MMSEA made a number of changes affecting payments to 
long-term care hospitals (LTCHs) for inpatient services. This interim 
final rule with comment period will implement the following provisions 
affecting LTCH PPS payments:
     Modification of payment adjustments to certain SSO cases. 
Section 114(c)(3) of MMSEA specifies that the refinement of the SSO 
policy implemented in RY 2008 shall not apply for a 3-year period 
beginning with discharges occurring on or after December 29, 2007. 
Specifically, the fourth SSO payment option in Sec.  412.529(c)(3)(i) 
shall not apply for a 3-year period, as discussed in section II.B. of 
this interim final rule with comment period.
     Revision to the RY 2008 rate provision. Section 114(e)(1) 
of MMSEA provides that the base rate for RY 2008 ``shall be the same as 
the base rate for discharges for the hospital occurring during the rate 
year ending in 2007.'' Furthermore, in accordance with section

[[Page 24874]]

114(e)(2) of MMSEA, the revised rate will not be applicable to 
discharges occurring on or after July 1, 2007 and before April 1, 2008. 
(See section II.C. of this interim final rule with comment period.)
    We also note that section 114(c)(4) of MMSEA specifies that for a 
3-year period beginning on December 29, 2007, the Secretary shall not 
make the one-time prospective adjustment to the LTCH PPS payment rates 
provided for in existing Sec.  412.523(d)(3). Since under existing 
regulations the one-time prospective adjustment would have impacted the 
update to the standard Federal rate for RY 2009, we have addressed this 
provision in the LTCH PPS RY 2009 January 29, 2008 proposed rule (73 FR 
5353 through 5360). While we did not propose the one-time prospective 
adjustment in the RY 2009 proposed rule, we provided a possible 
methodology for determining whether the one-time prospective adjustment 
would be warranted. We solicited comments on the methodology and 
indicated that we would take these comments into consideration in 
proposing to implement a one-time prospective adjustment on or after 
December 29, 2010, consistent with the requirements of section 
114(c)(4) of MMSEA. Additionally, section 114(d) of MMSEA established a 
3-year moratorium on the establishment and classification of new LTCHs, 
LTCH satellite facilities, and on any increase in beds in existing 
LTCHs and LTCH satellite facilities, with certain exceptions. Section 
114(c)(1) and (2) of MMSEA established a 3-year delay in the 
application of certain payment policies which apply a payment 
adjustment for LTCH patients admitted from certain referring hospitals 
that exceed various percentage thresholds. These provisions will be 
addressed in a separate rulemaking.
    We would also note that section 114 of MMSEA included additional 
provisions focusing on LTCHs not directly related to payment policy 
that are not in this interim final rule with comment period are as 
follows:
     Section 1861 of the Act is amended by adding a new 
paragraph (ccc) defining LTCHs.
     The Secretary is directed to conduct a study and submit a 
report to the Congress within 18 months after the date of enactment of 
MMSEA. The Secretary will conduct a study on the establishment of 
national LTCH facility and patient criteria.
     The Secretary is directed to provide an expanded review of 
medical necessity for LTCH admission and continued stay.

A. Scope of the LTCH Regulations and Section 114 of MMSEA

    Section 114(e)(1) of MMSEA amended section 1886 of the Act by 
adding a new subsection m. New section 1886(m)(1) of the Act provides 
that for provisions related to the establishment and implementation of 
a prospective payment system for payments under this title for 
inpatient hospital services furnished by a long-term care hospital 
described in subsection (d)(1)(B)(iv) (see section 123 of BBRA and 
section 307(b) of BIPA.) In addition, it added new section 1886(m)(2) 
of the Act, which pertains to the standard Federal rate for RY 2008. We 
are revising our regulations at Sec.  412.1(a)(4) and Sec.  412.500, 
which contain the scope of the long-term care hospital regulations to 
reference the statutory authority provided by section 114 of MMSEA and 
to reference the amendment to section 1886 of the Act.

B. Short Stay Outlier (SSO) Cases

1. Background

    In the RY 2003 LTCH PPS final rule (67 FR 55995), we established at 
Sec.  412.529 a special payment policy for short-stay outlier (SSO) 
cases, SSO cases are cases with a covered LOS that is less than or 
equal to five-sixths of the geometric average LOS for each LTC-DRG. 
When we established the SSO policy, we explained that ``[a] short stay 
outlier case may occur when a beneficiary receives less than the full 
course of treatment at the LTCH before being discharged'' (67 FR 
55995). Therefore, under the LTCH PPS, we implemented a special payment 
adjustment for SSO cases. Under the SSO policy established in the RY 
2003 LTCH PPS final rule (67 FR 55995 through 56000), 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 the following three options: 
(1) 120 percent of the estimated cost of the case; (2) 120 percent of 
the LTC-DRG specific per diem amount multiplied by the covered LOS of 
that discharge; or (3) the full LTC-DRG payment.
    Generally LTCHs are defined by statute as having an average LOS of 
greater than 25 days. We believe that since a SSO case may occur when a 
beneficiary receives less than the full course of treatment at the LTCH 
before being discharged, the full LTC-DRG payment would generally not 
be appropriate. Accordingly, 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 further revised our 
payment policy for SSO cases in the RY 2007 and RY 2008 LTCH PPS final 
rules (71 FR 27845 through 27870 and 72 FR 26904 through 26918) for 
LTCHs defined by section 1886(d)(1)(B)(iv)(I) of the Act. However, as 
we discussed in detail in the RY 2007 and RY 2008 LTCH PPS final rules 
(71 FR 27863 and 72 FR 26907), we did not believe that it was 
appropriate to apply our RY 2007 and RY 2008 SSO policy revisions, 
discussed below, to the unique situation of a LTCHs defined by section 
1886(d)(1)(B)(iv)(II) of the Act.
    For RY 2007, 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, 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. Furthermore, in the RY 
2007 LTCH PPS final rule, we added a fourth payment option to the SSO 
policy, following an analysis of the FY 2004 MedPAR data that 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). Furthermore, we believe 
that these types of admissions (that is, of patients from acute care 
hospitals that result in short stay cases at the LTCH) could result in 
unnecessary and inappropriate admissions to LTCHs. This fourth payment 
alternative is a blend of an LTCH PPS amount that is comparable to the 
IPPS per diem payment amount, and the 120 percent of the LTC-DRG per 
diem payment amount. Specifically, the blended payment is based on a 
percentage of an IPPS comparable amount computed as a per diem and 
capped at the full IPPS-comparable amount, and a percentage of a 
payment based on 120 percent of the LTC-DRG per diem amount so that as 
the length of the stay increases, the percentage of the IPPS comparable 
per diem amount will decrease and the percentage based on 120 percent 
of the LTC-DRG per diem specific amount will increase. This 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-

