[Federal Register Volume 74, Number 86 (Wednesday, May 6, 2009)]
[Proposed Rules]
[Pages 21052-21133]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-10078]



[[Page 21051]]

-----------------------------------------------------------------------

Part II





Department of Health and Human Services





-----------------------------------------------------------------------



Centers for Medicare & Medicaid Services



-----------------------------------------------------------------------



42 CFR Part 412



Medicare Program; Inpatient Rehabilitation Facility Prospective Payment 
System for Federal Fiscal Year 2010; Proposed Rule

  Federal Register / Vol. 74, No. 86 / Wednesday, May 6, 2009 / 
Proposed Rules  

[[Page 21052]]



DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1538-P]
RIN 0938-AP56


Medicare Program; Inpatient Rehabilitation Facility Prospective 
Payment System for Federal Fiscal Year 2010

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

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed rule would update the payment rates for 
inpatient rehabilitation facilities (IRFs) for Federal fiscal year (FY) 
2010 (for discharges occurring on or after October 1, 2009 and on or 
before September 30, 2010) as required under section 1886(j)(3)(C) of 
the Social Security Act (the Act). Section 1886(j)(5) of the Act 
requires the Secretary to publish in the Federal Register on or before 
the August 1 that precedes the start of each fiscal year, the 
classification and weighting factors for the IRF prospective payment 
system's (PPS) case-mix groups and a description of the methodology and 
data used in computing the prospective payment rates for that fiscal 
year.
    We are proposing to revise existing policies regarding the IRF PPS 
within the authority granted under section 1886(j) of the Act.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on June 29, 2009.

ADDRESSES: In commenting, please refer to file code CMS-1538-P. 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 file code to find the document 
accepting comments.
    2. By regular mail. You may send written comments by regular mail 
(one original and two copies) to the following address only: Centers 
for Medicare & Medicaid Services, Department of Health and Human 
Services, Attention: CMS-1538-P, P.O. Box 8012, Baltimore, MD 21244-
8012.
    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) by express or overnight mail to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1538-P, Mail Stop C4-26-05, 
7500 Security Boulevard, Baltimore, MD 21244-8012.
    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.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Julie Stankivic, (410) 786-5725, for 
general information regarding the proposed rule.
    Susanne Seagrave, (410) 786-0044, for information regarding the 
payment policies.
    Jeanette Kranacs, (410) 786-9385, for information regarding the 
wage index.

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 
that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Table of Contents

I. Background
    A. Historical Overview of the Inpatient Rehabilitation Facility 
Prospective Payment System (IRF PPS)
    B. Operational Overview of the Current IRF PPS
II. Summary of Provisions of the Proposed Rule
    A. Proposed Updates to the IRF PPS for Federal Fiscal Year (FY) 
2010
    B. Proposed Revisions to Existing Regulation Text
    C. Proposed New Regulation Text
    D. Proposed Rescission of Outdated HCFAR-85-2-1
III. Proposed Update to the Case-Mix Group (CMG) Relative Weights 
and Average Length of Stay Values for FY 2010
IV. Proposed Updates to the Facility-Level Adjustment Factors for FY 
2010
    A. Background on Facility-Level Adjustments
    B. Proposed Updates to IRF Facility-Level Adjustment Factors
    C. Budget Neutrality Methodology for the Updates to the IRF 
Facility-Level Adjustment Factors
V. Proposed FY 2010 IRF PPS Federal Prospective Payment Rates
    A. Proposed Market Basket Increase Factor and Labor-Related 
Share for FY 2010
    B. Proposed Area Wage Adjustment
    C. Description of the Proposed IRF Standard Payment Conversion 
Factor and Payment Rates for FY 2010
    D. Example of the Methodology for Adjusting the Proposed Federal 
Prospective Payment Rates
VI. Proposed Update to Payments for High-Cost Outliers Under the IRF 
PPS
    A. Proposed Update to the Outlier Threshold Amount for FY 2010
    B. Proposed Update to the IRF Cost-to-Charge Ratio Ceilings
VII. Inpatient Rehabilitation Facility (IRF) Classification and 
Payment Requirements
    A. Analysis of Current IRF Classification and Payment 
Requirements
    B. Summary of the Major Proposed Revisions and New Requirements
    C. Proposed IRF Admission Requirements
    D. Proposed Post-Admission Requirements
    E. Proposed Changes to the Requirements for the 
Interdisciplinary Team Meeting
    F. Proposed Director of Rehabilitation Requirement
    G. Clarifying and Conforming Amendments

[[Page 21053]]

    H. Proposed Introductory Paragraph at Sec.  412.30
    I. Proposed Rescission of the HCFAR 85-2 Ruling
    J. Proposed Change to the Requirement to Retain IRF-PAI Data
VIII. Proposed Revisions to the Regulation Text to Require IRFs to 
Submit Patient Assessments on Medicare Advantage Patients for Use in 
the ``60 Percent Rule'' Calculations
IX. Collection of Information Requirements
X. Response to Public Comments
XI. Regulatory Impact Analysis
    A. Overall Impact
    B. Anticipated Effects of the Proposed Rule
    C. Alternatives Considered
    D. Accounting Statement
    E. Conclusion
Regulation Text
Addendum

Acronyms

    Because of the many terms to which we refer by acronym in this 
proposed rule, we are listing the acronyms used and their 
corresponding terms in alphabetical order below.
ADC Average Daily Census
ASCA Administrative Simplification Compliance Act, Pub. L. 107-105
BBA Balanced Budget Act of 1997, Pub. L. 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L. 
106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Pub. L. 106-554
CBSA Core-Based Statistical Area
CCR Cost-to-Charge Ratio
CFR Code of Federal Regulations
CMG Case-Mix Group
DRG Diagnostic Related Group
DSH Disproportionate Share Hospital
FI Fiscal Intermediary
FR Federal Register
FTE Full-time Equivalent
FY Federal Fiscal Year
HCFA Health Care Financing Administration
HHH Hubert H. Humphrey Building
HIPAA Health Insurance Portability and Accountability Act, Pub. L. 
104-191
IOM Internet Only Manual
IPF Inpatient Psychiatric Facility
IPPS Inpatient Prospective Payment System
IRF Inpatient Rehabilitation Facility
IRF-PAI Inpatient Rehabilitation Facility--Patient Assessment 
Instrument
IRF PPS Inpatient Rehabilitation Facility Prospective Payment System
IRVEN Inpatient Rehabilitation Validation and Entry
LTCH Long Term Care Hospital
LIP Low-Income Percentage
MA Medicare Advantage
MAC Medicare Administrative Contractor
MBPM Medicare Benefit Policy Manual
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Pub. L. 
110-173
OMB Office of Management and Budget
PAI Patient Assessment Instrument
PPS Prospective Payment System
QIC Qualified Independent Contractors
RAC Recovery Audit Contractors
RAND RAND Corporation
RFA Regulatory Flexibility Act, Pub. L. 96-354
RIA Regulatory Impact Analysis
RIC Rehabilitation Impairment Category
RPL Rehabilitation, Psychiatric, and Long-Term Care Hospital Market 
Basket
SCHIP State Children's Health Insurance Program

I. Background

A. Historical Overview of the Inpatient Rehabilitation Facility 
Prospective Payment System (IRF PPS)

    Section 4421 of the Balanced Budget Act of 1997 (BBA), Pub. L. 105-
33, as amended by section 125 of the Medicare, Medicaid, and SCHIP 
(State Children's Health Insurance Program) Balanced Budget Refinement 
Act of 1999 (BBRA), Pub. L. 106-113, and by section 305 of the 
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
of 2000 (BIPA), Pub. L. 106-554, provides for the implementation of a 
per discharge prospective payment system (PPS) under section 1886(j) of 
the Social Security Act (the Act) for inpatient rehabilitation 
hospitals and inpatient rehabilitation units of a hospital (hereinafter 
referred to as IRFs).
    Payments under the IRF PPS encompass inpatient operating and 
capital costs of furnishing covered rehabilitation services (that is, 
routine, ancillary, and capital costs) but not direct graduate medical 
education costs, costs of approved nursing and allied health education 
activities, bad debts, and other services or items outside the scope of 
the IRF PPS. Although a complete discussion of the IRF PPS provisions 
appears in the original FY 2002 IRF PPS final rule (66 FR 41316) and 
the FY 2006 IRF PPS final rule (70 FR 47880), we are providing below a 
general description of the IRF PPS for fiscal years (FYs) 2002 through 
2009.
    Under the IRF PPS from FY 2002 through FY 2005, as described in the 
FY 2002 IRF PPS final rule (66 FR 41316), the Federal prospective 
payment rates were computed across 100 distinct case-mix groups (CMGs). 
We constructed 95 CMGs using rehabilitation impairment categories 
(RICs), functional status (both motor and cognitive), and age (in some 
cases, cognitive status and age may not be a factor in defining a CMG). 
In addition, we constructed five special CMGs to account for very short 
stays and for patients who expire in the IRF.
    For each of the CMGs, we developed relative weighting factors to 
account for a patient's clinical characteristics and expected resource 
needs. Thus, the weighting factors accounted for the relative 
difference in resource use across all CMGs. Within each CMG, we created 
tiers based on the estimated effects that certain comorbidities would 
have on resource use.
    We established the Federal PPS rates using a standardized payment 
conversion factor (formerly referred to as the budget neutral 
conversion factor). For a detailed discussion of the budget neutral 
conversion factor, please refer to our FY 2004 IRF PPS final rule (68 
FR 45684 through 45685). In the FY 2006 IRF PPS final rule (70 FR 
47880), we discussed in detail the methodology for determining the 
standard payment conversion factor.
    We applied the relative weighting factors to the standard payment 
conversion factor to compute the unadjusted Federal prospective payment 
rates under the IRF PPS from FYs 2002 through 2005. Within the 
structure of the payment system, we then made adjustments to account 
for interrupted stays, transfers, short stays, and deaths. Finally, we 
applied the applicable adjustments to account for geographic variations 
in wages (wage index), the percentage of low-income patients, location 
in a rural area (if applicable), and outlier payments (if applicable) 
to the IRF's unadjusted Federal prospective payment rates.
    For cost reporting periods that began on or after January 1, 2002 
and before October 1, 2002, we determined the final prospective payment 
amounts using the transition methodology prescribed in section 
1886(j)(1) of the Act. Under this provision, IRFs transitioning into 
the PPS were paid a blend of the Federal IRF PPS rate and the payment 
that the IRF would have received had the IRF PPS not been implemented. 
This provision also allowed IRFs to elect to bypass this blended 
payment and immediately be paid 100 percent of the Federal IRF PPS 
rate. The transition methodology expired as of cost reporting periods 
beginning on or after October 1, 2002 (FY 2003), and payments for all 
IRFs now consist of 100 percent of the Federal IRF PPS rate.
    We established a CMS Web site as a primary information resource for 
the IRF PPS. The Web site URL is http://www.cms.hhs.gov/InpatientRehabFacPPS/ and may be accessed to download or view 
publications, software, data specifications, educational materials, and 
other information pertinent to the IRF PPS.
    Section 1886(j) of the Act confers broad statutory authority upon 
the Secretary to propose refinements to the

[[Page 21054]]

IRF PPS. In the FY 2006 IRF PPS final rule (70 FR 47880) and in 
correcting amendments to the FY 2006 IRF PPS final rule (70 FR 57166) 
that we published on September 30, 2005, we finalized a number of 
refinements to the IRF PPS case-mix classification system (the CMGs and 
the corresponding relative weights) and the case-level and facility-
level adjustments. These refinements included the adoption of OMB's 
Core-Based Statistical Area (CBSA) market definitions, modifications to 
the CMGs, tier comorbidities, and CMG relative weights, implementation 
of a new teaching status adjustment for IRFs, revision and rebasing of 
the IRF market basket, and updates to the rural, low-income percentage 
(LIP), and high-cost outlier adjustments. Any reference to the FY 2006 
IRF PPS final rule in this proposed rule also includes the provisions 
effective in the correcting amendments. For a detailed discussion of 
the final key policy changes for FY 2006, please refer to the FY 2006 
IRF PPS final rule (70 FR 47880 and 70 FR 57166).
    In the FY 2007 IRF PPS final rule (71 FR 48354), we further refined 
the IRF PPS case-mix classification system (the CMG relative weights) 
and the case-level adjustments, to ensure that IRF PPS payments 
continue to reflect as accurately as possible the costs of care. For a 
detailed discussion of the FY 2007 policy revisions, please refer to 
the FY 2007 IRF PPS final rule (71 FR 48354).
    In the FY 2008 IRF PPS final rule (72 FR 44284), we updated the 
Federal prospective payment rates and the outlier threshold, revised 
the IRF wage index policy, and clarified how we determine high-cost 
outlier payments for transfer cases. For more information on the policy 
changes implemented for FY 2008, please refer to the FY 2008 IRF PPS 
final rule (72 FR 44284), in which we published the final FY 2008 IRF 
Federal prospective payment rates.
    After publication of the FY 2008 IRF PPS final rule (72 FR 44284), 
section 115 of the Medicare, Medicaid, and SCHIP Extension Act of 2007, 
Pub. L. 110-173 (MMSEA), amended section 1886(j)(3)(C) of the Act to 
apply a zero percent increase factor for FYs 2008 and 2009, effective 
for IRF discharges occurring on or after April 1, 2008. Section 
1886(j)(3)(C) of the Act requires the Secretary to develop an increase 
factor to update the IRF Federal prospective payment rates for each FY. 
Based on the legislative change to the increase factor, we revised the 
FY 2008 Federal prospective payment rates for IRF discharges occurring 
on or after April 1, 2008. Thus, the final FY 2008 IRF Federal 
prospective payment rates that were published in the FY 2008 IRF PPS 
final rule (72 FR 44284) were effective for discharges occurring on or 
after October 1, 2007 and on or before March 31, 2008; and the revised 
FY 2008 IRF Federal prospective payment rates were effective for 
discharges occurring on or after April 1, 2008 and on or before 
September 30, 2008. The revised FY 2008 Federal prospective payment 
rates are available on the CMS Web site at http://www.cms.hhs.gov/InpatientRehabFacPPS/07_DataFiles.asp#TopOfPage.
    In the FY 2009 IRF PPS final rule (73 FR 46370), we updated the CMG 
relative weights, the average length of stay values, and the outlier 
threshold; clarified IRF wage index policies regarding the treatment of 
``New England deemed'' counties and multi-campus hospitals; and revised 
the regulation text in response to section 115 of the MMSEA to set the 
IRF compliance percentage at 60 percent (``the 60 percent rule'') and 
continue the practice of including comorbidities in the calculation of 
compliance percentages. We also applied a zero percent increase factor 
for FY 2009. For more information on the policy changes implemented for 
FY 2009, please refer to the FY 2009 IRF PPS final rule (73 FR 46370), 
in which we published the final FY 2009 IRF Federal prospective payment 
rates.

B. Operational Overview of the Current IRF PPS

    As described in the FY 2002 IRF PPS final rule, upon the admission 
and discharge of a Medicare Part A fee-for-service patient, the IRF is 
required to complete the appropriate sections of a patient assessment 
instrument (PAI), the Inpatient Rehabilitation Facility-Patient 
Assessment Instrument (IRF-PAI). All required data must be 
electronically encoded into the IRF-PAI software product. Generally, 
the software product includes patient classification programming called 
the GROUPER software. The GROUPER software uses specific IRF-PAI data 
elements to classify (or group) patients into distinct CMGs and account 
for the existence of any relevant comorbidities.
    The GROUPER software produces a five-digit CMG number. The first 
digit is an alpha-character that indicates the comorbidity tier. The 
last four digits represent the distinct CMG number. Free downloads of 
the Inpatient Rehabilitation Validation and Entry (IRVEN) software 
product, including the GROUPER software, are available on the CMS Web 
site at http://www.cms.hhs.gov/InpatientRehabFacPPS/06_Software.asp.
    Once a patient is discharged, the IRF submits a Medicare claim as a 
Health Insurance Portability and Accountability Act (HIPAA), Pub. L. 
104-191, compliant electronic claim or, if the Administrative 
Compliance Act (ASCA), Pub. L. 107-105, permits, a paper claim (a UB-04 
or a CMS-1450 as appropriate) using the five-digit CMG number and sends 
it to the appropriate Medicare fiscal intermediary (FI) or Medicare 
Administrative Contractor (MAC). Claims submitted to Medicare must 
comply with both ASCA and HIPAA.
    Section 3 of the ASCA amends section 1862(a) of the Act by adding 
paragraph (22) which requires the Medicare program, subject to section 
1862(h) of the Act, to deny payment under Part A or Part B for any 
expenses for items or services ``for which a claim is submitted other 
than in an electronic form specified by the Secretary.'' Section 
1862(h) of the Act, in turn, provides that the Secretary shall waive 
such denial in situations in which there is no method available for the 
submission of claims in an electronic form or the entity submitting the 
claim is a small provider. In addition, the Secretary also has the 
authority to waive such denial ``in such unusual cases as the Secretary 
finds appropriate.'' For more information we refer the reader to the 
final rule, ``Medicare Program; Electronic Submission of Medicare 
Claims'' (70 FR 71008, November 25, 2005). CMS instructions for the 
limited number of Medicare claims submitted on paper are available at: 
(http://www.cms.hhs.gov/manuals/downloads/clm104c25.pdf.)
    Section 3 of the ASCA operates in the context of the administrative 
simplification provisions of HIPAA, which include, among others, the 
requirements for transaction standards and code sets codified in 45 
CFR, parts 160 and 162, subparts A and I through R (generally known as 
the Transactions Rule). The Transactions Rule requires covered 
entities, including covered healthcare providers, to conduct covered 
electronic transactions according to the applicable transaction 
standards. (See the program claim memoranda issued and published by CMS 
at: http://www.cms.hhs.gov/ElectronicBillingEDITrans/ and listed in the 
addenda to the Medicare Intermediary Manual, Part 3, section 3600).
    The Medicare FI or MAC processes the claim through its software 
system. This software system includes pricing programming called the 
``PRICER'' software. The PRICER software uses the

[[Page 21055]]

CMG number, along with other specific claim data elements and provider-
specific data, to adjust the IRF's prospective payment for interrupted 
stays, transfers, short stays, and deaths, and then applies the 
applicable adjustments to account for the IRF's wage index, percentage 
of low-income patients, rural location, and outlier payments. For 
discharges occurring on or after October 1, 2005, the IRF PPS payment 
also reflects the new teaching status adjustment that became effective 
as of FY 2006, as discussed in the FY 2006 IRF PPS final rule (70 FR 
47880).

II. Summary of Provisions of the Proposed Rule

    In this proposed rule, we are proposing updates to the IRF PPS, 
revisions to existing regulations text for the purpose of providing 
greater clarity, new regulations text to improve calculation of 
compliance with the ``60 percent'' rule, and rescission of an outdated 
Health Care Financing Administration (HFCA) Ruling (HCFAR 85-2-1). 
These proposals are as follows:

A. Proposed Updates to the IRF PPS for Federal Fiscal Year (FY) 2010

     Update the FY 2010 IRF PPS relative weights and average 
length of stay values using the most current and complete Medicare 
claims and cost report data in a budget neutral manner, as discussed in 
section III.
     Update the FY 2010 IRF facility-level adjustments (rural, 
LIP, and teaching status adjustments) using the most current and 
complete Medicare claims and cost report data in a budget neutral 
manner, as discussed in section IV.
     Update the FY 2010 IRF PPS payment rates by the proposed 
market basket, as discussed in section V.A.
     Update the FY 2010 IRF PPS payment rates by the proposed 
wage index and the labor-related share in a budget neutral manner, as 
discussed in section V.A and V.B.
     Update the outlier threshold amount for FY 2010, as 
discussed in section VI.A.

B. Proposed Revisions to Existing Regulation Text

     Relocate and revise the criteria to be classified as an 
inpatient rehabilitation hospital found at existing Sec.  412.23(b)(3) 
through (b)(7) that describe requirements relating to preadmission 
screening, close medical supervision, a director of rehabilitation, the 
plan of care, and a coordinated multidisciplinary team approach. 
Redesignate paragraphs (b)(8) and (b)(9) of Sec.  412.23 as paragraphs 
(b)(3) and (b)(4) and revise newly redesignated paragraph (b)(4), as 
described in section VII.
     Revise the section heading at Sec.  412.29 that describes 
the additional requirements applicable to inpatient rehabilitation 
units to include inpatient rehabilitation hospitals, as described in 
section VII.
     Relocate and revise the existing requirements at Sec.  
412.29(b) through (f) that describe the requirements relating to 
preadmission screening, close medical supervision, a director of 
rehabilitation, the plan of care, and a coordinated multidisciplinary 
team approach, as described in section VII.
     Revise the section heading at Sec.  412.30 that describes 
the requirements applicable to new and converted rehabilitation units, 
as described in section VII.
     Revise the regulation text in Sec.  412.604, Sec.  
412.606, Sec.  412.610. Sec.  412.614 and Sec.  412.618 to require the 
collection of inpatient rehabilitation facility patient assessment 
instrument data on Medicare Part C (Medicare Advantage) patients in 
IRFs for use in the 60 percent rule compliance percentage calculations, 
as described in section VIII.
     Remove Sec.  412.614(a)(3) that provides for an exception 
in the transmission of IRF-PAI data to CMS, as described in section 
VIII.
     Revise the heading at Sec.  412.614(d) to ``Consequences 
of failure to submit complete and timely IRF-PAI data, as required 
under paragraph (c) of this section,'' as described in section VIII.
     Revise the heading at Sec.  412.614(d)(1) to ``Medicare 
Part A fee-for-service data,'' as described in section VIII.
     Redesignate existing subsection (1) as (1)(a) and correct 
a technical error in the new subsection (1)(a), as described in section 
VIII.
     Redesignate existing subsection (2) as (1)(b), as 
described in section VIII.

C. Proposed New Regulation Text

     Revise Sec.  412.29, as described in section VII, to 
include the additional requirements to be met by inpatient 
rehabilitation hospitals and units and the requirements for coverage in 
an IRF.
     Add a new introductory paragraph at Sec.  412.30 that 
includes the requirements previously found in Sec.  412.29(a) 
(describing the requirements for new and converted rehabilitation 
units), as described in section VII.
     Revise Sec.  412.610(f) to require that the IRF provide a 
copy of the electronic computer file format of the IRF-PAI to the 
contractor upon request, as described in section VII.
     Add a new paragraph Sec.  412.614(d)(2) to indicate that 
failure of an IRF to submit IRF-PAI data on all of its Medicare Part C 
(Medicare Advantage) patients will result in forfeiture of the IRF's 
ability to have any of its Medicare Part C (Medicare Advantage) data 
used in the compliance calculations, as described in section VIII.

