[Federal Register Volume 73, Number 193 (Friday, October 3, 2008)]
[Notices]
[Pages 57888-58017]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-23083]



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Part V





Department of Health and Human Services





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 Centers for Medicare & Medicaid Services



Medicare Program; Hospital Inpatient Prospective Payment Systems and 
Fiscal Year 2009 Rates: Final Fiscal Year 2009 Wage Indices and Payment 
Rates Including Implementation of Section 124 of the Medicare 
Improvement for Patients and Providers Act of 2008; Notice

  Federal Register / Vol. 73, No. 193 / Friday, October 3, 2008 / 
Notices  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-1390-N]
RIN 0938-AP15


Medicare Program; Hospital Inpatient Prospective Payment Systems 
and Fiscal Year 2009 Rates: Final Fiscal Year 2009 Wage Indices and 
Payment Rates Including Implementation of Section 124 of the Medicare 
Improvement for Patients and Providers Act of 2008

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

ACTION: Notice.

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SUMMARY: This notice contains tables listing the final wage indices, 
hospital reclassifications, payment rates, impacts, and other related 
tables effective for fiscal year (FY) 2009. The tables and impacts 
included in this notice reflect the extension of the expiration date 
for certain geographic reclassifications and special exception wage 
indices as required by section 124 of the Medicare Improvement for 
Patients and Providers Act of 2008 (MIPPA), Public Law 110-275. These 
geographic reclassifications and special exception wage indices were 
previously set to expire on September 30, 2008 and are now extended 
through September 30, 2009. (Additionally, the final rates, wage 
indices, budget neutrality factors and tables included in this notice 
also reflect a correction made to the wage data for one hospital, as 
discussed in the correction notice for the FY 2009 IPPS final rule 
published elsewhere within this Federal Register.)

DATES: Effective Date: This notice is effective on October 1, 2008.

FOR FURTHER INFORMATION CONTACT: Tzvi Hefter, (410) 786-4487.

SUPPLEMENTARY INFORMATION: 

I. Background

    In the August 19, 2008 Federal Register (73 FR 48434) (hereinafter 
referred to as the FY 2009 IPPS final rule), we set forth our final 
rule for the Medicare inpatient prospective payment system (IPPS). Due 
to the July 15, 2008 enactment of the Medicare Improvement for Patients 
and Providers Act of 2008 (MIPPA) (Pub. L. 110-275), we stated in the 
final rule that we would publish the FY 2009 wage index tables, rates, 
and impacts reflecting the implementation of this legislation in a 
Federal Register document subsequent to the FY 2009 IPPS final rule. 
(See the FY 2009 IPPS final rule, 73 FR 48588 and 48589, for a full 
explanation of the reasons for such subsequent publication.) This 
notice includes such wage index tables, rates, and impacts. 
(Additionally, the final rates, wage indices, budget neutrality factors 
and tables included in this notice also reflect a correction made to 
the wage data for one hospital, as discussed in the correction notice 
for the FY 2009 IPPS final rule published elsewhere within this Federal 
Register.)

II. Final FY 2009 Wage Indices and Rates

A. Final FY 2009 Wage Indices

    The final wage index values for FY 2009 (except those for hospitals 
receiving wage index adjustments under section 505 of Pub. L. 108-173) 
are included in Tables 4A, 4B, 4C, and 4F of the Addendum to this 
notice and are posted on our Web site at http://www.cms.hhs.gov/AcuteInpatientPPS/. For hospitals that are receiving a wage index 
adjustment under section 505 of Pub. L. 108-173, the hospital's final 
wage index will reflect the adjustment shown in Table 4J of the 
Addendum to this notice. In addition, Table 2 of the Addendum to this 
notice includes the final wage index value and occupational mix 
adjusted average hourly wage (from the FYs 2003, 2004, and 2005 cost 
reporting periods) for each hospital. Table 4D-1 of the Addendum of 
this notice lists the State rural floor budget neutrality factors for 
FY 2009.

B. Final FY 2009 Hospital Wage Index Reclassifications/Redesignations

1. Section 508 Extension
    On July 15, 2008, the Medicare Improvements for Patients and 
Providers Act of 2008, Pub. L. 110-275 was enacted. Section 124 of Pub. 
L. 110-275 extends through FY 2009 wage index reclassifications under 
section 508 of the Medicare Prescription Drug Improvement and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173) and certain special 
exceptions (for example, those special exceptions contained in the 
final rule promulgated in the Federal Register on August 11, 2004 (69 
FR 49105 and 49107) and extended under section 117 of the Medicare, 
Medicaid, and SCHIP Extension Act of 2007 (MMSEA) (Pub. L. 110-173)).
    Under section 508 of Pub. L. 108-173, a qualifying hospital could 
appeal the wage index classification otherwise applicable to the 
hospital and apply for reclassification to another area of the State in 
which the hospital is located (or, at the discretion of the Secretary), 
to an area within a contiguous State. We implemented this process 
through notices published in the Federal Register on January 6, 2004 
(69 FR 661), and February 13, 2004 (69 FR 7340). Such reclassifications 
were applicable to discharges occurring during the 3-year period 
beginning April 1, 2004, and ending March 31, 2007. Section 106(a) of 
the Medicare Improvements and Extension Act, Division B of the Tax 
Relief and Health Care Act of 2006 (MIEA-TRHCA) extended any geographic 
reclassifications of hospitals that were made under section 508 and 
that would expire on March 31, 2007. On March 23, 2007, we published a 
notice in the Federal Register (72 FR 13799) that indicated how we were 
implementing section 106(a) of the MIEA-TRHCA through September 30, 
2007. Section 117 of the MMSEA further extended section 508 
reclassifications and certain special exceptions through September 30, 
2008. On February 22, 2008, we published a notice in the Federal 
Register (73 FR 9807) regarding our implementation of section 117 of 
the MMSEA.
    Section 124 of Pub. L. 110-275 has now extended the hospital 
reclassification provisions of section 508 and certain special 
exceptions through September 30, 2009 (FY 2009). Because of the timing 
of the enactment of Pub. L. 110-275, we were not able to recompute the 
FY 2009 wage index values for any hospital reclassified under section 
508 and special exception hospitals in time for inclusion in the FY 
2009 IPPS final rule. Instead, we stated that we would issue the final 
FY 2009 wage index values and other related tables, as specified in the 
Addendum to the FY 2009 IPPS final rule, in a separate Federal Register 
notice published subsequent to the final rule. We stated that we would 
analyze the data of hospitals in labor market areas affected by the 
MIPPA extension, including hospitals with Lugar redesignations, and 
make best efforts to give those hospitals a wage index value that we 
believe results in the highest FY 2009 wage index for which they are 
eligible.
    This final notice reflects the reclassification withdrawal and 
termination decisions we have made on behalf of certain hospitals based 
on what we perceive would be most advantageous to the hospital and 
would give the hospital the highest wage index among its available 
options. (We note one exception where a hospital notified us prior to 
the publication of this notice to request that we maintain its rural 
reclassification, although the hospital's section 508 reclassification 
would have resulted in a higher wage index.) Please note that in some 
cases we may have

[[Page 57889]]