[[Page 24875]]

comparable'' amount are set forth in considerable detail in the RY 2007 
LTCH PPS final rule (71 FR 27852 through 27853).)
    In the RY 2008 LTCH PPS final rule (72 FR 26904 through 26918), we 
further revised the SSO policy based upon additional analysis of the FY 
2005 MedPAR data. Specifically, our analysis revealed that 42 percent 
of LTCH SSO discharges, or approximately 19,750 cases, had covered 
lengths of stay that were less than or equal to the ALOS plus one 
standard deviation of an IPPS discharge for the same DRG as the LTC-DRG 
to which the case was assigned. (For additional discussion of this 
specific determination, see the RY 2008 LTCH PPS final rule (72 FR 
26905).) At that time, we stated that we believed that the 42 percent 
of LTCH SSO cases in the RY 2005 MedPAR files with LOS that are equal 
to or less than the IPPS average LOS plus one standard deviation for 
the same DRGs under the IPPS appeared to be comparable to typical stays 
at acute care hospitals.
    For this subgroup of SSO cases, we stated that even with the blend 
option, we believe that payment in excess of what Medicare would have 
paid under the IPPS is inappropriate. (We note that in the FY 2008 IPPS 
final rule (72 FR 47130) the Medicare severity-diagnosis related groups 
(MS-DRGs) and the Medicare severity-long-term care-diagnosis related 
groups (MS-LTC-DRGs) were adopted for the IPPS and the LTCH PPS, 
respectively. Therefore, for SSO policies that are applicable to LTCH 
discharges occurring on or after October 1, 2007, all references to 
DRGs and LTC-DRGs should be understood to represent MS-DRGs and MS-LTC-
DRGs (see Sec.  412.503). Accordingly, in the RY 2008 LTCH PPS final 
rule we established an alternative fourth payment option for SSO cases 
under the LTCH PPS for discharges occurring on or after July 1, 2007. 
Specifically, the covered LOS of a SSO case which has been assigned to 
a particular MS-LTC-DRG is compared to the average LOS plus one 
standard deviation for the same DRG under the IPPS, which we call 
``IPPS comparable threshold.'' 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'' (72 FR 26870 and 
26906). We note that the ``IPPS-comparable threshold'' is only 
applicable if a particular stay is a SSO, that is, with a covered LOS 
equal to or less than five-sixth of the average LOS of the applicable 
MS-LTC-DRG. Thus, for a LTCH SSO case that is within the ``IPPS 
comparable threshold,'' the fourth payment option would be based on an 
amount comparable to the hospital IPPS per diem amount determined under 
Sec.  412.529(d)(4). For a SSO case with a covered LOS that exceeds the 
``IPPS-comparable'' threshold, the fourth payment option continues to 
be the ``blend'' established in RY 2007, described above. For all SSO 
cases, the first three SSO payment options are the same. To summarize, 
as established in Sec.  412.529, for each SSO case treated at a LTCH 
defined under section 1886(d)(1)(B)(iv)(I), Medicare will pay the least 
of the following:
     100 percent of the estimated cost of the case.
     120 percent of the LTC-DRG specific per diem amount 
multiplied by the covered LOS of the particular case.
     The full LTC-DRG.
     Comparing the covered LOS for a SSO case and the ``IPPS 
comparable threshold'' one of the following:
    ++ The blend of the 120 percent of the LTC-DRG specific per diem 
amount and an amount comparable to the IPPS per diem amount specified 
in Sec.  412.529(c)(2)(iv), for cases where the covered LOS for a SSO 
case is greater than the ``IPPS comparable threshold''.
    ++ An amount comparable to the hospital IPPS per diem amount 
determined under Sec.  412.529(d)(4) for cases where the covered LOS 
for a SSO is less than or equal to the ``IPPS comparable threshold.'' 
We note that the revisions of the SSO policy payment options that were 
finalized beginning in RY 2007, (that is, the ``blend'' and reduction 
of the 120 percent of the estimated cost to 100 percent), and RY 2008 
(the ``IPPS-comparable'' threshold option) were not applied to the 
unique situation of a hospital designated as a LTCH by the Congress 
under section 1886(d)(1)(B)(iv)(II) of the Act, that is, (a ``subclause 
(II)'' LTCH) (71 FR 27863 and 72 FR 26907).
2. Change to the SSO Policy Due to the Medicare, Medicaid, and SCHIP 
Extension Act of 2007
    Section 114(c)(3) of MMSEA provides that ``[t]he Secretary shall 
not apply, for the 3-year period beginning on the date of the enactment 
of this Act, the amendments finalized on May 11, 2007 (72 Federal 
Register 26904, 26992) made to the short-stay outlier payment provision 
for long-term care hospitals contained in section 412.529(c)(3)(i) of 
title 42, Code of Federal Regulations, or any similar provision.'' 
Accordingly, for discharges beginning on or after December 29, 2007 and 
before December 29, 2010, the fourth SSO payment option based on the 
``IPPS comparable threshold'' as discussed above shall not apply. 
Specifically, during the 3-year period specified above, for each SSO 
case treated at a LTCH defined under section 1886(d)(1)(B)(iv)(I) of 
the Act, Medicare will pay the least of: (1) 100 percent of the 
estimated cost of the case; (2) 120 percent of the LTC-DRG specific per 
diem amount multiplied by the covered LOS of the particular case; (3) 
the full LTC-DRG; or (4) the blend of the 120 percent of the LTC-DRG 
specific per diem amount and an amount comparable to the IPPS per diem 
amount specified in Sec.  412.529(c)(2)(iv).
    Accordingly, we are amending the appropriate regulations pertaining 
to the payment of SSO to implement section 114(c)(3) of MMSEA. 
Specifically, we made several heading changes and redesignated 
paragraph (c)(4), which refers to the policy for reconciliation of SSO 
payments, as the new paragraph (f). We note that we have not made any 
substantive changes to the policy for reconciliation of SSO payment 
(other than those associated with implementing section 114(c)(3) of 
MMSEA) and that the redesignation of the paragraph (c)(4) as (f), in 
addition the heading changes are simply reorganizational changes 
intended to make the regulations in this section more accessible. We 
also note that in amending the regulations, we discovered that several 
citations under existing paragraph (c)(4) were incorrect, originating 
from the RY 2008 final rule when we redesignated this paragraph from 
(c)(3) to (c)(4) (which was also an organizational change and not a 
substantive policy change to the policy on reconciliation of SSO 
payment) but inadvertently did not change the citations to correspond 
to the redesignation. In this interim final rule with comment period, 
we have corrected the citations in the redesignated paragraph (f).