D. Proposed Rescission of Outdated HCFAR-85-2-1

    Rescind HCFA Ruling 85-2-1 entitled ``Medicare Criteria for 
Medicare Coverage of Inpatient Hospital Rehabilitation Services'' and 
set forth new coverage criteria applicable to care provided by IRFs, as 
described in section VIII.
Proposed Update to the Case-Mix Group (CMG) Relative Weights and 
Average Length of Stay Values for FY 2010
    As specified in 42 CFR 412.620(b)(1), we calculate a relative 
weight for each CMG that is proportional to the resources needed by an 
average inpatient rehabilitation case in that CMG. For example, cases 
in a CMG with a relative weight of 2, on average, will cost twice as 
much as cases in a CMG with a relative weight of 1. Relative weights 
account for the variance in cost per discharge due to the variance in 
resource utilization among the payment groups, and their use helps to 
ensure that IRF PPS payments support beneficiary access to care as well 
as provider efficiency.
    In this proposed rule, we propose to update the CMG relative 
weights and average length of stay values for FY 2010. Comments on the 
FY 2009 IRF PPS proposed rule (73 FR 46373) suggested that the data 
that we used for FY 2009 to update the CMG relative weights and average 
length of stay values did not fully reflect recent changes in IRF 
utilization that have occurred because of changes in the IRF compliance 
percentage and the consequences of recent IRF medical necessity 
reviews. In light of recently available data and our desire to ensure 
that the CMG relative weights and average length of stay values are as 
reflective as possible of these recent changes and that IRF PPS 
payments continue to reflect as accurately as possible the current 
costs of care in IRFs, we believe that it is appropriate to update the 
CMG relative weights and average length of stay values at this time.
    As required by statute, we always use the most recent available 
data to update the CMG relative weights and average length of stay 
values. For FY 2009,

[[Page 21056]]

however, those data were the FY 2006 IRF cost report data. As noted 
above, many commenters on the FY 2009 IRF PPS proposed rule (73 FR 
46373) suggested that the FY 2006 IRF cost report data were not fully 
reflective of the recent IRF utilization changes and that the FY 2007 
IRF cost report data would be more reflective of these changes. We were 
unable to use the FY 2007 IRF cost report data for the FY 2009 final 
rule (73 FR 46370) because, as we indicated in that rule, only a small 
portion of the FY 2007 IRF cost reports were available for analysis at 
that time. Thus, we used the most current and complete IRF cost report 
data available at that time.
    At this time, the majority of FY 2007 IRF cost reports are 
available for use in analyses in this proposed rule. Thus, we are using 
FY 2007 cost report data to update the proposed FY 2010 CMG relative 
weights and average length of stay values in this proposed rule.
    In this proposed rule, we propose to use the same methodology that 
we used to update the CMG relative weights and average length of stay 
values in the FY 2009 IRF PPS final rule (73 FR 46370). In calculating 
the CMG relative weights, we use a hospital-specific relative value 
method to estimate operating (routine and ancillary services) and 
capital costs of IRFs. The process used to calculate the CMG relative 
weights for this proposed rule follows below:
    Step 1. We calculate the CMG relative weights by estimating the 
effects that comorbidities have on costs.
    Step 2. We adjust the cost of each Medicare discharge (case) to 
reflect the effects found in the first step.
    Step 3. We use the adjusted costs from the second step to calculate 
CMG relative weights, using the hospital-specific relative value 
method.
    Step 4. We normalize the FY 2010 CMG relative weight to the same 
average CMG relative weight from the CMG relative weights implemented 
in the FY 2009 IRF PPS final rule (73 FR 46370).
    Consistent with the way we implemented changes to the IRF 
classification system in the FY 2006 IRF PPS final rule (70 FR 47880 
and 70 FR 57166), the FY 2007 IRF PPS final rule (71 FR 48354), and the 
FY 2009 IRF PPS final rule (73 FR 46370), we propose to make changes to 
the CMG relative weights for FY 2010 in such a way that total estimated 
aggregate payments to IRFs for FY 2010 would be the same with or 
without the proposed changes (that is, in a budget neutral manner) by 
applying a budget neutrality factor to the standard payment amount. To 
calculate the appropriate proposed budget neutrality factor for use in 
updating the FY 2010 CMG relative weights, we propose to use the 
following steps:
    Step 1. Calculate the estimated total amount of IRF PPS payments 
for FY 2010 (with no proposed changes to the CMG relative weights).
    Step 2. Apply the proposed changes to the CMG relative weights (as 
discussed above) to calculate the estimated total amount of IRF PPS 
payments for FY 2010.
    Step 3. Divide the amount calculated in step 1 by the amount 
calculated in step 2 to determine the proposed budget neutrality factor 
(1.0004) that would maintain the same total estimated aggregate 
payments in FY 2010 with and without the proposed changes to the CMG 
relative weights.
    Step 4. Apply the proposed budget neutrality factor (1.0004) to the 
FY 2009 IRF PPS standard payment amount after the application of the 
budget-neutral wage adjustment factor.
    In section V.C of this proposed rule, we discuss the proposed 
methodology for calculating the standard payment conversion factor for 
FY 2010.
    Table 1 below, ``Proposed Relative Weights and Average Length of 
Stay Values for Case-Mix Groups,'' presents the CMGs, the comorbidity 
tiers, the proposed corresponding relative weights, and the proposed 
average length of stay values for each CMG and tier for FY 2010. The 
average length of stay for each CMG is used to determine when an IRF 
discharge meets the definition of a short-stay transfer, which results 
in a per diem case level adjustment. The proposed relative weights and 
average length of stay values shown in Table 1 are subject to change 
for the final rule if more recent data become available for use in 
these analyses.

                                Table 1--Proposed Relative Weights and Average Length of Stay Values for Case-Mix Groups
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Proposed relative weight                 Proposed average length of stay
               CMG                   CMG description (M=motor,   ---------------------------------------------------------------------------------------
                                        C=cognitive, A=age)         Tier 1     Tier 2     Tier 3      None      Tier 1     Tier 2     Tier 3      None
--------------------------------------------------------------------------------------------------------------------------------------------------------
0101............................  Stroke M > 51.05..............     0.7687     0.7091     0.6360     0.6046          9         10          9          8
0102............................  Stroke M > 44.45 and M < 51.05     0.9676     0.8926     0.8006     0.7611         11         11         11         10
                                   and C > 18.5.
0103............................  Stroke M > 44.45 and M < 51.05     1.1434     1.0548     0.9461     0.8994         14         14         12         12
                                   and C < 18.5.
0104............................  Stroke M > 38.85 and M < 44.45     1.2167     1.1225     1.0068     0.9570         13         14         13         13
0105............................  Stroke M > 34.25 and M < 38.85     1.4313     1.3205     1.1843     1.1258         16         18         15         15
0106............................  Stroke M > 30.05 and M < 34.25     1.6634     1.5345     1.3763     1.3083         19         19         17         17
0107............................  Stroke M > 26.15 and M < 30.05     1.8955     1.7486     1.5684     1.4909         20         21         19         19
0108............................  Stroke M < 26.15 and A > 84.5.     2.2786     2.1021     1.8854     1.7922         28         26         23         22
0109............................  Stroke M > 22.35 and M < 26.15     2.1740     2.0057     1.7989     1.7100         22         23         21         22
                                   and A < 84.5.
0110............................  Stroke M < 22.35 and A < 84.5.     2.7212     2.5104     2.2516     2.1404         30         30         27         26
0201............................  Traumatic brain injury M >         0.7736     0.6581     0.5909     0.5368         11         10          8          8
                                   53.35 and C > 23.5.
0202............................  Traumatic brain injury M >         1.0344     0.8800     0.7901     0.7177         14         11         10         10
                                   44.25 and M < 53.35 and C >
                                   23.5.

[[Page 21057]]

 
0203............................  Traumatic brain injury M >         1.1675     0.9933     0.8918     0.8101         12         13         12         11
                                   44.25 and C < 23.5.
0204............................  Traumatic brain injury M >         1.2977     1.1040     0.9913     0.9005         15         14         13         12
                                   40.65 and M < 44.25.
0205............................  Traumatic brain injury M >         1.5866     1.3498     1.2120     1.1009         20         17         16         14
                                   28.75 and M < 40.65.
0206............................  Traumatic brain injury M >         1.9678     1.6741     1.5032     1.3655         21         21         18         18
                                   22.05 and M < 28.75.
0207............................  Traumatic brain injury M <         2.6606     2.2636     2.0324     1.8462         36         28         25         22
                                   22.05.
0301............................  Non-traumatic brain injury M >     1.1006     0.9303     0.8372     0.7664         12         12         11         10
                                   41.05.
0302............................  Non-traumatic brain injury M >     1.3956     1.1797     1.0615     0.9719         14         15         13         13
                                   35.05 and M < 41.05.
0303............................  Non-traumatic brain injury M >     1.6795     1.4197     1.2775     1.1696         17         18         16         15
                                   26.15 and M < 35.05.
0304............................  Non-traumatic brain injury M <     2.3029     1.9466     1.7517     1.6037         28         23         21         20
                                   26.15.
0401............................  Traumatic spinal cord injury M     0.9262     0.7974     0.7669     0.6573         12         12         11          9
                                   > 48.45.
0402............................  Traumatic spinal cord injury M     1.3955     1.2013     1.1554     0.9903         17         15         16         13
                                   > 30.35 and M < 48.45.
0403............................  Traumatic spinal cord injury M     2.2854     1.9675     1.8922     1.6218         27         23         23         21
                                   > 16.05 and M < 30.35.
0404............................  Traumatic spinal cord injury M     4.0113     3.4532     3.3211     2.8464         52         40         37         35
                                   < 16.05 and A > 63.5.
0405............................  Traumatic spinal cord injury M     3.0911     2.6610     2.5592     2.1935         45         30         29         27
                                   < 16.05 and A < 63.5.
0501............................  Non-traumatic spinal cord          0.8120     0.6408     0.5930     0.5226          9         10          8          8
                                   injury M > 51.35.
0502............................  Non-traumatic spinal cord          1.1022     0.8698     0.8049     0.7094         13         11         11         10
                                   injury M > 40.15 and M <
                                   51.35.
0503............................  Non-traumatic spinal cord          1.4364     1.1336     1.0491     0.9245         16         14         13         13
                                   injury M > 31.25 and M <
                                   40.15.
0504............................  Non-traumatic spinal cord          1.7306     1.3658     1.2639     1.1139         21         17         16         15
                                   injury M > 29.25 and M <
                                   31.25.
0505............................  Non-traumatic spinal cord          2.0466     1.6151     1.4947     1.3172         23         21         19         17
                                   injury M > 23.75 and M <
                                   29.25.
0506............................  Non-traumatic spinal cord          2.8482     2.2478     2.0801     1.8332         32         27         26         23
                                   injury M < 23.75.
0601............................  Neurological M > 47.75........     0.9213     0.7561     0.7165     0.6517         11          9         10          9
0602............................  Neurological M > 37.35 and M <     1.2343     1.0130     0.9598     0.8730         12         13         12         12
                                   47.75.
0603............................  Neurological M > 25.85 and M <     1.5714     1.2897     1.2220     1.1115         16         16         15         15
                                   37.35.
0604............................  Neurological M < 25.85........     2.0876     1.7133     1.6235     1.4766         24         21         20         18
0701............................  Fracture of lower extremity M      0.9097     0.7723     0.7302     0.6542         11         11         10          9
                                   > 42.15.
0702............................  Fracture of lower extremity M      1.2047     1.0228     0.9671     0.8664         14         14         12         12
                                   > 34.15 and M < 42.15.
0703............................  Fracture of lower extremity M      1.4750     1.2523     1.1841     1.0609         16         16         15         14
                                   > 28.15 and M < 34.15.
0704............................  Fracture of lower extremity M      1.8842     1.5997     1.5126     1.3552         20         20         19         17
                                   < 28.15.
0801............................  Replacement of lower extremity     0.6950     0.5693     0.5176     0.4707          8          7          8          7
                                   joint M > 49.55.
0802............................  Replacement of lower extremity     0.9315     0.7631     0.6938     0.6309         10         10          9          9
                                   joint M > 37.05 and M < 49.55.
0803............................  Replacement of lower extremity     1.3298     1.0894     0.9904     0.9007         13         13         13         12
                                   joint M > 28.65 and M < 37.05
                                   and A > 83.5.
0804............................  Replacement of lower extremity     1.1654     0.9547     0.8680     0.7893         13         12         11         11
                                   joint M > 28.65 and M < 37.05
                                   and A < 83.5.

[[Page 21058]]

 
0805............................  Replacement of lower extremity     1.4552     1.1921     1.0838     0.9856         16         16         13         13
                                   joint M > 22.05 and M < 28.65.
0806............................  Replacement of lower extremity     1.8041     1.4779     1.3436     1.2219         18         18         17         15
                                   joint M < 22.05.
0901............................  Other orthopedic M > 44.75....     0.8415     0.7586     0.6834     0.6029         10         10          9          9
0902............................  Other orthopedic M > 34.35 and     1.1248     1.0140     0.9135     0.8059         13         13         12         11
                                   M < 44.75.
0903............................  Other orthopedic M > 24.15 and     1.4546     1.3113     1.1813     1.0422         16         16         15         14
                                   M < 34.35.
0904............................  Other orthopedic M < 24.15....     1.9249     1.7352     1.5633     1.3791         22         22         19         18
1001............................  Amputation, lower extremity M      0.9396     0.9140     0.7841     0.7190         11         12         11         10
                                   > 47.65.
1002............................  Amputation, lower extremity M      1.2481     1.2141     1.0416     0.9550         14         15         13         12
                                   > 36.25 and M < 47.65.
1003............................  Amputation, lower extremity M      1.8120     1.7627     1.5122     1.3865         19         22         19         17
                                   < 36.25.
1101............................  Amputation, non-lower              1.1979     0.9863     0.9863     0.8490         12         12         13         11
                                   extremity M > 36.35.
1102............................  Amputation, non-lower              1.7482     1.4394     1.4394     1.2389         18         18         17         15
                                   extremity M < 36.35.
1201............................  Osteoarthritis M > 37.65......     1.0475     0.9619     0.8526     0.7588         11         12         11         10
1202............................  Osteoarthritis M > 30.75 and M     1.3064     1.1998     1.0634     0.9464         14         15         13         13
                                   < 37.65.
1203............................  Osteoarthritis M < 30.75......     1.6446     1.5103     1.3387     1.1914         16         18         17         15
1301............................  Rheumatoid, other arthritis M      1.1050     0.9958     0.8482     0.7584         12         12         11         10
                                   > 36.35.
1302............................  Rheumatoid, other arthritis M      1.4925     1.3451     1.1456     1.0243         15         16         14         14
                                   > 26.15 and M < 36.35.
1303............................  Rheumatoid, other arthritis M      1.9358     1.7445     1.4858     1.3285         24         22         19         17
                                   < 26.15.
1401............................  Cardiac M > 48.85.............     0.8086     0.7359     0.6488     0.5737         10         10          9          8
1402............................  Cardiac M > 38.55 and M <          1.1101     1.0104     0.8907     0.7877         13         13         12         11
                                   48.85.
1403............................  Cardiac M > 31.15 and M <          1.3542     1.2325     1.0866     0.9609         15         15         14         13
                                   38.55.
1404............................  Cardiac M < 31.15.............     1.7581     1.6002     1.4107     1.2475         20         20         17         16
1501............................  Pulmonary M > 49.25...........     0.9737     0.8538     0.7507     0.7139         11         12         10         10
1502............................  Pulmonary M > 39.05 and M <        1.2407     1.0879     0.9565     0.9097         13         13         12         11
                                   49.25.
1503............................  Pulmonary M > 29.15 and M <        1.5710     1.3776     1.2112     1.1519         16         17         14         14
                                   39.05.
1504............................  Pulmonary M < 29.15...........     1.9666     1.7245     1.5162     1.4419         22         19         17         17
1601............................  Pain syndrome M > 37.15.......     1.0995     0.8921     0.7628     0.7055         13         13         10         10
1602............................  Pain syndrome M > 26.75 and M      1.4832     1.2034     1.0290     0.9518         16         16         13         13
                                   < 37.15.
1603............................  Pain syndrome M < 26.75.......     1.9071     1.5473     1.3231     1.2238         21         19         17         16
1701............................  Major multiple trauma without      1.0471     0.9262     0.8483     0.7476         11         12         11         10
                                   brain or spinal cord injury M
                                   > 39.25.
1702............................  Major multiple trauma without      1.3692     1.2110     1.1092     0.9776         14         15         14         13
                                   brain or spinal cord injury M
                                   > 31.05 and M < 39.25.
1703............................  Major multiple trauma without      1.6479     1.4575     1.3350     1.1765         18         17         16         15
                                   brain or spinal cord injury M
                                   > 25.55 and M < 31.05.
1704............................  Major multiple trauma without      2.0704     1.8312     1.6773     1.4782         23         24         21         19
                                   brain or spinal cord injury M
                                   < 25.55.
1801............................  Major multiple trauma with         1.2289     0.9679     0.9097     0.7838         16         13         13         11
                                   brain or spinal cord injury M
                                   > 40.85.
1802............................  Major multiple trauma with         1.8447     1.4528     1.3655     1.1766         19         18         16         15
                                   brain or spinal cord injury M
                                   > 23.05 and M < 40.85.
1803............................  Major multiple trauma with         3.1568     2.4862     2.3367     2.0135         41         31         27         24
                                   brain or spinal cord injury M
                                   < 23.05.
1901............................  Guillain Barre M > 35.95......     1.1168     0.9120     0.9120     0.8640         14         11         11         12

[[Page 21059]]

 
1902............................  Guillain Barre M > 18.05 and M     2.2757     1.8585     1.8585     1.7607         25         23         25         22
                                   < 35.95.
1903............................  Guillain Barre M < 18.05......     3.6152     2.9523     2.9523     2.7970         33         39         41         32
2001............................  Miscellaneous M > 49.15.......     0.8798     0.7281     0.6613     0.5922         11         10          9          8
2002............................  Miscellaneous M > 38.75 and M      1.1850     0.9807     0.8907     0.7977         12         13         12         11
                                   < 49.15.
2003............................  Miscellaneous M > 27.85 and M      1.5208     1.2585     1.1431     1.0236         16         16         14         13
                                   < 38.75.
2004............................  Miscellaneous M < 27.85.......     2.0336     1.6829     1.5286     1.3688         22         20         19         17
2101............................  Burns M > 0...................     2.2605     2.2605     1.9566     1.6843         25         25         25         17
5001............................  Short-stay cases, length of     .........  .........  .........     0.1465  .........  .........  .........          3
                                   stay is 3 days or fewer.
5101............................  Expired, orthopedic, length of  .........  .........  .........     0.6748  .........  .........  .........          8
                                   stay is 13 days or fewer.
5102............................  Expired, orthopedic, length of  .........  .........  .........     1.5299  .........  .........  .........         19
                                   stay is 14 days or more.
5103............................  Expired, not orthopedic,        .........  .........  .........     0.7087  .........  .........  .........          9
                                   length of stay is 15 days or
                                   fewer.
5104............................  Expired, not orthopedic,        .........  .........  .........     1.9990  .........  .........  .........         24
                                   length of stay is 16 days or
                                   more.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Generally, updates to the CMG relative weights result in some 
increases and some decreases to the CMG relative weight values. Table 2 
shows, overall, how the proposed revisions in this proposed rule would 
affect particular CMG relative weight values, which affect the overall 
distribution of payments within CMGs and tiers. Note that, because we 
propose to implement the CMG relative weight revisions in a budget 
neutral manner, total estimated aggregate payments to IRFs for FY 2010 
would not be affected. However, the proposed revisions would affect the 
distribution of payments within CMGs and tiers.

   Table 2--Distributional Effects of the Proposed Changes to the CMG
     Relative Weights (FY 2009 Values Compared With FY 2010 Values)
------------------------------------------------------------------------
                                      Number of  cases    Percentage of
          Percentage change               affected       cases affected
------------------------------------------------------------------------
Increased by 5% or more.............                 0                 0
Increased by between 0% and 5%......           121,702                33
Changed by 0%.......................            72,205                19
Decreased by between 0% and 5%......           180,032                48
Decreased by 5% or more.............                76                 0
------------------------------------------------------------------------

    As Table 2 shows, virtually 100 percent of all IRF cases are in 
CMGs and tiers that would experience less than a 5 percent change 
(either increase or decrease) in the CMG relative weight value as a 
result of the proposed revisions. The largest increase in the proposed 
CMG relative weight values would be a 2.9 percent increase in the CMG 
relative weight value for CMG C0405--Traumatic spinal cord injury, 
motor score less than 16.05 and age less than 63.5--in tier 2. However, 
based on our analysis of the FY 2007 IRF claims data, this proposed 
change would only affect 25 cases. The proposed increase affecting the 
largest number of cases would be a 0.1 percent increase in the CMG 
relative weight value for CMG A0110--Stroke, motor score less than 
22.35 and age less than 84.5--in the ``no comorbidity'' tier. Based on 
our analysis of the FY 2007 IRF claims data, this change would affect 
15,426 cases. The largest percent decrease that would be anticipated 
from the proposed CMG relative weight values would be an estimated 8.9 
percent decrease in the CMG relative weight for CMG D2101--Burns, motor 
score greater than zero--in tier 3. However, based on our analysis of 
the FY 2007 IRF claims data, this proposed change would only affect 76 
cases. The proposed decrease affecting the largest number of cases 
would be a 0.1 percent decrease in the CMG relative weight value for 
CMG A0704--Fracture of lower extremity, motor score less than 28.15--in 
the ``no comorbidity'' tier. Based on our analysis of the FY 2007 IRF 
claims data, this change would affect 24,541 cases.
    Given the changes in IRFs' case mix over time, we believe that it 
is important to update the CMG relative weights and average length of 
stay values periodically to continue to reflect the trends in IRF 
patient populations. As we have data that better reflect the recent IRF 
utilization changes at this time, we propose the updates described in 
this section.