terminated a hospital's Lugar reclassification under section 
1886(d)(8)(B) of the Act in order to receive the out-migration 
adjustment. As explained in the FY 2009 final IPPS rule, the 
intervening MIPAA legislation affects only those areas including 
hospitals whose reclassifications/special exceptions are extended, or 
areas to which such hospitals were reclassified for FY 2009. Therefore, 
we are not choosing wage index values for hospitals reclassified to or 
located in areas containing no hospitals whose reclassifications or 
special exceptions were extended by section 124 of Pub. L. 110-275.
    We have also created special procedural rules, effective August 19, 
2008 the date of publication of the FY 2009 IPPS final rule, allowing 
hospitals 15 days from the Federal Register date of publication of this 
separate notice to notify us if they wish to revise the decision that 
CMS makes on their behalf. Members of a group reclassification must 
ensure that all members of the group (except hospitals whose 
reclassifications or special exceptions were extended by section 124 of 
Pub. L. 110-275) have signed the revision request. Written requests to 
revise CMS's wage index decision (as reflected in this notice) must be 
received at the following address by no later than 5 p.m., eastern 
daylight time (e.d.t.) October 20, 2008: Division of Acute Care, 
Mailstop C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244, Attn: 
Brian Slater.
    If we do not receive notice from the hospital within such 15-day 
timeframe, the determination we have made on behalf of the hospital in 
this separate notice is deemed final for FY 2009, and it is as if the 
hospital made the determination itself, on its own behalf. (Note: In 
the case of the hospital mentioned above that made the determination 
itself to maintain its rural reclassification rather than to receive 
the higher section 508 reclassification for which it was eligible, the 
hospital's rural reclassification is deemed final for FY 2009. The 
hospital is ineligible to now request a reversal of the decision that 
it made on its own behalf.)
    Hospitals that seek to revise the CMS decision made on their behalf 
in this notice may revert back only to the wage index originally 
accepted for FY 2009 (using the ordinary 45-day process after 
publication of the proposed rule). In cases where CMS has terminated or 
withdrawn a reclassification on a hospital's behalf in order to award 
the hospital the wage index associated with a section 508 
reclassification, a special exception, or the hospital's home area for 
FY 2009, and the hospital does not reverse or modify CMS's decision 
within the 15-day timeframe, we will deem the hospital's 
reclassification is withdrawn or terminated for FY 2009 only, as 
section 508 reclassifications and special exceptions are only extended 
through FY 2009. Such hospitals, if there is at least one remaining 
year in their 3-year reclassification, will automatically have the 
Medicare Geographic Classification Review Board (MGCRB) 
reclassification they originally accepted for FY 2009 (within the 
ordinary 45-day time frame) reinstated for FY 2010. To restate, 
automatic reinstatement will occur only in the following situation: (1) 
A hospital accepted a particular reclassification for FY 2009 following 
the ordinary process (that is, the 45-day rule); and (2) CMS withdraws 
or terminates such reclassification in order for the hospital to 
receive a 508 wage index, a special exception wage index, or the wage 
index of the hospital's home area. The hospital will be reinstated for 
the remaining years of only the reclassification originally accepted.
    For example, if, in this notice, we assign a hospital a section 508 
reclassification wage index for FY 2009 and the hospital has accepted 
an MGCRB reclassification for FY 2008 through 2010, the hospital's 
previous, FY 2008 through 2010 reclassification will be automatically 
reinstated for the remaining year, FY 2010. By the same token, if the 
omission of a section 508 or special exception hospital from the 
calculation of the reclassification wage index in Table 4C results in 
the reclassification wage index decreasing to the point that a hospital 
should have terminated the FY 2008 through 2010 MGCRB reclassification 
it accepted for FY 2009 , we may terminate the reclassification on the 
hospital's behalf in order to receive the home wage index; however, 
such reclassification will then be automatically reinstated for FY 
2010.
    As stated in the FY 2009 IPPS final rule, in the case of 
overlapping reclassifications, these special procedural rules will not 
change our policy that hospitals are not permitted to hold one MGCRB 
reclassification in reserve while another is in effect. Thus, in the 
case of a hospital with a choice of two possible MGCRB 3-year 
reclassifications for FY 2009, if CMS chooses one reclassification on 
the hospital's behalf (and this decision is not reversed within the 15-
day timeframe), then any other reclassifications are permanently 
terminated. Because CMS is acting on behalf of the hospital, it is as 
if the hospital made the decision to accept the reclassification listed 
in this notice, and the hospital is then prohibited under 42 CFR 
412.273(b)(2)(ii) from reinstating any previous reclassifications. 
Likewise, if a hospital had a choice of two possible reclassifications, 
and we assign the hospital a 508 or special exception wage index in 
this notice (and the decision is not reversed within the 15-day 
timeframe), then only the reclassification previously accepted by the 
hospital (using the ordinary 45-day rule) is reinstated--any other 
reclassification is permanently terminated.
    As stated in the FY 2009 IPPS final rule, we will not further 
recalculate the wage indices, budget neutrality factors, or 
standardized amounts now that CMS has made decisions regarding what is 
most advantageous to each hospital. That is, we will not further 
recalculate the wage indices (including any rural floors or imputed 
rural floors) or standardized amounts based on hospital decisions that 
further revise decisions made by CMS on the hospitals' behalf.
    When applying section 508, we required each hospital to submit a 
request in writing by February 15, 2004, to the Medicare Geographic 
Classification Review Board (MGCRB), with a copy to CMS. We will 
neither require nor accept written requests for the extension required 
by MIPPA, since that legislation simply provides a 1 year continuation 
for any section 508 reclassifications and special exceptions wage index 
set to expire September 30, 2008.
2. Special Considerations for Special Exception Wage Indexes
    As stated earlier, section 124(b) of MIPPA extended certain special 
exceptions through the end of FY 2009. MIPPA achieved these extensions 
through an amendment to the MMSEA. As amended, section 117(a)(2) of the 
MMSEA now reads as follows:

    SPECIAL EXCEPTION RECLASSIFICATIONS.--The Secretary of Health 
and Human Services shall extend for discharges occurring through the 
last date of the extension of reclassifications under section 106(a) 
of the Medicare Improvement and Extension Act of 2006 (division B of 
Public Law 109-432), the special exception reclassifications made 
under the authority of section 1886(d)(5)(I)(i) of the Social 
Security Act (42 U.S.C. 1395ww(d)(5)(I)(i)) and contained in the 
final rule promulgated by the Secretary in the Federal Register on 
August 11, 2004 (69 Fed. Reg. 49105, 49107).

    Although MIPPA amended section 117(a)(2) of the MMSEA to extend the 
specific special exceptions referenced above, MIPPA failed to amend 
section

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117(a)(3) of the MMSEA. That provision states: ``For purposes of 
implementation of this subsection, the Secretary shall use the hospital 
wage index that was promulgated by the Secretary in the Federal 
Register on October 10, 2007 (72 FR 57634), and any subsequent 
corrections.'' We believe that the only possible interpretation of this 
provision is that hospitals whose special exceptions are extended under 
MIPPA section 124(b) are to receive the special exception wage index 
assigned to them for FY 2008; not a wage index based upon FY 2009 data. 
The MMSEA mandates that the wage index for a hospital receiving a 
special exception must be the wage index promulgated in the October 10, 
2007 Federal Register and any subsequent corrections thereto. The FY 
2009 wage indices cannot be viewed as corrections to the FY 2008 data, 
as these FY 2009 indices represent a new fiscal year cycle of 
ratesetting--and are not corrections of FY 2008 rates. For these 
reasons, if a hospital is assigned a special exception wage index in 
this notice under section 117(a)(2) of the MMSEA (as amended by Pub. L. 
110-275), its wage index will reflect FY 2008 wage index data. (We note 
that these special considerations do not affect the rule discussed 
above allowing a hospital to retain its reclassification or home wage 
index if such wage index exceeds the special exception wage index, it 
is only in cases where a hospital receives its special exception wage 
index under section 117(a)(2) of the MMSEA that such wage index will be 
based upon FY 2008 data.)