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

1. Background
    As specified at Sec.  412.523(c)(3)(ii), for LTCH PPS rate years 
beginning RY 2004 through RY 2006, we updated the standard Federal rate 
by a factor to adjust for the most recent estimate of the increases in 
prices of an appropriate market basket of goods and services for LTCHs. 
When we moved the date of the annual update of the LTCH PPS from 
October 1 to July l in the RY 2004 LTCH PPS final rule (68 FR 34126 
through 34128), we revised Sec.  412.523(c)(3) accordingly.

[[Page 24876]]

    In the RY 2007 LTCH PPS final rule (71 FR 27818), 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 at 
RY 2007, we believed it is appropriate to adjust the Federal rate to 
account for the changes in case mix that are due to changes in coding 
practices (rather than an increase in patient severity) as indicated by 
our ongoing monitoring activities. We established at Sec.  
412.523(c)(3)(iii) that the update to the standard Federal rate for the 
2007 LTCH PPS rate year was zero percent, based on the most recent 
estimate of the LTCH PPS market basket at the time and an adjustment to 
account for changes in case-mix in prior periods that are due to 
changes in coding practices, rather than increased patient severity, in 
FY 2004. Therefore, effective from July 1, 2006 through June 30, 2007, 
the standard rate was $38,086 (71 FR 27818). For the following year, we 
also considered changes in case mix in 2005 as opposed to 2004 that 
were due to changes in coding practices (rather than increased patient 
severity) in establishing the update to the Federal rate for the 2008 
LTCH PPS rate year. In the RY 2008 LTCH final rule (72 FR 26887 through 
26890), we adjusted the Federal rate based on the most recent estimate 
of market basket (3.2 percent) and an adjustment to account for changes 
in coding practices (2.49 percent) in FY 2005. Accordingly, we 
established at Sec.  412.523(c)(3)(iv) that the update to the standard 
Federal rate for RY 2008 was 0.71 percent and we established the LTCH 
PPS standard Federal rate, effective from July 1, 2007 through June 30, 
2008, at $38,356.45 (see 72 FR 26890).
2. Section 114(e)(1) and (2) of the Medicare, Medicaid, and SCHIP 
Extension Act of 2007
    Section 114(e)(1) of MMSEA revises the base rate for RY 2008. 
Specifically, section 114(e)(1) of Public Law 110-173 adds a new 
subsection 1886(m)(2) of the Act, which provides that the base rate for 
RY 2008 ``shall be the same as the base rate for discharges for the 
hospital occurring during the rate year ending in 2007.'' In addition, 
section 114(e)(2) of Public Law 110-173 indicates that section 
1886(m)(2) of the Act ``shall not apply to discharges occurring on or 
after July 1, 2007, and before April 1, 2008'' (that is, the first 9 
months of RY 2008). We note that the statute uses the term ``base 
rate,'' which is an undefined term in both section 1886(m) of the Act 
and in 42 CFR Part 412, subpart O. As we explained in the LTCH PPS RY 
2009 proposed rule (73 FR 5361), we are interpreting that term to be 
the standard Federal rate because we believe Congress meant to 
eliminate the 0.71 percent update from the RY 2008 standard Federal 
rate. Under this interpretation, the standard Federal rate for RY 2008 
would be the same as the standard Federal rate for RY 2007, that is, 
the 0.71 percent update finalized in the RY 2008 LTCH PPS final rule 
would be reversed.
    We do not believe that the term ``base rate'' could refer to the 
``unadjusted rate'' because the unadjusted rate for RY 2008 would be 
updated by the current year's update factor in order to determine the 
standard Federal rate for RY 2008 (that is, to determine the standard 
Federal rate for any given rate year, the previous year's standard 
Federal rate, referred herein as the ``unadjusted rate,'' is updated by 
the current year's update factor) and doing so would result in the same 
Federal rate for RY 2008 as was adopted in the RY 2008 final rule. To 
illustrate mathematically, if ``base rate'' is interpreted to mean 
``unadjusted rate,'' the ``unadjusted rate'' for RY 2008 ($38,086.04) 
would be the same as the RY 2007 ``unadjusted rate'' ($38,086.04). The 
RY 2008 ``unadjusted rate'' of $38,086.04 would subsequently be updated 
by the 0.71 percent update factor finalized in the RY 2008 final rule, 
resulting in a standard Federal rate for RY 2008 of $38,356.45, which 
is the same standard Federal rate that was originally finalized in the 