IV. Proposed Updates to the Facility-Level Adjustment Factors for FY 
2010

A. Background on Facility-Level Adjustments

    Section 1886(j)(3)(A)(v) of the Act confers broad authority upon 
the Secretary to adjust the per unit payment rate by ``such factors as 
the Secretary determines are necessary to properly reflect variations 
in necessary costs of

[[Page 21060]]

treatment among rehabilitation facilities.'' For example, we adjust the 
Federal prospective payment amount associated with a CMG to account for 
facility-level characteristics such as an IRF's LIP percentage, 
teaching status, and location in a rural area, if applicable, as 
described in Sec.  412.624(e).
    In the FY 2002 IRF PPS final rule (66 FR at 41359), we published 
the original adjustment factors that were used to calculate an IRF's 
LIP percentage, and location in a rural area, if applicable. These 
original adjustment factors were computed by the RAND Corporation 
(RAND) under contract with CMS. As discussed in the FY 2002 IRF PPS 
proposed rule (65 FR 66356), RAND used regression analysis to establish 
these adjustment factors by examining the effects of various facility-
level characteristics, including rural location and percentage of low-
income patients, on an IRF's average cost per case. Based on RAND's 
analysis, in the FY 2002 IRF PPS final rule (66 FR at 41359 through 
41360) we finalized a rural adjustment factor of 19.14 percent and a 
LIP adjustment formula of (1 + disproportionate share hospital (DSH) 
patient percentage) raised to the power of (0.4838), where the DSH 
patient percentage for each IRF =
[GRAPHIC] [TIFF OMITTED] TP06MY09.051

    (From this point forward when we refer to the ``LIP adjustment 
factor'', we mean the number to which the standard formula (1 + DSH 
patient percentage) is raised [in this case, 0.4838].)
    In the FY 2006 IRF PPS final rule (70 FR 47880, 47928 through 
47934), we updated the adjustment factors for the rural and LIP 
adjustments and added a new teaching status adjustment. The FY 2006 
adjustment factors were based on updated regression analysis by RAND 
using the same methodology used to develop the rural and LIP adjustment 
factors for the FY 2002 IRF PPS final rule (66 FR at 41359) and the 
most current and complete IRF claims and cost report data available at 
that time (FY 2003). (RAND's analysis for FY 2006 is included in a 
November 2005 RAND report titled ``Possible Refinements to the 
Facility-Level Payment Adjustments for the Inpatient Rehabilitation 
Facility Prospective Payment System,'' which can be downloaded from 
RAND's Web site at http://www.rand.org/pubs/technical_reports/TR219/.) 
Based on RAND's 2005 analysis, we finalized a rural adjustment factor 
of 21.3 percent and a LIP adjustment factor of 0.6229 in the FY 2006 
IRF PPS final rule (70 FR 47880, 47928 through 47934).
    We also described our rationale for implementing a teaching status 
adjustment for IRFs based on RAND's 2005 analysis in the FY 2006 IRF 
PPS final rule (70 FR 47880, 47928 through 47932). The IRF teaching 
status adjustment that was finalized in the FY 2006 IRF PPS final rule 
(70 FR 47880, 47928 through 47932) was calculated using the following 
formula for each IRF: (1 + full-time equivalent (FTE) residents/average 
daily census) raised to the power of (0.9012). (From this point forward 
when we refer to the ``teaching status adjustment factor'', we mean the 
number to which the standard formula (1 + FTE residents/average daily 
census) is raised [in this case, 0.9012]).

B. Proposed Updates to the IRF Facility-Level Adjustment Factors

    In this rule, we propose to update the rural, LIP, and teaching 
status adjustment factors for the IRF PPS based on updated regression 
analysis using the same regression analysis methodology that was used 
by RAND to compute the rural and LIP adjustment factors for the FY 2002 
IRF PPS final rule (66 FR at 41359) and the rural, LIP, and teaching 
status adjustment factors for the FY 2006 IRF PPS final rule (70 FR 
47880, 47928 through 47934). However, for the reasons discussed below, 
we are proposing to compute the adjustment factors using three 
consecutive years of cost report data (FY 2005, FY 2006, and FY 2007) 
and average the adjustment factors for all three years to develop the 
proposed rural, LIP, and teaching status adjustment factors for FY 
2010.
    We received a comment on the FY 2009 IRF PPS proposed rule (73 FR 
22674) suggesting that we consider a three-year moving average approach 
because it would enable IRFs to plan their future Medicare payments 
more accurately. We analyzed the suggestion and believe that a three 
year average of the adjustment factors would promote more stability in 
the adjustment factors over time, which we believe would benefit IRFs 
by ensuring reduced variation from year to year, thus enabling them to 
better project future Medicare payments and thereby facilitate IRFs' 
long-term budgetary planning processes. If, instead, we were to 
continue to compute the adjustment factors based on only a single 
year's worth of data (as was done in the FY 2002 and FY 2006 IRF PPS 
final rules (66 FR at 41359 and 70 FR 47880, 47928 through 47934)), we 
believe that IRFs would experience unnecessarily large fluctuations in 
the adjustment factors from year to year. These large fluctuations 
would reduce the consistency and predictability of IRF PPS payments 
over time, and could be detrimental to IRFs' long-term planning 
processes. For this reason, we are proposing the use of a three-year 
moving average in computing the proposed rural, LIP, and teaching 
status adjustment factors in this proposed rule.
    To study the effects of this proposal over time, we examined the 
magnitude of changes in the rural, LIP, and teaching status adjustment 
factors that would occur if we were to compute the proposed adjustment 
factors based on a single year's worth of data (FY 2007) compared with 
computing the proposed adjustment factors based on an average of three 
year's worth of data (FY 2005, FY 2006, and FY 2007). In 2002 the rural 
adjustment factor was set at 19.14 percent. It was updated in FY 2006 
to 21.3 percent based on RAND's regression analysis of FY 2003 Medicare 
claims and cost report data, as described above. If we were to update 
the rural adjustment factor for FY 2010 using a single year's worth of 
data (FY 2007), it would decrease to 17.65 percent. If instead we were 
to calculate an average adjustment factor by using the most recent 
three years worth of data (FY 2005, FY 2006, and FY 2007), the rural 
adjustment factor would instead decrease to 18.27 percent. That is, 
computing the adjustment factors based on an average of three year's 
worth of data (FY 2005 through FY 2007) instead of a single year's 
worth of data (FY 2007) would lead to a smaller decrease in the rural 
adjustment factor and would thereby mitigate the impact of this change 
on IRF payments to rural providers, which would benefit rural IRFs in 
conducting their long-term budgetary planning processes.
    Similarly, we examined the effects of the proposed three-year 
moving average methodology on the magnitude of the LIP adjustment 
factor for FY 2010. The LIP adjustment factor was 0.4838 in FY 2002. It 
was updated in FY 2006 to 0.6229 based on RAND's regression

[[Page 21061]]

analysis of FY 2003 Medicare claims and cost report data, as described 
above. If we were to update the LIP adjustment factor for FY 2010 using 
FY 2007 data, it would decrease to 0.3865. If instead we were to 
average the adjustment factors derived by using the most recent three 
years worth of data (FY 2005, FY 2006, and FY 2007), the proposed LIP 
adjustment factor for FY 2010 would be 0.4372. Thus, computing the LIP 
adjustment factor based on the most recent three years worth of data 
(FY 2005, FY 2006, and FY 2007) would result in a smaller decrease in 
the LIP adjustment factor and would thereby mitigate the impact of this 
change on IRF payments, which would benefit all IRF providers that 
receive LIP payments.
    Lastly, we examined the effects of the proposed three-year moving 
average approach on the magnitude of the teaching status adjustment 
factor for FY 2010. The IRF teaching status adjustment was first 
implemented in the FY 2006 IRF PPS final rule (70 FR 47880, 47928 
through 47932), and the teaching status adjustment factor implemented 
in FY 2006 was 0.9012. If we were to update the teaching status 
adjustment factor for FY 2010 using FY 2007 data, it would increase to 
1.0451. If instead we were to average the adjustment factors derived by 
using the most recent three years worth of data (FY 2005, FY 2006, and 
FY 2007), the proposed teaching status adjustment factor for FY 2010 
would be 1.0494. Thus, the proposed teaching status adjustment factor 
based on the most recent three years worth of data (FY 2005, FY 2006, 
and FY 2007) would be higher than the teaching status adjustment factor 
based on one year's worth of data (FY 2007). We note, however, that the 
teaching status adjustment factor fluctuates significantly from year to 
year over the three year period (FY 2005 through 2007) that we 
examined. Using FY 2005, FY 2006, and FY 2007 data, respectively, we 
estimate that the teaching status adjustment factors would be 1.5155, 
0.6732, and 1.0451, respectively. Such extreme volatility in the 
teaching status adjustment factors demonstrates the benefit to IRF 
providers of the proposed three year moving average approach because it 
mitigates the volatility in provider payments from year to year.
    Thus, we propose to use the same methodology developed by RAND in 
computing the rural and LIP adjustment factors for the FY 2002 IRF PPS 
final rule, and in computing the rural, LIP, and teaching status 
adjustment factors for the FY 2006 IRF PPS final rule, to update the 
proposed rural, LIP, and teaching status adjustment factors for FY 2010 
in this proposed rule. However, we also propose to compute these 
updated adjustment factors using each of three years worth of data (FY 
2005, FY 2006, and FY 2007) and to average the adjustment factors for 
these three years to compute the proposed updates to the adjustment 
factors for this proposed rule. To calculate the proposed updates to 
the rural, LIP, and teaching status adjustment factors for FY 2010, we 
propose to use the following steps:
    [Steps 1 and 2 are performed independently for each of three years 
of IRF claims data: FY 2005, FY 2006, and FY 2007.]
    Step 1. Calculate the average cost per case for each IRF in the IRF 
claims data.
    Step 2. Use logarithmic regression analysis on average cost per 
case to compute the coefficients for the rural, LIP, and teaching 
status adjustments.
    Step 3. Calculate a simple mean for each of the coefficients across 
the three years of data (using logarithms for the LIP and teaching 
status adjustment coefficients (because they are continuous variables), 
but not for the rural adjustment coefficient (because the rural 
variable is either zero (if not rural) or 1 (if rural)). To compute the 
LIP and teaching status adjustment factors, we convert these factors 
back out of the logarithmic form.
    Using the proposed methodology described above, we estimate the 
proposed rural adjustment factor for FY 2010 to be 18.27 percent, the 
proposed LIP adjustment factor for FY 2010 to be 0.4372, and the 
proposed teaching status adjustment factor for FY 2010 to be 1.0494. We 
note that we had expected that recent improvements in the CMG relative 
weights implemented in FY 2006, FY 2007, and FY 2009 final rules would 
more appropriately account for the variation in costs among different 
types of IRF patients and thereby reduce the need for the facility-
level adjustments. This appears to be the case with respect to the 
decreases in the estimated rural and LIP adjustment factors. The 
proposed adjustment factors are subject to change for the final rule if 
more recent data become available for use in these analyses.

C. Budget Neutrality Methodology for the Updates to the IRF Facility-
Level Adjustment Factors

    Consistent with the way that we implemented changes to the IRF 
facility-level adjustment factors (the rural, LIP, and teaching status 
adjustment factors) in the FY 2006 IRF PPS final rule (70 FR 47880 and 
70 FR 57166), which was the only year in which we updated these 
adjustment factors, we propose to make changes to the rural, LIP, and 
teaching status adjustment factors for FY 2010 in such a way that total 
estimated aggregate payments to IRFs for FY 2010 would be the same with 
or without the proposed changes (that is, in a budget neutral manner) 
by applying budget neutrality factors for each of these three changes 
to the standard payment amount. To calculate the proposed budget 
neutrality factors used to update the rural, LIP, and teaching status 
adjustment factors, we propose to use the following steps:
    Step 1. Using the most recent available data (currently FY 2007), 
calculate the estimated total amount of IRF PPS payments that would be 
made in FY 2010 (without applying the proposed changes to the rural, 
LIP, or teaching status adjustment factors).
    Step 2. Calculate the estimated total amount of IRF PPS payments 
that would be made in FY 2010 if the proposed update to the rural 
adjustment factor were applied.
    Step 3. Divide the amount calculated in step 1 by the amount 
calculated in step 2 to determine the proposed budget neutrality factor 
(1.0025) that would maintain the same total estimated aggregate 
payments in FY 2010 with and without the proposed change to the rural 
adjustment factor.
    Step 4. Calculate the estimated total amount of IRF PPS payments 
that would be made in FY 2010 if the proposed update to the LIP 
adjustment factor were applied.
    Step 5. Divide the amount calculated in step 1 by the amount 
calculated in step 4 to determine the proposed budget neutrality factor 
(1.0221) that would maintain the same total estimated aggregate 
payments in FY 2010 with and without the proposed change to the LIP 
adjustment factor.
    Step 6. Calculate the estimated total amount of IRF PPS payments 
that would be made in FY 2010 if the proposed update to the teaching 
status adjustment factor were applied.
    Step 7. Divide the amount calculated in step 1 by the amount 
calculated in step 6 to determine the proposed budget neutrality factor 
(0.9980) that would maintain the same total estimated aggregate 
payments in FY 2010 with and without the proposed change to the 
teaching status adjustment factor.
    Step 8. Apply the proposed budget neutrality factors for the 
updates to the rural, LIP, and teaching status adjustment factors to 
the FY 2009 IRF PPS standard payment amount after the application of 
the proposed budget neutrality factors for the wage

[[Page 21062]]

adjustment and the CMG relative weights.
    The proposed budget neutrality factors for the proposed changes to 
the rural, LIP, and teaching status adjustment factors are subject to 
change for the final rule if more recent data become available for use 
in these analyses or if the proposed payment policies associated with 
the proposed budget neutrality factors change.
    In section V.C of this proposed rule, we discuss the proposed 
methodology for calculating the standard payment conversion factor for 
FY 2010.

V. Proposed FY 2010 IRF PPS Federal Prospective Payment Rates

A. Proposed Market Basket Increase Factor and Labor-Related Share for 
FY 2010

    Section 1886(j)(3)(C) of the Act requires the Secretary to 
establish an increase factor that reflects changes over time in the 
prices of an appropriate mix of goods and services included in the 
covered IRF services, which is referred to as a market basket index. 
According to section 1886(j)(3)(A)(i) of the Act, the increase factor 
shall be used to update the IRF Federal prospective payment rates for 
each FY. Section 115 of the MMSEA amended section 1886(j)(3)(C) of the 
Act to apply a zero percent increase factor for FYs 2008 and 2009, 
effective for IRF discharges occurring on or after April 1, 2008. In 
the absence of any such amendment for FY 2010, we are proposing a 
market basket increase factor based upon the most current data 
available in accordance with section 1886(j)(3)(A)(i) of the Act.
    Beginning with the FY 2006 IRF PPS final rule (70 FR 47908 through 
47917), the market basket index used to update IRF payments is a 2002-
based market basket reflecting the operating and capital cost 
structures for freestanding IRFs, freestanding inpatient psychiatric 
facilities (IPFs), and long-term care hospitals (LTCHs) (hereafter 
referred to as the rehabilitation, psychiatric, and long-term care 
(RPL) market basket).
    Therefore, in FY 2010 we propose to use the same methodology 
described in the FY 2006 IRF PPS Final Rule (70 FR 47908 through 47917) 
to compute the FY 2010 market basket increase factor and labor-related 
share. Using this method and the IHS Global Insight, Inc. forecast for 
the first quarter of 2009 of the 2002-based RPL market basket, the 
proposed FY 2010 IRF market basket increase factor would be 2.4 
percent. IHS Global Insight is an economic and financial forecasting 
firm that contracts with CMS to forecast the components of providers' 
market baskets. In addition, consistent with historical practice, we 
propose to update the market basket increase factor and labor-related 
share estimates in the final rule to reflect the most recent available 
data.
    We also propose to continue to use the methodology described in the 
FY 2006 IRF PPS final rule to update the IRF labor-related share for FY 
2010 (70 FR 47880, 47908 through 47917). Using this method and the IHS 
Global Insight, Inc. forecast for the first quarter of 2009 of the 
2002-based RPL market basket, the IRF labor-related share for FY 2010 
is the sum of the FY 2010 relative importance of each labor-related 
cost category. This figure reflects the different rates of price change 
for these cost categories between the base year (FY 2002) and FY 2010. 
Consistent with our proposal to update the labor-related share with the 
most recent available data, the labor-related share for this proposed 
rule reflects IHS Global Insight's first quarter 2009 forecast of the 
2002-based RPL market basket. As shown in Table 3, the proposed FY 2010 
labor-related share is currently calculated to be 75.904 percent.

    Table 3--FY 2010 IRF RPL Labor-Related Share Relative Importance
------------------------------------------------------------------------
                                                       FY 2010 IRF labor-
                                                         related share
                    Cost category                           relative
                                                           importance
------------------------------------------------------------------------
Wages and salaries...................................             53.064
Employee benefits....................................             13.880
Professional fees....................................              2.894
All other labor intensive services...................              2.123
                                                      ------------------
    Subtotal.........................................             71.961
------------------------------------------------------------------------
Labor-related share of capital costs (.46)...........              3.943
                                                      ------------------
    Total............................................             75.904
------------------------------------------------------------------------
SOURCE: IHS GLOBAL INSIGHT, INC., 1st QTR, 2009; @USMACRO/CONTROL0209@
  CISSIM/TL0209.SIM Historical Data through 4th QTR, 2008.

    We are interested in exploring the possibility of creating a stand-
alone IRF market basket that reflects the cost structures of only IRF 
providers. To do so, we would propose combining Medicare cost report 
data from freestanding IRF providers (which is presently incorporated 
into the RPL market basket) and data from hospital-based IRF providers.
    As part of our consideration of a stand-alone IRF market basket, we 
seek to have a better understanding of differences in costs between 
freestanding and hospital-based IRFs. An examination of the Medicare 
cost report data for freestanding and hospital-based IRFs reveals 
considerable differences in both cost levels and cost structure. We 
have reviewed several explanatory variables such as geographic 
variation, case mix, urban/rural status, share of low income patients, 
teaching status, and outliers (short stay and high-cost); however, we 
are currently unable to fully understand the observed cost differences 
between these two types of IRF providers. We believe that further 
research is required. Having examined the relevant data that is 
internal to CMS, we welcome any help from the public in the form of 
additional information, data, or suggested data sources that may help 
us to better understand the underlying reasons for the variations in 
cost structure between freestanding and hospital-based IRFs.

B. Proposed Area Wage Adjustment

    Section 1886(j)(6) of the Act requires the Secretary to adjust the 
proportion (as estimated by the Secretary from time to time) of 
rehabilitation facilities' costs attributable to wages and wage-related 
costs by a factor (established by the Secretary) reflecting the 
relative hospital wage level in the geographic area of the 
rehabilitation facility compared to the national average wage level for 
those facilities. The Secretary is required to update the IRF PPS wage 
index on the basis of information available to the Secretary on the 
wages and wage-related costs to furnish rehabilitation services. Any 
adjustments or updates made under section 1886(j)(6) of the Act for a 
FY are made in a budget neutral manner.
    In the FY 2009 IRF PPS final rule (73 FR 46370 at 46378), we 
maintained the methodology described in the FY 2006 IRF PPS final rule 
to determine the wage index, labor market area definitions, and hold 
harmless policy consistent with the rationale outlined in the FY 2006 
IRF PPS final rule (70 FR 47880, 47917 through 47933).
    For FY 2010, we propose to maintain the policies and methodologies 
described in the FY 2009 IRF PPS final rule relating to the labor 
market area definitions and the wage index methodology for areas with 
wage data. The FY 2009 hospital wage index defines hospital geographic 
areas (labor market areas) based on the definitions of Core-Based 
Statistical Areas (CBSAs) established by the Office of Management and 
Budget announced in December 2003. It also uses data included in the 
wage index derived from the Medicare Cost Report, the Hospital Wage 
Index Occupational Mix Survey, hospitals' payroll records, contracts, 
and other

[[Page 21063]]

wage-related documentation. However, the IRF wage index does not 
include an occupational mix adjustment. In computing the wage index, we 
derive an average hourly wage for each labor market area and a national 
average hourly wage. A labor market area's wage index value is the 
ratio of the area's average hourly wage to the national average hourly 
wage. The wage index adjustment factor is applied only to the labor 
portion of the standardized amounts. Therefore, this proposed rule 
continues to use the CBSA labor market area definitions and the pre-
reclassification and pre-floor hospital wage index data based on 2005 
cost report data.
    The labor market designations made by the Office of Management and 
Budget (OMB), include some geographic areas where there are no 
hospitals and, thus, no hospital wage index data on which to base the 
calculation of the IRF PPS wage index. We propose to continue to use 
the same methodology discussed in the FY 2008 IRF PPS final rule (72 FR 
44284 at 44299) to address those geographic areas where there are no 
hospitals and, thus, no hospital wage index data on which to base the 
calculation of the FY 2010 IRF PPS wage index.
    Additionally, this proposed rule incorporates the CBSA changes 
published in the most recent OMB bulletin that applies to the hospital 
wage data used to determine the current IRF PPS wage index. The changes 
were nominal and did not represent substantive changes to the CBSA-
based designations. Specifically, OMB added or deleted certain CBSA 
numbers and revised certain titles. The OMB bulletins are available 
Online at http://www.whitehouse.gov/omb/bulletins/index.html.
    To calculate the wage-adjusted facility payment for the payment 
rates set forth in this proposed rule, we multiply the unadjusted 
Federal payment rate for IRFs by the proposed FY 2010 RPL labor-related 
share (75.904 percent) to determine the labor-related portion of the 
standard payment amount. We then multiply the labor-related portion by 
the applicable proposed IRF wage index from the tables in the addendum 
to this rule. Table 1 is for urban areas, and Table 2 is for rural 
areas.
    Adjustments or updates to the IRF wage index made under section 
1886(j)(6) of the Act must be made in a budget neutral manner. We 
propose to calculate a budget neutral wage adjustment factor as 
established in the FY 2004 IRF PPS final rule (68 FR 45674 at 45689), 
codified at Sec.  412.624(e)(1), as described in the steps below. We 
propose to use the listed steps to ensure that the FY 2010 IRF standard 
payment conversion factor reflects the update to the proposed wage 
indexes (based on the FY 2005 hospital cost report data) and the labor-
related share in a budget neutral manner:
    Step 1. Determine the total amount of the estimated FY 2009 IRF PPS 
rates, using the FY 2009 standard payment conversion factor and the 
labor-related share and the wage indexes from FY 2009 (as published in 
the FY 2009 IRF PPS final rule (73 FR 46370 at 44301, 44298, and 44312 
through 44335, respectively)).
    Step 2. Calculate the total amount of estimated IRF PPS payments 
using the FY 2009 standard payment conversion factor and the FY 2010 
labor-related share and CBSA urban and rural wage indexes.
    Step 3. Divide the amount calculated in step 1 by the amount 
calculated in step 2. The resulting quotient is the proposed FY 2010 
budget neutral wage adjustment factor of 1.0010.
    Step 4. Apply the proposed FY 2010 budget neutral wage adjustment 
factor from step 3 to the FY 2009 IRF PPS standard payment conversion 
factor after the application of the estimated market basket update to 
determine the proposed FY 2010 standard payment conversion factor.

C. Description of the Proposed IRF Standard Payment Conversion Factor 
and Payment Rates for FY 2010

    To calculate the proposed standard payment conversion factor for FY 
2010, as illustrated in Table 4 below, we begin by applying the 
estimated market basket increase factor for FY 2010 (2.4 percent) to 
the standard payment conversion factor for FY 2009 ($12,958), which 
would equal $13,269. Then, we propose to apply the proposed budget 
neutrality factor for the FY 2010 wage index and labor related share of 
1.0010, which would result in a standard payment amount of $13,282. 
Then, we propose to apply the proposed budget neutrality factor for the 
revised CMG relative weights of 1.0004, which would result in a 
standard payment amount of $13,287. Finally, we propose to apply the 
proposed budget neutrality factors for the updates to the rural, LIP, 
and IRF teaching status adjustments of 1.0025, 1.0221, and 0.9980, 
respectively, which would result in the proposed FY 2010 standard 
payment conversion factor of $13,587.