C. Final FY 2009 Prospective Payment Systems Payment Rates for Hospital 
Operating and Capital Related Costs

    As discussed in the FY 2009 IPPS final rule (73 FR 48759), wage 
data affect the calculation of the outlier threshold as well as the 
outlier offset and budget neutrality factors that are applied to the 
standardized amounts. Thus, because we were not able to calculate final 
wage rates as a result of the intervening legislation contained in 
section 124 of Pub. L. 110-275, we were only able to provide tentative 
figures in the FY 2009 IPPS final rule. We stated that such tentative 
amounts would be revised once we finalized wage index figures as a 
result of implementing section 124 of Pub. L. 110-275, and that a 
subsequent Federal Register document would list the final standardized 
amounts, outlier offsets, and budget neutrality factors effective 
October 1, 2008, for FY 2009. Additionally, the final rates, wage 
indices, budget neutrality factors and tables also reflect a correction 
made to the wage data for one New Hampshire hospital as discussed in 
the correction notice for the FY 2009 IPPS final rule published 
elsewhere within this Federal Register. This notice announces the final 
FY 2009 prospective payment rates for Medicare hospital inpatient 
operating costs and Medicare hospital inpatient capital-related costs. 
We calculated these final rates using the methodology adopted in the FY 
2009 IPPS final rule.
    We note that, because hospitals excluded from the IPPS are paid on 
a cost basis (and not under the IPPS), these hospitals were not 
affected by the tentative figures for standardized amounts, offsets, 
and budget neutrality factors. Therefore, the rate-of-increase 
percentages for updating the target amounts for hospitals excluded from 
the IPPS that are effective October 1, 2008 were finalized in the FY 
2009 IPPS final rule (73 FR 48776) and are not included in this notice.
1. Final FY 2009 Prospective Payment Rates for Hospital Inpatient 
Operating Costs
a. Final Budget Neutrality Adjustments Factors for Recalibration of DRG 
Weights and Updated Wage Index, Reclassified Hospitals and Rural 
Community Hospital Demonstration Program Adjustment
    Using the methodology adopted in the FY 2009 IPPS final rule, for 
FY 2009 we are establishing the following final budget neutrality 
factors (which are applied to the standardized amounts): a final FY 
2009 DRG recalibration and wage index budget neutrality factor of 
0.999553 ( we note that the DRG recalibration and wage index budget 
neutrality factor changed from the final rule to this notice as a 
result of the change in the wage data to one New Hampshire hospital as 
discussed in the correction notice for the FY 2009 IPPS final rule 
published elsewhere within this Federal Register); a final reclassified 
hospital budget neutrality factor of 0.992088 and a final rural 
community hospital demonstration program adjustment factor of 0.999764.
b. Rural and Imputed Floor Budget Neutrality
    As explained and finalized in the final rule, for FY 2009, 
hospitals will receive a blended wage index that is comprised of 20 
percent of the wage index adjusted by applying the State level rural 
and imputed floor budget neutrality adjustment and 80 percent of the 
wage index adjusted by applying the national rural and imputed floor 
budget neutrality adjustment. This adjustment is applied to the wage 
index and not to the standardized amount.
    Using the methodology established in the FY 2009 IPPS final rule 
(73 FR 48762), we are establishing the following final rural and 
imputed floor budget neutrality factors: a national rural and imputed 
floor budget neutrality adjustment factor of 0.996272; an additional 
adjustment factor of 0.999785 to ensure that the blended wage indices 
remain budget neutral (as explained in the FY 2009 IPPS final rule (73 
FR 48762)). The final State-level rural and imputed floor budget 
neutrality adjustment factors are in table 4D-1 of this notice.
c. Final FY 2009 Standardized Amount
    We calculated the final FY 2009 standardized amounts using the 
methodology we adopted in the FY 2009 IPPS final rule. For a complete 
description of this methodology, please see the FY 2009 IPPS final rule 
(73 FR 48759 through 48768). Tables 1A and 1B in the Addendum to this 
notice contain the final national standardized amount that we are 
applying to all hospitals, except hospitals in Puerto Rico. The final 
Puerto Rico-specific amounts are shown in Table 1C. The final amounts 
shown in Tables 1A and 1B differ only in that the labor-related share 
applied to the final standardized amounts in Table 1A is 69.7 percent, 
and the labor-related share applied to the final standardized amounts 
in Table 1B is 62 percent. (The labor-related share is 62 percent for 
all hospitals (other than those in Puerto Rico) whose wage indices are 
less than or equal to 1.0000.)
    In addition, Tables 1A and 1B include final standardized amounts 
reflecting the full 3.6 percent update for FY 2009, and final 
standardized amounts reflecting the 2.0 percentage point reduction to 
the update (a 1.6 percent update) applicable for hospitals that fail to 
submit quality data consistent with section 1886(b)(3)(B)(viii) of the 
Act.
    In the FY 2009 IPPS final rule, we did not supply a table that 
illustrated the changes from the FY 2008 national average standardized 
amount because at that time we were only setting the standardized 
amounts tentatively, but we stated that we would provide the table in 
the subsequent Federal Register notice. Therefore, in this notice, we 
include below a table that details the calculation of the final FY 2009 
standardized amounts.

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[GRAPHIC] [TIFF OMITTED] TN03OC08.000

    The final labor-related and nonlabor-related portions of the 
national average standardized amounts for Puerto Rico hospitals for FY 
2009 are set forth in Table 1C in the Addendum to this notice. (The 
labor-related share applied to the Puerto Rico-specific standardized 
amount is either 58.7 percent or 62 percent, depending on which is more 
advantageous to the hospital.)
d. Final Adjustments for Area Wage Levels
    The final occupational mix adjusted wage indices by geographic area 
are listed in Tables 4A, 4B, 4C, and 4F in the Addendum to this notice. 
(These tables are also available on the CMS Web site.)
e. FY 2009 Final Outlier Adjustment Factors and Fixed-loss Cost 
Threshold
    Using the methodology we adopted in the FY 2009 IPPS final rule, we 
are establishing a final outlier fixed-loss cost threshold for FY 2009 
equal to the prospective payment rate for the DRG, plus any IME and DSH 
payments, and any add-on payments for new technology, plus $20,045.
    The final outlier adjustment factors that are applied to the 
standardized amount for the FY 2009 outlier threshold are as follows:

------------------------------------------------------------------------
                                             Operating
                                           standardized       Capital
                                              amounts      federal rate
------------------------------------------------------------------------
National................................        0.948996        0.946458
Puerto Rico.............................        0.954304        0.931050
------------------------------------------------------------------------

2. Final FY 2009 Prospective Payment Rates for Acute Care Hospital 
Inpatient Capital-Related Costs
    We have calculated the final FY 2009 capital Federal rates, 
offsets, and budget neutrality factors using the same methodology we 
adopted in the FY 2009 IPPS final rule (CMS-1390-F) that was used to 
calculate the tentative rates included in that rule. (We note that for 
the remainder of the section we will use the term ``FY 2009 IPPS final 
rule'' when referring to CMS-1390-F, which was published in the Federal 
Register on August 19, 2008.) For a complete description of this 
methodology, please see the FY 2009 IPPS final rule (73 FR 48769 
through 48773).
a. Inpatient Hospital Capital-Related Prospective Payment Rate Update
    The factors used in the update framework are not affected by the 
extension of the expiration date for certain geographic 
reclassifications and special exception wage indices as required by 
section 124 of the MIPPA, Pub. L. 110-275. Therefore, the update factor 
for FY 2009 was not revised from the capital IPPS standard Federal rate 
update factor discussed in section III.A.1. of the FY 2009 IPPS final 
rule and remains at 0.9 percent for FY 2009. A full discussion of the 
update framework is provided in that final rule (73 FR 48769 through 
48711).
b. Outlier Payment Adjustment Factor
    Based on the final thresholds as set forth in section IIC.1.e. of 
this notice, we estimate that outlier payments for capital-related 
costs will equal 5.35 percent for inpatient capital-related payments 
based on the final Federal rate in FY 2009. Our estimate of outlier 
payments for capital-related for FY 2009 remains unchanged from our 
estimate discussed in section III.A.2. of the FY 2009 IPPS final rule 
(73 FR 48771). Therefore, in determining the final FY 2009 capital 
Federal rate in this notice, we will apply a final outlier adjustment 
factor of 0.9465 for FY 2009.
    As discussed in the FY 2009 IPPS final rule, we estimate that the 
percentage of capital outlier payments to total capital standard 
payments for FY 2009 will be higher than the percentages for FY 2008. 
The final outlier thresholds for FY 2009 are in section IIC.1.e. of 
this notice. For FY 2009, a case qualifies as a cost outlier if