RY 2008 final rule. If we adopted this interpretation, we believe that 
LTCH PPS payments would be unaffected by section 114(e)(1) of MMSEA. 
Therefore, we believe that the term ``base rate'' used in section 
114(e)(1) of MMSEA refers to the standard Federal rate. In subsequent 
sections of this preamble, we are using the term standard Federal rate 
instead of ``base rate'' when referencing the provision in section 
114(e)(1) of MMSEA in order to avoid further confusion.
    In the RY 2008 LTCH PPS final rule (72 FR 26890), we established a 
standard Federal rate of $38,356.45 for the 2008 LTCH PPS rate year 
that was based on the best available data and policies established in 
that final rule. As discussed above, section 114(e) of MMSEA revises 
the standard Federal rate for RY 2008 while specifying that this rate 
``shall not apply to discharges occurring on or after July 1, 2007, and 
before April 1, 2008'' (that is, the first 9 months of RY 2008). 
Specifically, section 114(e)(1) of MMSEA provides that under the new 
section 1886(m)(2) of the Act, the standard Federal rate for RY 2008 
shall be the same as the standard Federal rate for RY 2007. The 
standard Federal rate for RY 2007 was $38,086.04 (71 FR 27818). Thus, 
to implement 114(e)(1) of the MMSEA, we are establishing through this 
interim final rule with comment period that the RY 2008 standard 
Federal rate is $38,086.04 (the same as the standard Federal rate for 
2007). However, section 114(e)(2) of MMSEA specifically delays the 
application of the revised RY 2008 standard Federal rate. Specifically, 
section 114(e)(2) of MMSEA states that the revised RY 2008 standard 
Federal rate ``shall not apply to discharges occurring on or after July 
1, 2007, and before April 1, 2008.'' Therefore, LTCH payments for 
discharges occurring on or after July 1, 2007 through March 31, 2008, 
will continue to include an adjustment of 0.71 percent, that is, 
payments are based on the standard Federal rate in Sec.  
412.523(c)(3)(iii) as updated by 0.71 percent. Accordingly, for 
discharges occurring on or after April 1, 2008 through June 30, 2008, 
the revised RY 2008 standard Federal rate of $38,086.04 is applied, 
while payments for discharges occurring from July 1, 2007 through March 
31, 2008 are determined based on the standard Federal rate in Sec.  
412.523(c)(3)(iii) increased by 0.71 percent that is, $38,356.45. We 
are revising Sec.  412.523(c)(iv) to conform to the revision of the 
standard Federal rate for RY 2008 under section 114(e) of MMSEA and to 
specify how payments are determined during RY 2008.
    Furthermore, section 114(e) of MMSEA affects the high cost outlier 
fixed-loss amount currently in effect since it revises the standard 
Federal rate for RY 2008 and the standard Federal rate is used to 
determine the fixed-loss amount. Specifically, the current fixed-loss 
amount was determined based on a standard Federal rate of $38,356.45. 
(See the RY 2008 LTCH PPS final rule (72 FR 26896 through 26899), as 
amended by the RY 2008 correction notice (72 FR 36613), for a 
discussion of the methodology and data used to determine the current 
fixed-loss amount for RY 2008.) Since for discharges occurring on or 
after April 1, 2008 through June 30, 2008, payments will be based on 
the revised RY 2008 standard Federal rate of $38,086.04, consistent 
with the existing regulations at Sec.  412.525(a), in order to maintain 
estimated total payments for high cost outlier cases at 8 percent of 
the estimated total payments, we are revising the high cost outlier 
fixed-loss amount. Accordingly, under the broad authority conferred on 
the Secretary by section 123 of the BBRA, as amended by

[[Page 24877]]

section 307(b) of BIPA, to make appropriate adjustments to the LTCH 
PPS, the revised high cost outlier fixed-loss amount effective for 
discharges occurring on or after April 1, 2008 through June 30, 2008 is 
$20,707. This revised fixed-loss amount was determined using the same 
data and methodology presented in the RY 2008 LTCH PPS final rule and 
takes into account the revised RY 2008 standard Federal rate as 
provided for in the MMSEA (discussed above).
    We note that in the RY 2009 LTCH PPS proposed rule (73 FR 5362), 
consistent with our historical practice, we proposed to update the 
standard Federal rate from the previous year (which is $38,086.04 due 
to section 114(e) of MMSEA, as explained above) to determine the 
proposed standard Federal rate for RY 2009.