Table 4--Calculations to Determine the Proposed FY 2010 Standard Payment
                            Conversion Factor
------------------------------------------------------------------------
              Explanation for adjustment                  Calculations
------------------------------------------------------------------------
Standard Payment Conversion Factor for FY 2009........           $12,958
Estimated Market Basket Increase Factor for FY 2010...          x 1.0240
Proposed Budget Neutrality Factor for the Wage Index            x 1.0010
 and Labor-Related Share..............................
Proposed Budget Neutrality Factor for the Revisions to          x 1.0004
 the CMG Relative Weights.............................
Proposed Budget Neutrality Factor for the Update to             x 1.0025
 the Rural Adjustment Factor..........................
Proposed Budget Neutrality Factor for the Update to             x 1.0221
 the LIP Adjustment Factor............................
Proposed Budget Neutrality Factor for the Update to             x 0.9980
 the Teaching Status Adjustment Factor................
Proposed FY 2010 Standard Payment Conversion Factor...         = $13,587
------------------------------------------------------------------------

    After the application of the proposed CMG relative weights 
described in section II of this proposed rule, the resulting proposed 
unadjusted IRF prospective payment rates for FY 2010 are shown below in 
Table 5, ``Proposed FY 2010 Payment Rates.'' The proposed standard 
payment conversion factor and the proposed FY 2010 payment rates are 
subject to change in the final rule if more recent data become 
available for analysis or if any changes are made to any of the 
proposed payment policies set forth in this proposed rule.

[[Page 21064]]



                                     Table 5--Proposed FY 2010 Payment Rates
----------------------------------------------------------------------------------------------------------------
                                                   Payment rate    Payment rate    Payment rate    Payment rate
                       CMG                            tier 1          tier 2          tier 3      no comorbidity
----------------------------------------------------------------------------------------------------------------
0101............................................      $10,444.33       $9,634.54       $8,641.33       $8,214.70
0102............................................       13,146.78       12,127.76       10,877.75       10,341.07
0103............................................       15,535.38       14,331.57       12,854.66       12,220.15
0104............................................       16,531.30       15,251.41       13,679.39       13,002.76
0105............................................       19,447.07       17,941.63       16,091.08       15,296.24
0106............................................       22,600.62       20,849.25       18,699.79       17,775.87
0107............................................       25,754.16       23,758.23       21,309.85       20,256.86
0108............................................       30,959.34       28,561.23       25,616.93       24,350.62
0109............................................       29,538.14       27,251.45       24,441.65       23,233.77
0110............................................       36,972.94       34,108.80       30,592.49       29,081.61
0201............................................       10,510.90        8,941.60        8,028.56        7,293.50
0202............................................       14,054.39       11,956.56       10,735.09        9,751.39
0203............................................       15,862.82       13,495.97       12,116.89       11,006.83
0204............................................       17,631.85       15,000.05       13,468.79       12,235.09
0205............................................       21,557.13       18,339.73       16,467.44       14,957.93
0206............................................       26,736.50       22,746.00       20,423.98       18,553.05
0207............................................       36,149.57       30,755.53       27,614.22       25,084.32
0301............................................       14,953.85       12,639.99       11,375.04       10,413.08
0302............................................       18,962.02       16,028.58       14,422.60       13,205.21
0303............................................       22,819.37       19,289.46       17,357.39       15,891.36
0304............................................       31,289.50       26,448.45       23,800.35       21,789.47
0401............................................       12,584.28       10,834.27       10,419.87        8,930.74
0402............................................       18,960.66       16,322.06       15,698.42       13,455.21
0403............................................       31,051.73       26,732.42       25,709.32       22,035.40
0404............................................       54,501.53       46,918.63       45,123.79       38,674.04
0405............................................       41,998.78       36,155.01       34,771.85       29,803.08
0501............................................       11,032.64        8,706.55        8,057.09        7,100.57
0502............................................       14,975.59       11,817.97       10,936.18        9,638.62
0503............................................       19,516.37       15,402.22       14,254.12       12,561.18
0504............................................       23,513.66       18,557.12       17,172.61       15,134.56
0505............................................       27,807.15       21,944.36       20,308.49       17,896.80
0506............................................       38,698.49       30,540.86       28,262.32       24,907.69
0601............................................       12,517.70       10,273.13        9,735.09        8,854.65
0602............................................       16,770.43       13,763.63       13,040.80       11,861.45
0603............................................       21,350.61       17,523.15       16,603.31       15,101.95
0604............................................       28,364.22       23,278.61       22,058.49       20,062.56
0701............................................       12,360.09       10,493.24        9,921.23        8,888.62
0702............................................       16,368.26       13,896.78       13,139.99       11,771.78
0703............................................       20,040.83       17,015.00       16,088.37       14,414.45
0704............................................       25,600.63       21,735.12       20,551.70       18,413.10
0801............................................        9,442.97        7,735.08        7,032.63        6,395.40
0802............................................       12,656.29       10,368.24        9,426.66        8,572.04
0803............................................       18,067.99       14,801.68       13,456.56       12,237.81
0804............................................       15,834.29       12,971.51       11,793.52       10,724.22
0805............................................       19,771.80       16,197.06       14,725.59       13,391.35
0806............................................       24,512.31       20,080.23       18,255.49       16,601.96
0901............................................       11,433.46       10,307.10        9,285.36        8,191.60
0902............................................       15,282.66       13,777.22       12,411.72       10,949.76
0903............................................       19,763.65       17,816.63       16,050.32       14,160.37
0904............................................       26,153.62       23,576.16       21,240.56       18,737.83
1001............................................       12,766.35       12,418.52       10,653.57        9,769.05
1002............................................       16,957.93       16,495.98       14,152.22       12,975.59
1003............................................       24,619.64       23,949.80       20,546.26       18,838.38
1101............................................       16,275.87       13,400.86       13,400.86       11,535.36
1102............................................       23,752.79       19,557.13       19,557.13       16,832.93
1201............................................       14,232.38       13,069.34       11,584.28       10,309.82
1202............................................       17,750.06       16,301.68       14,448.42       12,858.74
1203............................................       22,345.18       20,520.45       18,188.92       16,187.55
1301............................................       15,013.64       13,529.93       11,524.49       10,304.38
1302............................................       20,278.60       18,275.87       15,565.27       13,917.16
1303............................................       26,301.71       23,702.52       20,187.56       18,050.33
1401............................................       10,986.45        9,998.67        8,815.25        7,794.86
1402............................................       15,082.93       13,728.30       12,101.94       10,702.48
1403............................................       18,399.52       16,745.98       14,763.63       13,055.75
1404............................................       23,887.30       21,741.92       19,167.18       16,949.78
1501............................................       13,229.66       11,600.58       10,199.76        9,699.76
1502............................................       16,857.39       14,781.30       12,995.97       12,360.09
1503............................................       21,345.18       18,717.45       16,456.57       15,650.87
1504............................................       26,720.19       23,430.78       20,600.61       19,591.10
1601............................................       14,938.91       12,120.96       10,364.16        9,585.63
1602............................................       20,152.24       16,350.60       13,981.02       12,932.11

[[Page 21065]]

 
1603............................................       25,911.77       21,023.17       17,976.96       16,627.77
1701............................................       14,226.95       12,584.28       11,525.85       10,157.64
1702............................................       18,603.32       16,453.86       15,070.70       13,282.65
1703............................................       22,390.02       19,803.05       18,138.65       15,985.11
1704............................................       28,130.52       24,880.51       22,789.48       20,084.30
1801............................................       16,697.06       13,150.86       12,360.09       10,649.49
1802............................................       25,063.94       19,739.19       18,553.05       15,986.46
1803............................................       42,891.44       33,780.00       31,748.74       27,357.42
1901............................................       15,173.96       12,391.34       12,391.34       11,739.17
1902............................................       30,919.94       25,251.44       25,251.44       23,922.63
1903............................................       49,119.72       40,112.90       40,112.90       38,002.84
2001............................................       11,953.84        9,892.69        8,985.08        8,046.22
2002............................................       16,100.60       13,324.77       12,101.94       10,838.35
2003............................................       20,663.11       17,099.24       15,531.30       13,907.65
2004............................................       27,630.52       22,865.56       20,769.09       18,597.89
2101............................................       30,713.41       30,713.41       26,584.32       22,884.58
5001............................................  ..............  ..............  ..............        1,990.50
5101............................................  ..............  ..............  ..............        9,168.51
5102............................................  ..............  ..............  ..............       20,786.75
5103............................................  ..............  ..............  ..............        9,629.11
5104............................................  ..............  ..............  ..............       27,160.41
----------------------------------------------------------------------------------------------------------------

D. Example of the Methodology for Adjusting the Proposed Federal 
Prospective Payment Rates

    Table 6 illustrates the methodology for adjusting the proposed 
Federal prospective payments (as described in sections V.A through V.C 
of this proposed rule). The examples below are based on two 
hypothetical Medicare beneficiaries, both classified into CMG 0110 
(without comorbidities). The proposed unadjusted Federal prospective 
payment rate for CMG 0110 (without comorbidities) appears in Table 5 
above.
    One beneficiary is in Facility A, an IRF located in rural Spencer 
County, Indiana, and another beneficiary is in Facility B, an IRF 
located in urban Harrison County, Indiana. Facility A, a rural non-
teaching hospital has a DSH percentage of 5 percent (which would result 
in a LIP adjustment of 1.0216), a wage index of 0.8473, and a rural 
adjustment of 18.27 percent. Facility B, an urban teaching hospital, 
has a DSH percentage of 15 percent (which would result in a LIP 
adjustment of 1.0630), a wage index of 0.9249, and a teaching status 
adjustment of 0.0706.
    To calculate each IRF's labor and non-labor portion of the proposed 
Federal prospective payment, we begin by taking the proposed unadjusted 
Federal prospective payment rate for CMG 0110 (without comorbidities) 
from Table 5 above. Then, we multiply the estimated labor-related share 
(75.904) described in section V.A of this proposed rule by the proposed 
unadjusted Federal prospective payment rate. To determine the non-labor 
portion of the proposed Federal prospective payment rate, we subtract 
the labor portion of the proposed Federal payment from the proposed 
unadjusted Federal prospective payment.
    To compute the proposed wage-adjusted Federal prospective payment, 
we multiply the labor portion of the proposed Federal payment by the 
appropriate wage index found in the addendum in Tables 1 and 2. The 
resulting figure is the wage-adjusted labor amount. Next, we compute 
the proposed wage-adjusted Federal payment by adding the wage-adjusted 
labor amount to the non-labor portion.
    Adjusting the proposed wage-adjusted Federal payment by the 
facility-level adjustments involves several steps. First, we take the 
wage-adjusted Federal prospective payment and multiply it by the 
appropriate rural and LIP adjustments (if applicable). Second, to 
determine the appropriate amount of additional payment for the teaching 
status adjustment (if applicable), we multiply the teaching status 
adjustment (1.0706, in this example) by the wage-adjusted and rural-
adjusted amount (if applicable). Finally, we add the additional 
teaching status payments (if applicable) to the wage, rural, and LIP-
adjusted Federal prospective payment rates. Table 6 illustrates the 
components of the adjusted payment calculation.

     Table 6--Example of Computing the Proposed IRF FY 2010 Federal
                           Prospective Payment
------------------------------------------------------------------------
                                                        Urban facility B
   Steps                             Rural facility A    (Harrison Co.,
                                    (Spencer Co., IN)         IN)
------------------------------------------------------------------------
1..........  Unadjusted Federal            $29,081.61         $29,081.61
              Prospective Payment.
2..........  Labor Share..........          x 0.75904          x 0.75904
3..........  Labor Portion of            = $22,074.11       = $22,074.11
              Federal Payment.
4..........  CBSA Based Wage Index           x 0.8473           x 0.9249
              (shown in the
              Addendum, Tables 1
              and 2).
5..........  Wage-Adjusted Amount.       = $18,703.39       = $20,416.34
6..........  Nonlabor Amount......        + $7,007.50        + $7,007.50
7..........  Wage-Adjusted Federal       = $25,710.89       = $27,423.84
              Payment.
8..........  Rural Adjustment.....           x 1.1827            x 1.000
9..........  Wage- and Rural-            = $30,408.27       = $27,423.84
              Adjusted Federal
              Payment.
10.........  LIP Adjustment.......           x 1.0216           x 1.0630
11.........  FY 2010 Wage-, Rural-       = $31,065.09       = $29,151.55
              and LIP-Adjusted
              Federal Prospective
              Payment Rate.
12.........  FY 2010 Wage- and             $30,408.27         $27,423.84
              Rural-Adjusted
              Federal Prospective
              Payment.

[[Page 21066]]

 
13.........  Teaching Status                  x 0.000           x 0.0706
              Adjustment.
14.........  Teaching Status                  = $0.00        = $1,936.12
              Adjustment Amount.
15.........  FY2010 Wage-, Rural-,       + $31,065.09       + $29,151.55
              and LIP-Adjusted
              Federal Prospective
              Payment Rate.
16.........  Total FY 2010               = $31,065.09       = $31,087.67
              Adjusted Federal
              Prospective Payment.
------------------------------------------------------------------------

    Thus, the proposed adjusted payment for Facility A would be 
$31,065.09 and the proposed adjusted payment for Facility B would be 
$31,087.67.

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

A. Proposed Update to the Outlier Threshold Amount for FY 2010

    Section 1886(j)(4) of the Act provides the Secretary with the 
authority to make payments in addition to the basic IRF prospective 
payments for cases incurring extraordinarily high costs. A case 
qualifies for an outlier payment if the estimated cost of the case 
exceeds the adjusted outlier threshold. We calculate the adjusted 
outlier threshold by adding the IRF PPS payment for the case (that is, 
the CMG payment adjusted by all of the relevant facility-level 
adjustments) and the adjusted threshold amount (also adjusted by all of 
the relevant facility-level adjustments). Then, we calculate the 
estimated cost of a case by multiplying the IRF's overall cost-to-
charge ratio (CCR) by the Medicare allowable covered charge. If the 
estimated cost of the case is higher than the adjusted outlier 
threshold, we make an outlier payment for the case equal to 80 percent 
of the difference between the estimated cost of the case and the 
outlier threshold.
    In the FY 2002 IRF PPS final rule (66 FR 41316, 41362 through 
41363), we discussed our rationale for setting the outlier threshold 
amount for the IRF PPS so that estimated outlier payments would equal 3 
percent of total estimated payments. For the 2002 IRF PPS final rule, 
we analyzed various outlier policies using 3, 4, and 5 percent of the 
total estimated payments, and we concluded that an outlier policy set 
at 3 percent of total estimated payments would optimize the extent to 
which we could reduce the financial risk to IRFs of caring for high-
cost patients, while still providing for adequate payments for all 
other (non-high cost outlier) cases.
    Subsequently, we updated the IRF outlier threshold amount in the 
FYs 2006, 2007, 2008, and 2009 IRF PPS final rules (70 FR 47880, 70 FR 
57166, 71 FR 48354, 72 FR 44284, and 73 FR 46370, respectively) to 
maintain estimated outlier payments at 3 percent of total estimated 
payments. We also stated in the FY 2009 final rule (FR 73 46287) that 
we would continue to analyze the estimated outlier payments for 
subsequent years and adjust the outlier threshold amount as appropriate 
to maintain the 3 percent target.
    For FY 2010, we are proposing to use updated data for calculating 
the high-cost outlier threshold amount. Specifically, we propose to use 
FY 2007 claims data using the same methodology that we used to set the 
initial outlier threshold amount in the FY 2002 IRF PPS final rule (66 
FR 41316, 41362 through 41363), which is also the same methodology that 
we used to update the outlier threshold amounts for FYs 2006 through 
2009.
    Based on an analysis of updated FY 2007 claims data, we estimate 
that IRF outlier payments as a percentage of total estimated payments 
are 2.8 percent in FY 2009.
    Based on the updated analysis of the most recent available claims 
data (FY 2007), we propose to update the outlier threshold amount to 
$9,976 to maintain estimated outlier payments at 3 percent of total 
estimated aggregate IRF payments for FY 2010.
    The proposed outlier threshold amount of $9,976 for FY 2010 is 
subject to change in the final rule if more recent data become 
available for analysis or if any changes are made to any of the other 
proposed payment policies set forth in this proposed rule.

B. Proposed Update to the IRF Cost-to-Charge Ratio Ceilings

    In accordance with the methodology stated in the FY 2004 IRF PPS 
final rule (68 FR 45674, 45692 through 45694), we apply a ceiling to 
IRFs' cost-to-charge ratios (CCRs). Using the methodology described in 
that final rule, we propose to update the national urban and rural CCRs 
for IRFs, as well as the national CCR ceiling for FY 2010, based on 
analysis of the most recent data that is available. We apply the 
national urban and rural CCRs in the following situations:
     New IRFs that have not yet submitted their first Medicare 
cost report.
     IRFs whose overall CCR is in excess of the national CCR 
ceiling for FY 2010, as discussed below.
     Other IRFs for which accurate data to calculate an overall 
CCR are not available.
    Specifically, for FY 2010, we estimate a proposed national average 
CCR of 0.621 for rural IRFs, which we calculate by taking an average of 
the CCRs for all rural IRFs using their most recently submitted cost 
report data. Similarly, we estimate a proposed national CCR of 0.493 
for urban IRFs, which we calculate by taking an average of the CCRs for 
all urban IRFs using their most recently submitted cost report data. We 
apply weights to both of these averages using the IRFs' estimated 
costs, meaning that the CCRs of IRFs with higher costs factor more 
heavily into the averages than the CCRs of IRFs with lower costs. For 
this proposed rule, we have used the most recent available cost report 
data (FY 2007). This includes all IRFs whose cost reporting periods 
begin on or after October 1, 2006, and before October 1, 2007. If, for 
any IRF, the FY 2007 cost report was missing or had an ``as submitted'' 
status, we used data from a previous fiscal year's settled cost report 
for that IRF. However, we do not use cost report data from before FY 
2004 for any IRF because changes in IRF utilization since FY 2004 
resulting from the ``60 percent'' rule and IRF medical review 
activities mean that these older data do not adequately reflect the 
current cost of care.
    In addition, in light of the analysis described below, we propose 
to set the national CCR ceiling at 3 standard deviations above the mean 
CCR. The national CCR ceiling is set at 1.60 for FY 2010. This means 
that, if an individual IRF's CCR exceeds this ceiling of 1.60 for FY 
2010, we would replace the IRF's CCR with the appropriate national 
average CCR (either rural or urban, depending on the geographic 
location of the IRF). We estimate the national CCR ceiling by:
    Step 1. Taking the national average CCR (weighted by each IRF's 
total costs, as discussed above) of all IRFs for which we have 
sufficient cost report data (both rural and urban IRFs combined);

[[Page 21067]]

    Step 2. Estimating the standard deviation of the national average 
CCR computed in step 1;
    Step 3. Multiplying the standard deviation of the national average 
CCR computed in step 2 by a factor of 3 to compute a statistically 
significant reliable ceiling; and
    Step 4. Adding the result from step 3 to the national average CCR 
of all IRFs for which we have sufficient cost report data, from step 1.
    We note that the proposed national average rural and urban CCRs and 
our estimate of the national CCR ceiling in this section are subject to 
change in the final rule if more recent data become available for use 
in these analyses.

VII. Inpatient Rehabilitation Facility (IRF) Classification and Payment 
Requirements

    Prior to the introduction of the Inpatient Prospective Payment 
System (IPPS) in 1983, hospital care was reimbursed on a cost basis. 
Beneficiaries who required closely supervised, resource intensive 
rehabilitation services, in addition to the treatment of the acute care 
condition for which they were hospitalized, generally received these 
rehabilitation services as part of the same inpatient hospital stay 
that addressed their acute care needs. With the introduction of the 
prospective payment methodology, we developed Diagnostic Related Groups 
(DRGs) for classifying acute hospital stays. We found that DRGs did not 
fully address the variability of the rehabilitation portion of a 
hospital stay. Thus, in 1983, we established coverage for post-acute 
hospital level rehabilitation services that were excluded from the IPPS 
and reimbursed on a cost basis.
    At that time, we established payment requirements that reimbursed 
rehabilitation units and free-standing rehabilitation hospitals as IRFs 
rather than as hospitals subject to the IPPS. The payment requirements 
governing free-standing IRFs can be found in Sec.  412.23. Similar 
requirements for hospital rehabilitation units classified as IRFs can 
be found in Sec.  412.29. To provide further guidance on our 
implementation of Sec.  412.23(b)(3) through (b)(7) and Sec.  412.29(b) 
through (f), we issued a HCFA Ruling, HCFAR 85-2-1, at 50 FR 31040. It 
outlines the criteria for Medicare coverage of inpatient hospital 
rehabilitation services.
    These regulatory payment requirements and the policies outlined in 
HCFAR 85-2 were the basis for the policies currently contained in 
Chapter 1, Section 110 of the Medicare Benefit Policy Manual (MBPM), 
which provides further instructions applicable to IRFs. In this rule, 
we are proposing regulatory changes to certain regulations. The final 
changes will be incorporated into revised manual provisions that will 
be placed in an updated Chapter 1, Section 110 of the MBPM. The 
proposed regulatory changes, and the conforming manual provisions that 
would provide policy instructions on these regulatory provisions, would 
reflect the changes that have occurred in medical practice during the 
past 25 years as well as the implementation of the inpatient 
rehabilitation facility prospective payment system (IRF PPS). We also 
propose to rescind the outdated HCFA Ruling 85-2 since it is 
inconsistent with the current payment system.