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the cost for the case plus the IME and DSH payments are greater than 
the prospective payment rate for the MS-DRG plus $20,045.
c. Budget Neutrality Adjustment Factor for Changes in MS-DRG 
Classifications and Weights and the GAFs
    Using the methodology discussed in section III.A.3. of the FY 2009 
IPPS final rule (73 FR 48771 through 48773), for FY 2009, we are 
establishing a final GAF/DRG budget neutrality factor of 1.0015, which 
is the product of the incremental GAF budget neutrality factor of 
1.0021 and the DRG budget neutrality of 0.9995 (calculations were done 
with unrounded numbers). The GAF/DRG budget neutrality factors are 
built permanently into the capital rates; that is, they are applied 
cumulatively in determining the capital Federal rate. This follows from 
the requirement that estimated aggregate payments each year be no more 
or less than they would have been in the absence of the annual DRG 
reclassification and recalibration and changes in the GAFs. The final 
cumulative change in the capital Federal rate due to this adjustment is 
0.9917 (the product of the incremental factors for FYs 1993 though 2008 
and the final incremental factor of 1.0015 for FY 2009). (We note that 
averages of the incremental factors that were in effect during FYs 2005 
and 2006, respectively, were used in the calculation of the final 
cumulative adjustment for FY 2009.)
    This factor accounts for MS-DRG reclassifications and recalibration 
and for changes in the GAFs, which include the revisions to wage index 
that result from the extension of the expiration date for certain 
geographic reclassifications and special exception wage indices as 
required by section 124 of the MIPPA, Pub. L. 110-275 (discussed in 
section II.B. of this notice). It also incorporates the effects on the 
final GAFs of FY 2009 geographic reclassification decisions made by the 
MGCRB compared to FY 2008 decisions. However, it does not account for 
changes in payments due to changes in the DSH and IME adjustment 
factors.
d. Exceptions Payment Adjustment Factor
    The adjustments made to the wage index as a result of the extension 
of the expiration date for certain geographic reclassifications and 
special exception wage indices as required by section 124 of the MIPPA, 
Pub. L. 110-275 had no effect on capital exceptions payments. 
Therefore, the special exceptions adjustment factor remains at 0.9999 
as discussed in section III.A.4. of FY 2009 IPPS final rule (73 FR 
48773).
e. Capital Standard Federal Rate for FY 2009
    We are providing a chart that shows how each of the factors and 
adjustments for FY 2009 affect the computation of the final FY 2009 
capital Federal rate in comparison to the FY 2008 capital Federal rate. 
The FY 2009 update factor has the effect of increasing the final 
capital Federal rate by 0.9 percent compared to the FY 2008 capital 
Federal rate. The final GAF/DRG budget neutrality factor has the effect 
of increasing the final capital Federal rate by 0.15 percent. The final 
FY 2009 outlier adjustment factor has the effect of decreasing the 
final capital Federal rate by 0.61 percent compared to the FY 2008 
outlier adjustment factor. The FY 2009 exceptions payment adjustment 
factor has the effect of increasing the final capital Federal rate by 
0.02 percent compared to the FY 2008 exceptions payment adjustment 
factor. As discussed in the FY 2009 IPPS final rule (73 FR 48773 
through 48774), the adjustment for improvements in documentation and 
coding under the MS-DRGs, which was unaffected by the extension of the 
expiration date for certain geographic reclassifications and special 
exception wage indices as required by section 124 of the MIPPA, Pub. L. 
110-275, has the effect of decreasing the FY 2009 capital Federal rate 
by 0.9 percent as compared to the FY 2008 capital Federal rate. The 
combined effect of all the changes is to decrease the capital Federal 
rate by 0.46 percent compared to the average FY 2008 capital Federal 
rate.

      Comparison of Factors and Adjustments--FY 2008 Capital Federal Rate and FY 2009 Capital Federal Rate
----------------------------------------------------------------------------------------------------------------
                                                                                                       Percent
                                                                FY 2008      FY 2009       Change     change \4\
----------------------------------------------------------------------------------------------------------------
Update Factor \1\...........................................       1.0090       1.0090       1.0090         0.90
GAF/DRG Adjustment Factor \1\...............................       0.9996       1.0015       1.0015         0.15
Outlier Adjustment Factor \2\...............................       0.9523       0.9465       0.9939        -0.61
Exceptions Adjustment Factor \2\............................       0.9997       0.9999       1.0002         0.02
MS-DRG Coding and Documentation Improvements Adjustment            0.9940       0.9910       0.9910        -0.90
 Factor \3\.................................................
Capital Federal Rate........................................      $426.14      $424.17       0.9954        -0.46
----------------------------------------------------------------------------------------------------------------
\1\ The update factor and the GAF/DRG budget neutrality factors are built permanently into the capital rates.
  Thus, for example, the incremental change from FY 2008 to FY 2009 resulting from the application of the 1.0015
  GAF/DRG budget neutrality factor for FY 2009 is 1.0015.
\2\ The outlier reduction factor and the exceptions adjustment factor are not built permanently into the capital
  rates; that is, these factors are not applied cumulatively in determining the capital rates. Thus, for
  example, the net change resulting from the application of the FY 2009 outlier adjustment factor is 0.9465/
  0.9523, or 0.9939.
\3\ Adjustment to FY 2009 IPPS rates to account for documentation and coding improvements expected to result
  from the adoption of the MS-DRGs, as discussed above in section III.D. of the Addendum to the FY 2009 IPPS
  final rule.
\4\ Percent change of individual factors may not sum due to rounding.

    We provided a chart in the FY 2009 IPPS final rule that compared 
the tentative FY 2009 capital Federal rate to the proposed FY 2009 
capital Federal rate (see 73 FR 48775). We are now providing a chart 
that shows how the final FY 2009 capital Federal rate differs from the 
proposed FY 2009 capital Federal rate presented in the FY 2009 IPPS 
proposed rule (73 FR 23721).

 Comparison of Factors and Adjustments--Proposed FY 2009 Capital Federal Rate and Final FY 2009 Capital Federal
                                                      Rate
----------------------------------------------------------------------------------------------------------------
                                                              Proposed FY    Final FY                  Percent
                                                                  2008         2009        Change       change
----------------------------------------------------------------------------------------------------------------
Update Factor...............................................       1.0070       1.0090       1.0020         0.20

[[Page 57893]]

 
GAF/DRG Adjustment Factor...................................       1.0007     * 1.0015       1.0008         0.08
Outlier Adjustment Factor...................................       0.9427       0.9465       1.0040         0.40
Exceptions Adjustment Factor................................       0.9998       0.9999       1.0001         0.01
MS-DRG Coding and Documentation Improvements Adjustment            0.9910       0.9910       0.0000         0.00
 Factor.....................................................
Capital Federal Rate........................................      $421.29    * $424.17       1.0068         0.68
----------------------------------------------------------------------------------------------------------------
* Final factor/rate for FY 2009, as discussed in section IIC.2. of this notice, which were revised from the
  tentative factors published in the FY 2009 IPPS final rule.

    As a final comparison, we are providing a chart that shows how the 
final FY 2009 capital Federal rate differs from the tentative FY 2009 
capital Federal rate as presented in the FY 2009 IPPS final rule.

 Comparison of Factors and Adjustments--Tentative FY 2009 Capital Federal Rate and Final FY 2009 Capital Federal
                                                      Rate
----------------------------------------------------------------------------------------------------------------
                                                                                                       Percent
                                                              FY 2009 \1\  FY 2009 \2\     Change       change
----------------------------------------------------------------------------------------------------------------
Update Factor...............................................       1.0090       1.0090       0.0000         0.00
GAF/DRG Adjustment Factor...................................       1.0010       1.0015       1.0005         0.05
Outlier Adjustment Factor...................................       0.9465       0.9465       0.0000         0.00
Exceptions Adjustment Factor................................       0.9999       0.9999       0.0000         0.00
MS-DRG Coding and Documentation Improvements Adjustment            0.9910       0.9910       0.0000         0.00
 Factor.....................................................
Capital Federal Rate........................................      $423.96      $424.17       1.0005         0.05
----------------------------------------------------------------------------------------------------------------
\1\ As published in the FY 2009 IPPS final rule without the implementation of the extension of the expiration
  date for certain geographic reclassifications and special exception wage indices as required by section 124 of
  the MIPPA, Pub. L. 110-275.
\2\ Final capital factors and rates after implementation of the extension of the expiration date for certain
  geographic reclassifications and special exception wage indices as required by section 124 of the MIPPA, Pub.
  L. 110-275.

f. Special Capital Rate for Puerto Rico Hospitals
    Using the methodology discussed in the FY 2009 IPPS final rule (73 
FR 48775), the final FY 2009 special capital rate for Puerto Rico is 
$198.77. (See the FY 2009 IPPS final rule (73 FR 48775) for additional 
information on the calculation of FY 2009 capital PPS payments.)

III. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).