III. Response to Comments

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

IV. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking and invite 
public comment on a proposed rule in accordance with 5 U.S.C. section 
553(b) of the Administrative Procedure Act (APA). In addition, section 
1871(b)(1) provides that the Secretary shall provide for notice of the 
proposed regulation in the Federal Register and a period of not less 
than 60 days for public comment thereon. Section 1871(b)(2) provides 
for an exception to the requirement that the Secretary provide for 
notice of a proposed rulemaking and a period of not less than 60 days 
for public comment. Specifically, section 1871(b)(2)(B) of the Act 
provides an exception to these requirements when a law establishes a 
specific deadline for the implementation of a provision and the 
deadline is less than 150 days after the date of the enactment of the 
statute in which the deadline is contained. Here, various provisions of 
the MMSEA addressed in this interim final rule with comment period, 
changed existing LTCH PPS policies (it affected the short-stay outlier 
policy in Sec.  412.529 and revised the RY 2008 standard Federal rate. 
Such changes were required to be implemented: (1) Beginning December 
29, 2007 (section 114(c)(3) of MMSEA), and (2) were effective for RY 
2008 on April 1, 2008 (section 114(e)(2) of MMSEA). Thus, the statute's 
deadline for implementation of the MMSEA-related policies contained in 
this interim final regulation was less than 150 days after the date of 
the enactment of the statute in which the deadline was contained. 
Therefore, under the authority of section 1871(b)(2)(B) of the Act, we 
are waiving notice and comment procedures for the MMSEA policy changes 
pertaining to the short-stay outlier policy, and the revised RY 2008 
standard Federal rate.
    Moreover, we also find good cause to waive the requirement for 
publication of a notice of proposed rulemaking and comment on the 
grounds that it is unnecessary, impracticable and contrary to the 
public interest under the authority of 5 U.S.C. 553(b)(B). In general, 
this interim final rule with comment period sets forth three 
nondiscretionary provisions of the MMSEA with respect to short-stay 
outliers and the rate for RY 2008. Therefore, we believe pursuing 
notice and comment is unnecessary. Moreover, because that process would 
prevent timely implementation of congressionally mandated policy 
changes that are to be effective, as described previously in this 
section, we believe notice and comment procedures are impracticable and 
contrary to the public interest. In addition, notice and comment would 
delay significantly the issuance of essential guidance to the public 
which is necessary to assist them in making complex, time-sensitive 
business decisions of significant financial consequence with respect to 
their efforts to comply with section 114 of the MMSEA. Failure to 
provide this guidance would impede such business decisions. This 
regulation also makes three changes that are outside of the MMSEA 
mandated changes discussed above. Specifically, this regulation makes 
minor technical corrections to two incorrect cites that are embedded in 
Sec.  412.529 and it revises the fixed-loss amount for the period April 
1, 2008, through June 30, 2008. With respect to the technical 
corrections of the two embedded cites in Sec.  412.529, notice and 
comment is also unnecessary. The revisions do not represent changes to 
our policy, and the public interest would, as a result, be best served 
by the timely correction of these technical errors. A delay in the 
applicability of the nonsubstantive changes would be contrary to the 
public interest because the incorrect cites, if left in place, result 
in confusion with respect to the calculation of cost-to-charge ratios. 
We also find good cause to waive notice and comment procedures on the 
revised fixed-loss amount for the period April 1, 2008, through June 
30, 2008. The fixed-loss amount under the LTCH PPS is directly affected 
by the statutorily mandated change to the standard Federal rate for RY 
2008 cited above. The existing regulations limit estimated high cost 
outlier payments under the LTCH PPS to 8 percent of total estimated 
LTCH PPS payments. Accordingly, in order to assure that estimated high 
cost outlier payments are maintained at this 8 percent target, in 
conjunction with the Congressionally mandated change in the LTCH PPS 
payments (that is, the standard Federal rate) that applies April 1, 
2008, it would be contrary to the public interest if we did not make 
this conforming change to the high cost outlier fixed-loss amount, 
which lowers the fixed-loss amount for the period April 1, 2008, 
through June 30, 2008.
    Section 1871(e)(1)(A) of the Act provides that a substantive change 
in regulations, manual instructions, interpretative rules, statements 
of policy, or guidelines of general applicability under this title 
shall not be applied (by extrapolation or otherwise) retroactively to 
items and services furnished before the effective date of the change 
unless the Secretary determines that (i) such retroactive application 
is necessary to comply with statutory requirements; or (ii) failure to 
apply the change retroactively would be contrary to the public 
interest. As explained in the paragraph above, the MMSEA requires the 
Secretary to implement various policy changes contemporaneously with 
the enactment of the MMSEA on December 29, 2007. Therefore, under the 
authority of section 1871(e)(1)(A)(i) of the Act, we are making the 
provisions of this interim final rule with comment period that 
implement section 114(c)(3) of MMSEA retroactive to December 29, 2007. 
Additionally, as explained previously, the Secretary also finds that it 
would be contrary to the public interest if these provisions were not 
made effective on December 29, 2007, as explained above.
    Also, as explained in the previous paragraph, section 114(e)(1) of 
MMSEA requires the Secretary to revise standard Federal rate for RY 
2008. However, the Secretary shall not apply such revised rate to 
discharges occurring on or after July 1, 2007, and before April 1, 2008 
(section 114(e)(2) of the Act). Consequently, the regulations 
implementing section 114(e)(2) of MMSEA must be effective for a period 
predating this interim final rule with comment period under the 
authority of