A. Analysis of Current IRF Classification and Payment Requirements

    The payment requirements and coverage policies that currently 
govern IRFs were developed more than 25 years ago, and were designed to 
provide instructions for a small subset of providers furnishing 
intensive and complex therapy services in a fee-for-service environment 
to a small segment of patients whose rehabilitation needs could only be 
safely furnished at a hospital level of care. At that time about 350 
IRFs were treating a relatively homogeneous patient group with similar 
health conditions and deficit levels, that is, approximately 54,000 
Medicare patients per year being treated primarily for stroke and other 
severe neurological disorders. However, advances in health care 
technology and treatments, in combination with the 2002 introduction of 
a new IRF PPS, contributed to a rapid increase in the type and volume 
of IRF services. By 2007, there were over 1,200 IRFs treating 
approximately 400,000 Medicare cases per year for a broader range of 
conditions. By 2007, the types of cases being treated in IRFs had also 
become more heterogeneous as almost a third of IRF patients were 
treated for orthopedic, rather than neurological, conditions.
    Rehabilitation services of varying intensity and duration are 
beneficial to beneficiaries with a broad range of conditions, but 
rehabilitation can be provided in a range of settings. It has become 
apparent that the existing IRF payment requirements and instructions do 
not always enable us to distinguish between patients who require 
complex, high intensity rehabilitation care in a hospital environment 
and those patients whose rehabilitation needs can be met in less 
intensive settings.
    In the absence of clear, up-to-date instructions on determining and 
documenting the medical necessity of IRF care, different stakeholders 
(including providers, FIs, and, most recently, Recovery Audit 
Contractors (RACs)) have developed different and sometimes conflicting 
interpretations of how our existing payment requirements and policies 
apply to the determination of IRF medical necessity. Recently, the 
differing interpretations of these requirements have led to a high 
volume of IRF claims denials by Medicare contractors as well as 
concerns about the effects of the claims denials on the IRF industry 
and on beneficiaries' access to IRF care.
    In response to these concerns, CMS assembled an internal workgroup 
in June 2007 to determine how best to clarify IRF classification and 
payment requirements and make corresponding revisions to the 
regulations and manual instructions. The workgroup enlisted the advice 
of medical directors from within CMS, from several of the fiscal 
intermediaries, from one of the qualified independent contractors 
(QICs), and from the National Institutes of Health. These individuals, 
including general physicians, physiatrists, and therapists, considered 
how best to identify those patients for whom IRF coverage was intended, 
that is, patients who both require complex rehabilitation in a hospital 
environment and could most reasonably be expected to benefit from IRF 
services.
    In addition, we received comments from industry groups in response 
to the FY 2009 IRF PPS proposed rule (73 FR 22674). These commenters 
requested that we revise and update IRF coverage policy so that all 
stakeholders would have a clear understanding of CMS policy and the 
expectations of CMS contractors charged with performing medical review 
to validate claims payment.
    Finally, the Medicare, Medicaid, and SCHIP Extension Act of 2007 
(MMSEA), Pub. L. 110-173, mandated at section 115(c)(1) that the 
Secretary evaluate IRF access and utilization issues. In so doing, 
section 115(c)(1) of the MMSEA required that the Secretary obtain input 
from a broad range of stakeholders. While a full report on our findings 
is beyond the scope of this proposed rule, we have carefully considered 
those findings and the stakeholder comments in framing this proposed 
revision to the IRF classification and payment regulations and the 
conforming amendments to the MBPM. A formal report on our findings in 
response to section 115(c)(1) of the MMSEA will be included in a Report 
to Congress.

[[Page 21068]]

B. Summary of the Major Proposed Revisions and New Requirements

    In this proposed rule, we are proposing to amend certain 
regulations for the purpose of providing greater clarity and rescind 
the outdated HCFAR 85-2-1 to ensure that our policies reflect current 
medical practice and the needs of the current IRF PPS. Proposed changes 
to the existing classification and payment requirements are presented 
in sections VII.C and VII.D of this rule. We intend to redraft the 
corresponding manual provisions found in Chapter 1, Sec.  110 of the 
MBPM to make conforming changes. A copy of the revised draft of Section 
110 of the MBPM has been posted on the Medicare IRF PPS Web site at 
http://www.cms.hhs.gov/InpatientRehabFacPPS/02_Spotlight.asp#TopOfPag.
    We encourage stakeholder comment on the proposed changes to the 
classification and payment requirements. We are also requesting 
separate comments on the draft revisions to the MBPM. While CMS will 
address comments on the proposed changes to the regulation in the final 
rule, it is beyond the scope of the final rule to address all of the 
separate comments on the draft revisions to the MBPM in the final rule. 
We will instead address the separate comments on the draft revisions to 
the MBPM on the Medicare IRF PPS Web site at http://www.cms.hhs.gov/InpatientRehabFacPPS/02_Spotlight.asp#TopOfPag.
    The IRF PPS is a per-stay, case-mix adjusted prospective payment 
system. However, the policies on which we base our medical necessity 
claims reviews for IRFs were developed more than 25 years ago for a 
cost-based, per diem system. The proposed revisions in this rule 
recognize that a potential patient's likely post-admission performance 
is subject to many factors outside the IRF's control. Therefore, these 
revisions focus on the key decision points that should be considered 
and documented when making a decision to admit, retain, or discharge a 
patient. Thus, we focus the proposed regulatory and conforming manual 
changes on the processes rehabilitation physicians use to make 
admission, continued stay, and discharge decisions. In sections VII.C 
through VII.D below, we provide more detail on these revisions and the 
reasoning behind each of the revisions. In summary, the major proposed 
revisions are as follows:
    1. Redesignating and expanding the existing requirements at Sec.  
412.23(b)(4) and Sec.  412.29(c) in a new Sec.  412.29(a) to require 
that IRFs provide rehabilitation nursing, physical therapy, 
occupational therapy, speech-language pathology, social services, 
psychological services, and prosthetic and orthotic services using 
qualified personnel and adding to those requirements that these 
services be ordered by a rehabilitation physician.
    2. Redesignating and expanding the existing requirements at Sec.  
412.23(b)(3) and Sec.  412.29(b) in a new Sec.  412.29(b)(2) to require 
that IRFs conduct a comprehensive preadmission screening to evaluate 
the appropriateness of IRF-level care. The requirements for a 
preadmission screening process are discussed in section VII.C of this 
rule and detailed instructions are presented in section 110.1.1 of the 
draft MBPM.
    3. Establishing a new post-admission evaluation requirement at 
Sec.  412.29(c)(1) to document the status of the patient after 
admission to the IRF, to compare it to that noted in the preadmission 
screening documentation, and to begin development of the patient's 
overall plan of care. The overall plan of care would be required to be 
completed with input from all of the interdisciplinary team members. 
The preadmission and post-admission evaluations document the 
appropriateness of an admission and then serve as a basis for the 
development of the overall plan of care. The requirements for a post-
admission evaluation are discussed in section VII.D of this rule, and 
detailed instructions are presented in section 110.1.2 of the draft 
MBPM.
    4. Redesignating and expanding the existing requirements at Sec.  
412.23 (b)(6) and Sec.  412.29(d) for an overall plan of care at the 
new Sec.  412.29(c)(2) to establish the responsibility of the 
rehabilitation physician in the care planning process. The requirements 
for an overall plan of care are discussed in section VII.D of this 
rule, and detailed instructions are presented in section 110.1.3 of the 
draft MBPM.
    5. Redesignating and revising the regulatory requirements at 
412.23(b)(7) and 412.29(e) governing a multidisciplinary team and the 
required team meetings at the new Sec.  412.29(d) to require an 
interdisciplinary team, to define the members of the interdisciplinary 
team, to define the minimum content to be covered at the team meetings, 
and to specify the expected frequency of the team meetings. We propose 
to require that team meetings be held at least once every week, rather 
than once every two weeks. The requirements governing interdisciplinary 
team meetings are discussed in section VII.E of this rule, and detailed 
instructions are presented in section 110.2.2 of the draft MBPM.

C. Proposed IRF Admission Requirements

    IRFs provide intensive rehabilitation services through a 
coordinated interdisciplinary team of skilled professionals, based upon 
physician orders that document the need for intensive rehabilitation 
services. Thus, we believe that a patient appropriate for admission to 
an IRF should be able and willing to actively participate in an 
intensive rehabilitation program that is provided through a coordinated 
interdisciplinary team approach in an inpatient hospital setting. 
Further, the patient should also be expected to make measurable 
improvement that will be of practical value in terms of improving the 
patient's functional capacity or adaptation to impairments.
    We believe that the use of the term ``interdisciplinary team'' 
instead of ``multidisciplinary team'' (as is currently required at 
Sec.  412.23(b)(7) and Sec.  412.29(e)) more accurately reflects the 
care provided in an IRF. A multidisciplinary team approach to care 
requires only that clinicians representing various rehabilitation 
disciplines individually work with the patient to achieve an optimal 
level of functioning. However, with each clinician working 
independently, the patient loses the benefits of the coordinated care 
approach offered in IRFs.
    In contrast, the interdisciplinary team approach to care requires 
that treating clinicians interact with each other and the patient to 
define a set of coordinated goals for the IRF stay and work together in 
a cooperative manner to deliver the services necessary to achieve these 
goals. As a result, we believe that the use of an interdisciplinary 
team instead of a multidisciplinary team will ensure that patients 
achieve better outcomes. Therefore, we are proposing that the IRF shall 
ensure that each patient's treatment is managed using a coordinated 
interdisciplinary approach to treatment.
    We believe that patients who have completed their acute care 
hospital stay, but do not need or are not able or willing to 
participate in the level of intensive rehabilitation provided in an 
inpatient setting, should be referred to a less-intensive 
rehabilitation setting.
    We believe that a comprehensive preadmission screening process is 
the key factor in initially identifying appropriate candidates for IRF 
care. For this reason, we are proposing (at Sec.  412.29(b)(2)) to 
clarify our expectations regarding the scope of the preadmission 
assessment and to require documentation of the clinical evaluation

[[Page 21069]]

process that must form the basis of the admission decision. The 
detailed preadmission screening requirements, including instructions 
for documenting the decision-making process used to determine the 
appropriateness of an IRF admission, are presented in detail in the 
draft MBPM. In accordance with the proposed regulations, the 
comprehensive preadmission screening must include an evaluation of the 
following proposed requirements that a patient must meet to be admitted 
to an IRF (see proposed Sec.  412.29(b)):
    1. Whether the patient's condition is sufficiently stable to allow 
the patient to actively participate in an intensive rehabilitation 
program.
    We recognize that there are strong financial incentives for acute 
care hospitals to discharge patients whose care is covered by IPPS as 
quickly as possible to IRFs for post-acute rehabilitation care. We 
believe that these incentives for early discharge could have negative 
consequences on patient care and on the total cost of care. For 
example, patients who are transferred to the IRF setting before they 
are adequately stabilized may later need to be re-hospitalized for 
treatment of the same acute condition or a complication that arose 
during the original hospital stay. Therefore, we are proposing to 
require that the patient be sufficiently stable at the time of 
admission to allow the patient to actively participate in an intensive 
rehabilitation program.
    2. Whether the patient has the appropriate therapy needs for 
placement in an IRF.
    Since one of the critical aspects of care provided in an IRF is the 
provision of interdisciplinary care, we are proposing (at Sec.  
412.29(b)(1)(i)) to require that, at the time of admission to the IRF, 
the patient require the active and ongoing therapeutic intervention of 
at least two therapy disciplines (physical therapy, occupational 
therapy, speech-language pathology, or prosthetics/orthotics therapy), 
one of which must be physical or occupational therapy.
    3. Whether the patient requires the intensive services of an 
inpatient rehabilitation setting.
    Another critical aspect of care provided in an IRF, versus another 
post-acute care setting, is that IRFs generally provide at least 3 
hours of therapy per day at least 5 days per week. To conform to this 
standard, we propose (at Sec.  412.29(b)(1)(ii)) to require that 
patients generally require and reasonably be expected to actively 
participate in at least 3 hours of therapy per day at least 5 days per 
week, and be expected to make measurable improvement that will be of 
practical value to improve the patient's functional capacity or 
adaptation to impairments. In addition, we are proposing (at Sec.  
412.29(b)(1)(ii)) to require that therapy treatments begin within 36 
hours after the patient's admission to the IRF, to conform with IRF 
best practices and to ensure that the patient's care goals can be met.
    Patients who are unwilling or unable to tolerate this intense level 
of therapy should be referred to another setting of care that is more 
appropriate to their medical needs, such as SNFs, long-term care 
hospitals, or home health agencies, where the patient can receive more 
appropriate levels of rehabilitation therapy and other forms of care.
    At the same time, we recognize that a patient's condition may vary 
during the course of the stay. Therefore, in the MBPM we provide 
instructions on the procedures that should be followed to document 
cases in which therapy can be reduced or suspended for brief periods of 
time.
    Also, we note that many IRF patients will medically benefit from 
more than 3 hours of therapy per day. Therefore, the 3 hour per day 
requirement is intended to be a minimum number of hours of therapy 
provided in an IRF, not a maximum. However, for the safety of the 
patient, we note that the intensity of therapy provided must never 
exceed the patient's level of tolerance or compromise the patient's 
safety.
    In addition, while the requirement that IRFs ``ensure that the 
patients receive close medical supervision'' has been in effect since 
the mid-1980s, it has recently raised confusion among IRFs and Medicare 
contractors. Since this criterion currently found at 42 CFR 
412.23(b)(4) and 412.29(c) has not been well-defined, it has been 
unclear how an IRF would document that close medical supervision was 
either needed by a patient or provided by the IRF. The need for 
physician supervision cannot be inferred retroactively from the 
presence or absence of an acute medical complication during the IRF 
stay. Similarly, the need for close medical supervision cannot 
generally be inferred from the presence or absence of frequent 
physician orders. Instead, we are proposing to include an evaluation of 
each patient's risk for clinical complications as part of the 
preadmission screening. Candidates for IRF admission should be assessed 
to ascertain the presence of risk factors requiring a level of 
physician supervision similar to the physician involvement generally 
expected in an acute inpatient environment, as compared with other 
settings of care. While the need for physician supervision will vary 
with each patient, we are proposing that the close medical supervision 
requirement would generally be met by having a rehabilitation 
physician, or other licensed treating physician with specialized 
training and experience in inpatient rehabilitation, conduct face-to-
face visits with the patient a minimum of at least 3 days per week 
throughout the patient's stay. The purpose of the face-to-face visits 
is to assess the patient both medically and functionally, as well as to 
modify the course of treatment as needed to maximize the patient's 
capacity to benefit from the rehabilitation process.
    It is critical to capture the preadmission screening information as 
closely as possible to the actual time of the IRF admission, so that 
the information provides a reliable picture of the patient's condition 
at the time of admission. For this reason, we propose to require (at 
Sec.  412.29(b)(2)(i)) that the preadmission screening be conducted by 
a qualified clinician(s) designated by a rehabilitation physician 
within the 48 hours immediately preceding the IRF admission, to give 
the most accurate picture of the patient upon admission to the IRF. 
Further, we are proposing to require (at Sec.  412.29(b)(2)(v)) that 
the preadmission screening documentation must be retained in the 
patient's medical record. We would expect that the reasons that the IRF 
clinical staff believe that the patient meets all of the required 
criteria for admission to the IRF would be included in the preadmission 
screening documentation. The MBPM will include more detailed 
instructions on the types of information required by the preadmission 
screening.
    We are also proposing (at Sec.  412.29(b)(2)(iv)) to require that a 
rehabilitation physician review and document his or her concurrence 
with the findings and results of the preadmission screening. By 
``rehabilitation physician,'' we mean a licensed physician with 
specialized training and experience in rehabilitation. This requirement 
ensures that the appropriate admission decision will be made by a 
physician with specialized knowledge of rehabilitation therapies and 
will be based on the best available information about the patient's 
condition.
    Finally, since the proposed preadmission screening must be detailed 
and comprehensive for every patient, we do not believe that there will 
be a continued need for an extensive post-admission assessment period 
which, when the current manual was written over two decades ago, was 
used to evaluate the need for IRF care. Therefore, we intend to delete 
the post-

[[Page 21070]]

admission evaluation period that is currently described in subsection 
110.3 of the MBPM (rev. October 1, 2003) and replace it with more 
detailed instructions on continued stay and discharge policies as 
demonstrated in the draft MBPM.
    By establishing these requirements, we recognize the importance of 
the professional judgment of a rehabilitation physician in the review 
of the preadmission screen at the time an admission decision is made. 
This information is more useful in reviewing the IRF admission decision 
than aspects of the IRF stay that would either be unknown or outside 
the control of the rehabilitation physician at the time of admission.

D. Proposed Post-Admission Requirements

    It is the IRF's responsibility to initiate care as soon as the 
patient is admitted. To make accurate care planning decisions, the 
rehabilitation physician and interdisciplinary care team need to verify 
that the information obtained during the preadmission screen is still 
accurate. This post-admission evaluation also documents the physician 
decision-making process, and will provide additional insight to CMS in 
the program oversight process.
    1. Post-Admission Evaluation: Once a patient has been admitted to 
an IRF, it is the responsibility of the rehabilitation physician with 
input from the interdisciplinary team to identify any relevant changes 
that may have occurred since the preadmission screening. Therefore, 
consistent with current industry practice, we propose to add a 
requirement (at Sec.  412.29(c)(1)) for a post-admission evaluation by 
a rehabilitation physician within 24 hours of admission. The purpose of 
the post-admission evaluation is to document the patient's status on 
admission to the IRF, compare it to that noted in the preadmission 
screening documentation, and begin development of the patient's 
expected course of treatment that will be completed with input from all 
of the interdisciplinary team members in the overall plan of care. The 
results of the post-admission evaluation may result in a change from 
the preadmission conclusion that the patient is appropriate for IRF 
care. In such cases, appropriate steps should be taken. We propose to 
require that this document be retained in the patient's medical record. 
Please see section 110.1.2 of the draft MBPM for more detailed 
instructions on this proposal.
    2. Individualized Overall Plan of Care: The overall plan of care is 
essential to providing high-quality care in IRFs. Comprehensive 
planning of the patient's course of treatment in the early stages of 
the stay leads to a more coordinated delivery of services to the 
patient, and such coordinated care is a critical aspect of the care 
provided in IRFs. The current regulations do not define the term 
``overall plan of care,'' provide any instructions on the information 
required in the overall plan of care, or require it to be retained in 
the patient's medical record. We propose to require retention of the 
overall plan of care at the new section 412.29(c)(2)(ii). Furthermore, 
we intend to provide instructions on overall plans of care as seen in 
section 110.1.3 of the draft manual. Such detail would provide CMS with 
the information necessary for program review activities.
    We believe that it is critical that a rehabilitation physician be 
responsible for developing the overall plan of care, with substantial 
input from the interdisciplinary team. We also believe that the 
physician-generated overall plan of care must be individualized to the 
unique needs of the patient, to ensure that each patient's individual 
care goals can be met.
    Therefore, we are proposing (at Sec.  412.29(c)(2)) to require that 
an individualized overall plan of care be developed for each IRF 
admission by a rehabilitation physician with input from the 
interdisciplinary team within 72 hours of the patient's admission to 
the IRF, and be retained in the patient's medical record.

E. Proposed Changes to the Requirements for the Interdisciplinary Team 
Meeting

    As mentioned earlier in this proposed rule, we believe that 
interdisciplinary services, by definition, cannot be provided by only 
one discipline. The purpose of the interdisciplinary team meeting is to 
foster communication among disciplines to establish, prioritize, and 
achieve treatment goals.
    Currently, we require team meetings at least once every two weeks. 
However, the length of many IRF stays has decreased significantly since 
this requirement was established. We believe that the biweekly meeting 
requirement is inadequate to ensure the appropriate establishment and 
achievement of treatment goals. Therefore, we propose at (Sec.  
412.29(d)(2)) to increase the required frequency of the 
interdisciplinary team meetings to at least once per week to reflect 
current best practices in IRFs.
    Also, to improve the effectiveness and coordination of the care 
provided to IRF patients and to better reflect best practices in IRFs, 
we propose (at Sec.  412.29(d)(1)) to broaden the requirements 
regarding the professional staff that are expected to participate in 
the interdisciplinary team meetings. We propose that, at a minimum, the 
interdisciplinary team must consist of professionals from the following 
disciplines (each of whom must have current knowledge of the 
beneficiary as documented in the medical record):
     A rehabilitation physician with specialized training and 
experience in rehabilitation services;
     A registered nurse with specialized training or experience 
in rehabilitation;
     A social worker or a case manager (or both); and
     A licensed or certified therapist from each therapy 
discipline involved in treating the patient.
    Although the purpose of the proposed requirement for 
interdisciplinary team meetings is to allow the exchange of information 
from all of the different disciplines involved in the patient's care, 
we believe that it is important to designate one person, specifically 
the rehabilitation physician, to be responsible for making the final 
decisions regarding the patient's IRF care. Thus, we are proposing to 
require (at Sec.  412.29(d)(3)) that the rehabilitation physician 
document concurrence with all decisions made by the interdisciplinary 
team at each meeting.
    As discussed above, the interdisciplinary team must include 
registered nurses with training or experience in rehabilitation. We 
believe that 24-hour nursing care is both a key component of IRF care, 
and the normal standard of care in IRFs. Further, we believe that 
requiring registered nurses to have specialized training or experience 
is warranted considering that IRF patients typically have significant 
risk factors for medical complications that need to be monitored in an 
inpatient hospital environment. Thus, it is important to note that 
under proposed Sec.  412.29(a) the facility must be staffed to provide 
specialized nursing, regardless of whether any particular patient 
actually has a complication requiring specialized nursing.
    Another critical aspect of IRF care is that rehabilitation therapy 
services are generally provided to each patient by a licensed or 
certified therapist working directly with the patient, more commonly 
known as one-on-one therapy. Anecdotally, we have heard that some IRFs 
are providing essentially all ``group therapy'' to their patients. We 
believe that group therapies have a role in patient care in an IRF, but 
that they should be used in IRFs primarily as an adjunct to one-on-one 
therapy services, not as the main or only source of therapy services 
provided to IRF

[[Page 21071]]

patients. While we recognize the value of group therapy, we believe 
that group therapy is typically a lower intensity service that should 
be considered as a supplement to the intensive individual therapy 
services generally provided in an IRF. To improve our understanding of 
when group therapy may be appropriate in IRFs, we specifically solicit 
comments on the types of patients for which group therapy may be 
appropriate, and the specific amounts of group instead of one-on-one 
therapies that may be beneficial for these types of patients. We 
anticipate using this information to assess the appropriate use of 
group therapies in IRFs and may create standards for group therapies in 
IRFs.

F. Proposed Director of Rehabilitation Requirement

    We are proposing to retain the existing requirements for a Director 
of Rehabilitation without change.

G. Clarifying and Conforming Amendments

    Since the proposed classification and payment requirements 
described above will apply to both rehabilitation hospitals and 
rehabilitation units, we are proposing to consolidate the criteria into 
one section of the regulations (at revised Sec.  412.29). Thus, we 
propose to revise the heading of Sec.  412.29 to include rehabilitation 
hospitals and to relocate the criteria to be classified as an inpatient 
rehabilitation hospital found at existing Sec.  412.23(b)(3) through 
(b)(7) to the revised Sec.  412.29. As a result, we propose to 
redesignate paragraphs (b)(8) and (b)(9) of Sec.  412.23 as paragraphs 
(b)(3) and (b)(4). Lastly, we propose to make a technical correction to 
newly redesignated paragraph (b)(4) to ensure that it is consistent 
with the language found in the introductory paragraph at revised Sec.  
412.29 by changing the word ``or'' to the word ``and'' following the 
words ``specified in Sec.  412.1(a)(1).''

H. Proposed Introductory Paragraph at Sec.  412.30

    As a result of the proposed changes to revised Sec.  412.29, we are 
proposing to relocate the current provisions found at Sec.  412.29(a) 
to a new introductory paragraph to be inserted at the beginning of 
Sec.  412.30. The purpose of moving the definitions of a new and 
converted IRF is to separate them from the proposed requirements for 
admission and post-admission. Section 412.30 currently only contains 
regulatory requirements for new and converted rehabilitation units. As 
amended, it will cover inpatient rehabilitation hospitals and hospital 
units as well.

I. Proposed Rescission of the HCFAR 85-2 Ruling

    As noted previously, the HCFAR is inconsistent with the current 
payment system. We would therefore like to take this opportunity to 
propose rescission of this document in order to prevent further 
confusion over which document provides instructions on the IRF PPS 
regulations (that document is Chapter 1, Section 110 of the MBPM).