IV. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this notice as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993, as further amended), the Regulatory Flexibility Act (RFA) 
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social 
Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 
(Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999), 
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). We have determined that this rulemaking is 
``economically significant'' as measured by the $100 million threshold, 
and hence also a major rule under the Congressional Review Act. 
Accordingly, we have prepared a Regulatory Impact Analysis, that to the 
best of our ability, presents the costs and benefits of the rulemaking.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses, if a rule has a significant impact on a 
substantial number of small entities. For purposes of the RFA, small 
entities include small businesses, nonprofit organizations, and small 
government jurisdictions. We estimate that most hospitals and most 
other providers and suppliers are small entities as that term is used 
in the RFA. The great majority of hospitals and most other health care 
providers and suppliers are small entities, either by being nonprofit 
organizations or by meeting the SBA definition of a small business 
(having revenues of less than $31.5 million in any 1 year). (For 
details on the latest standard for health care providers, we refer 
readers to page 33 of the Table of Small Business Size Standards at the 
Small Business Administration's Web site at http://www.sba.gov/services/contractingopportunities/sizestandardstopics/tableofsize/index.html. For purposes of the RFA, all hospitals and other providers 
and suppliers are considered to be small entities. Individuals and 
States are not included in the definition of a small entity. We believe 
that this notice will have a significant impact on small entities. 
Because we acknowledge that many of the affected entities are small 
entities, the analysis discussed in this section constitutes our final 
regulatory flexibility analysis.
    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

[[Page 57894]]

the provisions of section 604 of the RFA. With the exception of 
hospitals located in certain New England counties, for purposes of 
section 1102(b) of the Act, we now define a small rural hospital as a 
hospital that is located outside of an urban area and has fewer than 
100 beds. Section 601(g) of the Social Security Amendments of 1983 
(Pub. L. 98-21) designated hospitals in certain New England counties as 
belonging to the adjacent urban area. Thus, for purposes of the IPPS, 
we continue to classify these hospitals as urban hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4) also requires that agencies assess anticipated costs and 
benefits before issuing any rule whose mandates require spending in any 
1 year of $100 million in 1995 dollars, updated annually for inflation. 
That threshold level is currently approximately $130 million. This 
notice will not mandate any requirements for State, local, or tribal 
governments, nor will it affect private sector costs.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. This notice will not have a substantial effect on State 
and local governments.
    The following analysis, in conjunction with the remainder of this 
document, demonstrates that this notice is consistent with the 
regulatory philosophy and principles identified in Executive Order 
12866, the RFA, and section 1102(b) of the Act. The notice will affect 
payments to a substantial number of small rural hospitals, as well as 
other classes of hospitals, and the effects on some hospitals may be 
significant.
    The impact analysis for the policy changes under the IPPS for 
operating costs was included in the FY 2009 IPPS final rule. As stated 
in the impact analysis of the FY 2009 IPPS final rule (73 FR 49064), we 
were unable to provide final wage indices because we were unable to 
account for the recently enacted legislation (that is, section 124 of 
Pub. L. 110-275), that extended certain special exceptions and 
reinstated the provisions of section 508 of Public Law 108-173 relating 
to the wage index reclassifications of hospitals for an additional 
year, through FY 2009. Therefore, at the time of the FY 2009 IPPS final 
rule, we were also unable to finalize budget neutrality calculations, 
the outlier threshold and outlier offsets to the standardized amounts 
because these figures were all dependent on the final wage indices. 
However, we indicated that we would recalculate the impacts and provide 
in a subsequent Federal Register notice prior to October 1, 2008. Now 
that we have recalculated the new wage indices to reflect the extension 
for reclassification for section 508 of MMA and special exception 
providers, we are providing final impacts for FY 2009. Because the 
extension of section 508 is a nonbudget neutral provision, overall 
estimates for hospitals have changed from our estimate that was 
published in the FY 2009 IPPS final rule (73 FR 49064). We estimate 
that the changes in the FY 2009 IPPS final rule, in conjunction with 
the final IPPS rates and wage index included in this notice, will 
result in an approximate $5.0 billion increase in operating payments.

B. Final FY 2009 Impacts on IPPS Operating Costs

1. Analysis of Table I
    Table I displays the results of our analysis of the payment changes 
for FY 2009 after implementing section 124 of Public Law 110-275, which 
extended section 508 of MMA and special exception reclassifications 
through FY 2009. These impacts update the tentative ones that were 
published in the FY 2009 IPPS final rule. As explained in the FY 2009 
final rule and in this notice, we were unable to implement the section 
124 of Public Law 110-275 that extended reclassifications for section 
508 of MMA and special exception providers, so we were unable to 
finalize the wage index, standardized amounts, outlier threshold and 
budget neutrality factors. In this notice, we can now finalize the wage 
index, standardized amounts, outlier thresholds and budget neutrality 
factors, and we are only displaying the impact columns that were 
affected by the Section 508 and special exception reclassifications. 
Therefore, we are not reprinting the impacts of the DRG relative 
weights, the wage data, the DRG and wage index changes that were 
published in the FY 2009 IPPS final rule because those columns are 
based on pre-reclassification wage data that is not affected by the 
Section 508 and special exception reclassifications. (See the FY 2009 
IPPS final rule (73 FR 49065 through 49072) for a full discussion of 
the FY 2009 regulatory impact analysis.) In addition, we are adding a 
column to display the impact of the implementation of section 508 of 
MMA and special exceptions.
    Table I displays the results of our analysis of the changes for FY 
2009. The table categorizes hospitals by various geographic and special 
payment consideration groups to illustrate the varying impacts on 
different types of hospitals. The top row of the table shows the 
overall impact on the 3,538 hospitals included in the analysis.
    The next four rows of Table I contain hospitals categorized 
according to their geographic location: All urban, which is further 
divided into large urban and other urban; and rural. There are 2,553 
hospitals located in urban areas included in our analysis. Among these, 
there are 1,408 hospitals located in large urban areas (populations 
over 1 million), and 1,145 hospitals in other urban areas (populations 
of 1 million or fewer). In addition, there are 985 hospitals in rural 
areas. The next two groupings are by bed-size categories, shown 
separately for urban and rural hospitals. The final groupings by 
geographic location are by census divisions, also shown separately for 
urban and rural hospitals.
    The second part of Table I shows hospital groups based on 
hospitals' FY 2009 payment classifications, including any 
reclassifications under section 1886(d)(10) of the Act. For example, 
the rows labeled urban, large urban, other urban, and rural show that 
the numbers of hospitals paid based on these categorizations after 
consideration of geographic reclassifications (including 
reclassifications under section 1886(d)(8)(B) and section 1886(d)(8)(E) 
of the Act that have implications for capital payments) are 2,594, 
1,430, 1,164 and 944, respectively.
    The next three groupings examine the impacts of the changes on 
hospitals grouped by whether or not they have GME residency programs 
(teaching hospitals that receive an IME adjustment) or receive DSH 
payments, or some combination of these two adjustments. There are 2,495 
nonteaching hospitals in our analysis, 808 teaching hospitals with 
fewer than 100 residents, and 235 teaching hospitals with 100 or more 
residents.
    In the DSH categories, hospitals are grouped according to their DSH 
payment status, and whether they are considered urban or rural for DSH 
purposes. The next category groups together hospitals considered urban 
after geographic reclassification, in terms of whether they receive the 
IME adjustment, the DSH adjustment, both, or neither.
    The next five rows examine the impacts of the changes on rural 
hospitals by special payment groups (SCHs, RRCs, and MDHs). There were

[[Page 57895]]