[[Page 24878]]

section 1871(e)(1)(A)(i) of the Act (specifically, beginning April 1, 
2008). As explained previously, it would also be contrary to the public 
interest if these policies were not effective April 1, 2008.
    In general, many of the provisions of the MMSEA implemented in this 
interim final regulation are beneficial to LTCHs. If those MMSEA 
provisions of this regulation were not effective under the timeframes 
noted above, most LTCHs would be deprived the full benefit of these 
provisions. With respect to the minor technical corrections to Sec.  
412.529, failure to make these nonsubstantive changes applicable 
beginning on December 29, 2007, would be contrary to the public 
interest because of the confusion that could result from the incorrect 
citations in Sec.  412.529. It is in the public interest to make the 
correction to prevent confusion among long-term care hospitals 
attempting to calculate cost-to-charge ratios. It is also contrary to 
the public interest as described above to not make the change to the 
fixed-loss amount applicable beginning April 1, 2008. Therefore, under 
the authority of section 1871(e)(1)(A)(ii) of the Act, we are making 
these changes effective under the timeframes noted above. For the same 
reasons noted above, we find good cause under section 553(d)(3) of the 
APA to waive the 30-day delay in the effective date.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, and including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements (ICRs):
    Section 412.529(f)(4) states that for discharges occurring on or 
after October 1, 2006, short-stay outlier payments are subject to 
certain provisions. Specifically, Sec.  412.529(f)(4)(i) states that a 
hospital may also request that its fiscal intermediary use a different 
(higher or lower) cost-to-charge ratio and this request must be 
approved by the appropriate CMS Regional Office.
    The burden associated with this requirement is the time and effort 
necessary for a hospital to collect supporting evidence for submission, 
to draft the request for alternative cost-to-charge ratio, and to 
submit the request along with the supporting evidence to the 
appropriate CMS Regional Office. While this requirement is subject to 
the PRA, the burden is currently approved under OMB control number 
0938-1020 with an expiration date of June 30, 2010.

                          Table 3.--Estimated Annual Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
                                                                                    Burden per
      Regulation section(s)         OMB Control     Respondents      Responses       response      Total annual
                                        No.                                           (hours)     burden (hours)
----------------------------------------------------------------------------------------------------------------
Sec.   412.529(f)...............       0938-1020              18              18               8             144
                                 -------------------------------------------------------------------------------
    Total.......................  ..............  ..............  ..............  ..............             144
----------------------------------------------------------------------------------------------------------------

    If you comment on these information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Mail copies to the address specified in the ADDRESSES section of 
this proposed rule and to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Room 10235, New Executive 
Office Building, Washington, DC 20503, Attn: Carolyn L. Raffaelli, CMS 
Desk Officer, CMS-1493-IFC, [email protected]. Fax 
(202) 395-6974.

VI. Regulatory Impact Analysis

    We have examined the impacts of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on 
Federalism, and the Congressional Review Act (5 U.S.C. 804 (2)).
    Executive Order 12866 (as amended by Executive Order 13258) directs 
agencies to assess all costs and benefits of available regulatory 
alternatives and, if regulation is necessary, to select regulatory 
approaches that maximize net benefits (including potential economic, 
environmental, public health and safety effects, distributive impacts, 
and equity). A regulatory impact analysis (RIA) must be prepared for 
major rules with economically significant effects ($100 million or more 
in any 1 year).
    As stated in section II.C. of this preamble, section 114(e)(1) of 
the Medicare, Medicaid, and SCHIP Extension Act of 2007 at the new 
1886(m)(2) of the Act revises the standard Federal rate for RY 2008 by 
providing that ``for discharges occurring during the rate year ending 
in 2008 for a hospital, the base rate for such discharges for the 
hospital shall be the same as the base rate for discharges for the 
hospital occurring during the rate year ending in 2007'' (in other 
words, the standard Federal rate for RY 2008 is the same as the 
standard Federal rate for 2007). Thus, the standard Federal rate for RY 
2008 is established in section II.C. of this interim final rule with 
comment period at $38,086.04 (the same as the standard Federal rate for 
2007). However, as we discussed in section II.D. of this interim final 
rule with comment period, section 114(e)(2) of the MMSEA specifically 
indicates that this rate ``shall not apply to discharges occurring on 
or after July 1, 2007, and before April 1, 2008.'' Therefore, payments 
for discharges occurring on or after July 1, 2007 through March 31, 
2008, are based on $38,356.45 (as established in the RY 2008 LTCH PPS 
final rule), while for discharges occurring on or after April 1, 2008 
through June 30, 2008, payments are based on the RY 2008 standard 
Federal rate which is $38,086.04. CMS' Office of the Actuary (OACT) 
estimates a

[[Page 24879]]