VIII. Proposed Revisions to the Regulation Text To Require IRFs To 
Submit Patient Assessments on Medicare Advantage Patients for Use in 
the ``60 Percent Rule'' Calculations

    In order to be excluded from the acute care inpatient hospital PPS 
specified in Sec.  412.1(a)(1) and instead be paid under the IRF PPS, 
rehabilitation hospitals and units must meet the requirements for 
classification as an IRF stipulated in subpart B of part 412. In 
particular, Sec.  412.23(b)(2) specifies that an IRF must meet a 
minimum percentage requirement that at least 60 percent of the IRF's 
population has one of the 13 medical conditions listed in Sec.  
412.23(b)(2)(ii) as a primary condition or comorbidity in order for the 
facility to be classified as an IRF. The minimum percentage is known as 
the ``compliance threshold.''
    The instructions that we provide to Medicare contractors in Chapter 
3, section 140 of the Medicare Claims Processing Manual, Internet-Only 
Manual (IOM) Pub. L. 100-04, provide for two methodologies that 
Medicare contractors may use to determine an IRF's compliance 
threshold. We refer to the first of these two methodologies as the 
``presumptive methodology.'' This methodology makes use of the IRF-PAI 
information that is submitted for Medicare Part A fee-for-service 
inpatients under Sec.  412.604 and Sec.  412.618. It is ``presumptive'' 
in that, while the compliance threshold requirements specify the 
percent of all patients, this method utilizes Medicare patient data to 
estimate the compliance percent for the entire IRF patient population. 
The presumptive methodology uses computer software to examine the IRF-
PAIs that each IRF submits to CMS for diagnostic codes that would 
indicate that a particular IRF patient has one of the 13 medical 
conditions listed in Sec.  412.23(b)(2)(ii). If the computer software 
determines that the patient has a diagnostic code that indicates one of 
the 13 medical conditions listed in Sec.  412.23(b)(2)(ii), then that 
patient is counted in the presumptive methodology calculation of that 
facility's compliance percentage; otherwise, the patient is not 
counted. Once the computer software has examined all of the IRF-PAIs 
submitted by a particular facility, the computer software computes the 
presumptive compliance percentage for that facility, which equals the 
total number of IRF-PAIs for patients with a diagnostic code indicating 
at least one of the 13 medical conditions listed in Sec.  
412.23(b)(2)(ii) divided by the total number of IRF-PAIs submitted by 
the facility. This becomes the facility's presumptive compliance 
percentage, which is then compared to the required minimum compliance 
percentage to determine whether the facility has met the required 
minimum compliance percentage for the designated compliance review 
period.
    In accordance with IOM instructions in Chapter 3, section 140 of 
the Medicare Claims Processing Manual, the presumptive methodology 
described above is used in instances in which the Medicare contractor 
has verified that the facility's Medicare Part A fee-for-service 
inpatient population is representative of the facility's total 
inpatient population. For this to be the case, the IOM instructions 
specify that the facility's Medicare Part A fee-for-service inpatient 
population must be at least 50 percent or more of the facility's total 
inpatient population. If the facility's Medicare Part A fee-for-service 
inpatient population is less than 50 percent of the facility's total 
inpatient population, we cannot conclude that the IRF-PAI data are 
representative of the IRF's aggregate utilization pattern. Therefore, 
we require the Medicare contractors to use the second of the 2 
methodologies to determine the facility's compliance percentage.
    The second methodology is commonly known as the ``medical review'' 
methodology. This methodology requires the Medicare contractor to 
review a sample of medical records from the facility's total inpatient 
population. Information from those records is then used in an 
extrapolation that estimates the facility's compliance percentage. The 
second methodology may be used at any time at the discretion of the 
Medicare contractor, but we require its use if the facility's Medicare 
Part A fee-for-service inpatient population is less than 50 percent of 
the facility's total inpatient population (as described above) or if 
the facility fails to meet the minimum compliance percentage using the 
presumptive methodology. The medical review methodology is time 
consuming and labor intensive for both providers and contractors. It is 
most useful when

[[Page 21072]]

evaluating facilities with questionable utilization patterns, such as 
facilities that do not meet the presumptive compliance percentage, and 
is not efficient as the sole method for evaluating compliance.
    As described above, the presumptive methodology relies upon the 
IRF-PAI data that is submitted under Sec.  412.604 and Sec.  412.618. 
To be used, the Medicare Part A inpatient population must consist of at 
least 50 percent or more of the facility's total inpatient population.
    Since 2004, however, increasing numbers of Medicare beneficiaries 
in many areas of the country have been enrolling in Medicare Advantage 
(MA) plans rather than remaining in the traditional Medicare Part A 
fee-for-service program. This, in turn, has led to decreases in the 
number of Medicare Part A fee-for-service inpatients in certain IRFs 
across the country and has resulted in a reduction in the number of 
IRFs that can benefit from the presumptive methodology. For this 
reason, we have received many comments from individual IRFs as well as 
from IRF industry groups requesting that we allow Medicare Advantage 
patient data to be used in the presumptive methodology to improve 
facilities' chances of reaching the required 50 percent or more of the 
population mark for use of the presumptive methodology.
    We agree with the unsolicited comments on the FY 2009 proposed rule 
that the MA population represents an increasing percentage of the 
patient populations in IRFs in many areas of the country. We also 
believe that it is important to update our policies wherever possible 
to allow for a reasonable means for calculating an IRF's compliance 
percentage under the 60 percent rule. Although we do not currently 
require IRFs to submit IRF-PAI data on MA patients, we understand that 
some IRFs are voluntarily submitting IRF-PAI data on some or all of 
their MA patients. To ensure that IRFs do not selectively submit IRF-
PAI data on only those MA patients that help them in meeting their 
compliance percentage, we believe that it is essential to require IRFs 
to submit IRF-PAI data on all of their MA patients. We believe that 
this is the only way to maintain the integrity of the compliance 
percentage review process. Therefore, we are proposing to require that 
IRFs submit IRF-PAI data on all of their MA patients to facilitate 
better calculations under the 60 percent rule. However, we are seeking 
comments on whether requiring IRFs to submit IRF-PAI data on all of 
their MA patients is the best way to ensure the integrity of the 
compliance review process.
    Where an IRF fails to submit all MA IRF PAIs, we propose that CMS 
will not count the MA patients in the compliance percentage for that 
IRF. In addition, to ensure that we receive all IRF-PAI data for all 
Medicare Patients, whether Part A or Part C, we propose to remove Sec.  
412.614(a)(3) of the regulations that currently provides for an 
exception that allows an IRF to not transmit IRF-PAIs for Medicare 
patients if the IRF does not submit a claim to Medicare for payment.
    Thus, we propose to revise the regulation text in Sec.  412.604, 
Sec.  412.606, Sec.  412.610, Sec.  412.14, and Sec.  412.618 to 
require IRFs to submit IRF-PAI information to CMS for all MA inpatients 
in IRFs, in addition to all Medicare Part A fee-for-service inpatients 
in IRFs. Requiring IRFs to submit IRF-PAI information for all MA 
inpatients will allow Medicare contractors to use this information to 
determine facilities' compliance percentages for the IRF 60 percent 
rule using the presumptive methodology. Note that we are proposing to 
preserve the long-standing 5 year record retention requirement for the 
IRF-PAIs completed on Medicare Part A fee-for-service patients, as 
currently required in Sec.  412.610(f), but we are proposing a 10 year 
record retention requirement for IRF-PAIs completed on Medicare Part C 
(Medicare Advantage) patients to maintain consistency with the record 
retention requirements for Medicare Part C data specified in Sec.  
422.504(d).
    For this reason, we propose the following revisions to the 
regulation text in Sec.  412.604, Sec.  412.606, Sec.  412.610, Sec.  
412.14, and Sec.  412.618. Specifically, we propose to add Medicare 
Part C (Medicare Advantage) patients to the patients for whom IRFs must 
complete and submit an IRF-PAI, remove the paragraph that allows IRFs 
not to submit IRF PAI data in instances in which the IRF does not 
submit a claim to Medicare, and reject MA IRF-PAI data that is not 
complete. The proposed changes to the regulations text are as follows:
     In Sec.  412.604(c), we propose to add the following 
sentence to the end of the paragraph: ``IRFs must also complete a 
patient assessment instrument in accordance with Sec.  412.606 for each 
Medicare Part C (Medicare Advantage) patient admitted to or discharged 
from an IRF on or after October 1, 2009.'' Thus, the paragraph would 
read as follows: ``For each Medicare Part A fee-for-service patient 
admitted to or discharged from an IRF on or after January 1, 2002, the 
inpatient rehabilitation facility must complete a patient assessment 
instrument in accordance with Sec.  412.606. IRFs must also complete a 
patient assessment instrument in accordance with Sec.  412.606 for each 
Medicare Part C (Medicare Advantage) patient admitted to or discharged 
from an IRF on or after October 1, 2009.''
     In Sec.  412.606(b), we propose to add the phrase ``and 
Medicare Part C (Medicare Advantage)'' after ``fee-for-service'' and 
before ``inpatients.'' The paragraph would read as follows: ``An 
inpatient rehabilitation facility must use the CMS inpatient 
rehabilitation facility patient assessment instrument to assess 
Medicare Part A fee-for-service and Medicare Part C (Medicare 
Advantage) inpatients who--''
     In Sec.  412.606(c)(1), we propose to add a sentence at 
the end of the existing paragraph that reads as follows: ``IRFs must 
also complete a patient assessment instrument in accordance with Sec.  
412.606 for each Medicare Part C (Medicare Advantage) patient admitted 
to or discharged from an IRF on or after October 1, 2009.''
     In Sec.  412.610(a), we propose to add the phrase ``and 
Medicare Part C (Medicare Advantage)'' after ``fee-for-service'' and 
before ``inpatient.'' The paragraph would read as follows: ``For each 
Medicare Part A fee-for-service or Medicare Part C (Medicare Advantage) 
inpatient, an inpatient rehabilitation facility must complete a patient 
assessment instrument as specified in Sec.  412.606 that covers a time 
period that is in accordance with the assessment schedule specified in 
paragraph (c) of this section.''
     In Sec.  412.610(b), we propose to add the phrase ``or 
Medicare Part C (Medicare Advantage)'' after ``fee-for-service'' and 
before ``inpatient.'' The paragraph would read as follows: ``The first 
day that the Medicare Part A fee-for-service or Medicare Part C 
(Medicare Advantage) inpatient is furnished Medicare-covered services 
during his or her current inpatient rehabilitation facility hospital 
stay is counted as day one of the patient assessment schedule.''
     In Sec.  412.610(c), we propose to add the phrase ``or 
Medicare Part C (Medicare Advantage)'' after ``fee-for-service'' and 
before ``patient's.'' The paragraph would read as follows: ``The 
inpatient rehabilitation facility must complete a patient assessment 
instrument upon the Medicare Part A fee-for-service or Medicare Part C 
(Medicare Advantage) patient's admission and discharge as specified in 
paragraphs (c)(1) and (c)(2) of this section.''

[[Page 21073]]

     In Sec.  412.610(c)(1)(i)(A), we propose to add the phrase 
``or Medicare Part C (Medicare Advantage)'' after ``fee-for-service'' 
and before ``hospitalization.'' The paragraph would read as follows: 
``Time period is a span of time that covers calendar days 1 through 3 
of the patient's current Medicare Part A fee-for-service or Medicare 
Part C (Medicare Advantage) hospitalization; * * *''
     In Sec.  412.610(c)(2)(ii)(B), we propose to add the 
phrase ``or Medicare Part C (Medicare Advantage)'' after ``fee-for-
service'' and before ``inpatient,'' so that the resulting paragraph 
would read, ``The patient stops being furnished Medicare Part A fee-
for-service or Medicare Part C (Medicare Advantage) inpatient 
rehabilitation services.''
     In Sec.  412.610(f), we propose to add the phrase ``and 
Medicare Part C (Medicare Advantage) patients within the previous 10 
years'' after ``5 years'' and before ``either,'' and also add the 
phrase ``and produce upon request to CMS or its contractors'' after 
``obtain.'' The paragraph would read as follows: ``An inpatient 
rehabilitation facility must maintain all patient assessment data sets 
completed on Medicare Part A fee-for-service patients within the 
previous 5 years and Medicare Part C (Medicare Advantage) patients 
within the previous 10 years either in a paper format in the patient's 
clinical record or in an electronic computer file format that the 
inpatient rehabilitation facility can easily obtain and produce upon 
request to CMS or its contractors.''
     In Sec.  412.614(a), we propose to add the phrase ``and 
Medicare Part C (Medicare Advantage)'' after ``fee-for-service'' and 
before ``inpatient,'' the paragraph would read as follows: ``The 
inpatient rehabilitation facility must encode and transmit data for 
each Medicare Part A fee-for-service and Medicare Part C (Medicare 
Advantage) inpatient--''
     We propose to remove Sec.  412.614(a)(3).
     In Sec.  412.614(b)(1), we propose to add the phrase ``and 
Medicare Part C (Medicare Advantage)'' after ``fee-for-service'' and 
before ``inpatient,'' the paragraph would read as follows: 
``Electronically transmit complete, accurate, and encoded data from the 
patient assessment instrument for each Medicare Part A fee-for-service 
and Medicare Part C (Medicare Advantage) inpatient to our patient data 
system in accordance with the data format specified in paragraph (a) of 
this section; and * * *''
     We propose to revise Sec.  412.614(d) to read, 
``Consequences of failure to submit complete and timely IRF-PAI data, 
as required under paragraph (c) of this section.''
     We propose to revise Sec.  412.614(d)(1) to read, 
``Medicare Part A fee-for-service data.''
     We propose to make a technical correction to the paragraph 
formerly designated as Sec.  412.614(d)(1) and assign the revised 
language to a new paragraph Sec.  412.614(d)(1)(a), which would read as 
follows: ``We assess a penalty when an inpatient rehabilitation 
facility does not transmit all of the required data from the patient 
assessment instrument for its Medicare Part A fee-for-service patients 
to our patient data system in accordance with the transmission timeline 
in paragraph (c) of this section.
     We propose to redesignate paragraph Sec.  412.614(d)(2) as 
Sec.  412.614(d)(1)(b).
     We propose to add a new paragraph Sec.  412.614(d)(2), 
which would read as follows: ``Medicare Part C (Medicare Advantage) 
data. Failure of the inpatient rehabilitation facility to transmit all 
of the required patient assessment instrument data for its Medicare 
Part C (Medicare Advantage) patients to our patient data system in 
accordance with the transmission timeline in paragraph (c) of this 
section will result in a forfeiture of the facility's ability to have 
any of its Medicare Part C (Medicare Advantage) data used in the 
calculations for determining the facility's compliance with the 
regulations at Sec.  412.23(b)(2).
     In the introductory paragraph of Sec.  412.618, we propose 
to add the phrase ``or Medicare Part C (Medicare Advantage)'' after 
``fee-for-service'' and before ``patient.'' The paragraph would read as 
follows: ``For purposes of the patient assessment process, if a 
Medicare Part A fee-for-service or Medicare Part C (Medicare Advantage) 
patient has an interrupted stay, as defined under Sec.  412.602, the 
following applies: * * *''
    In addition, we have received several inquiries concerning the need 
to include IRF PAIs in the medical record. The IRF PAI was introduced 
as a payment tool when the IRF PPS was established in 2002. The IRF PAI 
provides detailed information on each patient's medical condition and 
rehabilitation status. As such, it is also used by CMS to conduct its 
program oversight functions. We are therefore proposing to revise Sec.  
412.610(f) to require that the IRF maintain all patient assessment data 
sets completed on Medicare Part A fee-for-service patients within the 
previous 5-years and Medicare Part C (Medicare Advantage) patients 
within the previous 10-years either in a paper format in the patient's 
clinical record or in an electronic computer file format that the 
inpatient rehabilitation facility can easily obtain and produce upon 
request to CMS or its contractors. This is meant to clarify any 
confusion that may have existed previously about whether the IRF-PAI is 
considered part of the patient's medical record. Note that we are 
proposing to preserve the long-standing 5-year record retention 
requirement for the IRF-PAIs completed on Medicare Part A fee-for-
service patients, as required in current Sec.  412.610(f), but we are 
proposing a 10-year record retention requirement for IRF-PAIs completed 
on Medicare Part C (Medicare Advantage) patients to maintain 
consistency with the record retention requirements for Medicare Part C 
data specified in Sec.  422.504(d)(1)(ii).

IX. Collection of Information Requirements

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

Section 412.29 Excluded Rehabilitation Hospitals and Units: Additional 
Requirements

    In 1983, CMS sought to distinguish rehabilitation hospitals from 
other hospitals that offer general medical and surgical services, but 
also provide some rehabilitation services, by developing new regulatory 
provisions that describe the criteria that hospital must meet to be 
excluded from the Inpatient Prospective Payment System (IPPS). These 
criteria relate to the preadmission screening of prospective 
inpatients, to the types of services that must be furnished by or

[[Page 21074]]

made available in the hospital, and to the hospital's management of the 
rehabilitation services it furnished.
    All IPPS hospitals, including excluded rehabilitation hospitals and 
units, have been and continue to be required to comply with the 
Hospital Conditions of Participation (CoP) that served as the basis for 
the excluded criteria established in 1983. In this proposed rule, we 
propose regulatory provisions that would reinforce the link between the 
Hospital CoPs for medical records and delivery of inpatient 
rehabilitation services within the exclusion criteria, and that would 
promote further understanding of how medical necessity for 
rehabilitation services provided in IRFs should be established.
    As previously discussed in this proposed rule, we are proposing to 
consolidate the existing exclusion criteria in Sec.  412.23(b)(3) 
through (7) and Sec.  412.29(b) through (f) into a revised Sec.  412.29 
that applies to both rehabilitation hospitals and units. We will then 
utilize the MPBM to issue guidance on how the documentation 
requirements relating to the medical record should be used in 
determining the medical necessity of IRF claims.
    Section 412.23(b)(3) and Sec.  412.29(b) currently require IRF 
facilities to have a preadmission screening process for each potential 
IRF patient. These requirements would be combined in the proposed Sec.  
412.29(b)(2)(iv). The proposed Sec.  412.29(b)(2)(iv) would also 
require that the rehabilitation physician review and document his or 
her concurrence with the preadmission screening findings and the 
admission decision in keeping with the Hospital CoPs at Sec.  
482.24(c)(1). Similarly, the preadmission screening findings and 
admission decision would need to be retained in the patient's medical 
record, in keeping with the Hospital CoPs at Sec.  482.24(c)(2). The 
burden associated with these proposed requirements would be the time 
and effort put forth by the rehabilitation physician to document his or 
her concurrence with the preadmission findings and the admission 
decision and retain the information in the patient's medical record. 
The burden associated with these proposed requirements are in keeping 
with the ``Condition of Participation: Medical record services,'' that 
are already applicable to Medicare participating hospitals. The burden 
associated with these requirements is currently approved under 
OMB 0938-0328. As stated in the approved Hospital CoPs 
Supporting Statement, we believe that the proposed requirements reflect 
customary and usual business and medical practice. Thus, in accordance 
with section 1320.3(b)(2) of the Act, the burden is not subject to the 
PRA.
    Proposed section Sec.  412.29(c)(1) would be in keeping with the 
existing Hospital CoP requirement at Sec.  482.24(c)(2) that requires 
the facility to have and utilize a post-admission evaluation process. 
The proposed post admission evaluation process at Sec.  412.29(c)(1) 
would require that a rehabilitation physician complete a post-admission 
evaluation for each patient within 24 hours of that patient's admission 
to the IRF facility in order to document the patient's status on 
admission to the IRF, compare it to that noted in the preadmission 
screening documentation, and begin development of the overall 
individualized plan of care. Similarly, this proposed section would 
require that a post-admission physician evaluation be retained in the 
patient's medical record, in keeping with the Hospital CoPs at Sec.  
482.24(c)(2).
    The burden associated with these proposed requirements would be the 
time and effort put forth by the rehabilitation physician to document 
the patient's status on admission to the IRF, compare it to that noted 
in the preadmission screening document, begin development of the plan 
of care, and retain the information in the patient's medical record. 
The burden associated with these proposed requirements are in keeping 
with the ``Condition of Participation: Medical record services,'' 
applicable to Medicare participating Hospitals. The burden associated 
with these requirements is currently approved under OMB 0938-
0328. As stated in the approved ``Hospital CoPs Supporting Statement,'' 
we believe that the proposed requirements reflect customary and usual 
business and medical practice. Thus, in accordance with section 
1320.3(b)(2) of the Act, the burden is not subject to the PRA.
    Proposed Sec.  412.29(c)(2) would be in keeping with the existing 
requirement at Sec.  412.23(c)(6) to develop an overall plan of care 
for each IRF admission. Such a proposal is in keeping with the Hospital 
CoPs at Sec.  482.56(b). Similarly, the individualized plan of care 
that would be required by proposed Sec.  412.29(c)(2) would be required 
to be retained in the patient's medical record, as currently required 
by the Hospital CoPs at Sec.  482.24(c)(2).
    The burden associated with these prospective requirements would be 
the time and effort put forth by the rehabilitation physician to 
develop the individualized overall plan of care and retain the 
individualized overall plan of care in the patient's medical record. 
The burden associated with these proposed requirements are in keeping 
with the ``Condition of Participation: Medical record services,'' and 
the ``Standard: Delivery of Services,'' that are already applicable to 
Medicare participating hospitals. The burden associated with these 
requirements is currently approved under OMB 0938-0328. As 
stated in the approved ``Hospital CoPs Supporting Statement,'' we 
believe that the purposed requirements reflect customary and usual 
business and medical practice. The requirement for an individualized 
plan of care is also an industry standard. Thus, in accordance with 
section 1320.3(b)(2) of the Act, the burden is not subject to the PRA.
    Proposed Sec.  412.29(d)(2) would require the interdisciplinary 
team to meet at least once per week throughout the duration of the 
patient's stay to implement appropriate treatment services; review the 
patient's progress toward stated rehabilitation goals; identify any 
problems that could impede progress towards those goals; and, where 
necessary, reassess previously established goals in light of 
impediments, revise the treatment plan in light of new goals, and 
monitor continued progress toward those goals. Proposed Sec.  
412.23(d)(2) would be in keeping with Sec.  482.24(c)(1) and (c)(2) of 
the Hospital CoPs.
    The proposed requirement for a weekly conference revises the 
current requirement for bi-weekly meetings to reflect current medical 
practice and a reduction in the average patient lengths of stay that in 
turn make more frequent monitoring of patient status an important 
factor in ensuring adequate patient care. For example, with the average 
length of stay for many IRF stays under 14 days, a bi-weekly 
requirement for consultation and coordination of the patient's care 
would be ineffective. In consulting with clinicians, we have found that 
more frequent interdisciplinary team meetings are considered to be a 
currently recognized standard of practice, regardless of payor source. 
As with all other proposed requirements in this proposed rule, the 
public may submit comments on this proposed change.
    The burden associated with this proposed revised requirement would 
be the time spent discussing the patient's progress, problems and 
reassessment/monitoring of continued progress. The burden associated 
with this proposed requirement is in keeping with the ``Condition of 
Participation: Medical record services,'' that are already applicable 
to Medicare participating hospitals. The burden associated with

[[Page 21075]]

these requirements is currently approved under OMB 0938-0328. 
As stated in the approved ``Hospital CoPs Supporting Statement,'' we 
believe that the proposed requirements reflect customary and usual 
business and medical practice. Thus, in accordance with section 
1320.3(b)(2) of the Act, the burden is not subject to the PRA.
    Proposed Sec.  412.29(d)(3) would require the rehabilitation 
physician to document concurrence with all decisions made by the 
interdisciplinary team at each team meeting, which would be in keeping 
with what is currently required by the Hospital CoPs at Sec.  
482.24(c)(1).
    The burden associated with this proposed requirement is the time 
and effort put forth by the rehabilitation physician to document 
concurrence. The burden associated with this proposed requirement is in 
keeping with the ``Condition of Participation: Medical record 
services,'' applicable to Medicare participating hospitals. The burden 
associated with these requirements is currently approved under 
OMB 0938-0328. As stated in the approved ``Hospital CoPs 
Supporting Statement,'' we believe that the proposed requirements 
reflect customary and usual business and medical practice. Thus, in 
accordance with section 1320.3(b)(2) of the Act, the burden is not 
subject to the PRA.