196 RRCs, 356 SCHs, 157 MDHs, 104 hospitals that are both SCHs and 
RRCs, and 12 hospitals that are both an MDH and an RRC.
    The next series of groupings are based on the type of ownership and 
the hospital's Medicare utilization expressed as a percent of total 
patient days. These data were taken from the FY 2005 Medicare cost 
reports.
    The next two groupings concern the geographic reclassification 
status of hospitals. The first grouping displays all urban hospitals 
that were reclassified by the MGCRB for FY 2009. The second grouping 
shows the MGCRB rural reclassifications. In addition, the last grouping 
reflects the 114 hospitals currently reclassified as Section 508 and 
special exception hospitals.
    The final category shows the impact of the policy changes on the 20 
cardiac specialty hospitals in our analysis.
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a. Effects of MGCRB Reclassifications (Column 1)
    The changes in Column 1 reflect the per case payment impact of 
moving from this baseline to a simulation incorporating the MGCRB 
decisions for FY 2009 which affect hospitals' wage index area 
assignments. For information on the payment impacts prior to geographic 
reclassification, please see the FY 2009 IPPS Final Rule (73 FR 49069 
through 49070).
    By Spring of each year, the MGCRB makes reclassification 
determinations that will be effective for the next fiscal year, which 
begins on October 1. The MGCRB may approve a hospital's 
reclassification request for the purpose of using another area's wage 
index value. Hospitals may appeal denials of MGCRB decisions to the CMS 
Administrator. Further, hospitals have 45 days from publication of the 
IPPS rule in the Federal Register to decide whether to withdraw or 
terminate an approved geographic reclassification for the following 
year. This column reflects all MGCRB decisions, Administrator appeals 
and decisions of hospitals for FY 2009 geographic reclassifications.
    Because section 124 of Pub. L. 110-275 extended certain special 
exceptions and section 508 reclassifications through FY 2009, we 
analyzed the data of hospitals in labor market areas affected by 
legislation, including hospitals with Lugar redesignations, and make 
best efforts to give those hospitals a wage index value that we believe 
results in the highest FY 2009 wage index for which they are eligible. 
Hospitals will have 15 days from the date of Federal Register 
publication of this separate notice to notify us if they wish to revise 
the decision that we made on their behalf.
    The impacts shown in Column 1 of Table 1 reflect our 
reclassification decisions on behalf of hospitals, which reflect the 
area that would give the hospital the highest wage index. The overall 
effect of geographic reclassification is required by section 
1886(d)(8)(D) of the Act to be budget neutral. The geographic budget 
neutrality factor reflects the effect of the geographic 
reclassifications based on our reclassification decisions. Therefore, 
for the purposes of this impact analysis, we are applying an adjustment 
of 0.992088 to ensure that the effects of the section 1886(d)(10) 
reclassifications are budget neutral. Geographic reclassification 
generally benefits hospitals in rural areas. We estimate that 
geographic reclassification will increase payments to rural hospitals 
by an average of 2.2 percent.
b. Effects of the Rural Floor and Imputed Floor, Including the 
Transition To Apply Budget Neutrality at the State Level (Column 2)
    As discussed in the FY 2009 IPPS final rule (73 FR 49070), we are 
applying the rural floor and imputed floor budget neutrality at the 
State level through a 3-year transition. In FY 2009, hospitals will 
receive a blended wage index that is 20 percent of a wage index with 
the State level rural and imputed floor budget neutrality adjustment 
and 80 percent of a wage index with the national budget neutrality 
adjustment. At the time of publication of the FY 2009 IPPS final rule, 
we could only apply tentative rural floor budget neutrality factors 
because we were unable to finalize the wage index to account for the 
section 124 of Pub. L. 110-275 that extended that the reclassification 
for section 508 and special exception hospitals. The finalized national 
rural floor budget neutrality applied to the wage index is 0.996272. 
The within-State rural floor budget neutrality factors applied to the 
wage index is available in Table 4D of the Addendum to this notice. 
After the wage index is blended, an additional adjustment of 0.999785 
is applied to the wage index to ensure that payments before the 
application of the rural floor are equivalent to the payments under the 
blended budget neutral rural floor wage index.
    The column compares the post-reclassification FY 2009 wage index of 
providers before the rural floor adjustment and the post-
reclassification FY 2009 wage index of providers with the rural floor 
and imputed floor adjustment with the transitional rural floor budget 
neutrality factor applied. We project that, in aggregate, rural 
hospitals will experience a 0.2 percent decrease in payments as a 
result of the application of the rural floor including the transition 
to within-State rural floor budget neutrality. We project hospitals 
located in other urban areas (populations of 1 million or fewer) will 
experience a 0.1 percent increase in payments because only providers 
can benefit from the rural floor. Rural New England hospitals can 
expect the greatest decrease in payment, 0.3 percent, because under the 
blended rural floor budget neutrality adjustment, hospitals in New 
Hampshire will receive a rural floor budget neutrality adjustment of 
0.99236 or a reduction of 0.8 percent, and hospitals in Connecticut 
will receive a rural floor budget neutrality adjustment of 0.99000 or a 
reduction of 1 percent. New Jersey, which is the only State that 
benefits from the imputed floor, is expected to receive a rural floor 
budget neutrality adjustment of 0.99455, or a reduction of less than 1 
percent.
c. Effects of the Application of Section 508 Reclassification (Column 
3)
    This column displays the impact of extending the reclassification 
for Section 508 and special exception providers through FY 2009. 
Because this provision is not budget neutral, hospitals, overall, will 
experience a 0.2 percent increase in payments. All the hospital 
categories, depending on whether Section 508 and special exception 
providers are represented in those categories, will either experience 
an increase or no change in payments. Providers in urban New England 
and

[[Page 57898]]

East North Central can expect increases in payments by 0.5 percent 
because those regions have Section 508 and special exception providers. 
Providers in the urban Middle Atlantic region will experience a 0.7 
percent increase in estimated payments because there are several 
section 508 and special exception providers located in New Jersey.
d. Effects of the Wage Index Adjustment for Out-Migration (Column 4)
    Section 1886(d)(13) of the Act, as added by section 505 of Pub. L. 
108-173, provides for an increase in the wage index for hospitals 
located in certain counties that have a relatively high percentage of 
hospital employees who reside in the county, but work in a different 
area with a higher wage index. Hospitals located in counties that 
qualify for the payment adjustment are to receive an increase in the 
wage index that is equal to a weighted average of the difference 
between the wage index of the resident county, post-reclassification 
and the higher wage index work area(s), weighted by the overall 
percentage of workers who are employed in an area with a higher wage 
index. Section 508 providers and special exception providers that may 
have qualified for the out-migration adjustment in the FY 2009 IPPS 
final rule will now receive their section 508 or special exception 
reclassification wage index. With the out-migration adjustment, rural 
providers will experience a 0.1 percent increase in payments in FY 2009 
relative to no adjustment at all. We included these additional payments 
to providers in the impact table shown above, and we estimate the 
impact of these providers receiving the out-migration increase to be 
approximately $31 million.
e. Effects of All Changes With CMI Adjustment and Estimated Growth 
(Column 5)
    Column 5 compares our estimate of payments per case between FY 2008 
and FY 2009, incorporating all changes reflected in this notice for FY 
2009 (including statutory changes). This column includes the FY 2009 
documentation and coding adjustment of -0.9 percent and the projected 
1.8 percent increase in case-mix from improved documentation and coding 
(with the 1.8 percent case-mix increase assumed to occur equally across 
all hospitals).
    Column 5 reflects the impact of all FY 2009 changes relative to FY 
2008. The average increase for all hospitals is approximately 5.0 
percent. This increase includes the effects of the 3.6 percent market 
basket update. It also reflects the 0.4 percentage point difference 
between the projected outlier payments in FY 2008 (5.1 percent of total 
DRG payments) and the current estimate of the percentage of actual 
outlier payments in FY 2008 (4.7 percent), as described in the FY 2009 
IPPS final rule (73 FR 48766). As a result, payments are projected to 
be 0.4 percentage points lower in FY 2008 than originally estimated, 
resulting in a 0.4 percentage point greater increase for FY 2009 than 
would otherwise occur. This analysis accounts for the impact of section 
124 of Pub. L. 110-275, which extended certain special exceptions and 
section 508 reclassifications for FY 2009. This nonbudget neutral 
provision, that increases the wage index for 114 providers, results in 
an estimated increase in payments by 0.2 percent. There might also be 
interactive effects among the various factors comprising the payment 
system that we are not able to isolate. For these reasons, the values 
in Column 5 may not equal the product of the percentage changes 
described above.
    The overall change in payments per case for hospitals in FY 2009 is 
estimated to increase by 5.0 percent. Hospitals in urban areas will 
experience an estimated 5.1 percent increase in payments per case 
compared to FY 2008. Hospitals in large urban areas will experience an 
estimated 5.2 percent increase and hospitals in other urban areas will 
experience an estimated 4.9 percent increase in payments per case in FY 
2008. Hospital payments per case in rural areas are estimated to 
increase 4.1 percent. The increases that are larger than the national 
average for larger urban areas and smaller than the national average 
for other urban and rural areas are largely attributed to the 
differential impact of adopting MS-DRGs.
    Among urban census divisions, the largest estimated payment 
increases will be 6.5 percent in the Pacific region (generally 
attributed to MS-DRGs, wage data and section 508 and special exception 
reclassifications) and 5.5 percent in the Mountain region (mostly due 
to MS-DRGs). The smallest urban increase is estimated at 3.9 percent in 
the Puerto Rico region.
    Among the rural regions in Column 5, the providers in the New 
England region experience the smallest increase in payments (3.5 
percent) primarily due to the transition to the within-State rural 
floor budget neutrality adjustment. The Pacific and South Atlantic 
regions will have the highest increases among rural regions, with 5.6 
percent and 4.4 percent estimated increases, respectively. Again, 
increases in rural areas are generally less than the national average 
due to the adoption of MS-DRGs.
    Among special categories of rural hospitals in Column 9, the MDHs 
and the RRCs will receive an estimated increase in payments of 4.8 
percent, and the SCHs will experience an estimated increase in payments 
by 3.7 percent.
    Urban hospitals reclassified for FY 2009 are anticipated to receive 
an increase of 5.2 percent, while urban hospitals that are not 
reclassified for FY 2009 are expected to receive an increase of 5.1 
percent. Rural hospitals reclassifying for FY 2009 are anticipated to 
receive a 4.3 percent payment increase and rural hospitals that are not 
reclassifying are estimated to receive a payment increase of 3.8 
percent. Section 508 and special exception providers are estimated to 
receive a payment increase of 5.8 percent relative to last year.
2. Analysis of Table II
    Table II presents the projected impact of the changes for FY 2009 
for urban and rural hospitals and for the different categories shown in 
Table I. It compares the estimated payments per case for FY 2008 with 
the average estimated payments per case for FY 2009, as calculated 
under our models. Thus, the table presents, in terms of average dollar 
amounts paid per discharge, the combined effects of the changes 
presented in Table I. The percentage changes shown in the last column 
of Table II equal the percentage changes in average payments from 
Column 5 of Table I.
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C. Final FY 2009 Capital-Related Impacts (Including the Quantitative 
Effects of the Extension of the Expiration Date for Certain Geographic 
Reclassifications and Special Exception Wage Indices as Required by 
Section 124 of the MIPPA, Pub. L. 110-275)