projected decrease of approximately $5 million in estimated aggregate 
LTCH PPS payments for RY 2008 resulting from the change in payments for 
discharges occurring on or after April 1, 2008 through June 30, 2008. 
Additionally, as discussed in section II.B. of this interim final rule 
with comment period, section 114(c)(3) of MMSEA requires a 3-year 
suspension of our implementation of the revision to the SSO policy at 
Sec.  412.529(c)(3)(i) that was finalized in the RY 2008 final rule. 
OACT estimates that the SSO provision included in the MMSEA will result 
in a projected increase in estimated aggregate LTCH PPS payments for RY 
2008 of $20 million. Consequently, we estimate the combined impact on 
estimated aggregate LTCH PPS payments for RY 2008 from the MMSEA 
provisions that are presented in this interim final rule with comment 
period to be approximately $15 million. Because the combined 
distributional effects and estimated changes to the Medicare program 
payments would not be greater than $100 million, this interim final 
rule with comment period would not be considered a major economic rule, 
as defined in this section.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$6.5 million to $31.5 million in any 1 year. (For further information, 
see the Small Business Administration's regulation at 70 FR 72577, 
December 6, 2005.) Individuals and States are not included in the 
definition of a small entity. 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 this impact discussion. Medicare FIs and 
MACs are not considered to be small entities. As we discuss in detail 
throughout the preamble of this interim final rule with comment period, 
we believe that the provisions specified by the MMSEA presented in this 
rule would result in an increase in estimated aggregate LTCH PPS 
payments. Accordingly, the Secretary certifies that this interim final 
rule with comment period would not have a significant economic impact 
on a substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 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 for Medicare payment regulations and has fewer than 
100 beds. As stated above, implementing the provisions specified by the 
MMSEA that are discussed in this rule would result in an increase in 
estimated aggregate LTCH PPS payments; therefore, we believe this rule 
will not have a significant impact on small rural hospitals. 
Accordingly, the Secretary certifies that this interim final rule with 
comment period would not have a significant economic impact on the 
operations of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2008, that 
threshold level is currently approximately $130 million. This interim 
final rule with comment period would not mandate any requirements for 
State, local, or tribal governments, nor would it result in 
expenditures by the private sector of $130 million or more in any 1 
year.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. Since this regulation does not impose any costs on State 
or local governments, the requirements of Executive Order 13132 are not 
applicable.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 412

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


0
For the reasons stated in the preamble of this interim final rule with 
comment period, the Centers for Medicare & Medicaid Services is 
amending 42 CFR Chapter IV as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

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

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


0
2. In Sec.  412.1 paragraph (a)(4) is revised to read as follows:


Sec.  412.1  Scope of part.

    (a) * * *
    (4) This part implements the following regarding long-term care 
hospitals--
    (i) Section 123 of Public Law 106-113, which provides for the 
establishment of a prospective payment system for the costs of 
inpatient hospital services furnished to Medicare beneficiaries by 
long-term care hospitals described in section 1886(d)(1)(B)(iv) of the 
Act, for cost reporting periods beginning on or after October 1, 2002.
    (ii) The provisions of section 307(b) of Public Law 106-554, which 
state that the Secretary shall examine and may provide for appropriate 
adjustments to the long-term care hospital prospective payment system, 
including adjustments to diagnosis-related group (DRG) weights, area 
wage adjustments, geographic reclassification, outlier adjustments, 
updates, and disproportionate share adjustments consistent with section 
1886(d)(5)(F) of the Act.
    (iii) Section 114 of Public Law 110-173, which contains several 
provisions regarding long-term care hospitals, including the--
    (A) Amendment of section 1886 of the Act to add a new subsection 
(m) that references section 123 of Public Law 106-113 and section 
307(b) of Public Law 106-554 for the establishment and implementation 
of a prospective payment system for payments under title XVIII for 
inpatient hospital services furnished by a long-term care hospital 
described in section 1886(d)(1)(B)(iv) of the Act.
    (B) Revision of the standard Federal rate for RY 2008.
* * * * *

0
3. Section 412.500 is amended by revising paragraph (a) to read as 
follows:


Sec.  412.500  Basis and scope of subpart.

    (a) Basis. This subpart implements the following:
    (1) Section 123 of Public Law 106-113, which provides for the 
implementation of a prospective payment system for long-term care 
hospitals described in section 1886(d)(1)(B)(iv) of the Act.

[[Page 24880]]

    (2) Section 307 of Public Law 106-554, which states that the 
Secretary shall examine and may provide for appropriate adjustments to 
that system, including adjustments to DRG weights, area wage 
adjustments, geographic reclassification, outliers, updates, and 
disproportionate share adjustments consistent with section 
1886(d)(5)(F) of the Act.
    (3) Section 114 of Public Law 110-173, which contains several 
provisions regarding long-term care hospitals, including the--
    (i) Amendment of section 1886 of the Act to add a new subsection 
(m) that references section 123 of Public Law 106-113 and section 
307(b) of Public Law 106-554 for the establishment and implementation 
of a prospective payment system for payments under title XVIII for 
inpatient hospital services furnished by a long-term care hospital 
described in section 1886(d)(1)(B)(iv) of the Act; and
    (ii) Revision of the standard Federal rate for RY 2008.
* * * * *

0
4. Section 412.523 is amended by revising 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.
    (A) 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 same as the standard Federal rate for the previous 
long-term care hospital prospective payment system rate year. The 
standard Federal rate is adjusted, as appropriate, as described in 
paragraph (d) of this section.
    (B) With respect to discharges occurring on or after July 1, 2007 
and before April 1, 2008, payments are based on the standard Federal 
rate in paragraph (c)(3)(iii) of this section updated by 0.71 percent.
* * * * *
0
5. Section 412.529 is amended by--
0
A. Revising paragraphs (c)(1) through (c)(3).
0
B. Redesignating paragraph (c)(4) as paragraph (f).
0
C. Revising newly redesignated paragraph (f).