Section 412.604 Conditions for Payment Under the Prospective Payment 
System for Inpatient Rehabilitation Facilities

    We have proposed to amend Sec.  412.604(c) to add an IRF-PAI 
requirement for Medicare Part C (Medicare Advantage) patients that are 
admitted to or discharged from an Inpatient Rehabilitation Facility 
(IRF) on or after October 1, 2009.
    The burden associated with this requirement is the time and effort 
put forth by each IRF to complete an average of approximately 38 
additional patient assessment instruments each year associated with its 
Medicare Part C patients. We obtained the estimated average number of 
Medicare Part C patients in each IRF from the American Medical 
Rehabilitation Providers Association (AMRPA), based on AMRPA's own 
analysis of the eRehabData[supreg] policy database. CMS currently 
estimates that it takes the IRF 0.75 of an hour to complete a single 
patient assessment instrument. Therefore, the annual hour burden for 
each IRF to complete approximately 38 additional patient assessment 
instruments is 28.5 hours (38 x 0.75). The total annual hour burden for 
all 1,205 IRFs is 34,342.5 hours (28.5 hours x 1,205 IRFs). The burden 
estimate for using the patient assessment instrument for Medicare Part 
A is currently approved under 0938-0842. CMS will revise this currently 
approved package as necessary to include any additional burden placed 
on the IRF for submitting the patient assessment instrument for 
Medicare Advantage patients.

Section 412.606 Patient Assessments

    Section 412.606 proposes to require an IRF to use the CMS inpatient 
rehabilitation facility patient assessment instrument to assess 
Medicare Part A fee-for-service and Medicare Part C (Medicare 
Advantage) inpatients.
    The burden for using the patient assessment instrument for Medicare 
Part A is currently approved under 0938-0842. CMS will revise this 
currently approved package as necessary to include any additional 
burden placed on IRFs for submitting the patient assessment instrument 
for Medicare Advantage patients.

Section 412.610 Assessment Schedule

    Proposed Sec.  412.610(f) states that an IRF must maintain all 
patient assessment data sets completed on Medicare Part A fee-for-
service patients within the previous 5 years and Medicare Part C 
(Medicare Advantage) patients within the previous 10 years either in a 
paper format in the patient's clinical record or in an electronic 
computer file format that the inpatient rehabilitation facility can 
easily obtain and produce upon request to CMS or its contractors.
    The burden for maintaining the patient assessment instrument for 
Medicare Part A is currently approved under OMB 0938-0842. CMS 
will revise this currently approved package as necessary to include any 
additional burden placed on IRFs for maintaining the patient assessment 
instrument for Medicare Advantage patients.

Section 412.614 Transmission of Patient Assessment Data

    Section 412.614(a) requires that the IRF must encode and transmit 
patient assessment data to CMS. The burden associated with this 
requirement is the time staff must take to transmit the data.
    CMS currently estimates that it takes the IRF 0.10 of an hour to 
transmit a single patient assessment instrument. Therefore, the annual 
hour burden to transmit an average of approximately 38 additional 
patient assessments instruments per IRF is 3.8 hours (38 x 0.10). The 
total annual hour burden for all 1,205 IRFs is 4,579 hours (3.8 hours x 
1,205 IRFs). The burden estimate for transmitting the patient 
assessment instrument for Medicare Part A is currently approved under 
0938-0842. CMS will revise this currently approved package as necessary 
to include any additional burden placed on the IRF for transmitting the 
patient assessment instrument for Medicare Advantage patients.
    You may submit comments on these information collection and 
recordkeeping requirements in one of the following ways (please choose 
only one of the ways listed):
    4. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    5. Submit your written comments to the Office of Information and 
Regulatory Affairs, Office of Management and Budget, Attention: CMS 
Desk Officer; Fax: (202) 395-7245; or E-mail: [email protected].

X. Response to Public 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.

XI. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866 (September 30, 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, 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 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any one year). This 
proposed rule is a major rule, as defined in Title 5, United States 
Code, section 804(2),

[[Page 21076]]

because we estimate the impact to the Medicare program, and the annual 
effects to the overall economy, will be more than $100 million. We 
estimate that the total impact of these proposed changes for estimated 
FY 2010 payments compared to estimated FY 2009 payments would be an 
increase of approximately $150 million (this reflects a $140 million 
increase from the update to the payment rates and a $10 million 
increase due to the proposed update to the outlier threshold amount to 
increase estimated outlier payments from approximately 2.8 percent in 
FY 2009 to 3 percent in FY 2010).
    The Regulatory Flexibility Act (RFA) requires agencies to analyze 
options for regulatory relief of small entities, 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 governmental jurisdictions. Most IRFs and most 
other providers and suppliers are small entities, either by nonprofit 
status or by having revenues of $7 million to $34.5 million in any one 
year. (For details, see the Small Business Administration's final rule 
that set forth size standards for health care industries, at 65 FR 
69432, November 17, 2000.) Because we lack data on individual hospital 
receipts, we cannot determine the number of small proprietary IRFs or 
the proportion of IRFs' revenue that is derived from Medicare payments. 
Therefore, we assume that all IRFs (an approximate total of 1,200 IRFs, 
of which approximately 60 percent are nonprofit facilities) are 
considered small entities and that Medicare payment constitutes the 
majority of their revenues. The Department of Health and Human Services 
generally uses a revenue impact of 3 to 5 percent as a significance 
threshold under the RFA. As shown in Table 7, we estimate that the net 
revenue impact of this proposed rule on all IRFs is to increase 
estimated payments by about 2.6 percent, with an estimated positive 
increase in payments of 3 percent or higher for some categories of IRFs 
(such as urban IRFs in the Mountain and Pacific regions). Thus, we 
anticipate that this proposed rule would have a significant impact on a 
substantial number of small entities. However, there is no negative 
estimated impact of this proposed rule that is within the significance 
threshold of 3 to 5 percent, so we believe that this proposed rule 
would not impose a significant burden on small entities. Medicare 
fiscal intermediaries and carriers are not considered to be small 
entities. Individuals and States are not included in the definition of 
a small entity.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. As discussed in detail 
below, the rates and policies set forth in this proposed rule will not 
have an adverse impact on rural hospitals based on the data of the 193 
rural units and 21 rural hospitals in our database of 1,205 IRFs for 
which data were available.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any one year of 
$100 million in 1995 dollars, updated annually for inflation. In 2009, 
that threshold level is approximately $133 million. This proposed rule 
will not impose spending costs on State, local, or tribal governments, 
in the aggregate, or by the private sector, of $133 million.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. As stated above, this proposed rule would not have a 
substantial effect on State and local governments.

B. Anticipated Effects of the Proposed Rule

1. Basis and Methodology of Estimates
    This proposed rule sets forth updates of the IRF PPS rates 
contained in the FY 2009 final rule and proposes updates to the CMG 
relative weights and length of stay values, the facility-level 
adjustments, the wage index, and the outlier threshold for high-cost 
cases.
    We estimate that the FY 2010 impact would be a net increase of $150 
million in payments to IRF providers (this reflects a $140 million 
estimated increase from the proposed update to the payment rates and a 
$10 million estimated increase due to the proposed update to the 
outlier threshold amount to increase the estimated outlier payments 
from approximately 2.8 percent in FY 2009 to 3.0 percent in FY 2010). 
The impact analysis in Table 7 of this proposed rule represents the 
projected effects of the proposed policy changes in the IRF PPS for FY 
2010 compared with estimated IRF PPS payments in FY 2009 without the 
proposed policy changes. We estimate the effects by estimating payments 
while holding all other payment variables constant. We use the best 
data available, but we do not attempt to predict behavioral responses 
to these proposed changes, and we do not make adjustments for future 
changes in such variables as number of discharges or case-mix.
    We note that certain events may combine to limit the scope or 
accuracy of our impact analysis, because such an analysis is future-
oriented and, thus, susceptible to forecasting errors because of other 
changes in the forecasted impact time period. Some examples could be 
legislative changes made by the Congress to the Medicare program that 
would impact program funding, or changes specifically related to IRFs. 
Although some of these changes may not necessarily be specific to the 
IRF PPS, the nature of the Medicare program is such that the changes 
may interact, and the complexity of the interaction of these changes 
could make it difficult to predict accurately the full scope of the 
impact upon IRFs.
    In updating the rates for FY 2010, we are proposing a number of 
standard annual revisions and clarifications mentioned elsewhere in 
this proposed rule (for example, the update to the wage and market 
basket indexes used to adjust the Federal rates). We estimate that 
these proposed revisions would increase payments to IRFs by 
approximately $140 million (all due to the update to the market basket 
index, since the update to the wage index is done in a budget neutral 
manner--as required by statute--and therefore neither increases nor 
decreases aggregate payments to IRFs).
    The aggregate change in estimated payments associated with this 
proposed rule is estimated to be an increase in payments to IRFs of 
$150 million for FY 2010. The market basket increase of $140 million 
and the $10 million increase due to the proposed update to the outlier 
threshold amount to increase estimated outlier payments from 
approximately 2.8 percent in FY 2009 to 3.0 percent in FY 2010 would 
result in a net change in estimated payments from FY 2009 to FY 2010 of 
$150 million.
    The effects of the proposed changes that impact IRF PPS payment 
rates are shown in Table 7. The following proposed changes that affect 
the IRF

[[Page 21077]]

PPS payment rates are discussed separately below:
     The effects of the proposed update to the outlier 
threshold amount, from approximately 2.8 to 3.0 percent of total 
estimated payments for FY 2010, consistent with section 1886(j)(4) of 
the Act.
     The effects of the annual market basket update (using the 
RPL market basket) to IRF PPS payment rates, as required by section 
1886(j)(3)(A)(i) and section 1886(j)(3)(C) of the Act.
     The effects of applying the budget-neutral labor-related 
share and wage index adjustment, as required under section 1886(j)(6) 
of the Act.
     The effects of the proposed budget-neutral changes to the 
CMG relative weights and length of stay values, under the authority of 
section 1886(j)(2)(C)(i) of the Act.
     The effects of the proposed budget-neutral changes to the 
facility-level adjustment factors, as permitted under section 
1886(j)(3)(A)(v) of the Act.
     The total proposed change in estimated payments based on 
the FY 2010 proposed policies relative to estimated FY 2009 payments 
without the proposed policies.
2. Description of Table 7
    The table below categorizes IRFs by geographic location, including 
urban or rural location, and location with respect to CMS's nine census 
divisions (as defined on the cost report) of the country. In addition, 
the table divides IRFs into those that are separate rehabilitation 
hospitals (otherwise called freestanding hospitals in this section), 
those that are rehabilitation units of a hospital (otherwise called 
hospital units in this section), rural or urban facilities, ownership 
(otherwise called for-profit, non-profit, and government), and by 
teaching status. The top row of the table shows the overall impact on 
the 1,205 IRFs included in the analysis.
    The next 12 rows of Table 7 contain IRFs categorized according to 
their geographic location, designation as either a freestanding 
hospital or a unit of a hospital, and by type of ownership; all urban, 
which is further divided into urban units of a hospital, urban 
freestanding hospitals, and by type of ownership; and all rural, which 
is further divided into rural units of a hospital, rural freestanding 
hospitals, and by type of ownership. There are 991 IRFs located in 
urban areas included in our analysis. Among these, there are 793 IRF 
units of hospitals located in urban areas and 198 freestanding IRF 
hospitals located in urban areas. There are 214 IRFs located in rural 
areas included in our analysis. Among these, there are 193 IRF units of 
hospitals located in rural areas and 21 freestanding IRF hospitals 
located in rural areas. There are 398 for-profit IRFs. Among these, 
there are 324 IRFs in urban areas and 74 IRFs in rural areas. There are 
739 non-profit IRFs. Among these, there are 615 urban IRFs and 124 
rural IRFs. There are 68 government-owned IRFs. Among these, there are 
52 urban IRFs and 16 rural IRFs.
    The remaining three parts of Table 7 show IRFs grouped by their 
geographic location within a region and by teaching status. First, IRFs 
located in urban areas are categorized with respect to their location 
within a particular one of the nine CMS geographic regions. Second, 
IRFs located in rural areas are categorized with respect to their 
location within a particular one of the nine CMS geographic regions. In 
some cases, especially for rural IRFs located in the New England, 
Mountain, and Pacific regions, the number of IRFs represented is small. 
Finally, IRFs are grouped by teaching status, including non-teaching 
IRFs, IRFs with an intern and resident to average daily census (ADC) 
ratio less than 10 percent, IRFs with an intern and resident to ADC 
ratio greater than or equal to 10 percent and less than or equal to 19 
percent, and IRFs with an intern and resident to ADC ratio greater than 
19 percent.
    The estimated impacts of each proposed change to the facility 
categories listed above are shown in the columns of Table 7. The 
description of each column is as follows:
    Column (1) shows the facility classification categories described 
above.
    Column (2) shows the number of IRFs in each category in our FY 2007 
analysis file.
    Column (3) shows the number of cases in each category in our FY 
2007 analysis file.
    Column (4) shows the estimated effect of the proposed adjustment to 
the outlier threshold amount so that estimated outlier payments 
increase from approximately 2.8 percent in FY 2009 to 3.0 percent of 
total estimated payments for FY 2010.
    Column (5) shows the estimated effect of the market basket update 
to the IRF PPS payment rates.
    Column (6) shows the estimated effect of the update to the IRF 
labor-related share and wage index, in a budget neutral manner.
    Column (7) shows the estimated effect of the update to the CMG 
relative weights and average length of stay values, in a budget neutral 
manner.
    Column (8) shows the estimated effect of the update to the 
facility-level adjustment factors (rural, LIP, and teaching status), in 
a budget neutral manner.
    Column (9) compares our estimates of the payments per discharge, 
incorporating all of the proposed changes reflected in this proposed 
rule for FY 2010, to our estimates of payments per discharge in FY 2009 
(without these proposed changes).
    The average estimated increase for all IRFs is approximately 2.6 
percent. This estimated increase includes the effects of the 2.4 
percent market basket update. It also includes the 0.2 percent overall 
estimated increase (the difference between 2.8 percent in FY 2009 and 
3.0 percent in FY 2010) in estimated IRF outlier payments from the 
proposed update to the outlier threshold amount. Because we are making 
the remainder of the proposed changes outlined in this proposed rule in 
a budget-neutral manner, they would not affect total estimated IRF 
payments in the aggregate. However, as described in more detail in each 
section, they would affect the estimated distribution of payments among 
providers.

                                                     Table 7--Proposed IRF Impact Table for FY 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        FY 2010
                                                   Number of    Number of                   Market     CBSA wage                  Facility      Total
             Facility classification                  IRFs        cases       Outlier       basket     index and       CMG      adjustments    percent
                                                                                                      labor-share                               change
(1)                                                       (2)          (3)          (4)          (5)          (6)          (7)          (8)          (9)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total...........................................        1,205      376,418         0.2%         2.4%         0.0%         0.0%         0.0%         2.6%
Urban unit......................................          793      205,883          0.3          2.4          0.0          0.0          0.2          2.9
Rural unit......................................          193       31,249          0.3          2.4          0.1          0.0         -1.9          0.8

[[Page 21078]]

 
Urban hospital..................................          198      132,879          0.1          2.4          0.0          0.0          0.3          2.8
Rural hospital..................................           21        6,407          0.1          2.4          0.1          0.0         -2.3          0.3
Urban for-profit................................          324      128,187          0.2          2.4          0.1          0.0          0.1          2.9
Rural for-profit................................           74       13,477          0.2          2.4          0.0          0.0         -2.2          0.3
Urban Non-Profit................................          615      195,986          0.3          2.4         -0.1          0.0          0.3          2.8
Rural Non-Profit................................          124       21,898          0.2          2.4          0.1          0.0         -1.9          0.9
Urban Government................................           52       14,589          0.5          2.4          0.1          0.0          0.0          3.0
Rural Government................................           16        2,281          0.5          2.4          0.3          0.0         -1.8          1.4
Urban...........................................          991      338,762          0.2          2.4          0.0          0.0          0.2          2.8
Rural...........................................          214       37,656          0.2          2.4          0.1          0.0         -2.0          0.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Urban by region
--------------------------------------------------------------------------------------------------------------------------------------------------------
Urban New England...............................           32       16,461          0.2          2.4          0.0          0.0          0.2          2.8
Urban Middle Atlantic...........................          156       60,076          0.2          2.4         -0.3          0.0          0.5          2.7
Urban South Atlantic............................          133       57,429          0.3          2.4         -0.2          0.0          0.1          2.6
Urban East North Central........................          195       59,475          0.3          2.4         -0.6          0.0          0.6          2.6
Urban East South Central........................           54       24,565          0.2          2.4         -0.1          0.0          0.4          2.9
Urban West North Central........................           68       17,166          0.3          2.4          0.4          0.0          0.2          3.3
Urban West South Central........................          175       58,891          0.2          2.4          0.0          0.0          0.3          3.0
Urban Mountain..................................           71       21,982          0.3          2.4          0.3          0.0          0.2          3.2
Urban Pacific...................................          107       22,717          0.4          2.4          1.5          0.0         -1.1          3.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Rural by region
--------------------------------------------------------------------------------------------------------------------------------------------------------
Rural New England...............................            6        1,480          0.4          2.4         -0.3          0.0         -1.5          0.9
Rural Middle Atlantic...........................           18        3,372          0.2          2.4         -0.3          0.0         -1.3          0.9
Rural South Atlantic............................           26        5,505          0.2          2.4         -0.2          0.0         -2.2          0.2
Rural East North Central........................           36        6,332          0.2          2.4         -0.5          0.0         -1.7          0.3
Rural East South Central........................           23        4,078          0.1          2.4         -0.2          0.0         -2.7         -0.4
Rural West North Central........................           37        5,485          0.3          2.4          0.5          0.0         -1.7          1.4
Rural West South Central........................           57       10,316          0.2          2.4          0.7          0.0         -2.3          1.0
Rural Mountain..................................            6          592          0.4          2.4          0.3          0.0         -1.8          1.3
Rural Pacific...................................            5          496          0.8          2.4          0.5          0.0         -1.0          2.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Teaching Status
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-teaching....................................        1,087      325,871          0.2          2.4          0.0          0.0         -0.1          2.6
Resident to ADC less than 10%...................           66       35,237          0.2          2.4         -0.1          0.0          0.0          2.5
Resident to ADC 10%-19%.........................           34       10,178          0.2          2.4         -0.8          0.0          0.4          2.2
Resident to ADC greater than 19%................           18        5,132          0.2          2.4         -0.2          0.0          2.4          4.9
--------------------------------------------------------------------------------------------------------------------------------------------------------

3. Impact of the Proposed Update to the Outlier Threshold Amount
    In the FY 2009 IRF PPS final rule (73 FR 46370), we used FY 2007 
patient-level claims data (the best, most complete data available at 
that time) to set the outlier threshold amount for FY 2009 so that 
estimated outlier payments would equal 3 percent of total estimated 
payments for FY 2009. For this proposed rule, we are proposing to 
update our analysis using more current FY 2007 data. Using the updated 
FY 2007 data, we now estimate that IRF outlier payments, as a 
percentage of total estimated payments for FY 2010, decreased from 3 
percent using the FY 2007 data to approximately 2.8 percent using the 
updated FY 2007 data. As a result, we are proposing to adjust the 
outlier threshold amount for FY 2010 to $9,976, reflecting total 
estimated outlier payments equal to 3 percent of total estimated 
payments in FY 2010.
    The impact of the proposed update to the outlier threshold amount 
(as shown in column 4 of Table 7) is to increase estimated overall 
payments to IRFs by 0.2 percent. We do not estimate that any group of 
IRFs would experience a decrease in payments from this proposed update. 
We estimate the largest increase in payments to be a 0.8 percent 
increase in estimated payments to rural IRF's in the Pacific region.
4. Impact of the Proposed Market Basket Update to the IRF PPS Payment 
Rates
    The proposed market basket update to the IRF PPS payment rates is 
presented in column 5 of Table 7. In the aggregate the proposed update 
would result in a 2.4 percent increase in overall estimated payments to 
IRFs.
5. Impact of the Proposed CBSA Wage Index and Labor-Related Share
    In column 6 of Table 7, we present the effects of the proposed 
budget neutral update of the wage index and labor-related share. In the 
aggregate and for all urban IRFs, we do not estimate that these 
proposed changes would affect

[[Page 21079]]

overall estimated payments to IRFs. However, we estimate that these 
proposed changes would have small distributional effects. We estimate a 
0.1 percent increase in payments to rural IRFs, with the largest 
increase in payments of 1.5 percent for urban IRFs in the Pacific 
region. We estimate the largest decrease in payments from the proposed 
update to the CBSA wage index and labor-related share to be a 0.8 
percent decrease for IRFs with an intern and resident to ADC ratio 
greater than or equal to 10 percent and less than or equal to 19 
percent.
6. Impact of the Proposed Update to the CMG Relative Weights and 
Average Length of Stay Values
    In column 7 of Table 7, we present the effects of the proposed 
budget neutral update of the CMG relative weights and average length of 
stay values. In the aggregate and across all hospital groups we do not 
estimate that these proposed changes would affect overall estimated 
payments to IRFs.
7. Impact of the Proposed Update to the Rural, LIP, and Teaching Status 
Adjustment Factors
    In column 8 of Table 7, we present the effects of the proposed 
budget neutral update to the rural, LIP, and teaching status adjustment 
factors. In the aggregate, we do not estimate that these proposed 
changes would affect overall estimated payments to IRFs. However, we 
estimate that these proposed changes would have small distributional 
effects. We estimate the largest increase in payments to be a 2.4 
percent increase for IRFs with a resident to ADC ratio greater than 19 
percent. We estimate the largest decrease in payments to be a 2.7 
percent decrease for rural IRFs in the East South Central region.