1. General Considerations
    In accordance with Sec.  412.312, the basic methodology for 
determining capital IPPS payments in FY 2009 is as follows: (Standard 
Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals located in 
Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME Adjustment 
Factor, if applicable). In addition, hospitals may also receive outlier 
payments for those cases that qualify under the threshold established 
for each fiscal year.
    The data used in developing the impact analysis presented below are 
taken from the March 2008 update of the FY 2007 MedPAR file and the 
March 2008 update of the Provider-Specific File that is used for 
payment purposes. Although the analyses of the changes to the capital 
prospective payment system do not incorporate cost data, we used the 
March 2008 update of the most recently available hospital cost report 
data (FYs 2005 and 2006) to categorize hospitals. Our analysis has 
several qualifications. We use the best data available and make 
assumptions about case-mix and beneficiary enrollment as described 
below. In addition, as discussed in section III.A.5. of the Addendum to 
the FY 2009 IPPS final rule (73 FR 48773 through 48774), we adjusted 
the national capital rate to account for improvements in documentation 
and coding under the MS-DRGs in FY 2009. (As discussed in section 
III.A.6. of the Addendum to that same final rule, we did not adjust the 
Puerto Rico specific capital rate to account for improvements in 
documentation and coding under the MS-DRGs in FY 2009.) Furthermore,

[[Page 57901]]

due to the interdependent nature of the IPPS, it is very difficult to 
precisely quantify the impact associated with each change. In addition, 
we draw upon various sources for the data used to categorize hospitals 
in the tables. In some cases (for instance, the number of beds), there 
is a fair degree of variation in the data from different sources. We 
have attempted to construct these variables with the best available 
sources overall. However, for individual hospitals, some 
miscategorizations are possible.
    Using cases from the March 2008 update of the FY 2007 MedPAR file, 
we simulated payments under the capital PPS for FY 2008 and FY 2009 for 
a comparison of total payments per case. Any short-term, acute care 
hospitals not paid under the general IPPS (Indian Health Service 
hospitals and hospitals in Maryland) are excluded from the simulations.
    We modeled payments for each hospital by multiplying the capital 
Federal rate by the GAF and the hospital's case-mix. We then added 
estimated payments for indirect medical education (which are reduced by 
50 percent in FY 2009 in accordance with Sec.  412.322(c)), 
disproportionate share, and outliers, if applicable. For purposes of 
this impact analysis, the model included the same assumptions as the 
capital IPPS impact analysis presented in the FY 2009 IPPS final rule 
(73 FR 49079). The model included the following assumptions:
     We estimate that the Medicare case-mix index will increase 
by 1.0 percent in both FYs 2008 and 2009. (We note that this does not 
reflect the expected growth in case-mix due to improvement in 
documentation and coding under the MS-DRGs, as discussed below.)
     We estimate that the Medicare discharges will be 
approximately 13 million in both FY 2008 and FY 2009.
     The capital Federal rate was updated beginning in FY 1996 
by an analytical framework that considers changes in the prices 
associated with capital-related costs and adjustments to account for 
forecast error, changes in the case-mix index, allowable changes in 
intensity, and other factors. The FY 2009 update is 0.9 percent (see 
section II.C.2.e of this notice).
     In addition to the FY 2009 update factor, the FY 2009 
capital Federal rate was calculated based on a GAF/DRG budget 
neutrality factor of 1.0015, an outlier adjustment factor of 0.9465, 
and an exceptions adjustment factor of 0.9999.
     The FY 2009 national capital rate was further adjusted by 
a factor to account for anticipated improvements in documentation and 
coding that are expected to increase case-mix under the MS-DRGs. In the 
FY 2008 IPPS final rule with comment period (72 FR 47186), we 
established adjustments to the IPPS rates based on the Office of the 
Actuary projected case-mix growth resulting from improved documentation 
and coding of 1.2 percent for FY 2008, 1.8 percent for FY 2009, and 1.8 
percent for FY 2010. However, we reduced the documentation and coding 
adjustment to -0.6 percent for FY 2008, and for FY 2009, we are 
applying an adjustment of negative 0.9 percent, consistent with section 
7 of Public Law 110-90. (As noted above, we are not adjusting the 
Puerto Rico-specific capital rate to account for improvements in 
documentation and coding under the MS-DRGs in FY 2009.)
2. Results
    We used the actuarial model described above to estimate the 
potential impact of our changes for FY 2009 on total capital payments 
per case, using a universe of 3,538 hospitals. As described above, the 
individual hospital payment parameters are taken from the best 
available data, including the March 2008 update of the FY 2007 MedPAR 
file, the March 2008 update to the PSF, and the most recent cost report 
data from the March 2008 update of HCRIS. In Table III, we present a 
comparison of estimated total payments per case for FY 2008 compared to 
FY 2009 based on the FY 2009 payment policies. Column 2 shows estimates 
of payments per case under our model for FY 2008. Column 3 shows 
estimates of payments per case under our model for FY 2009. Column 4 
shows the total percentage change in payments from FY 2008 to FY 2009. 
The change represented in Column 4 includes the 0.9 percent update to 
the capital Federal rate, other changes in the adjustments to the 
capital Federal rate (for example, the 50 percent reduction to the 
teaching adjustment for FY 2009), and the additional 0.9 percent 
reduction to the national capital rate to account for improvements in 
documentation and coding (or other changes in coding that do not 
reflect real changes in case-mix) for implementation of the MS-DRGs). 
Consistent with the impact analysis for the policy changes under the 
IPPS for operating costs in section IV.B. of this notice, for purposes 
of this impact analysis, we also assume a 1.8 percent increase in case-
mix growth for FY 2009, as determined by the Office of the Actuary, 
because we believe the adoption of the MS-DRGs will result in case-mix 
growth due to documentation and coding changes that do not reflect real 
changes in patient severity of illness. The comparisons are provided 
by: (1) Geographic location; (2) region; and (3) payment 
classification.
    The simulation results show that, on average, capital payments per 
case in FY 2009 are expected to increase as compared to capital 
payments per case in FY 2008. The capital rate for FY 2009 will 
decrease 0.46 percent as compared to the FY 2008 capital rate, and the 
changes to the GAFs are expected to result in a slight decrease (0.1 
percent) in capital payments. In addition, the 50 percent reduction to 
the teaching adjustment in FY 2009 will also result in a decrease in 
capital payments from FY 2008 as compared to FY 2009. Countering these 
factors is the projected case-mix growth as a result of improved 
documentation and coding (discussed above) as well as an estimated 
increase in outlier payments in FY 2008 as compared to FY 2009. The net 
result of these changes is an estimated 0.7 percent change in capital 
payments per discharge from FY 2008 to FY 2009 for all hospitals (as 
shown below in Table III).
    The results of our comparisons by geographic location and by region 
are consistent with the results we expected with the decrease to the 
teaching adjustment in FY 2009 (Sec.  412.522(c)). The geographic 
comparison shows that, on average, all urban hospitals are expected to 
experience a 0.6 percent increase in capital IPPS payments per case in 
FY 2009 as compared to FY 2008, while hospitals in large urban areas 
are expected to experience a 0.3 percent increase in capital IPPS 
payments per case in FY 2009 as compared to FY 2008. Capital IPPS 
payments per case for rural hospitals are expected to increase 1.4 
percent. These differences in payments per case by geographic location 
are mostly due to the decrease in the teaching adjustment as discussed 
in the FY 2009 IPPS final rule (73 FR 49079). The capital impact is 
largely consistent with the impacts in the FY 2009 IPPS final rule (73 
FR 49080 through 49081). However the capital GAF is somewhat affected 
by the wage index changes resulting from the extension of the 
expiration date for certain geographic reclassifications and special 
exception wage indices as required by section 124 of the MIPPA, Pub. L. 
110-275. Any changes from the impact presented in the FY 2009 IPPS 
final rule are mostly due to the revised GAFs, which are based on the 
revised wage indices.
    Most regions are estimated to experience an increase in total 
capital payments per case from FY 2008 to FY 2009. These increases vary 
by region and range from a 3.5 percent increase in