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

* * * * *
    (c) * * *
    (1) Discharges occurring before July 1, 2006. For discharges from 
long-term care hospitals described under Sec.  412.23(e)(2)(i), 
occurring before July 1, 2006, the LTCH prospective payment system 
adjusted payment amount for a short-stay outlier case is the least of 
the following amounts:
    (i) One hundred and twenty (120) percent of the LTC-DRG specific 
per diem amount determined under paragraph (d)(1) of this section.
    (ii) One hundred and twenty (120) percent of the estimated cost of 
the case determined under paragraph (d)(2) of this section.
    (iii) The Federal prospective payment for the LTC-DRG determined 
under paragraph (d)(3) of this section.
    (2) Discharges occurring on or after July 1, 2006 and before July 
1, 2007 and discharges occurring on or after December 29, 2007 and 
before December 29, 2010. For discharges from long-term care hospitals 
described under Sec.  412.23(e)(2)(i) occurring on or after July 1, 
2006 and before July 1, 2007 and discharges occurring on or after 
December 29, 2007 and before December 29, 2010, the LTCH prospective 
payment system adjusted payment amount for a short-stay outlier case is 
the least of the following amounts:
    (i) One hundred and twenty (120) percent of the LTC-DRG specific 
per diem amount determined under paragraph (d)(1) of this section.
    (ii) One hundred (100) percent of the estimated cost of the case 
determined under paragraph (d)(2) of this section.
    (iii) The Federal prospective payment for the LTC-DRG as determined 
under paragraph (d)(3) of this section.
    (iv) An amount payable under subpart O computed as a blend of an 
amount comparable to the hospital inpatient prospective payment system 
per diem amount determined under paragraph (d)(4)(i) of this section 
and the 120 percent of the LTC-DRG specific per diem payment amount 
determined under paragraph (d)(1) of this section.
    (A) The blend percentage applicable to the 120 percent of the LTC-
DRG specific per diem payment amount determined under paragraph (d)(1) 
of this section is determined by dividing the covered length-of-stay of 
the case by the lesser of five-sixths of the geometric average length 
of stay of the LTC-DRG or 25 days, not to exceed 100 percent.
    (B) The blend percentage of the amount determined under paragraph 
(d)(4)(i) of this section is determined by subtracting the percentage 
determined in paragraph (A) from 100 percent.
    (3) Discharges occurring on or after July 1, 2007 and before 
December 29, 2007 and discharges occurring on or after December 29, 
2010. For discharges from long-term care hospitals described under 
Sec.  412.23(e)(2)(i) occurring on or after July 1, 2007 and before 
December 29, 2007 and discharges occurring on or after December 29, 
2010, the LTCH prospective payment system adjusted payment amount for a 
short-stay outlier case is adjusted by either of the following:
    (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) One hundred and twenty (120) percent of the LTC-DRG specific 
per diem amount determined under paragraph (d)(1) of this section.
    (B) One hundred (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.
    (D) An amount payable under subpart O of this part 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.
* * * * *
    (f) Reconciliation of short-stay outlier payments. Payments are 
reconciled in accordance with one of the following:
    (1) Discharges occurring on or after October 1, 2002, and before 
August 8, 2003. For discharges occurring on or after October 1, 2002, 
and before August 8, 2003, no reconciliations are made to short-stay 
outlier payments upon cost report settlement to account for differences 
between cost-to-charge ratio and the actual cost-to-charge ratio of the 
case.
    (2) Discharges occurring on or after August 8, 2003, and before 
October 1, 2006. For discharges occurring on or after August 8, 2003, 
and before October 1, 2006, short-stay outlier payments are subject to 
the provisions of Sec.  412.84(i)(1), (i)(3), and (i)(4) and (m) for 
adjustments of cost-to-charge ratios.

[[Page 24881]]

    (3) Discharges occurring on or after October 1, 2003, and before 
October 1, 2006. For discharges occurring on or after October 1, 2003, 
and before October 1, 2006, short-stay outlier payments are subject to 
the provisions of Sec.  412.84(i)(2) for adjustments to cost-to-charge 
ratios.
    (4) Discharges occurring on or after October 1, 2006. For 
discharges occurring on or after October 1, 2006, short-stay outlier 
payments are subject to the following provisions:
    (i) CMS may specify an alternative to the cost-to-charge ratio 
otherwise applicable under paragraph (f)(4)(ii) of this section. A 
hospital may also request that its fiscal intermediary use a different 
(higher or lower) cost-to-charge ratio based on substantial evidence 
presented by the hospital. This request must be approved by the 
appropriate CMS Regional Office.
    (ii) The cost-to-charge ratio applied at the time a claim is 
processed is based on either the most recent settled cost report or the 
most recent tentatively settled cost report, whichever is from the 
latest cost reporting period.
    (iii) The fiscal intermediary may use a statewide average cost-to-
charge ratio, which CMS establishes annually, if it is unable to 
determine an accurate cost-to-charge ratio for a hospital in one of the 
following circumstances:
    (A) A new hospital that has not yet submitted its first Medicare 
cost report. (For this purpose, a new hospital is defined as an entity 
that has not accepted assignment of an existing hospital's provider 
agreement in accordance with Sec.  489.18 of this chapter.)
    (B) A hospital whose cost-to-charge ratio is in excess of 3 
standard deviations above the corresponding national geometric mean. 
CMS establishes and publishes this mean annually.
    (C) Any other hospital for which data to calculate a cost-to-charge 
ratio are not available.
    (iv) Any reconciliation of outlier payments is based on the cost-
to-charge ratio 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.
    (v) At the time of any reconciliation under paragraph (f)(4)(iv) of 
this section, outlier payments may be adjusted to account for the time 
value of any underpayments or overpayments. Any adjustment is based 
upon a widely available index to be established in advance by the 
Secretary, and is applied from the midpoint of the cost reporting 
period to the date of reconciliation.

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

    Dated: April 4, 2008.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: April 30, 2008.
Michael O. Leavitt,
Secretary.
[FR Doc. 08-1217 Filed 5-1-08; 4:00 pm]
BILLING CODE 4120-01-P