C. Alternatives Considered

    Because we have determined that this proposed rule would have a 
significant economic impact on IRFs and on a substantial number of 
small entities, we will discuss the alternative changes to the IRF PPS 
that we considered.
    Section 1886(j)(3)(C) of the Act requires the Secretary to update 
the IRF PPS payment rates by an increase factor that reflects changes 
over time in the prices of an appropriate mix of goods and services 
included in the covered IRF services. As noted in section V of this 
proposed rule, in the absence of statutory direction on the FY 2010 
market basket increase factor, it is our understanding that the 
Congress requires a full market basket increase factor based upon 
current data. Thus, we did not consider alternatives to updating 
payments using the estimated RPL market basket increase factor 
(currently 2.4 percent) for FY 2010.
    We considered maintaining the existing CMG relative weights and 
average length of stay values for FY 2010. However, several commenters 
on the FY 2009 IRF PPS proposed rule (73 FR 46373) suggested that the 
data that we used for FY 2009 to update the CMG relative weights and 
average length of stay values did not fully reflect recent changes in 
IRF utilization that have occurred because of changes in the IRF 
compliance percentage and the consequences of recent IRF medical 
necessity reviews. In light of recently available data and our desire 
to ensure that the CMG relative weights and average length of stay 
values are as reflective as possible of these recent changes and that 
IRF PPS payments continue to reflect as accurately as possible the 
current costs of care in IRFs, we believe that it is appropriate to 
update the CMG relative weights and average length of stay values at 
this time.
    We also considered maintaining the existing rural, LIP, and 
teaching status adjustment factors for FY 2010. However, the current 
rural, LIP, and teaching status adjustment factors are based on RAND's 
analysis of FY 2003 data, which are not reflective of recent changes in 
IRF utilization that have occurred because of changes in the IRF 
compliance percentage and the consequences of recent IRF medical 
necessity reviews. Thus, we believe that it is important to update 
these adjustment factors at this time to ensure that payments to IRFs 
reflect as accurately as possible the current costs of care in IRFs.
    In estimating the proposed updates to the rural, LIP, and teaching 
status adjustment factors, we considered either basing them on an 
analysis of FY 2007 data alone, or averaging the adjustment factors 
based on the most recent three years of data (FYs 2005, 2006, and 
2007). We decided to propose the new approach of averaging the 
adjustment factors based on the most recent three years of data to 
avoid unnecessarily large fluctuations in the adjustment factors from 
year to year, and thereby promote the consistency and predictability of 
IRF PPS payments over time. We believe that this will benefit all IRFs 
by enabling them to plan their future Medicare payments more 
accurately.
    We considered maintaining the existing outlier threshold amount for 
FY 2010. However, the proposed update to the outlier threshold amount 
would have a positive impact on IRF providers and, therefore, on small 
entities (as shown in Table 7, column 4). Further, analysis of FY 2007 
data indicates that estimated outlier payments would not equal 3 
percent of estimated total payments for FY 2010 unless we proposed to 
update the outlier threshold amount. Thus, we believe that this update 
is appropriate for FY 2010.
    In addition, we considered maintaining the existing coverage 
requirements for IRFs, without clarification. However, these coverage 
requirements have not been updated in over 20 years and no longer 
reflect current medical practice or changes that have occurred in IRF 
utilization and payments as a result of the implementation of the IRF 
PPS in 2002. We believe that the proposed clarifications would benefit 
IRFs and Medicare's contractors (including fiscal intermediaries, 
Medicare Administrative Contractors, and Recovery Audit Contractors) by 
promoting a more consistent understanding of CMS's IRF coverage 
policies among stakeholders, thereby leading to fewer disputed IRF 
claims denials.
    Finally, we considered maintaining our current policy of requiring 
that an IRF's Medicare Part A inpatient population consist of at least 
50 percent or more of the facility's total inpatient population before 
the presumptive methodology can be used to calculate the IRF's 
compliance percentage under the 60 percent rule. However, increasing 
numbers of Medicare beneficiaries in many areas of the country have 
been enrolling in Medicare Advantage (MA) plans rather than remaining 
in the traditional Medicare Part A fee-for-service program. This, in 
turn, has led to decreases in the number of Medicare Part A fee-for-
service inpatients in certain IRFs across the country and has resulted 
in a reduction in the number of IRFs that can benefit from the 
presumptive methodology. We did not anticipate this result when the 
policy was implemented. In light of these recent trends, we believe 
that it is appropriate at this time to include the Medicare Advantage 
patients in the calculations for the purposes of using the presumptive 
methodology to determine IRFs' compliance with the 60 percent rule 
requirements.

D. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 8 below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the

[[Page 21080]]

provisions of this proposed rule. This table provides our best estimate 
of the increase in Medicare payments under the IRF PPS as a result of 
the proposed changes presented in this proposed rule based on the data 
for 1,205 IRFs in our database. All estimated expenditures are 
classified as transfers to Medicare providers (that is, IRFs).

  Table 8--Accounting Statement: Classification of Estimated Expenditures, From the 2009 IRF PPS Fiscal Year to
                                          the 2010 IRF PPS Fiscal Year
----------------------------------------------------------------------------------------------------------------
                Category                                                Transfers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers.........  $150 million.
From Whom to Whom?.....................  Federal Government to IRF Medicare Providers.
----------------------------------------------------------------------------------------------------------------

E. Conclusion

    Overall, the estimated payments per discharge for IRFs in FY 2010 
are projected to increase by 2.6 percent, compared with those in FY 
2009, as reflected in column 9 of Table 7. IRF payments are estimated 
to increase 2.8 percent in urban areas and 0.7 percent in rural areas, 
per discharge compared with FY 2009. Payments to rehabilitation units 
in urban areas are estimated to increase 2.9 percent per discharge. 
Payments to rehabilitation freestanding hospitals in urban areas are 
estimated to increase 2.8 percent per discharge. Payments to 
rehabilitation units in rural areas are estimated to increase 0.8 
percent per discharge, while payments to freestanding rehabilitation 
hospitals in rural areas are estimated to increase 0.3 percent per 
discharge.
    Overall, the largest payment increase is estimated at 4.9 percent 
for IRFs with a resident to ADC ratio greater than 19 percent. Rural 
IRFs in the East South Central region are estimated to have a decrease 
of 0.4 percent in payments.
    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.

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

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

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

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

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

    2. Section 412.23 is amended by--
    A. Removing paragraphs (b)(3) through (b)(7).
    B. Redesignating paragraphs (b)(8) and (b)(9) as paragraphs (b)(3) 
and (b)(4).
    C. Revising newly redesignated paragraph (b)(4).
    The revision reads as follows:


Sec.  412.23  Excluded hospitals: Classifications.

* * * * *
    (b) * * *
    (4) For cost reporting periods beginning on or after October 1, 
1991, if a hospital is excluded from the prospective payment systems 
specified in Sec.  412.1(a)(1) and is paid under the prospective 
payment system specified in Sec.  412.1(a)(3) for a cost reporting 
period under paragraph (b)(3) of this section, but the inpatient 
population it actually treated during that period does not meet the 
requirements of paragraph (b)(2) of this section, we adjust payments to 
the hospital retroactively in accordance with the provisions in Sec.  
412.130.
* * * * *
    3. Section 412.29 is amended by--
    A. Revising the section heading.
    B. Revising the introductory text.
    C. Revising paragraphs (a) through (d).
    D. Removing paragraph (e).
    E. Redesignating paragraph (f) as paragraph (e).
    F. Revising newly redesignated paragraph (e).
    The revisions read as follows:


Sec.  412.29  Excluded rehabilitation hospitals and units: Additional 
requirements.

    In order to be excluded from the prospective payment systems 
described in Sec.  412.1(a)(1) and to be paid under the prospective 
payment system specified in Sec.  412.1(a)(3), a rehabilitation 
hospital or a rehabilitation unit, collectively referred to as 
``inpatient rehabilitation facilities,'' must meet the following 
requirements:
    (a) Provide rehabilitation nursing, physical therapy, occupational 
therapy, plus, as needed, speech-language pathology, social services, 
psychological services, and prosthetic and orthotic services that--
    (1) Are ordered by a rehabilitation physician; that is, a licensed 
physician with specialized training and experience in rehabilitation.
    (2) Require the care of skilled professionals, such as 
rehabilitation nurses, physical therapists, occupational therapists, 
speech-language pathologists, prosthetists, orthotists, and 
neuropsychologists.
    (b) Inpatient Rehabilitation Facility Admission Requirements:
    (1) The facility must ensure that each patient it admits meets the 
following requirements at the time of admission--
    (i) Requires the active and ongoing therapeutic intervention of at 
least two therapy disciplines (physical therapy, occupational therapy, 
speech-language pathology, or prosthetics/orthotics therapy), one of 
which must be physical or occupational therapy.
    (ii) Generally requires and can reasonably be expected to actively 
participate in at least 3 hours of therapy (physical therapy, 
occupational therapy, speech-language pathology, or prosthetics/
orthotics therapy) per day at least 5 days per week and is expected to 
make measurable improvement that will be of practical value to improve 
the patient's functional capacity or adaptation to impairments. The 
required therapy treatments must begin within 36 hours after the 
patient's admission to the IRF.
    (iii) Is sufficiently stable at the time of admission to the IRF to 
be able to actively participate in an intensive rehabilitation program.
    (iv) Requires physician supervision by a rehabilitation physician, 
as defined in subsection (a)(1), or other licensed treating physician 
with specialized training and experience in inpatient rehabilitation. 
Generally, the requirement for medical supervision means that the 
rehabilitation physician

[[Page 21081]]

must conduct fact-to-face visits with the patient at least 3 days per 
week throughout the patient's stay in the IRF to assess the patient 
both medically and functionally, as well as to modify the course of 
treatment as needed to maximize the patient's capacity to benefit from 
the rehabilitation process.
    (2) The facility must have and utilize a thorough preadmission 
screening process for each potential patient that meets the following 
criteria:
    (i) It is conducted by a qualified clinician(s) designated by a 
rehabilitation physician described in paragraph (a)(1) of this section 
within the 48 hours immediately preceding the IRF admission.
    (ii) It includes a detailed and comprehensive review of each 
prospective patient's condition and medical history.
    (iii) It serves as the basis for the initial determination of 
whether or not the patient meets the IRF admission requirements in 
paragraph (b) of this section.
    (iv) It is used to inform a rehabilitation physician who reviews 
and documents his or her concurrence with the findings and results of 
the preadmission screening.
    (v) It is retained in the patient's medical record.
    (c) Post-Admission Requirements:
    (1) Post-Admission Evaluation. The facility must have and utilize a 
post-admission evaluation process in which a rehabilitation physician 
completes a post-admission evaluation for each patient within 24 hours 
of that patient's admission to the IRF facility in order to document 
the patient's status on admission to the IRF, compare it to that noted 
in the preadmission screening documentation, and begin development of 
the overall individualized plan of care. This post-admission physician 
evaluation is to be retained in the patient's medical record.
    (2) Individualized Overall Plan of Care. The facility shall ensure 
that:
    (i) An individualized overall plan of care is developed by a 
rehabilitation physician with input from the interdisciplinary team 
within 72 hours of the patient's admission to the IRF.
    (ii) The individualized overall plan of care is retained in the 
patient's medical record.
    (d) Interdisciplinary Team. The facility shall ensure that each 
patient's treatment is managed using a coordinated interdisciplinary 
team approach to treatment.
    (1) At a minimum, the interdisciplinary team is to be led by a 
rehabilitation physician and further consist of a registered nurse with 
specialized training or experience in rehabilitation; a social worker 
or case manager (or both); and a licensed or certified therapist from 
each therapy discipline involved in treating the patient. All team 
members must have current knowledge of the patient's medical and 
functional status.
    (2) The team must meet at least once per week throughout the 
duration of the patient's stay to implement appropriate treatment 
services; review the patient's progress toward stated rehabilitation 
goals; identify any problems that could impede progress towards those 
goals; and, where necessary, reassess previously established goals in 
light of impediments, revise the treatment plan in light of new goals, 
and monitor continued progress toward those goals.
    (3) The rehabilitation physician must document concurrence with all 
decisions made by the interdisciplinary team at each team meeting.
    (e) Director of Rehabilitation. The IRF must have a director of 
rehabilitation who--
    (1) In a rehabilitation hospital provides services to the hospital 
and its inpatients on a full-time basis, or
    (2) In a rehabilitation unit, provides services to the unit and to 
its inpatients for at least 20 hours per week; and
    (3) Meets the definition of a physician as set forth in Section 
1861(r) of the Act; and,
    (4) Has had, after completing a one-year hospital internship, at 
least two years of training or experience in the medical management of 
inpatients requiring rehabilitation services.
    4. Section 412.30 is amended by--
    A. Revising the section heading.
    B. Adding new introductory text.
    The revision and addition read as follows:


Sec.  412.30  Exclusion of new and converted rehabilitation units and 
expansion of units already excluded.

    In order to be excluded from the prospective payment systems 
described in Sec.  412.1(a)(1) and to be paid under the prospective 
payment system specified in Sec.  412.1(a)(3), a new rehabilitation 
unit must meet either the requirements for a new unit under Sec.  
412.30(b) or a converted unit under Sec.  412.30(c).
* * * * *

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

    5. Section 412.604 is amended by revising paragraph (c) to read as 
follows:


Sec.  412.604  Conditions for payment under the prospective payment 
system for inpatient rehabilitation facilities.

* * * * *
    (c) Completion of patient assessment instrument. For each Medicare 
Part A fee-for-service patient admitted to or discharged from an IRF on 
or after January 1, 2002, the inpatient rehabilitation facility must 
complete a patient assessment instrument in accordance with Sec.  
412.606. IRFs must also complete a patient assessment instrument in 
accordance with Sec.  412.606 for each Medicare Part C (Medicare 
Advantage) patient admitted to or discharged from an IRF on or after 
October 1, 2009.
* * * * *
    6. Section 412.606 is amended by--
    A. Revising paragraph (b) introductory text.
    B. Revising paragraph (c)(1).
    The revisions read as follows:


Sec.  412.606  Patient Assessments.

* * * * *
    (b) Patient assessment instrument. An inpatient rehabilitation 
facility must use the CMS inpatient rehabilitation facility patient 
assessment instrument to assess Medicare Part A fee-for-service and 
Medicare Part C (Medicare Advantage) inpatients who--
* * * * *
    (c) * * *
    (1) A clinician of the inpatient rehabilitation facility must 
perform a comprehensive, accurate, standardized, and reproducible 
assessment of each Medicare Part A fee-for-service inpatient using the 
inpatient rehabilitation facility patient assessment instrument 
specified in paragraph (b) of this section as part of his or her 
patient assessment in accordance with the schedule described in Sec.  
412.610. IRFs must also complete a patient assessment instrument in 
accordance with Sec.  412.606 for each Medicare Part C (Medicare 
Advantage) patient admitted to or discharged from an IRF on or after 
October 1, 2009.
* * * * *
    7. Section 412.610 is amended by--
    A. Revising paragraph (a).
    B. Revising paragraph (b).
    C. Revising paragraph (c) introductory text.
    D. Revising paragraph (c)(1)(i)(A).
    E. Revising paragraph (c)(2)(ii)(B).
    F. Revising paragraph (f).
    The revisions read as follows:


Sec.  412.610  Assessment schedule.

    (a) General. For each Medicare Part A fee-for-service or Medicare 
Part C (Medicare Advantage) inpatient, an inpatient rehabilitation 
facility must complete a patient assessment instrument as specified in 
Sec.  412.606 that covers a time period that is in accordance with the 
assessment

[[Page 21082]]

schedule specified in paragraph (c) of this section.
    (b) Starting the assessment schedule day count. The first day that 
the Medicare Part A fee-for-service or Medicare Part C (Medicare 
Advantage) inpatient is furnished Medicare-covered services during his 
or her current inpatient rehabilitation facility hospital stay is 
counted as day one of the patient assessment schedule.
    (c) Assessment schedules and references dates. The inpatient 
rehabilitation facility must complete a patient assessment instrument 
upon the Medicare Part A fee-for-service or Medicare Part C (Medicare 
Advantage) patient's admission and discharge as specified in paragraphs 
(c)(1) and (c)(2) of this section.
    (1) * * *
    (i) * * *
    (A) Time period is a span of time that covers calendar days 1 
through 3 of the patient's current Medicare Part A fee-for-service or 
Medicare Part C (Medicare Advantage) hospitalization;
* * * * *
    (2) * * *
    (ii) * * *
    (B) The patient stops being furnished Medicare Part A fee-for-
service or Medicare Part C (Medicare Advantage) inpatient 
rehabilitation services.
* * * * *
    (f) Patient assessment instrument record retention. An inpatient 
rehabilitation facility must maintain all patient assessment data sets 
completed on Medicare Part A fee-for-service patients within the 
previous 5 years and Medicare Part C (Medicare Advantage) patients 
within the previous 10 years either in a paper format in the patient's 
clinical record or in an electronic computer file format that the 
inpatient rehabilitation facility can easily obtain and produce upon 
request to CMS or its contractors.
    8. Section 412.614 is amended by--
    A. Revising paragraph (a) introductory text.
    B. Removing paragraph (a)(3).
    C. Revising paragraph (b)(1).
    D. Revising paragraph (d).
    E. Revising paragraph (e).
    The revisions read as follows:


Sec.  412.614  Transmission of patient assessment data.

    (a) Data format; General rule. The inpatient rehabilitation 
facility must encode and transmit data for each Medicare Part A fee-
for-service and Medicare Part C (Medicare Advantage) inpatient--
* * * * *
    (b) * * *
    (1) Electronically transmit complete, accurate, and encoded data 
from the patient assessment instrument for each Medicare Part A fee-
for-service and Medicare Part C (Medicare Advantage) inpatient to our 
patient data system in accordance with the data format specified in 
paragraph (a) of this section; and
* * * * *
    (d) Consequences of failure to submit complete and timely IRF-PAI 
data, as required under paragraph (c) of this section.
    (1) Medicare Part A fee-for-service data.
    (i) We assess a penalty when an inpatient rehabilitation facility 
does not transmit all of the required data from the patient assessment 
instrument for its Medicare Part A fee-for-service patients to our 
patient data system in accordance with the transmission timeline in 
paragraph (c) of this section.
    (ii) If the actual patient assessment data transmission date for a 
Medicare Part A fee-for-service patient is later than 10 calendar days 
from the transmission date specified in paragraph (c) of this section, 
the patient assessment data is considered late and the inpatient 
rehabilitation facility receives a payment rate than is 25 percent less 
than the payment rate associated with a case-mix group.
    (2) Medicare Part C (Medicare Advantage) data. Failure of the 
inpatient rehabilitation facility to transmit all of the required 
patient assessment instrument data for its Medicare Part C (Medicare 
Advantage) patients to our patient data system in accordance with the 
transmission timeline in paragraph (c) of this section will result in a 
forfeiture of the facility's ability to have any of its Medicare Part C 
(Medicare Advantage) data used in the calculations for determining the 
facility's compliance with the regulations in Sec.  412.23(b)(2).
    (e) Exemption to the consequences for transmitting the IRF-PAI data 
late. CMS may waive the consequences of failure to submit complete and 
timely IRF-PAI data specified in paragraph (d) of this section when, 
due to an extraordinary situation that is beyond the control of an 
inpatient rehabilitation facility, the inpatient rehabilitation 
facility is unable to transmit the patient assessment data in 
accordance with paragraph (c) of this section. Only CMS can determine 
if a situation encountered by an inpatient rehabilitation facility is 
extraordinary and qualifies as a situation for waiver of the penalty 
specified in paragraph (d)(1)(ii) of this section or for waiver of the 
forfeiture specified in paragraph (d)(2) of this section. An 
extraordinary situation may be due to, but is not limited to, fires, 
floods, earthquakes, or similar unusual events that inflect extensive 
damage to an inpatient facility. An extraordinary situation may be one 
that produces a data transmission problem that is beyond the control of 
the inpatient rehabilitation facility, as well as other situations 
determined by CMS to be beyond the control of the inpatient 
rehabilitation facility. An extraordinary situation must be fully 
documented by the inpatient rehabilitation facility.
    9. Section 412.618 is amended by revising the introductory text to 
read as follows.


Sec.  412.618  Assessment process for interrupted stays.

    For purposes of the patient assessment process, if a Medicare Part 
A fee-for-service or Medicare Part C (Medicare Advantage) patient has 
an interrupted stay, as defined under Sec.  412.602, the following 
applies:
* * * * *

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

    Dated: March 11, 2009.
Charlene Frizzera,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: April 16, 2009.
Charles E. Johnson,
Acting Secretary.
    The following addendum will not appear in the Code of Federal 
Regulations.

Addendum

    In this addendum, we provide the wage index tables referred to 
throughout the preamble to this proposed rule. The tables presented 
below are as follows:
    Table 1--Proposed Inpatient Rehabilitation Facility Wage Index for 
Urban Areas for Discharges Occurring from October 1, 2009 through 
September 30, 2010
    Table 2--Proposed Inpatient Rehabilitation Facility Wage Index for 
Rural Areas for Discharges Occurring from October 1, 2009 through 
September 30, 2010.
BILLING CODE 4120-01-P

[[Page 21083]]

[GRAPHIC] [TIFF OMITTED] TP06MY09.000


[[Page 21084]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.001


[[Page 21085]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.002


[[Page 21086]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.003


[[Page 21087]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.004


[[Page 21088]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.005


[[Page 21089]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.006


[[Page 21090]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.007


[[Page 21091]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.008


[[Page 21092]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.009


[[Page 21093]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.010


[[Page 21094]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.011


[[Page 21095]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.012


[[Page 21096]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.013


[[Page 21097]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.014


[[Page 21098]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.015


[[Page 21099]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.016


[[Page 21100]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.017


[[Page 21101]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.018


[[Page 21102]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.019


[[Page 21103]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.020


[[Page 21104]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.021


[[Page 21105]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.022


[[Page 21106]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.023


[[Page 21107]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.024


[[Page 21108]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.025


[[Page 21109]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.026


[[Page 21110]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.027


[[Page 21111]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.028


[[Page 21112]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.029


[[Page 21113]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.030


[[Page 21114]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.031


[[Page 21115]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.032


[[Page 21116]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.033


[[Page 21117]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.034


[[Page 21118]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.035


[[Page 21119]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.036


[[Page 21120]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.037


[[Page 21121]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.038


[[Page 21122]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.039


[[Page 21123]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.040


[[Page 21124]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.041


[[Page 21125]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.042


[[Page 21126]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.043


[[Page 21127]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.044


[[Page 21128]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.045


[[Page 21129]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.046


[[Page 21130]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.047


[[Page 21131]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.048


[[Page 21132]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.049


[[Page 21133]]


[GRAPHIC] [TIFF OMITTED] TP06MY09.050

[FR Doc. E9-10078 Filed 4-28-09; 4:15 pm]
BILLING CODE 4120-01-C