[[Page 57902]]

the Pacific urban region to a 0.6 percent increase in the West North 
Central urban region. Two urban regions are projected to experience a 
relatively larger decrease in capital payments, with the difference 
mostly due to changes in the GAFs and the 50 percent reduction in the 
teaching adjustment for FY 2009: -1.8 percent in the Middle Atlantic 
urban region and -2.2 percent in the New England urban region. The East 
North Central urban region is also expected to experience a decrease of 
0.2 percent in capital payments in FY 2009 as compared to FY 2008, 
mostly due to changes in the GAFs. There are also two rural regions 
that are also expected to experience a decrease in total capital 
payments per case: A 2.8 percent decrease in the New England rural 
region and a 0.4 percent decrease in the Middle Atlantic rural region. 
Again, for these two rural regions, the projected decrease in capital 
payments is mostly due to changes in the GAF, as well as a smaller than 
average expected increase in payments due to the adoption of the MS-
DRGs.
    By type of ownership, voluntary and proprietary hospitals are 
estimated to experience an increase of 0.5 percent and 2.2 percent, 
respectively. The projected increase in capital payments per case for 
proprietary hospitals is mostly because these hospitals are expected to 
experience a smaller than average decrease in their payments due to the 
50 percent teaching adjustment reduction for FY 2009. Government 
hospitals are estimated to experience a decrease in capital payments 
per case of 0.2 percent. This estimated decrease in capital payments is 
mostly due to a larger than average decrease in payments resulting from 
the 50 percent teaching adjustment reduction for FY 2009.
    Section 1886(d)(10) of the Act established the MGCRB. Before FY 
2005, hospitals could apply to the MGCRB for reclassification for 
purposes of the standardized amount, wage index, or both. Section 
401(c) of Public Law 108-173 equalized the standardized amounts under 
the operating IPPS. Therefore, beginning in FY 2005, there is no longer 
reclassification for the purposes of the standardized amounts; however, 
hospitals still may apply for reclassification for purposes of the wage 
index for FY 2009. Reclassification for wage index purposes also 
affects the GAFs because that factor is constructed from the hospital 
wage index.
    To present the effects of the hospitals being reclassified for FY 
2009, we show the average capital payments per case for reclassified 
hospitals for FY 2008. All classifications of reclassified hospitals 
are expected to experience an increase in payments in FY 2009 as 
compared to FY 2008. Urban nonreclassified hospitals are expected to 
have the smallest increase in capital payments of 0.5 percent, while 
rural reclassified hospitals are expected to have the largest increase 
in capital payments of 1.7 percent. Other reclassified hospitals (that 
is, hospitals reclassified under section 1886(d)(8)(B) of the Act) are 
expected to experience a 1.4 percent increase in capital payment from 
FY 2008 to FY 2009. The large than average increase in projected 
changes in capital payments for rural reclassified and other 
reclassified hospitals is mainly due to a smaller than average change 
in payments from FY 2009 as compared to FY 2008 resulting from the 50 
percent reduction in the teaching adjustment in FY 2009.
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D. Overall Conclusion

    The changes we are making in this notice will affect all classes of 
hospitals. Some hospitals are expected to experience significant gains 
and others less significant gains, but overall hospitals are projected 
to experience positive updates in IPPS payments in FY 2009. Table I of 
this section demonstrates the statutorily mandated extension of 
reclassification to section 508 and special exception providers through 
FY 2009, and all other policies reflected in the FY 2009 IPPS final 
rule. Table I also shows an overall increase of 5.0 percent in 
operating payments or an estimated increase of $4.97 billion. This 
estimate includes the projected savings associated with the hospital 
acquired conditions (HACs) policy ($21 million), the hospital reporting 
of quality data program costs ($2.39 million), the estimated new 
technology payments ($9.54 million), and all operating payment policies 
as described in section II of this notice. Capital payments are 
estimated to increase by 0.7 percent per case, as shown in Table III of 
this notice. Therefore, we project that the increase in capital 
payments in FY 2009 compared to FY 2008 will be approximately $60 
million. The operating and capital payments should result in a net 
increase of $5.03 billion to IPPS providers. The discussions presented 
in the previous pages, in combination with the rest of this notice, 
constitute a regulatory impact analysis.

E. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table IV below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this notice. This table 
provides our best estimate of the increase in Medicare payments to 
providers as a result of the changes to the IPPS presented in this 
notice. All expenditures are classified as transfers to Medicare 
providers.

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Table IV--Accounting Statement: Classification of Estimated Expenditures
                         From FY 2008 to FY 2009
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  $5.030 Billion.
From Whom to Whom......................  Federal Government to IPPS
                                          Medicare Providers.
                                        --------------------------------
    Total..............................  $5.030 Billion.
------------------------------------------------------------------------

F. Executive Order 12866

    In accordance with the provisions of Executive Order 12866, the 
Office of Management and Budget reviewed this notice.

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

    Dated: September 11, 2008.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: September 19, 2008.
Michael O. Leavitt,
Secretary.

Addendum

    This addendum includes tables referred to throughout the notice 
which contain data relating to the final FY 2009 wage indices and the 
hospital reclassifications and payment amounts for operating and 
capital-related costs discussed in section II. of this notice.
    Table 1A--National Adjusted Operating Standardized Amounts, Labor/
Nonlabor (69.7 Percent Labor Share/30.3 Percent Nonlabor Share If Wage 
Index Is Greater Than 1).
    Table 1B--National Adjusted Operating Standardized Amounts, Labor/
Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If Wage 
Index Is Less Than or Equal To 1).
    Table 1C--Adjusted Operating Standardized Amounts for Puerto Rico, 
Labor/Nonlabor.
    Table 1D--Capital Standard Federal Payment Rate.
    Table 2--Hospital Case-Mix Indexes for Discharges Occurring in 
Federal Fiscal Year 2007; Hospital Wage Indexes for Federal Fiscal Year 
2009; Hospital Average Hourly Wage for Federal Fiscal Years 2007 (2003 
Wage Data), 2008 (2004 Wage Data), and 2009 (2005 Wage Data); Wage 
Indexes and 3-Year Average of Hospital Average Hourly Wages.
    Table 4A--Wage Index and Capital Geographic Adjustment Factor (GAF) 
for Urban Areas by CBSA--FY 2009.
    Table 4B--Wage Index and Capital Geographic Adjustment Factor (GAF) 
for Rural Areas by CBSA--FY 2009.
    Table 4C--Wage Index and Capital Geographic Adjustment Factor (GAF) 
for Hospitals That Are Reclassified by CBSA--FY 2009.
    Table 4D-1--State Specific Rural Floor Budget Neutrality Factors--
FY 2009.
    Table 4D-2--Urban Areas with Hospitals Receiving the Statewide 
Rural Floor or Imputed Wage Index--FY 2009.
    Table 4E--Urban CBSAs and Constituent Counties--FY 2009.
    Table 4F--Puerto Rico Wage Index and Capital Geographic Adjustment 
Factor (GAF) by CBSA--FY 2009.
    Table 4J--Out-Migration Adjustment--FY 2009.
    Table 9A--Hospital Reclassifications and Redesignations by 
Individual Hospitals and CBSA for FY 2009.
    Table 9B--Hospital Reclassifications and Redesignations by 
Individual Hospital Under Section 508 of Pub. L. 108-173 for FY 2009.
    Table 9C--Hospitals Redesignated as Rural under Section 
1886(d)(8)(E) of the Act for FY 2009.
    Table 10--Geometric Mean Plus the Lesser of 0.75 of the National 
Adjusted Operating Standardized Payment Amount (Increased to Reflect 
the Difference Between Costs and Charges) or 0.75 of One Standard 
Deviation of Mean Charges by Diagnosis-Related Group (DRG)--September 
2008.
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[FR Doc. E8-23083 Filed 9-29-08; 11:15 am]
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